Question 1

Which of the following is a variable cost in the short run?

Accepted Answer

A)   rent on the factory
B)   wages paid to factory labour
C)   interest payments on borrowed financial capital
D)   payment on the lease for factory equipment
E)   salaries paid to upper managementF) A) and C)
G) None of the above

Question 2

a) The production function depicts a relationship between which two variables? Also, draw a production function that exhibits diminishing marginal product.
b) How would a production function that exhibits decreasing marginal product affect the shape of the total cost curve? Explain or draw a graph.
c) What effect, if any, does diminishing marginal product have on the shape of the marginal cost curve?

Accepted Answer

a) The production function depicts the r...

Question 3

If the long-run market supply curve for a good is perfectly elastic, an increase in the demand for that good will, in the long run, cause

Accepted Answer

A)   an increase in the number of firms in the market but no increase in the price of the good.
B)   an increase in the price of the good and an increase in the number of firms in the market.
C)   an increase in the price of the good but no increase in the number of firms in the market.
D)   no impact on either the price of the good or the number of firms in the market.E) A) and C)
F) B) and C)

Question 4

In the long run, the competitive firm's supply curve is the

Accepted Answer

A)   entire marginal cost curve.
B)   upward-sloping portion of the average total cost curve.
C)   portion of the marginal cost curve that lies above the average total cost curve.
D)   upward-sloping portion of the average variable cost curve.
E)   portion of the marginal cost curve that lies above the average variable cost curve.F) B) and D)
G) A) and B)

Question 5

At its current level of production a profit-maximizing firm in a competitive market receives €12.50 for each unit it produces and faces an average total cost of €10. At the market price of €12.50 per unit, the firm's marginal cost curve crosses the marginal revenue curve at an output level of 1000 units. What is the firm's current profit? What is likely to occur in this market and why?

Accepted Answer

Profit per unit can be calculated as (P-...

Question 6

For a competitive firm, marginal revenue is

Accepted Answer

A)   total revenue divided by the quantity sold.
B)   equal to the quantity of the good sold.
C)   average revenue divided by the quantity sold.
D)   equal to the price of the good sold.E) A) and B)
F) None of the above

Question 7

The short-run market supply curve is more elastic than the long-run market supply curve.

Accepted Answer

A) True 
 B)False

Question 8

If a competitive firm is producing a level of output where marginal revenue exceeds marginal cost, the firm could increase profits if it

Accepted Answer

A)   decreased production.
B)   maintained production at the current level.
C)   temporarily shut down.
D)   increased production.E) None of the above
F) B) and C)

Question 9

A sunk cost is one that

Accepted Answer

A)   changes as the level of output changes in the short run.
B)   was paid in the past and will not change regardless of the present decision.
C)   should determine the rational course of action in the future.
D)   has the most impact on profit-making decisions.E) C) and D)
F) A) and B)

Question 10

A key difference between accountants and economists is their different treatment of the cost of capital. Does this cause an accountant's estimate of total costs to be higher or lower than an economist's estimate? Explain.

Accepted Answer

An accountant would not include the forg...

Question 11

Refer to data below. The average fixed cost of producing four units is ?
  Quantity of  Fixed Costs  Variable Total Costs Marginal Costs Output Costs 0€10€0110521011310184102651036\begin{array}{|c|c|c|c|c|}\hline 	ext { Quantity of } & 	ext { Fixed Costs    } & 	ext {  Variable} & 	ext { Total Costs } & 	ext {Marginal Costs  } \ 	ext {Output  } && 	ext {Costs  } \\hline 0 & € 10 & € 0 \\hline 1 & 10 & 5 \\hline 2 & 10 & 11 \\hline 3 & 10 & 18 \\hline 4 & 10 & 26 \\hline 5 & 10 & 36 \\hline\end{array} Quantity of Output 012345​ Fixed Costs €101010101010​ VariableCosts €0511182636​ Total Costs Marginal Costs ​

Accepted Answer

A)   €2.50.
B)   €5.
C)   €9
D)   €26.
E)   €40. F) B) and C)
G) B) and D)

Question 12

Why would a firm in a perfectly competitive market always choose to set its price equal to the current market price? If a firm set its price below the current market price, what effect would this have on the market?

Accepted Answer

The firm could not sell any more of its ...

Question 13

The market price in a perfectly competitive industry in short-run equilibrium is €3 and the minimum average cost for all firms is €2.50. In the long run, we would expect an increase in

Accepted Answer

A)   each firm's output.
B)   the number of firms.
C)   each firm's profit.
D)   each firm's average costs.E) A) and D)
F) A) and C)

Question 14

In the long run, if the price firms receive for their output is below their average total costs of production, some firms will exit the market.

Accepted Answer

A) True 
 B)False

Exam 6: Background to Supply: Firms in Competitive Markets

A key difference between accountants and economists is their different treatment of the cost of capital. Does this cause an accountant's estimate of total costs to be higher or lower than an economist's estimate? Explain.

Correct Answer
verified
An accountant would not include the forg...
View Answer

Correct Answer
verified
a) The production function depicts the r...
View Answer

Correct Answer
verified

Which of the following is a variable cost in the short run?

Correct Answer
verified

In the long run, the competitive firm's supply curve is the

Correct Answer
verified

If the long-run market supply curve for a good is perfectly elastic, an increase in the demand for that good will, in the long run, cause

Correct Answer
verified

A sunk cost is one that

Correct Answer
verified

The market price in a perfectly competitive industry in short-run equilibrium is €3 and the minimum average cost for all firms is €2.50. In the long run, we would expect an increase in

Correct Answer
verified

If a competitive firm is producing a level of output where marginal revenue exceeds marginal cost, the firm could increase profits if it

Correct Answer
verified

Correct Answer
verified
Profit per unit can be calculated as (P-...
View Answer

In the long run, if the price firms receive for their output is below their average total costs of production, some firms will exit the market.

Correct Answer
verified

The short-run market supply curve is more elastic than the long-run market supply curve.

Correct Answer
verified

Why would a firm in a perfectly competitive market always choose to set its price equal to the current market price? If a firm set its price below the current market price, what effect would this have on the market?

Correct Answer
verified
The firm could not sell any more of its ...
View Answer

For a competitive firm, marginal revenue is

Correct Answer
verified

Exam 6: Background to Supply: Firms in Competitive Markets

A key difference between accountants and economists is their different treatment of the cost of capital. Does this cause an accountant's estimate of total costs to be higher or lower than an economist's estimate? Explain.

Correct AnswerverifiedAn accountant would not include the forg...View AnswerShow Answer

Correct Answerverifieda) The production function depicts the r...View AnswerShow Answer

Correct AnswerverifiedShow Answer

Which of the following is a variable cost in the short run?

Correct AnswerverifiedShow Answer

In the long run, the competitive firm's supply curve is the

Correct AnswerverifiedShow Answer

If the long-run market supply curve for a good is perfectly elastic, an increase in the demand for that good will, in the long run, cause

Correct AnswerverifiedShow Answer

A sunk cost is one that

Correct AnswerverifiedShow Answer

The market price in a perfectly competitive industry in short-run equilibrium is €3 and the minimum average cost for all firms is €2.50. In the long run, we would expect an increase in

Correct AnswerverifiedShow Answer

If a competitive firm is producing a level of output where marginal revenue exceeds marginal cost, the firm could increase profits if it

Correct AnswerverifiedShow Answer

Correct AnswerverifiedProfit per unit can be calculated as (P-...View AnswerShow Answer

In the long run, if the price firms receive for their output is below their average total costs of production, some firms will exit the market.

Correct AnswerverifiedShow Answer

The short-run market supply curve is more elastic than the long-run market supply curve.

Correct AnswerverifiedShow Answer

Why would a firm in a perfectly competitive market always choose to set its price equal to the current market price? If a firm set its price below the current market price, what effect would this have on the market?

Correct AnswerverifiedThe firm could not sell any more of its ...View AnswerShow Answer

For a competitive firm, marginal revenue is

Correct AnswerverifiedShow Answer

Correct Answer
verified
An accountant would not include the forg...
View Answer

Correct Answer
verified
a) The production function depicts the r...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Profit per unit can be calculated as (P-...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The firm could not sell any more of its ...
View Answer

Correct Answer
verified