Quiz 5 - Key
1. In the short run, ________ factors of production are fixed, while in the long run, ________ of them are.
some; none
2. A firm experiences diminishing marginal returns because
capital is a constraining mechanism in the production process.
3. Which of the following is NOT a characteristic of a perfectly competitive market?
substantial barriers to entry
4. Which of the following is true?
ΔTVC/ΔQ = MC
5. Mark's Baseballs produces baseballs. Mark's Baseballs has total fixed costs of $500. Mark's average variable cost
is $20, and his average total cost is $25. Mark is currently producing:
100 baseballs.
6. From the above cost schedule for Candy's Cakes, if Candy produces three cakes, their marginal costs are:
$25.
7. A competitive firm determines its profit maximizing level of production by setting
price equal to marginal cost.
8. Average variable cost is defined as:
total variable cost divided by quantity.
9. From the above family of average cost curves, the average variable cost curve is represented by:
curve C.
10. One can tell that the above shows short run costs because:
total costs are positive when output is zero implying fixed costs.
11. When the firm increases output and the costs rise disproportionately slower, then the long-run average cost curve
is ________ and the firm is experiencing ________.
downward sloping; economies of scale
12. A price taker is a buyer or a seller who:
takes the market price as given.
13. Diminishing marginal returns implies that:
total product is increasing at a decreasing rate.
14. Jerry's Quarry sells building stone in a perfectly competitive market. At its current level of building stone
production, Jerry's Quarry has marginal costs equal to $45, and AVC is rising. If the market price of building stone
is $50, Jerry's Quarry should:
increase its production of building stone.
15. The marginal cost curve intersects the short-run average total cost curve where:
average total costs are minimized in the short run.
16. Farmer Brown sells her wheat in a perfectly competitive market. Suppose the current market price of wheat is
$2.50 per bushel.
Farmer Brown can sell as much wheat as she likes at $2.50 per bushel.
17. The above shows the cost structure of a firm in a perfectly competitive market. If the market price is $40, the
firm's profit maximizing output level is:
900.
18. Using the above graph, if the market price is $40 and the firm is currently producing the profit maximizing
output level, the firm's profit is:
$9,000.
19. Which of the following is the best example of a competitive firm?
Wilson's apple farm in eastern Washington