ECON 201 Exam 4

The ______ cost of any resource used to produce a good is the value or worth the resource would have in its best alternative use
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The ______ cost of any resource used to produce a good is the value or worth the resource would have in its best alternative use
Economic
Your company's total sales revenue for the month is $150,000; the costs to produce your products are $12,000 for rent, $6,000 for utilities, and $42,000 for employee wages. What is your accounting profit?
$90,000
If economic cost is $96,000 and total revenue is $120,000, what is the economic profit?
$24,000
The size of the factory, the amount of machinery and equipment, and other capital resources define
Plant Size
Which best describes economic costs?
Payments that must be made to obtain a resource
costs are the monetary payments a firm makes to purchase resources from others
Explicit
Accounting profit is what remains after a firm has paid its _______ costs
Explicit
What is the total revenue if the economic profit is $24,000 and the economic costs are $96,000
$120,000
Which industry requires the most time for its firms to alter plant capacity
Aircraft manufacturing
True or false: Hourly labor, raw materials, and fuel are examples of resources a firm can easily adjust.
True
What is the term for the total quantity of a specific good produced?Total ProductAssuming technology and production techniques are fixed and cannot change, if beyond some point of production a firm experiences declining units of additional output with each additional unit of labor input, then the firm is experiencing the effects of the law of ______.Diminishing ReturnsWhen total product is at its maximum, marginal product is ______.ZeroWhat happens to marginal product when total product is increasing at an increasing rate?Marginal product is risingWhat is the definition of total product (TP)?The total quantity, or total output, of a particular good or service producedWhat happens to average product when marginal product exceeds it?Average product continues to rise.The law of ______ returns states that as successive units of a variable resource are added to a fixed resource, beyond some point, the marginal product will decline.DiminishingAverage product declines when ______.marginal product is less than average productWhen total product declines, marginal product ______.is negativecosts are part of the simple existence of a firm's plant and must be paid even when output is zero.FixedWhat happens to marginal product when total product is increasing but at a decreasing rate?Marginal product is positive but falling.A firm's insurance premiums are generally considered _________ costs.FixedWhat happens to average product as additional units of labor are added to a fixed plant?It increases, reaches a maximum, and then decreases.Which of the following is true where the marginal product curve intersects the average product curve?Average product is at its maximum.Which costs do not vary with changes in output?FixedA firm cannot avoid paying fixed costs in the ________ run.shortWhich group of costs is the most accurate example of variable cost?Payments for materials, fuel, power, and transportation servicesWhat happens to fixed costs when the level of production output reaches zero?They remain unchanged.Variable costs change with the level of______outputWhen output is 10, what is the total cost if total fixed cost is $50 and total variable cost is $75?$125How is average fixed cost determined?Total fixed cost divided by outputWhat is meant by the phrase "spreading the overhead"?As production increases, average fixed cost declines.Which curve first falls and then rises?Average variable cost curveWhich of the following best describes the average variable cost curve?It is U-shaped.How is marginal cost (MC) calculated?By dividing the change in total cost by the change in outputOne explanation for the U-shaped average variable cost curve is that greater ______ yields more efficiency and variable cost per unit of output declinesspecializationWhat is the marginal cost when output changes from 300 to 301 units and total cost rises from $400 to $500?$100What type of cost can be saved by not producing the last unit?MarginalA firm's decision about what output level to produce is typically a ______ decision.MarginalAn increase in the price of labor has no effect on which cost curve?Average-fixed-costWhen is marginal cost at its minimum?When marginal product is at its maximumA planning curve is another term for which of the following?Long run average-total-cost curveWhat is another term for economies of scale?Economies of mass productionEconomies of scale explain the downward-sloping part of the ______ curve.long-run average-total-costA firm grows from one to three plants. As a result, the firm's sales increase, leading to greater marketing expertise. This is an example of which of the following?Learning by doingGreater labor specialization has which of the following effects?It eliminates the loss of time that occurs whenever a worker shifts from one task to another.By expanding the size of its operations, a growing firm is able to experience economies of scale to do which of the following?Lower its average total costsWhich of the following best describes pure competition?An industry involving a very large number of firms producing identical products and in which new firms can enter or exit the industry very easily.True or false: A pure monopoly involves a very large number of firms producing a single unique product.FalseWhich market structure has the fewest obstacles to entry or exit?Pure CompetitionA purely competitive industry has a very ______ number of sellers, whereas the other three market structures reflect a progressively ______ or ______ number of sellers.large; smaller; decreasingWhich of the following is a characteristic of a monopolistically competitive market?A relatively large number of sellers producing differentiated productsWhich of the following best describes a pure monopoly?One firm selling a single unique product, where entry of additional firms is blocked and there is considerable control over priceWhich of the following best describes oligopoly?Involves only a few sellers of a standardized or differentiated product, so each firm is affected by the decisions of its rivals.______ is relatively rare in the real world, although this market model is highly ______ to several industries.Pure competition; relevantIn which market model do firms rely on product differentiation to distinguish themselves from the competition?monopolistic competitionA basic feature of the purely competitive market is the presence of ______.A large number of sellersAn oligopoly has ___ sellers and must consider the decisions of its rivals in determining its own ___ and output.few; price_______ competition is considered to be rare in the real world.PureFirms within pure competition are considered to be price _____.takersTrue or false: Firms within pure competition will produce standardized products.TrueFirms that operate in a purely competitive industry:do not differentiate their productsIn a purely competitive industry, an increase in the price of the product produced by firm A will cause buyers to ______.substitute with products of firms B, C, or DWhich of the following best describes the situation of a price-taking firm? A price-taking firm is one of a ______ number of firms producing a product that is identical to that of every other firm in the industry and providing ______ of total market supply.large; only a fractionWhich of the following market structures produces only a standardized product?A purely competitive marketIn a perfectly competitive market, the demand curve for an individual firm is perfectly _________ at the market price.elastic, horizontal, flat, constant, or fixedWhich of the following best summarizes why firms in purely competitive industries do not differentiate their products?Because there are so many of them selling a standardized productIn a purely competitive industry, buyers view the products of firms B, C, D and E as ______ for the product of firm A.Perfect substitutesIn a purely competitive market, price per unit to a buyer equals:average revenue to a sellerA firm operating in a purely competitive market is a price taker because it ______.cannot change the market price, it can only adjust to itA firm's total revenue is calculated as _____ times quantity produced.priceWhich of the following explains why a purely competitive firm is a price taker?A purely competitive firm offers only a negligible fraction of total market supply and therefore must accept the price determined by the marketThe change in total revenue that results from selling one more unit of output is called _____ revenue.marginalIn pure competition, marginal revenue and are _____ equal.priceIn a purely competitive market, a firm's demand schedule is also its _____ _____ schedule.average revenueThe price, multiplied by the firm's output or goods produced, equals ______.total revenueIn pure competition, if the first unit of output sold increases total revenue from $0 to $131, marginal revenue for that unit is $131. If the second unit sold increases total revenue from $131 to $262, marginal revenue is again $131. The third unit sold increases total revenue to $______ and marginal revenue is now $______.393; 131A purely competitive firm's total revenue (TR) is a straight line that slopes _______ and to the _______.upward/rightIn a purely competitive market, marginal revenue is a constant that is equal to which of the following?priceA purely competitive firm's total revenue curve willhave a constant slope because each extra unit of sales increases total revenue by a constant amountA purely competitive firm can maximize its economic profit (or minimize its loss) by adjusting only its output because it ______.is a price takerIn the table, total economic profits at the profit-maximizing level of output are calculated as a total revenue of $______ minus approximate total costs of $______.1179; 880A(n) _____ competitive firm's average-revenue schedule is also known as its demand schedule.pureIn the short run, a purely competitive firm can maximize its economic profit (or minimize its loss) by adjusting its ______outputWhich of the following best describes the economic break-even point?The point where total revenue covers all costs, but there is no economic profit.The two ways to determine the level of output at which a firm will realize maximum profit or minimum loss are to compare total revenue to ______ and to compare marginal revenue to ______.total cost; marginal costAfter a company has determined that it should produce a product and the amount of the product to produce, what basic question should it ask?What economic profit (or loss) will we realize?The equation for determining economic profit or loss is ______ minus ______.total revenue; total cost_____ revenue is the additional revenue that an additional unit of ______ would add to total revenue.marginal/outputFrom an economic standpoint, the break-even point is the level of output at which a firm makes a(n) ______ profit.normalWhich of the following explains why a firm would not produce a unit of output where MC exceeds MR?Producing it would add more to costs than to revenue, and profit would decline or loss would increase.Which of the following best describes marginal revenue?The revenue that an additional unit of output contributes to total revenueThe profit-maximizing rule of MR=MC states that in the short run, the firm will maximize profit or minimize loss by producing the output for which marginal revenue ______ marginal cost.equalsA firm would not produce a unit of output where ______.marginal cost exceeds marginal revenueWhen the marginal cost of an additional unit of output exceeds the marginal revenue, what should the firm do?Not produce that additional unit of outputWhich of the following is a method of calculating economic profit in pure competition?Price minus average total cost multiplied by quantityIn this table, at a price of $81.00, the loss-minimizing level of output is _____.6 unitsA firm should produce any unit of output whose ______.marginal revenue is greater than marginal costWhich of the following best explains why the price-marginal cost relationship improves as production increases?At the very early stages of production, marginal product is low, making marginal cost unusually high.This graph illustrates that a firm can minimize its losses by producing where ______.price exceeds minimum average variable cost but is less than average total costWhich of the following improves as production increases?Price-marginal cost relationshipWhenever price is ______ average variable costs but is ______ average total costs, the firm can pay part, but not all, its fixed costs by producing.greater than; less thanBased on the information in this chart, at which price will a firm shut down?P1In which scenario can a firm pay part, but not all, of its fixed costs and should therefore continue producing even though it is experiencing a loss?Price exceeds average variable cost but is less than average total cost.A firm should always stop producing if its average ______ cost is ______ price.variable; greater thanTrue or false: Quantity supplied increases as price decreases, and economic profit is usually higher at lower product prices and output.FalseWhat is the firm's most likely response if price is exactly equal to minimum average variable cost?Indifference to producing or shutting downIf price is below a firm's minimum average _____ cost, the firm will not operate.variableBased on the chart, what happens at a price P3 and an output of Q3?The firm incurs a loss but covers part of its fixed cost.When will a firm earn an economic profit?When price is greater than average total cost.At which point will a firm be indifferent whether to shut down or continue to produce?Point BBetween P2 and P4, the firm will minimize its losses by producing and supplying the quantity at which:MR=P=MCA firm will break even where ______ will just cover ______ because the revenue per unit and the average total cost per unit are equal.total revenue; total costChanges in _____ and changes in prices of variable inputs alter costs and shift the marginal cost or short run supply curve.technologyWhich of the following explains why a purely competitive firm's demand curve is perfectly elastic?Because the individual firm is a price taker, the marginal revenue curve coincides with the firm's demand curve.What is the primary difference between the individual firm's supply curve and the industry supply curve?The individual supply curve has no effect on price, whereas the industry supply curve has an important bearing on price.Total revenue equals ______ times ______.price; quantityEach purely competitive firm's demand curve is perfectly _____ at the equilibrium price.elasticWhich of the following describes the individual competitive firm's supply curve?The individual firm's supply curve represents a negligible fraction of total supply and therefore cannot affect price.Economic cost can best be defined asthe income the firm must provide to resource suppliers to attract resources from alternative uses.An explicit cost isa money payment made for resources not owned by the firm itself.The following is cost information for the Creamy Crisp Donut Company. Entrepreneur's potential earnings as a salaried worker = $50,000 Annual lease on building = $22,000 Annual revenue from operations = $380,000 Payments to workers = $120,000 Utilities (electricity, water, disposal) costs = $8,000 Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000 Entrepreneur's forgone interest on personal funds used to finance the business = $6,000 Creamy Crisp's explicit costs are$150,000. Explanation Explicit costs are those for which a monetary payment must be made. In this case, the annual lease on the building, payments to workers, and utilities are the only costs for which a payment is made. The remaining items on the list are either revenue or implicit costs.The following is cost information for the Creamy Crisp Donut Company. Entrepreneur's potential earnings as a salaried worker = $50,000 Annual lease on building = $22,000 Annual revenue from operations = $380,000 Payments to workers = $120,000 Utilities (electricity, water, disposal) costs = $8,000 Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000 Entrepreneur's forgone interest on personal funds used to finance the business = $6,000 Creamy Crisp's total economic costs are$286,000. Explanation Total economic costs are the sum of the explicit and implicit costs. In this case, they include everything on the list except for the annual revenue from operations.The following is cost information for the Creamy Crisp Donut Company. Entrepreneur's potential earnings as a salaried worker = $50,000 Annual lease on building = $22,000 Annual revenue from operations = $380,000 Payments to workers = $120,000 Utilities (electricity, water, disposal) costs = $8,000 Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000 Entrepreneur's forgone interest on personal funds used to finance the business = $6,000 Creamy Crisp's economic profit is$94,000. Explanation Economic profit is found by subtracting total costs from revenue. If, for example, annual revenue is $380,000 and total costs (the sum of all the cost items on the list) are $286,000, economic profit is $94,000 (= $380,000 − $286,000).To economists, the main difference between the short run and the long run is thatin the long run all resources are variable, while in the short run at least one resource is fixed.Cash expenditures a firm incurs to pay for resources are calledexplicit costs.Marginal product isthe change in total output attributable to the employment of one more worker.Which of the following best expresses the law of diminishing returns?As successive amounts of one resource (labor) are added to fixed amounts of other resources (capital), beyond some point the resulting extra or marginal output will decline.Answer the question on the basis of the following output data for a firm. Assume that the amounts of all nonlabor resources are fixed. Number of Workers Units of Output001402903126415051656180 0 0 1 40 2 90 3 126 4 150 5 165 6 180 Diminishing marginal returns become evident with the addition of thethird workerAnswer the question on the basis of the following output data for a firm. Assume that the amounts of all nonlabor resources are fixed. Number of Workers Units of Output001402903126415051656180 0 0 1 40 2 90 3 126 4 150 5 165 6 180 What is the firm's average product when three workers are hired?42 units of outputIf in the short run a firm's total product is increasing, then itsmarginal product could be either increasing or decreasing.When total product is increasing at an increasing rate, marginal product ispositive and increasing.When the total product curve is falling, themarginal product of labor is negative.At what point does marginal product equal average product?where average product is equal to its maximum valueRefer to the diagram. The vertical distance between ATC and AVC reflectsthe average fixed cost at each level of output.Marginal costequals both average variable cost and average total cost at their respective minimums.Assume that in the short run a firm is producing 100 units of output, has average total costs of $200, and has average variable costs of $150. The firm's total costs are.$20,000. Explanation Total costs can be calculated as average total cost (ATC) times the quantity of output. If the quantity is 100 units of output and ATC is $200, then total cost is $20,000 (= $200 × 100.Output Total Cost 0 24 1 33 2 41 3 48 4 54 5 61 6 69 The total variable cost of producing 3 units of output is$24. Explanation Total cost (TVC) can be calculated as total cost (TC) minus total fixed cost (TFC). TFC can be found as the total cost when output is zero. If, for example, total cost is $24 when output is 0, then TFC is $24. If total cost at some output is $48, then TVC is $24 (= 48 − 24), what remains after TFC is subtracted from TC at that output.Output Total Cost 0 24 1 33 2 41 3 48 4 54 5 61 6 69 The average total cost of producing 3 units of output is$16. Explanation Average total costs (ATC) can be calculated as total cost divided by the quantity of output. If, for example, total cost is 48 and output is 3, then ATC is $16 (= $48/3).The Sunshine Corporation finds that its costs are $40 when it produces no output. Its total variable costs (TVC) change with output as shown in the accompanying table. Use this information to answer the following question. Output TVC 1 30 2 50 3 65 4 85 5 110 The total cost of producing 3 units of output is$105A purely competitive seller isA price takerIf a firm has at least some control over the price of its product, then the firm cannot be in which market model?pure competitionWhich of the following is a feature of a purely competitive market?Products are standardized or homogeneous.Which of the following is a reason why individual firms under pure competition would not find it gainful to advertise their product?Firms produce a homogeneous product.Which of the following is characteristic of a purely competitive seller's demand curve?Price and marginal revenue are equal at all levels of output.If a firm in a purely competitive industry is confronted with an equilibrium price of $5, its marginal revenuewill also be $5.For a purely competitive seller, price equalstotal revenue divided by output, average revenue, and marginal revenueFor a purely competitive firm, total revenueis price times quantity sold, increases by a constant absolute amount as output expands, and graphs as a straight upsloping line from the origin.The marginal revenue curve of a purely competitive firmis horizontal at the market price.The fact that a purely competitive firm's total revenue curve is linear and upsloping to the right implies thatproduct price is constant at all levels of output.If the demand curve faced by an individual firm is downward-sloping, the firm cannot bea purely competitive firm.Suppose that Joe sells pork in a purely competitive market. The market price of pork is $3 per pound. Joe's marginal revenue from selling the 12th pound of pork would be$3.Firms seek to maximizetotal profitA firm reaches a break-even point (normal profit position) wheretotal revenue and total cost are equal.In the standard model of pure competition, a profit-maximizing firm will shut down in the short run if price is belowaverage variable cost.A competitive firm in the short run can determine the profit-maximizing (or loss-minimizing) output by equatingmarginal revenue and marginal cost.In the short run, the individual competitive firm's supply curve is that segment of themarginal cost curve lying above the average variable cost curve.