ECO 6115 Final Review: Previous Exam 3

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The short run is characterized by:

At least one fixed input

The long run is characterized by:

the ability of the firm to change its plant size

The law of diminishing marginal product (or returns) indicates that:

as extra units of a variable resource are added to a fixed resource, marginal product will decline beyond some point

The average product of labor is:

total product divided by the number of workers employed

When marginal product is greater than average product, average product must be:

Rising

The first, second, and third workers employed by a firm add 24, 18, and 9 units to total product, respectively. Therefore, the:

marginal product of the second worker is 18

If in the short run a firm's total product is increasing, then its:

marginal product could be either increasing or decreasing

True or False:
Where total product is at a maximum, average product is also at a maximum

False

A fixed cost is:

any cost which does not change when the firm changes its output

If a firm wanted to know how much it would save by producing one less unit of output, it would look to:

Marginal Cost

Marginal cost:

equals both average variable cost and average total cost at their respective minimum points

When average fixed costs are falling:

average variable cost may be either rising or falling

If the level of technology used in the production of a good improves:

A given amount of inputs will yield more output
A given amount of output may be produced with fewer inputs
The total product curve will rotate upward
Total variable cost and average variable cost will be reduced at all positive levels of output

Assume a firm closes down in the short run and produces no output. As a result:

TFC and TC are positive, but TVC is zero

If the total variable cost of 9 units of output is $90 and the total variable cost of 10 units of output is $120, then:

the average variable cost of 9 units is $10

A firm's total variable cost will depend on:

The prices of its variable inputs
The production techniques that are used
The amount of output produced

Suppose that when producing 10 units of output, a firm's AVC is $22, its AFC is $5, and its MC is $30. As a result, the firm's:

total cost is $270

In the short run which of the following statements is correct?

total cost will always exceed total variable cost

As a firm produces successive units of output in the short run we would expect:

TVC to increase initially at a decreasing rate but eventually increase at an increasing rate

Other things equal, if the price(s) of a firm's variable input(s) fall(s):

marginal cost, average variable cost, and average total cost would all fall

The notion that a firm should produce that level of output such that MR=MC applies:

in both competitive and monopolistic industries

When a firm is maximizing profit it will necessarily be:

maximizing the difference between total revenue and total cost

On a per-unit basis, profit (or loss) can be determined as the difference between:

product price and average total cost

If a firm (purely competitive or monopolist) is confronted with economic losses in the short run, it will decide whether or not to produce by comparing:

price and minimum average variable cost

The market demand curve in a purely competitive industry is _________, while the demand curve to a single competitive firm is _____________.

sloping downward, perfectly elastic

If a firm in a purely competitive industry is confronted with an equilibrium price of $5, its marginal revenue:

will also be $5

The fact that a purely competitive firm's total revenue curve is linear and upward sloping implies that:

product price is constant at all levels of output

Suppose that at 500 units of output marginal revenue is equal to marginal cost. The firm is selling its output at $5 per unit and average total cost at 500 units of output is $6. On the basis of this information we:

Cannot determine whether the firm should produce or shut down in the short run

If a firm is at a break even point, the:

total revenue is equal to total cost

Suppose a firm in a purely competitive industry finds market price to be less than its minimum AVC. The firm will:

close down because its operating losses will exceed its shut-down losses at all levels of output

Suppose that at 100 units of output a firm is producing such that marginal revenue is equal to marginal cost. The firm is selling output at a price of $8 per unit and is incurring average variable costs of $5 per unit and average fixed costs of $4 per unit. On the basis of this information we can conclude that in the short run a purely competitive firm:

is operating at a loss that is less than the loss incurred by shutting down

If production is occurring where marginal cost exceeds price, the purely competitive firm will:

fail to maximize profits and inputs will be overallocated to the product

The short-run supply curve for a purely competitive FIRM is that segment of the:

marginal cost curve lying above the average variable cost curve

The short-run supply curve for a purely competitive INDUSTRY can be found by:

adding horizontally the short-run supply curves of the individual firms comprising the industry

What do economies of scale, the ownership of essential raw materials, and patents have in common?

they are all barriers to entry

Assuming that the demand curve does not shift (i.e., there are no changes in the determinants of demand), a pure monopolist:

must lower price to sell additional units of output

A profit-maximizing monopolist that sells all units of its output for a single price will set this price:

along the elastic portion of its demand curve

With respect to the pure monopolist's demand curve it can be said that:

price exceeds marginal revenue at all levels of output

The demand curve faced by a pure monopolist:

is less elastic than that faced by a single purely competitive firm

For a pure monopolist the relationship between total revenue and marginal revenue is such that:

marginal revenue is positive when total revenue is increasing but turns negative when total revenue begins to decrease

A pure monopolist that is maximizing profit will never produce in the

inelastic segment of its demand curve as it can increase total revenue and reduce total cost by increasing price

If the monopolist is operating on the inelastic segment of its demand curve, it can:

Raise total revenue by raising price
Reduce total costs by raising price
Raise profits by raising price

If a pure monopolist is producing a level of output such that P>ATC, we can conclude that:

it will be incurring a profit

If a profit maximizing monopolist's marginal revenue is $8 and its marginal cost is $6, it will increase its profits by:

reducing price and increasing output

A common mis-perception about monopolies is that:

Because of their market power they charge the highest price that they can get away with
They sell each individual unit of output at prices that maximize the profit earned on each individual unit (i.e., per-unit profit)
Because of their market power they are guaranteed a profit

Under which of the following situations would a monopolist increase profits by increasing rate:

if it discovered that it was producing where MC>MR

Price discrimination refers to:

the selling of a given product at different prices that do not reflect differences in production costs

If a monopolist is able to practice PERFECT price discrimination, then it will charge each buyer:

the maximum price each would be willing to pay

If a monopolist engages in price discrimination, we can expect:

both profits and output to increase

Children are often charged less than adults for admission to movies, theme parks, and professional sporting events. However they are charged the same prices as adults at the concession stands. This pricing arrangement occurs because

the sellers can prevent children from buying tickets for adults but cannot prevent children from buying concession items for adults

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