Econ*1050 Introductory Microeconomics Instructor: Vitali Alexeev. Quiz 9 (Chapter 13)

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1 Econ*1050 Introductory Microeconomics Instructor: Vitali Alexeev Quiz 9 (Chapter 13) 1.An example of an explicit cost of production would be a. the cost of forgone labour earnings for an entrepreneur. b. the lost opportunity to invest in other capital markets when the money is invested in one's business. c. the cost of flour for a baker. d. None of the above are correct. ANS: C PTS: 1 DIF: Average REF: Economic profit is equal to (i) total revenue - (explicit costs + implicit costs). (ii) total revenue - opportunity costs. (iii) accounting profit + implicit costs. a. (i) only b. (i) and (ii) c. (ii) and (iii). ANS: B PTS: 1 DIF: Average REF: The amount of money that a wheat farmer could have earned if he had planted barley instead of wheat is a. an explicit cost. b. an accounting cost c. an implicit cost. d. forgone accounting profit. e. an avoidable cost. ANS: C PTS: 1 DIF: Average REF: Which of the following expressions is correct? a. accounting profit = total revenue - explicit costs. b. economic profit = total revenue - total opportunity costs. c. economic profit = total revenue - explicit costs - implicit costs. ANS: D PTS: 1 DIF: Average REF: 272 Figure Refer to Figure Which of the following is true of the production function (not pictured) that underlies this total cost function? (i) Total output increases as the quantity of inputs increases, but at a decreasing rate. (ii) Marginal product is diminishing for all levels of input usage.

2 (iii) The slope of the production function decreases as the quantity of inputs increases. a. (i) only b. (ii) and (iii) c. (i) and (iii) ANS: D PTS: 1 DIF: Challenging REF: 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. ANS: C PTS: 1 DIF: Average REF: Refer to Figure Which of the following statements best captures the nature of the underlying production function? a. Output increases at a decreasing rate with additional units of input. b. Output increases at an increasing rate with additional units of input. c. Output decreases at a decreasing rate with additional units of input. d. Output decreases at an increasing rate with additional units of input. ANS: A PTS: 1 DIF: Average REF: The cost of producing the typical unit of output is the firm's a. average total cost. b. opportunity cost. c. variable cost. d. marginal cost. ANS: A PTS: 1 DIF: Average REF: The marginal cost curve crosses the average total cost curve at a. the efficient scale. b. the minimum point on the average total cost curve. c. a point where the marginal cost curve is rising. ANS: D PTS: 1 DIF: Average REF: Figure Refer to Figure Which of the following can be inferred from the figure above? (i) Marginal cost is increasing at all levels of output. (ii) Marginal product is increasing at low levels of output.

3 (iii) Marginal product is decreasing at high levels of output. a. (i) and (ii) b. (ii) and (iii) c. (i) and (iii) ANS: B PTS: 1 DIF: Challenging REF: The curves below reflect information about the cost structure of a firm. Use the figure to answer the following questions. Figure Refer to Figure Which of the curves is most likely to represent average total cost? ANS: B PTS: 1 DIF: Average REF: Refer to Figure Which of the curves is most likely to represent average fixed cost? ANS: D PTS: 1 DIF: Average REF: Refer to Figure Which of the curves is most likely to represent average variable cost? ANS: C PTS: 1 DIF: Average REF: Refer to Figure Which of the curves is most likely to represent marginal cost?

4 ANS: A PTS: 1 DIF: Average REF: Refer to Figure This particular firm is necessarily experiencing increasing marginal product when curve is falling. is falling. is falling. is falling. ANS: A PTS: 1 DIF: Challenging REF: Refer to Figure This particular firm is necessarily experiencing diminishing marginal product when curve (i) A is rising. (ii) B is rising. (iii) C is rising. a. (i) only b. (iii) only c. (i) and (ii) ANS: D PTS: 1 DIF: Challenging REF: Refer to Figure Curve A is U-shaped because of a. diminishing marginal product. b. increasing marginal product. c. the fact that increasing marginal product follows decreasing marginal product. d. the fact that decreasing marginal product follows increasing marginal product. ANS: D PTS: 1 DIF: Challenging REF: One of the most important properties of cost curves is that a. for most producers, the average total cost curve never crosses the marginal cost curve. b. the average fixed cost curve must eventually rise. c. the average total cost curve first rises, then falls with increased output. d. the marginal cost curve eventually rises with the quantity of output. ANS: D PTS: 1 DIF: Average REF: Quiz 10 (chapter 14) 1.When a firm has little ability to influence market prices it is said to be in what kind of a market? a. a black market. b. a strategic market c. a thin market d. a power market e. None of the above are correct. ANS: E PTS: 1 DIF: Easy REF: If ABC Company sells its product in a competitive market, then a. the price of that product depends on the quantity of the product that ABC Company produces and sells. b. ABC Company's total revenue is proportional to its quantity of output. c. ABC Company's total cost is proportional to its quantity of output. d. ABC Company's total revenue is equal to its average revenue. ANS: B PTS: 1 DIF: Average REF: 295

5 3.In calculating accounting profit, accountants typically don't include a. long-run costs. b. sunk costs. c. explicit costs of production. d. opportunity costs that do not involve an outflow of money. ANS: D PTS: 1 DIF: Easy REF: Use the information for a competitive firm in the table below to answer the following questions. Table 14-2 Quantity Total Revenue Total Cost 0 $0 $ Refer to Table At a production level of 4 units which of the following is true? a. Marginal cost is $6. b. Total revenue is greater than variable cost. c. Marginal revenue is less than marginal cost. 5. Refer to Table At which quantity of output is marginal revenue equal to marginal cost? a. 3 b. 6 c Refer to Table If this firm chooses to maximize profit it will choose a level of output where marginal cost is equal to a. 6. b. 7. c. 8. d Refer to Table The maximum profit available to this firm is a. $5. b. $4. c. $3. d. $2. ANS: A PTS: 1 DIF: Easy REF: Refer to Table If the firm finds that its marginal cost is $11, it should a. increase production to maximize profit.

6 b. increase the price of the product to maximize profit. c. advertise to attract additional buyers to maximize profit. d. None of the above are correct. 9. Refer to Table If the firm finds that its marginal cost is $5, it should a. reduce fixed costs by lowering production. b. increase production to maximize profit. c. decrease production to maximize profit. d. maintain its current level of production to maximize profit. Figure Refer to Figure When price rises from P 2 to P 3, the firm finds that a. marginal cost exceeds marginal revenue at a production level of Q 2. b. if it produces at output level Q 3 it will earn a positive profit. c. expanding output to Q 4 would leave the firm with losses. ANS: C PTS: 1 DIF: Average REF: Refer to Figure When price falls from P 3 to P 1, the firm finds that a. fixed cost is higher at a production level of Q 1 than it is at Q 3. b. it should produce Q 1 units of output. c. it should produce Q 3 units of output. d. it is unwilling to produce any output. 12. Refer to Figure When price rises from P 3 to P 4, the firm finds that a. fixed costs are lower at a production level of Q 4. b. it can earn a positive profit by increasing production to Q 4. c. profit is maximized at a production level of Q 3. d. average revenue exceeds marginal revenue at a production level of Q Refer to Figure Which of the following statements best reflects the situation faced by the firm when price falls from P 4 to P 2? verage total cost is lower than at the previous level of output so it increases production. b. The firm will earn profit equal to (P 4 - P 2 ) Q 2. c. Marginal revenue is lower than marginal cost at the previous level of output, so it decreases production.

7 d. Marginal revenue is higher than marginal cost at the previous level of output, so it increases production. ANS: C PTS: 1 DIF: Average REF: A profit-maximizing firm in a competitive market will always make marginal adjustments to production as long as a. average revenue is greater than average total cost. b. average revenue is equal to marginal cost. c. marginal cost is greater than average total cost. d. price is above or below marginal cost. e. its sunk costs are minimal. 15. When price is greater than marginal cost for a firm in a competitive market, a. marginal cost must be falling. b. the firm must be minimizing its losses. c. there are opportunities to increase profit by increasing production. d. the firm should decrease output to maximize profit. ANS: C PTS: 1 DIF: Average REF: A competitive firm's marginal cost curve is regarded as its supply curve because a. the position of the marginal cost curve determines the price for which the firm should sell its product. b. among the various cost curves, the marginal cost curve is the only one that slopes upward. c. the firm is aware that marginal revenue must exceed marginal cost in order for profit to be maximized. d. None of the above are correct. ANS: D PTS: 1 DIF: Average REF: When some resources used in production are only available in limited quantities, it is likely that the long-run supply curve in a competitive market is a. downward sloping. b. upward sloping. c. horizontal. d. vertical. ANS: B PTS: 1 DIF: Average REF:

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

MBA 640, Survey of Microeconomics, Quiz #4 Fall 2006 Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) In the short run, A) there are no variable