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Assignment 2 Econ100 (Fall 2014) Due on October 20th 1. Which of the following is an explicit cost? a. The opportunity cost of an owner/entrepreneur's time invested in the firm. b. The opportunity cost of the money the business owner/entrepreneur has invested in the firm. c. The wages paid to workers. d. None of the above. 2. The difference between a firm's total revenues and total costs when all explicit and implicit costs are included is the firm's: a. economic profit. b. accounting profit. c. opportunity cost of capital. d. long-run average total cost. 3. a. b. c. d. The short run is a period of time: in which a firm uses at least one fixed input. that is long enough to permit changes in the firm's plant size. in which production occurs within one year. in which production occurs within six months. Figure 1 4. a. b. c. d. e. In Figure 1, AFC is shown by the graph labeled: I. II. III. IV. V. 5. a. b. c. d. e. In Figure 1, TFC is shown by the graph labeled: I. II. III. IV. V. 6. a. b. c. d. e. In Exhibit Figure 1, ATC is shown by the graph labeled: I. II. III. IV. V. 7. A downward-sloping portion of a long-run average total cost curve is the result of: a. economies of scale. b. diseconomies of scale. c. diminishing returns. d. the existence of fixed resources. 8. Which of the following is not a characteristic of the structure of perfectly competitive markets? a. Each individual firm is small in size relative to the overall market. b. Few sellers. c. Homogeneous product. d. Easy, low cost entry and exit. 9. a. b. c. d. A firm in a price-taker market: must take the price that is determined in the market. must reduce its price if it wants to sell a larger quantity. must be large relative to the total market. can exert a major influence on the market price. 10. a. b. c. d. Profit is maximized when which of the following conditions occurs? Total revenue equals total cost. Average revenue equals average cost. Marginal revenue equals marginal cost. Both b. and c. above are correct. 11. In the short run, if a perfectly competitive firm is producing at a price above average total cost, its economic profit must be: a. positive. b. zero. c. negative. d. normal. 12. a. b. c. d. In the short run, a firm will stay in business as long as: price equals average revenue. marginal revenue is greater than or equal to marginal cost. price exceeds average variable cost. price is less than average variable cost. 13. a. b. c. The long run is a period of: at least one year. sufficient length to allow a firm to expand output by hiring additional workers. sufficient length to allow a firm to alter its plant size and capacity and all other factors of production. d. sufficient length to allow a firm to transform economic losses into economic profits by hiring better workers. 14. A firm is currently operating where the MC of the last unit produced = $84, and the MR of this unit = $70. What would you advise this firm to do? a. Shut down. b. Increase output. c. Stay at its current output. d. Decrease output. 15. a. b. c. d. If a firm shuts down in the short run, it will: incur losses equal to its fixed costs. produce at the output level where MC = MR. reduce its losses to zero. do this because P > AVC. Figure2 16. a. b. c. d. e. In Figure2, if this firm is currently producing 20 units of output, this firm: is at its profit-maximizing point. could increase profits by increasing output. could increase profits by decreasing output. should shut down. should decrease price. 17. a. b. c. d. e. In Figure2, if this firm is currently producing 20 units of output, this firm: is earning a profit of $10. is earning a profit of $.50. is losing $10. should shut down. is losing $.50 18. a. b. c. d. Which of the following is not associated with the monopoly market structure? Many sellers. A single seller. A unique product. Impossible entry into the market. 19. a. b. c. d. A monopolist faces a downward-sloping demand curve because: the demand for its product is inelastic. the industry demand curve is horizontal. resource prices increase as the monopolist expands output. the entire market demand curve is the monopolist's demand curve. 20. a. b. c. d. Which of the following firms best fits the definition of a monopoly? General Motors Exxon Mobile Local electric utility AT&T 21. a. b. c. d. e. For a monopolist: price equals average total cost. price is above marginal revenue. marginal revenue equals zero. marginal cost equals zero. average total cost equals marginal cost. 22. a. b. c. d. Graphically, the marginal revenue curve of a monopolist: will sometimes lie below the demand curve of the monopolist. will always lie below the demand curve of the monopolist. is the same as the demand curve of the monopolist. will equal -1 when the elasticity of demand is unitary. 23. a. b. c. d. Under monopoly, a firm: is a price taker. maximizes profit by setting marginal cost equal to marginal revenue. will shut down in the short-run if price falls short of average total cost. always earns a pure economic profit. Figure3 24.In Figure3, how much vaccine should GeneTech produce to maximize its profit? a. 300 doses per hour. b. 400 doses per hour. c. Between 400 and 500 doses per hour. d. 500 doses per hour. 25. Which of the following is true about a monopoly? a. A monopoly charges a higher price and produces a lower output level than if the market were competitive. b. A monopoly is guaranteed an economic profit. c. A monopoly charges the highest possible price. d. A monopoly will shut down whenever losses are incurred. e. All of the above. 26.A young chef is considering opening his own sushi bar. To do so, he would have to quit his current job, which pays $20,000 a year, and take over a store building that he owns and currently rents to his brother for $6,000 a year. His expenses at the sushi bar would be $50,000 for food and $2,000 for gas and electricity. What are his explicit costs? a. $26,000. b. $66,000. c. $78,000. d. $52,000. e. $72,000. 27. Which of the following would be considered an implicit cost? a. Health insurance of employees paid for by the firm b. The water bill of the firm c. The salaries paid to the managers of the firm d. Foregone rent on assets owned by the firm 28.In the short run, if average variable cost equals $50, average total cost equals $75, and output equals 100, the total fixed cost must be: a. $25. b. $2,500. c. $5,000. d. $7,500. 29. Use the table below to answer the following question. Units of Output Total Fixed Cost (dollars) Total Variable Cost (dollars) 1 2 3 4 5 1,000 1,000 1,000 1,000 1,000 1,200 2,400 3,600 5,000 6,600 What is the average total cost at an output level of four units? a. $1,200. b. $1,400. c. $1,500. d. $2,000. Total Output 0 cases of books 1 2 3 4 Total Variable Cost $ 0 100 150 250 450 Total Cost $200 300 350 450 650 30. In Exhibit above, the publisher's fixed cost is equal to: a. $50. b. $100. c. $200. d. $300. 31.If a firm increases output when MR > MC, then: a. profit will equal zero. b. profit will increase. c. profit will decrease. d. profit will remain the same. e. the firm is minimizing losses. 32. Consider a firm in a perfect competition market with the following cost and revenue information: ATC = $8, AVC = $7, and MR = MC = $6. If the firm produces Q = 60 in the short run, it: a. is minimizing losses. b. makes a total loss of $60. c. should produce more output. d. is making a mistake and should shut down. e. is maximizing total profit. 33. As shown in Exhibit above, if the product price is $4.00 in a perfect competition market, the firm's economic profit is maximum at an output of: a. 5 units per day. b. 10 units per day. c. 15 units per day. d. 20 units per day. 34. In Exhibit above, product price in this market is fixed at $35. This firm is currently operating where MR = MC. What do you advise this firm to do? a. This firm should shut down. b. This firm could increase profits by increasing output. c. This firm could increase profits by decreasing output. d. This firm should continue to operate at its current output. e. This firm should decrease price. 35. Which of the following is a key characteristic of the long-run competitive equilibrium that distinguishes it from the short-run competitive equilibrium? a. Free entry to reduce short-run profits, or free exit to reduce short-run losses. b. Economic profits are positive, but cannot be negative. c. Marginal revenue is greater than marginal cost. d. Average revenue is less than average cost. 36. What is the name of the monopolist having a declining long-run average cost throughout the market? a. Monopolistic competition. b. Monopoly by legal barrier. c. Natural monopoly. d. Contrived monopoly. Q P TC 0 1 2 3 4 40 30 20 10 0 10 15 25 40 60 37. The marginal revenue of the second unit of output in Exhibit above is: a. 10. b. 20. c. 30. d. 40. e. 60. 38. Refer to Exhibit above. Using the rule that focuses on the marginal approach to maximizing profits, the monopolist maximizes profit by choosing price equal to: a. $40. b. $20. c. $0. d. $10. e. $30. 39.If pizza used to be produced in a perfectly competitive market, and now the pizza market has become a monopoly, we can expect: a. less pizza to be sold at a higher price. b. more pizza to be sold at a higher price. c. less pizza to be sold at a lower price. d. more pizza to be sold at a lower price. e. the same amount of pizza to be sold at the same price. 40. As shown in Exhibit above, the profit-maximizing price for the monopolist is: a. OP1. b. OP2. c. OP3. d. OP4. e. OP5.
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