Unit 10 – Review – Answers

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Unit 10 - Review
Multiple Choice
Identify the choice that best completes the statement or answers the question.
____
1. Suppose a local floral shop has explicit costs of $200,000 per year and implicit costs of $50,000 per year. If the
store earned an economic profit of $50,000 last year, this means that the store's accounting profit equaled:
a. $10,000.
b. $50,000.
c. $100,000.
d. $200,000.
e. $100,000.
____
2. Suppose Eastland College does not hold summer classes but could rent out the campus to various summer sports
camps for $100,000. The potential revenue of the summer camps represents a(n):
a. normal profit.
b. explicit cost.
c. total cost.
d. sunk cost.
e. implicit cost of capital.
____
3. Pauli's Pizza offers the following prices: one slice for $2, two slices for $3.50, three slices for $4.50, four slices
for $5.00. Sal orders two slices. From this we know that Sal's marginal benefit from the second slice must be at
least ________ while the marginal benefit from the third slice must be less than ________.
a. $3.50; $4.50
b. $3.50; $1.00
c. $1.50; $1.00
d. $1.50; $4.50
e. $5.50; $10.50
Sigmund tutors five students for the introductory psychology class. The
students differ in their willingness to pay for a one-hour session. The
second column of the table shows their willingness to pay. Sigmund has
estimated his costs of providing tutoring hours
(he has no sunk costs) and these costs appear in the last column.
Students'
Hours of
Sigmund's
Student
Willingness to Pay
Tutoring
Cost
Peter
$25
1
$5
Quincy
15
2
10
Rosemary
5
3
15
Sally
20
4
20
Tomas
10
5
25
Table 53-2: Tutoring
____
4. (Table 53-2: Tutoring) Sigmund faces:
a. increasing marginal benefit.
b. constant marginal benefit.
c. increasing marginal cost.
d. decreasing marginal cost.
e. constant marginal cost.
____
5. (Table 53-2: Tutoring) Sigmund's optimal number of tutoring hours is:
a. 5.
b. 4.
c. 3.
d. 2.
e. 1.
____
6. To determine the quantity of any activity that will maximize total net benefit, economists employ the ________
rule.
a. average decision rule
b. total decision rule
c. principle of marginal analysis
d. principle of average analysis
e. utility maximizing rule.
____
7. If marginal costs remain constant as output increases, this means the marginal cost curve is:
a. vertical.
b. horizontal.
c. upward-sloping.
d. downward-sloping.
e. U-shaped.
Scenario 54-1: Marginal Product of Labor
Quantity of
Labor
Marginal
Product of
Labor
0
19
1
17
2
15
3
13
4
11
5
9
6
7
7
5
8
____
8. (Scenario 54-1: Marginal Product of Labor) Using the marginal product of labor curve in the figure, the total
product of labor for five workers is:
a. 11 bushels.
b. 45 bushels.
c. 55 bushels.
d. 75 bushels.
e. 64 bushels.
Figure 54-1: Total Product
____
9. (Figure 54-1: Total Product) When hiring units of labor between zero and L1 units of labor, which of the
following statements is true?
a. The marginal product of labor is increasing.
b. The marginal product of labor is decreasing.
c. Total product is increasing at a diminishing rate.
d. Average product is decreasing.
e. Total product is increasing at a constant rate.
____ 10. You own a small deli that produces sandwiches, soups, and other items for customers in your town. Which of
the following is a decision most likely to be made in the long run at your deli?
a. You order more breadsticks from the local bakery.
b. You ask your beverage distributor to deliver more soft drinks next week.
c. You decide keep the deli open two more hours on the two busiest nights of the week.
d. You place a newspaper advertisement to attract part-time workers from the local college.
e. You renovate the second floor of your building to increase the size of the dining room.
Figure 54-2: Change in Total Product
____ 11. (Figure 54-2: Change in Total Product) The figure shows a production function changing from TP1 to TP2.
Which of the following choices is a likely cause of this shift?
a. Workers in the firm are less productive on average.
b. The firm employed more of a variable input in the short run.
c. The firm has suffered a decrease in available technology.
d. The firm employed more of a fixed input in the long run.
e. The price of employing the variable input increased.
Quantity
Total
of Land
Quantity
Product
(in hectares)
of Labor
(apples picked)
10
0
0
10
1
8
10
2
15
10
3
21
10
4
26
Table 54-5: Tonya's Production
Function for Apples
____ 12. (Table 54-5: Tonya’s Production Function for Apples) The information provided tells you that Tonya is
operating:
a. in the long run.
b. in the short run.
c. in a very expensive location.
d. at a loss.
e. with maximum efficiency.
The table describes Bonnie's production
function for Good Z. Assume labor is the only
variable input that Bonnie uses to produce
Good Z.
Quantity of
Labors Hired
(workers)
0
1
Quantity of
Good Z Produced
(per time period)
0
75
2
150
3
250
4
325
5
375
Table 54-6: Bonnie's Production
Function for Good Z
____ 13. (Table 54-6: Bonnie's Production Function for Good Z) The marginal product of labor from hiring the second
worker is ________ units of Good Z.
a. 150
b. 225
c. 75
d. 250
e. 100
Quantity
of Output
0
1
2
3
4
5
6
7
Variable Cost
VC
0
50
70
100
140
Total Cost
TC
50
100
120
150
190
240
250
300
320
370
Table 55-1: Cost Data
____ 14. (Table 55-1: Cost Data) The table shows some cost data for a firm currently operating in the short run. What is
the value of the total variable cost for this firm when the firm is producing five units of output?
a. $50
b. $240
c. $60
d. $190
e. It is impossible to determine without more information.
____ 15. Buford Bus Manufacturing installs a new assembly line. As a result, the output produced per worker increases.
The marginal cost of output at Buford:
a. will increase (the MC curve will shift upward).
b. will decrease (the MC curve will shift downward).
c. will be unchanged.
d. is at its maximum.
e. is declining and approaching zero.
____ 16. The marginal cost curve is the mirror image of the:
a. total product curve.
b. average product curve.
c. marginal product curve.
d. average total cost curve.
e. marginal utility curve.
Figure 55-2: Short-Run Costs
____ 17. (Figure 55-2: Short-Run Costs) The vertical difference between curve B and curve C at any quantity of output
is:
a. marginal cost.
b. fixed cost.
c. average fixed cost.
d. average variable cost.
e. profit.
Figure 55-3: Short-Run Costs II
____ 18. (Figure 55-3: Short-Run Costs II) Curve 1 crosses the average variable cost curve at:
a. 3 units of output.
b. approximately 5.3 units of output.
c. the minimum value of Curve 2.
d. the level of output at which diminishing marginal returns begin.
e. the level of output that corresponds to zero average fixed cost.
____ 19. (Figure 55-3: Short-Run Costs II) Curve 1 crosses the average total cost curve at:
a. the minimum value of Curve 2.
b. approximately 4.3 units of output.
c. approximately 2.8 units of output.
d. Point A.
e. the level of output that corresponds to the point of diminishing marginal returns.
____ 20. At 20 units of output, a firm finds that its average variable cost is $5 per unit and its average total cost is $8 per
unit. Therefore, its:
a. marginal cost is less than $3 per unit.
b. marginal cost is $3 per unit.
c. average fixed cost is $3 per unit.
d. total fixed cost is $300.
e. total cost is $80.
Figure 55-4: A Firm's Cost Curves
____ 21. (Figure 55-4: A Firm's Cost Curves) The curve labeled V represents the firm's ________ curve.
a. total cost
b. average total cost
c. marginal cost
d. average variable cost
e. average fixed cost
____ 22. (Figure 55-4: A Firm's Cost Curves) The curve labeled W represents the firm's ________ curve.
a. average fixed cost
b. marginal cost
c. average variable cost
d. total variable cost
e. average total cost
____ 23. A firm's total fixed cost:
a. stays constant in the short run.
b. falls as the firm produces more output in the short run.
c. falls as the firm produces more output in the long run.
d. increases as the firm produces more output.
e. is irrelevant in computing a firm’s profitability.
____ 24. As production increases and the fixed cost is divided by larger quantities of output, this leads to lower average
fixed cost. This is referred to as the ________ effect.
a. diminishing returns
b. spreading
c. constant cost
d. increasing returns
e. marginal returns
____ 25. If ATC is equal to MC, then one is operating:
a. at the minimum point of ATC.
b. on the downward-sloping portion of ATC.
c. on the upward-sloping portion of ATC.
d. at a profitable level of output.
e. at the point of diminishing marginal returns.
____ 26. The curve that illustrates the relationship between output and average total cost when fixed cost has been chosen
to minimize average total cost for each level of output is the:
a. short-run average total cost curve.
b. production possibilities curve.
c. marginal cost curve.
d. total product curve.
e. long-run average total cost curve.
____ 27. Sunk costs:
a. are not considered in marginal analysis.
b. help to determine the optimal quantity of an activity.
c. can dramatically increase marginal costs.
d. are the same as variable costs.
e. have no impact on economic profit.
____ 28. For large beer breweries, it is common for long-run average total cost to decline as output increases. This
indicates that many breweries achieve:
a. diseconomies of scale.
b. diminishing marginal returns.
c. economies of scale.
d. constant returns to scale.
e. fixed cost minimization.
Figure 56-2: Cost Curves
____ 29. (Figure 56-2: Cost Curves) If a firm currently was producing at point C on the ATC2 in the figure but anticipates
increasing output to 225,000 units in the long run, the firm will build a ________ plant and experience
________.
a. smaller; economies of scale
b. smaller; diseconomies of scale
c. larger; economies of scale
d. larger; constant returns to scale
e. larger; diseconomies of scale
____ 30. If your firm is operating in the negatively sloped portion of a long-run average total cost curve, then your
production exhibits:
a. higher wages.
b. increasing returns to scale.
c. decreasing returns to scale.
d. increased input prices.
e. inferior production technology.
____ 31. If your local government gives you the exclusive right to sell breakfast bagels in your community, your
monopoly would result from:
a. control of a scarce resource or input.
b. technological superiority.
c. increasing returns to scale.
d. government-created barriers.
e. diseconomies of scale.
____ 32. Suppose that you build a new jumbo jet that can carry five times more passengers than any other competitor.
You experience high fixed costs due to the quantity of capital used to build the jets. There's decreasing average
cost for all levels of demand. In this case, your monopoly would result from which of the following?
a. sunk costs
b. location
c. economies of scale
d. government restrictions
e. advertising
____ 33. Which of the following is not a barrier to entry?
a. control of an input essential for production
b. government-created barriers such as patents
c. a ban on certain kinds of advertising
d. the existence of significant economies of scale
e. the elimination of trade barriers such as tariffs.
____ 34. In an oligopoly:
a. there are many sellers.
b. there are no barriers to entry.
c. firms recognize their interdependence.
d. total surplus is maximized.
e. products are homogenous.
____ 35. A monopoly will have a Herfindahl-Hirschman Index (HHI) equal to about:
a. 1.
b. 100.
c. 1,000.
d. 10,000.
e. zero.
____ 36. The HHI for ________ where ________ have (has) ________ of the market is ________ .
a. monopolistic competition; four firms each; 25%; 10,000
b. oligopoly; three firms each; 50%; 5,000
c. oligopoly; two firms each; 50%; 5,000
d. monopoly; one firm; 100%; 100,000
e. perfect competition; 10,000 firms each; 0%; 10,000.
____ 37. Monopolistic competition is similar to perfect competition in that firms in both market structures:
a. are price-takers.
b. produce goods that are perfect substitutes.
c. find it beneficial to advertise.
d. can earn positive long-run economic profits.
e. do not face any barriers to entry into the industry in the long run.
____ 38. The market for dentists in most communities can be considered ________ because there are a large number of
similar, but not identical, substitutes in the market.
a. monopolistically competitive
b. a monopoly
c. perfectly competitive
d. an oligopoly
e. a regulated natural monopoly
____ 39. According to the cost-minimization rule, the firm must hire labor and capital to the point where:
a. The marginal product is equal to zero for each input.
b. The marginal product is equal for each input.
c. The marginal revenue product is equal for each input.
d. The total product is equal for each input.
e. The marginal product per dollar is equal for both inputs.
____ 40. A firm is hiring labor and capital in the cost-minimizing combination.
the firm to increase hiring capital and decrease hiring of labor?
a. Demand for the product being produced increases by 5%.
b. The price of capital and labor both increase by 5%.
c. The productivity of labor increases by 5%.
d. The price of capital increases by 5%.
e. The price of labor increases 5%.
Which of the following would cause
Unit 10 - Review
Answer Section
MULTIPLE CHOICE
1. ANS:
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22. ANS:
C
PTS:
Analytical Thinking
E
PTS:
Concept-Based
C
PTS:
Analytical Thinking
E
PTS:
Critical Thinking
A
PTS:
Critical Thinking
C
PTS:
Fact-Based
B
PTS:
Critical Thinking
D
PTS:
Critical Thinking
A
PTS:
Critical Thinking
E
PTS:
Concept-Based
D
PTS:
Critical Thinking
B
PTS:
Critical Thinking
C
PTS:
Critical Thinking
D
PTS:
Analytical Thinking
B
PTS:
Critical Thinking
C
PTS:
Fact-Based
C
PTS:
Concept-Based
A
PTS:
Concept-Based
A
PTS:
Concept-Based
C
PTS:
Analytical Thinking
C
PTS:
Concept-Based
E
PTS:
1
DIF: M
REF: Module 52/16
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REF: Module 52/16
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DIF: M
REF: Module 53/17
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REF: Module 54/18
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DIF: M
REF: Module 55/19
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Concept-Based
A
PTS:
Analytical Thinking
B
PTS:
Definitional
A
PTS:
Critical Thinking
E
PTS:
Critical Thinking
A
PTS:
Fact-Based
C
PTS:
Concept-Based
E
PTS:
Concept-Based
B
PTS:
Concept-Based
D
PTS:
Concept-Based
C
PTS:
Critical Thinking
C
PTS:
Fact-Based
C
PTS:
Definitional
D
PTS:
Analytical Thinking
C
PTS:
Analytical Thinking
E
PTS:
Concept-Based
A
PTS:
Definitional
E
PTS:
Definitional
E
PTS:
Analytical Thinking
1
DIF: M
REF: Module 55/19
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DIF: M
REF: Module 55/19
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REF: Module 55/19
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REF: Module 55/19
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DIF: M
REF: Module 56/20
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DIF: M
REF: Module 72/36
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DIF: M
REF: Module 72/36
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