Test_03_Review. Name: Class: Date: Multiple Choice Identify the choice that best completes the statement or answers the question.
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1 Name: Class: Date: Test_03_Review Multiple Choice Identify the choice that best completes the statement or answers the question. 1. A firm's opportunity costs of production are equal to its a. explicit costs only. b. implicit costs only. c. explicit costs + implicit costs. d. explicit costs + implicit costs + total revenue. 2. When adding another unit of labor leads to an increase in output that is smaller than the increases in output that resulted from adding previous units of labor, the firm is experiencing a. diminishing labor. b. diminishing output. c. diminishing marginal product. d. negative marginal product. Figure Refer to Figure The changing slope of the total cost curve reflects a. decreasing average variable cost. b. decreasing average total cost. c. decreasing marginal product. d. increasing fixed cost. 4. One assumption that distinguishes short-run cost analysis from long-run cost analysis for a profit-maximizing firm is that in the short run, a. output is not variable. b. the number of workers used to produce the firm's product is fixed. c. the size of the factory is fixed. d. there are no fixed costs. 1
2 Name: Figure 13-9 The figure below depicts average total cost functions for a firm that produces automobiles. 5. Refer to Figure Which of the curves is most likely to characterize the short-run average total cost curve of the smallest factory? a. ATC A b. ATC B c. ATC C d. ATC D 6. When a competitive firm doubles the amount of output it sells, its a. total revenue doubles. b. average revenue doubles. c. marginal revenue doubles. d. profits must increase. 2
3 Name: 7. Consider a competitive market with 50 identical firms. Suppose the market demand is given by the equation Q D = P and the market supply is given by the equation Q S = 10P. In addition, suppose the following table shows the marginal cost of production for various levels of output for firms in this market. Output Marginal Cost $5 2 $10 3 $15 4 $20 5 $25 How many units should a firm in this market produce to maximize profit? a. 1 unit b. 2 units c. 3 units d. 4 units 8. Suppose a firm operates in the short run at a price above its average total cost of production. In the long run the firm should expect a. new firms to enter the market. b. the market price to fall. c. its profits to fall. d. All of the above are correct. Figure Refer to Figure When market price is P3, a profit-maximizing firm's profit a. can be represented by the area P3 Q3. b. can be represented by the area P3 Q2. c. can be represented by the area (P3-P2) Q3. d. is zero. 3
4 Name: 10. Refer to Figure Firms will shut down in the short run if the market price a. exceeds P3. b. is less than P1. c. is greater than P1 but less than P3. d. exceeds P In the short-run, a firm's supply curve is equal to the a. marginal cost curve above its average variable cost curve. b. marginal cost curve above its average total cost curve. c. average variable cost curve above its marginal cost curve. d. average total cost curve above its marginal cost curve. 12. Profit maximizing firms in competitive industries with free entry and exit face a price equal to the lowest possible a. marginal cost of production. b. fixed cost of production. c. total cost of production. d. average total cost of production. 13. The supply curve for the monopolist a. is horizontal. b. is vertical. c. is upward sloping. d. does not exist. 14. If a profit-maximizing monopolist faces a downward-sloping market demand curve, its a. average revenue is less than the price of the product. b. average revenue is less than marginal revenue. c. marginal revenue is less than the price of the product. d. marginal revenue is greater than the price of the product. 15. For a profit-maximizing monopolist, a. P > MR = MC. b. P = MR = MC. c. P > MR > MC. d. MR < MC < P. 4
5 Name: Figure Refer to Figure What price will the monopolist charge? a. A b. B c. C d. F 5
6 Name: Figure Refer to Figure A profit-maximizing monopoly's total revenue is equal to a. P4 x Q3. b. P5 x Q1. c. P3 x Q4. d. (P4-P2) x Q3. 6
7 Name: Figure Refer to Figure Which area represents the deadweight loss from monopoly? a. J b. H c. A+B+C+D+F+I+J+H d. J+H 19. A perfectly price-discriminating monopolist is able to a. maximize profit and produce a socially-optimal level of output. b. maximize profit, but not produce a socially-optimal level of output. c. produce a socially-optimal level of output, but not maximize profit. d. exercise illegal preferences regarding the race and/or gender of its employees. 20. Which of the following is not an example of price discrimination? a. A movie theater charges a lower price for a child s ticket than for an adult s ticket. b. A university rebates part of the cost of tuition in the form of financial aid for needy students. c. A local pizza chain offers a buy three get one free deal. d. An ice cream parlor charges a higher price for ice cream than for sherbet. 7
8 Test_03_Review Answer Section MULTIPLE CHOICE 1. ANS: C PTS: 1 DIF: 1 REF: 13-1 NAT: Analytic LOC: Costs of production TOP: Opportunity cost MSC: Definitional 2. ANS: C PTS: 1 DIF: 2 REF: 13-2 NAT: Analytic LOC: Costs of production TOP: Diminishing marginal product MSC: Applicative 3. ANS: C PTS: 1 DIF: 2 REF: 13-2 NAT: Analytic LOC: Costs of production TOP: Marginal product 4. ANS: C PTS: 1 DIF: 1 REF: 13-4 NAT: Analytic LOC: Costs of production TOP: Short run 5. ANS: A PTS: 1 DIF: 1 REF: 13-4 NAT: Analytic LOC: Costs of production TOP: Average total cost 6. ANS: A PTS: 1 DIF: 2 REF: 14-1 NAT: Analytic LOC: Perfect competition TOP: Total revenue 7. ANS: B PTS: 1 DIF: 3 REF: 14-2 NAT: Analytic LOC: Perfect competition TOP: Profit maximization 8. ANS: D PTS: 1 DIF: 1 REF: 14-2 NAT: Analytic LOC: Perfect competition TOP: Profit maximization MSC: Applicative 9. ANS: D PTS: 1 DIF: 2 REF: 14-2 NAT: Analytic LOC: Perfect competition TOP: Profit 10. ANS: B PTS: 1 DIF: 2 REF: 14-2 NAT: Analytic LOC: Perfect competition TOP: Shut down 11. ANS: A PTS: 1 DIF: 1 REF: 14-3 NAT: Analytic LOC: Perfect competition TOP: Supply curve MSC: Definitional 12. ANS: D PTS: 1 DIF: 2 REF: 14-4 NAT: Analytic LOC: Perfect competition TOP: Competitive markets 13. ANS: D PTS: 1 DIF: 1 REF: 15-2 NAT: Analytic LOC: Monopoly TOP: Monopoly 14. ANS: C PTS: 1 DIF: 2 REF: 15-2 NAT: Analytic LOC: Monopoly TOP: Average revenue 1
9 15. ANS: A PTS: 1 DIF: 2 REF: 15-2 NAT: Analytic LOC: Monopoly TOP: Profit maximization 16. ANS: B PTS: 1 DIF: 2 REF: 15-2 NAT: Analytic LOC: Monopoly TOP: Monopoly 17. ANS: A PTS: 1 DIF: 2 REF: 15-2 NAT: Analytic LOC: Monopoly TOP: Total revenue 18. ANS: D PTS: 1 DIF: 2 REF: 15-3 NAT: Analytic LOC: Monopoly TOP: Deadweight loss 19. ANS: A PTS: 1 DIF: 2 REF: 15-4 NAT: Analytic LOC: Monopoly TOP: Perfect price discrimination 20. ANS: D PTS: 1 DIF: 2 REF: 15-4 NAT: Analytic LOC: Monopoly TOP: Price discrimination MSC: Applicative 2
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