A.P. Microeconomics Vesper - 2011

A.P. Microeconomics Vesper - 2011

Unit IV Exam

Multiple Choice

Identify the letter of the choice that best completes the statement or answers the question.

____ 1. Explicit costs

a. / do not require an outlay of money by the firm.
b. / enter into the accountant's measurement of a firm's profit.
c. / enter into the economist's measurement of a firm's profit.
d. / Both b and c are correct.

____ 2. A certain firm manufactures and sells computer chips. Last year it sold 2 million chips at a price of $10 per chip. For last year, the firm's

a. / accounting profit amounted to $20 million.
b. / economic profit amounted to $20 million.
c. / total revenue amounted to $20 million.
d. / explicit costs amounted to $20 million.

____ 3. Jane decides to open her own business and earns $50,000 in accounting profit the first year. When deciding to open her own business she turned down three separate job offers with annual salaries of $30,000, $40,000, and $45,000. What is Jane's economic profit from running her own business?

a. / $-65,000
b. / $5,000
c. / $10,000
d. / $20,000

____ 4. The marginal product of labor can be defined as

a. / change in profit/change in labor.
b. / change in output/change in labor.
c. / change in labor/change in output.
d. / change in labor/change in total cost.

Figure 13-1

The figure below depicts a production function for a firm that produces cookies.

____ 5. Refer to Figure 13-1. With regard to cookie production, the figure implies

a. / diminishing marginal product of workers.
b. / diminishing marginal cost of cookie production.
c. / decreasing cost of cookie production.
d. / increasing marginal product of workers.

____ 6. Assume a certain firm regards the number of workers it employs as variable, and that it regards the size of its factory as fixed. This assumption is often realistic

a. / in the short run, but not in the long run.
b. / in the long run, but not in the short run.
c. / both in the short run and in the long run.
d. / neither in the short run nor in the long run.

Table 13-1

Number of Workers / Total Output / Marginal Product
0 / 0 / --
1 / 30
2 / 40
3 / 50
4 / 40
5 / 30

____ 7. Refer to Table 13-1. What is total output when 4 workers are hired?

a. / 30
b. / 40
c. / 120
d. / 160

Figure 13-3

____ 8. Refer to Figure 13-3. In this diagram, the shift in the total product curve represents an increase in the firm's

a. / costs of production.
b. / productivity.
c. / diseconomies.
d. / market share.

____ 9. The average fixed cost curve

a. / always declines with increased levels of output.
b. / always rises with increased levels of output.
c. / declines as long as it is above marginal cost.
d. / declines as long as it is below marginal cost.

____ 10. Which of the following is not a property of a firm's cost curves?

a. / Marginal cost must eventually rise as a result of diminishing marginal product.
b. / Average total cost is U-shaped.
c. / Economies of scale will exist when average total cost falls as output rises.
d. / Average total cost will cross marginal cost at the minimum of marginal cost.

Table 13-8

Quantity
of
gigaplots / Fixed
Cost / Variable Cost / Total
Cost / Average Fixed
Cost / Average Variable Cost / Average
Total
Cost / Marginal Cost
1 / $13 / $38
2 / $28
3 / $70
4 / $64
5 / $110
6 / $108
7 / $133
8 / $185

____ 11. Refer to Table 13-8. What is the fixed cost of production at Jimmy's Gigaplot factory?

a. / $12
b. / $20
c. / $25
d. / More information is needed.

____ 12. Refer to Table 13-8. What is the total cost of producing 2 gigaplots at Jimmy's Gigaplot factory?

a. / $48
b. / $53
c. / $58
d. / $62

____ 13. Refer to Table 13-8. What is the average variable cost of producing 6 gigaplots at Jimmy's Gigaplot factory?

a. / $16
b. / $17
c. / $18
d. / $19

____ 14. Refer to Table 13-8. What is the average fixed cost of producing 8 gigaplots at Jimmy's Gigaplot factory?

a. / $2.12
b. / $3.13
c. / $20.00
d. / $24.37

____ 15. Refer to Table 13-8. What is the average total cost of producing 2 gigaplots at Jimmy's Gigaplot factory?

a. / $14.00
b. / $18.50
c. / $22.50
d. / $26.50

____ 16. Refer to Table 13-8. What is the marginal cost of the 2nd gigaplot at Jimmy's Gigaplot factory?

a. / $14
b. / $15
c. / $28
d. / $34

____ 17. If marginal cost is greater than average total cost then

a. / profits are increasing.
b. / economies of scale are becoming greater.
c. / average total cost remains constant.
d. / average total cost is increasing.

____ 18. Given the cost curves shown in the diagram below, the efficient scale of production occurs at point

a. / A.
b. / B.
c. / C.
d. / D.

Figure 13-8

The figure below depicts average total cost functions for a firm that produces automobiles.

____ 19. Refer to Figure 13-8. Which curve represents the long-run average total cost?

a. / ATCA
b. / ATCB
c. / ATCC
d. / ATCD

____ 20. Refer to Figure 13-8. In the long run, the firm can operate on which of the following average total cost curves?

a. / ATCA
b. / ATCB
c. / ATCC
d. / All of the above are correct.

____ 21. Refer to Figure 13-8. This firm experiences diseconomies of scale at what output levels?

a. / output levels above N
b. / output levels between M and N
c. / output levels below M
d. / All of the above are correct, if the firm is operating in the long run.

____ 22. Refer to Figure 13-8. At levels of output below M the firm experiences

a. / economies of scale.
b. / diseconomies of scale.
c. / economic profit.
d. / accounting profit.

____ 23. Which of the following is NOT a characteristic of a perfectly competitive market?

a. / Firms are price takers.
b. / Firms have difficulty entering the market.
c. / There are many sellers in the market.
d. / Goods offered for sale are largely the same.

____ 24. When a profit-maximizing firm in a competitive market has zero economic profit, accounting profit

a. / is negative (accounting losses).
b. / is positive.
c. / is also zero.
d. / could be positive, negative or zero.

Table 14-2

The following table presents cost and revenue information for Soper’s Port Vineyard.

COSTS / REVENUES
Quantity Produced / Total
Cost / Marginal
Cost / Quantity Demanded / Price / Total
Revenue / Marginal Revenue
0 / 100 / -- / 0 / 120 / --
1 / 150 / 1 / 120
2 / 202 / 2 / 120
3 / 257 / 3 / 120
4 / 317 / 4 / 120
5 / 385 / 5 / 120
6 / 465 / 6 / 120
7 / 562 / 7 / 120
8 / 682 / 8 / 120

____ 25. Refer to Table 14-2. Consumers are willing to pay $120 per unit of port wine. What is the total revenue from selling 7 units?

a. / $120
b. / $700
c. / $820
d. / $840

____ 26. Refer to Table 14-2. Consumers are willing to pay $120 per unit of port wine. What is Soper's Port Vineyard's economic profit at their profit maximizing point?

a. / $78
b. / $243
c. / $278
d. / $375

____ 27. As a general rule, profit-maximizing producers in a competitive market produce output at a point where

a. / marginal cost is increasing.
b. / marginal cost is decreasing.
c. / marginal revenue is increasing.
d. / price is less than marginal revenue.

Figure 14-4

The figure below depicts the cost structure of a firm in a competitive market.

____ 28. Refer to Figure 14-4. At what quantity will cause firms in the market to exit?

a. / Q1
b. / Q2
c. / Q3
d. / Q4

____ 29. Which of these curves is the competitive firm's short-run supply curve?

a. / The average variable cost curve above marginal cost.
b. / The average total cost curve above marginal cost.
c. / The marginal cost curve above average variable cost.
d. / The average fixed cost curve.

____ 30. Which of the following represents the firm's short-run condition for shutting down?

a. / Shut down if TR < TC
b. / Shut down if TR < FC
c. / Shut down if P < ATC
d. / Shut down if TR < VC

Figure 14-7

____ 31. Refer to Figure 14-7. When the market is in long-run equilibrium at point A in panel (b), the firm represented in panel (a) will

a. / have a zero economic profit.
b. / have a negative accounting profit.
c. / exit the market.
d. / choose to increase production to increase profit.

____ 32. Refer to Figure 14-7. After the market returned to its long-run equilibrium state, what point reprsents the new price in panel (b).

a. / A
b. / B
c. / C
d. / D

____ 33. Natural monopolies differ from other forms of monopoly because they

a. / are not subject to barriers to entry.
b. / are not regulated by government.
c. / generally don't make a profit.
d. / are generally not worried about competition eroding their monopoly position in the market.

____ 34. When a firm operates under conditions of monopoly, its price is

a. / not constrained.
b. / constrained by marginal cost.
c. / constrained by demand.
d. / constrained only by its social agenda.

____ 35. When a monopolist decreases the price of its good, consumers

a. / continue to buy the same amount.
b. / buy more.
c. / buy less.
d. / may buy more or less, depending on the price elasticity of demand.

____ 36. The following table gives information on the price, quantity, and total cost of production for a monopolist. How much profit will the firm earn at the profit-maximizing price?

P / Q / TC
5 / 0 / 3
4 / 5 / 8
3 / 10 / 18
2 / 15 / 33
1 / 20 / 53
0 / 25 / 78
a. / $9
b. / $12
c. / $15
d. / $18

____ 37. The economic inefficiency of a monopolist can be measured by the

a. / number of consumers who are unable to purchase the product because of its high price.
b. / excess profit generated by monopoly firms.
c. / poor quality of service offered by monopoly firms.
d. / deadweight loss.

Figure 15-5

The figure below depicts the demand, marginal revenue and marginal cost curves of a profit-maximizing monopolist.

____ 38. Refer to Figure 15-5. Which area represents the total surplus lost due to monopoly pricing?

a. / Triangle bde.
b. / Triangle bge.
c. / Rectangle acdb.
d. / Rectangle cfgd.

____ 39. Antitrust laws may

a. / enhance the ability of firms to capture profits from a concentration of market power.
b. / enhance the ability of firms to reduce economic losses.
c. / restrict the ability of firms to operate at the socially efficient level of production.
d. / restrict the ability of firms to merge.

____ 40. If a monopolist is able to perfectly price discriminate,

a. / consumer surplus is always increased.
b. / total surplus is always decreased.
c. / consumer surplus and deadweight losses are transformed into monopoly profits.
d. / the price effect dominates the output effect on monopoly revenue.

____ 41. An oligopoly is a market in which

a. / there are only a few sellers, each offering a product similar or identical to the products offered by other firms in the market.
b. / firms are price takers.
c. / the actions of one seller in the market have no impact on the other sellers' profits.
d. / there are many price-taking firms, each offering a product similar or identical to the products offered by other firms in the market.

Table 16-4

Imagine a small town in which only two residents, Tony and Jill, own wells that produce safe drinking water. Each week Tony and Jill work together to decide how many gallons of water to pump, to bring the water to town, and to sell it at whatever price the market will bear. To keep things simple, suppose that Tony and Jill can pump as much water as they want without cost so that the marginal cost of water equals zero.

The weekly town demand schedule and total revenue schedule for water is shown in the table below.

Weekly
Quantity
(in gallons) / Price / Weekly
Total Revenue
(and Total Profit)
0 / $12 / $ 0
10 / 11 / 110
20 / 10 / 200
30 / 9 / 270
40 / 8 / 320
50 / 7 / 350
60 / 6 / 360
70 / 5 / 350
80 / 4 / 320
90 / 3 / 270
100 / 2 / 200
110 / 1 / 110
120 / 0 / 0

____ 42. Refer to Table 16-4. Since Tony and Jill operate as a profit-maximizing monopoly in the market for water, what price will they charge for water?