Econ 102

ECO102Summer2014 (online)

Exam3

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35questionsworth3pointseach+105possiblepoints(5extracreditpointsbuiltin)

 

1.Ifafirmshutsdownforaweek,duringthatweek:

A.totalcostiszero.

B.totalcostequalstotalfixedcost.

C.totalcostequalstotalvariablecost.

D.totalvariablecostexceedstotalfixedcost.

 

2.Averagefixedcost:

A.isconstantanddoesn’tvarywithoutput.

B.increasesasoutputincreases.

C.decreasesasoutputincreases.

D.equalstotalcostdividedbyoutput.

 

3.Afirmisproducing100unitsofoutputatatotalcostof400.Thefirm’saverage

variablecostis3perunit.Whatisthefirm’stotalfixedcost?

A.1

B.50

C.100

D.300

 

4.Refertothetableshown.Iftheoutputofbicyclesis4perweek,themarginalcostof

producinganotherbicycleperweekis:

A.110.

B.120.

C.130.

D.140.

 

Reference:11U9

Thefollowinggraphshowsaveragefixedcosts,averagevariablecosts,averagetotalcosts,

andmarginalcostsofproduction.

5.Refertothegraphshown.WhydoesthedistancebetweencurvesIIandIIIgetsmalleras

quantityincreases?

A.Marginalcostisincreasing.

B.Averagevariablecostisincreasing.

C.Averagefixedcostisdeclining.

D.Averagefixedcostisincreasing.

 

6.Refertothegraphshown.Averagevariablecostisminimizedwhenoutputequals:

A.12units.

B.6units.

C.21units.

D.25units.

 

7.Otherthingsbeingequal,whenaverageproductivityfalls:

A.averagefixedcostmustrise.

B.marginalcostmustrise.

C.averagetotalcostmustrise.

D.averagevariablecostmustrise.

 

8.Ifmarginalcostislessthanaveragetotalcost:

A.averagetotalcostisincreasingwithoutput.

B.averagetotalcostisdecreasingwithoutput.

C.averagevariablecostisincreasingwithoutput.

D.averagevariablecostisdecreasingwithoutput.

 

9.Diseconomiesofscaleareassociatedwith:

A.anupwardUslopinglongUrunaveragecostcurve.

B.anupwardUslopingshortUrunaveragecostcurve.

C.adownwardUslopinglongUrunaveragecostcurve.

D.adownwardUslopingshortUrunaveragecostcurve.10.Inaperfectlycompetitivemarket,firmsset:

A.pricesandquantities.

B.pricesbutnotquantities.

C.quantitiesbutnotprices.

D.neitherpricesnorquantities.

 

11.Inaperfectlycompetitivemarket,thedemandcurvefacedbyanindividualfirmis:

A.perfectlyinelastic.

B.relativelyinelastic.

C.perfectlyelastic.

D.relativelyelastic.

 

12.Aperfectlycompetitivefirm’smarginalrevenueis:

A.lessthanthesellingprice.

B.greaterthanthesellingprice.

C.equaltothesellingprice.

D.sometimesbelowandsometimesabovethesellingprice.

 

13.Ifthemarginalrevenueofthenextwidgetafirmproducesis50anditsmarginalcost

is35,afirmshould:

A.reconsiderpastproductiondecisions.

B.decreaseproduction.

C.increaseproduction.

D.holdproductionconstant.

 

14.Refertothegraphshown.Currently,ifthisperfectlycompetitivefirmismaximizing

profit,themarketpriceis:

A.6.50andmarginalrevenueforthefirmis5.00

B.5.00andmarginalrevenueforthefirmis3.00

C.5.00andmarginalrevenueforthefirmis5.00

D.6.50andmarginalrevenueforthefirmis6.50

15.Thesupplycurveofaperfectlycompetitivefirmis:

A.themarginalcostcurveonlyifpriceexceedsaveragevariablecost.

B.themarginalcostcurveonlyifpriceexceedsaveragetotalcost.

C.theaveragetotalcostcurveonlyifpriceexceedsaveragevariablecost.

D.nonexistent.

 

Reference:13U6

16.Refertothegraphshown.Whatlevelofoutputshouldtheperfectlycompetitivefirm

producetomaximizeprofits?

A.7.

B.8.

C.6.

D.4.

 

17.Thisfirmis

A.earningeconomicprofit=1,200

B.earningnormalprofit=1,200

C.earningeconomicprofit=800

D.earningnormalprofit=800

 

18.Refertothegraphshown.TotalFixedCost=

A.80

B.400

C.1600

D.800

 

 

19.Refertothegraphabove.Whatpricerepresentstheshutdownprice?

A.P1

B.P2

C.P3

D.P4

 

 

20.Refertothegraphabove.Supposethemarketpriceis4.Atthisprice,aperfectly

competitivefirmshould:

A.continuetoproduceintheshortrunbutshutdowninthelongrun.

B.continuetoproduceinboththeshortrunandthelongrun.

C.shutdownintheshortrunbutcontinueproductioninthelongrun.

D.shutdownimmediately.

 

21.Refertothefollowinggraphs.

 

 

WhichgraphdepictsaperfectlycompetitivefirminlongUrunequilibrium?

A.graphI

B.graphII

C.graphIII

D.graphIV

 

22.Theexistenceofpositiveeconomicprofitsinducesfirmsto:

A.enteranindustry,whichshiftsthemarketsupplycurvetotheleftanddecreasesmarket

price.

B.enteranindustry,whichshiftsthemarketsupplycurvetotherightandincreases

marketprice.

C.exitanindustry,whichshiftsthemarketsupplycurvetotherightanddecreasesmarket

price.

D.enteranindustry,whichshiftsthemarketsupplycurvetotherightanddecreases

marketprice.

 

 

 

23.Refertothegraphsshown,whichdepictaperfectlycompetitivemarketandfirm.If

marketdemandisD0:

A.thismarketisinlongUrunequilibriumbecausethefirmisearningpositiveeconomic

profit.

B.thismarketisinlongUrunequilibriumbecausethefirmisearningzeroeconomicprofit.

C.thismarketisinshortUrunequilibriumbutnotlongUrunequilibrium.

D.thefirmwillraisethepriceaboveP0toincreaseprofit.

 

24.Refertothegraphsshown,whichdepictaperfectlycompetitivemarketandfirm.If

marketdemandincreasesfromD0toD1,thefirmwill:

A.lowerthepriceitcharges.

B.earnnegativeeconomicprofitintheshortrun.

C.earnpositiveeconomicprofitintheshortrun.

D.earnpositiveeconomicprofitinthelongrun.

 

 

25.WiththelongUrunaveragecostcurveabove,theminimumefficientscaleofproduction

is:

A.16.

B.18to21.

C.21.

D.23.

26.Perfectlycompetitivefirms:

A.arepricetakers.

B.areindividuallyabletoinfluencethemarketprice.

C.willsucceedbychargingapricehigherthanthatchargedbytherestofthemarket.

D.caninfluencethepricesofotherfirmsinthesameindustrybyalteringtheirownprices.

 

27.TheUshapeoftheaveragetotalcostcurvereflectsthefactthat:

A.averageproductivityfallsandthenrises.

B.averageproductivityrisesandthenfalls.

C.averageproductivityisconstant.

D.marginalproductfallsandthenrises.

 

Usethefollowingtoanswerquestions28U30.ThereISenoughinformation.Theseare

difficultbecauseyoumustderiverelevantdatafromtheinformationgiven.

 

28. Refertotheabovedata.Ifproductpriceis60,thefirmwill:

A) shutdown.

B) produce4unitsandrealizea120economicprofit.

C) produce6unitsandrealizea100economicprofit.

D) produce3unitsandincura40loss.

 

29. Refertotheabovedata.Ifproductpriceis45,thefirmwill:

A) shutdown.

B) produce4unitsandrealizea120economicprofit.

C) produce5unitsandrealizea15economicprofit.

D) produce6unitsandrealizea100economicprofit.

 

30. Refertotheabovedata.Ifproductpriceis25,thefirmwill:

A) shutdownandincura90loss.

B) shutdownandincura50loss.

C) produce3unitsandincura65loss.

D) produce4unitsandrealizea10economicprofit.

Total

O u tp u t cost

0  5 0

1 9 0

2 120

3 140

4 170

5 210

6 260

7 330

31) Ifanindividualperfectlycompetitivefirmchargesapriceabovetheindustry

equilibriumprice,itwill

A)sellallthatitcanproduceandgainequalrevenuewithcompetitors.

B)sellallthatitcanproduceandgainmorerevenuethancompetitors.

C)sellpartofwhatitcanproduceandgainlessrevenuethancompetitorswill.

D)notsellanyofwhatitproduces.

 

32) Perfectlycompetitivefirms

A)sellhomogeneousproducts.

B)arepricetakers.

C)aresmallrelativetothesizeofthemarket.

D)Alloftheabovearecorrect.

 

33) Assumefirmsbreakeveninanindustry.Newfirms________attractedtotheindustry

andcurrentones________exitingit.

A)arenot;arenot

B)arenot;are

C)are;arenot

D)are;are

 

34) Firmsthatare”breakingeven”are

A)earningzeroeconomicprofits.

B)earninglessthananormalrateofreturn.

C)shuttingdownintheshortrun.

D)Alloftheabovearecorrect.

 

35) YouarehiredasaneconomicconsultanttoThePamperedPetShop.The

PamperedPetShopoperatesinaperfectlycompetitiveindustry.Thisfirmiscurrently

producingatapointwheremarketpriceequalsitsmarginalcost.TheShopʹstotalrevenue

exceedsitstotalvariablecost,butislessthanitstotalcost.Youshouldadvisethefirmto

A)ceaseproductionimmediatelybecauseitisincurringaloss.

B)loweritspricesothatitcansellmoreunitsofoutput.

C)produceintheshortruntominimizeitsloss,butexitinthelongrun.

D)raiseitspriceuntilitbreakseven.