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ID: 2507112 • Letter: #
Question
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1. Accounting profits are typically:
a. Greater than economic profits because the former do not take explicit costs into account
b. Equal top economic profits because accounting costs include all opportunity costs.
c. Smaller than economic profits because the former do not take implicit costs into account
d. Greater than economic profits because the former do not take implicit costs into account
2. Which of the following statement concerning the relationships between total product (TP), average product (AP), and marginal product (MP) is not correct?
a. AP continues to rise so long as TP is rising.
b. AP reaches a maximum before TP reaches a maximum.
c. TP reaches a maximum when the MP of the variable input becomes zero.
d. MP cuts AP at the maximum Ap.
3. If in the short run a firm's total product is increasing, then its:
a. Marginal product must also be increasing.
b. Marginal product must be decreasing.
c. Marginal product could be either increasing or decreasing
d. Average product must also be increasing.
4. In the short run, which of the following statement is correct?
a. The marginal cost curve intersects the average variable and average fixed cost curve at their minimum points.
b. Average variable cost declines continuously as total output is expanded
c. Total cost will exceed variable cost
d. If the inputs of all resources are increased by equal amounts, total output will expand by diminishing amounts.
5. Because the marginal product of a variable resource at first increases and then decreases as the output of the firm is increased:
a. Total cost at first increases at a decreasing rate and then increases at an increasing rate,
b. Total variable cost at first increases at an increasing rate and then increases at a decreasing rate.
c. Average total cost at first increases at an increasing rate and then increases at a decreasing rate.
d. Average total cost at first increases and then diminishes.
e. Average fixed cost will rise beyond the point of diminishing returns.
6. The above diagram shows the short-run average total cost curves for five different plant sizes of a firm. The shape of each individual curve reflects:
a. Increasing returns, followed by diminishing returns.
b. Economic of scale, followed by diseconomies of scale.
c. Constant costs.
d. Increasing costs, followed by decreasing costs.
7. As the firm in the above diagram expands from plant sizw#1 to plant size #3, it experiences:
a. Diminishing returns.
b. Economic of scale.
c. Diseconomies of scale.
d. Constant costs.
8. As the firm in the above diagram expands plant size#3 to plant size #5, it experiences:
a. Increasing returns
b. Economic of scale.
c. Diseconomies of sale.
d. Constant costs.
9. Refer to above diagram. For output level Q, per unit costs of C are:
a. Unattainable and imply the inefficient use of resources.
b. Unattainable, given resource prices and the current state of technology.
c. Attainable, but imply the inefficient use of resources.
d. Attainable and imply that resources are being combined efficiently.
10. If an industry's long- run average total cost curves has an extended range of constant returns to scale, this implies that:
a. Technology precludes both economics and discectomies of scale.
b. The industry will be a natural monopoly.
c. Both relatively small and relatively large firms can be viable in the industry.
d. The industry will be comprised of very large number of small firms.
In answering the next question. assume a graph in which dollars are measured on the vertical axis and output on the horizontal axis.
11. Refer to the above information. For a purely competitive firm, total revenue:
a. Graphs as straight, up sloping line.
b. Is a straight line, parallel to vertical axis
c. Is a straight line, parallel to the horizontal axis
d. Graph as a straight, down sloping line.
12. In the short run a purely competitive firm that seeks to maximize profit will produce:
a. Where the demand and the ATC curves intersect
b. Where total revenue exceeds total cost profits are zero
c. At any point where the total revenue and total cost curves intersect.
d. At any point where the total revenue and total cost curves intersect
13. Which of the following is not a valid generalization concerning the relationship between price and costs for a purely competitive seller in the short run?
a. Price must be at least equal to average total cost.
b. Price times quantity produced must be equal to or greater than total variable cost for some level of output or firm will close down in the short run
c. Price may be equal to, greater than, or less than average total cost.
d. Price must be equal to or greater than minimum average variable cost for the firm to continue producing.
14. If a purely competitive firm is producing at some level less than the profit-maximizing output, than:
a. Price is necessarily greater than average total cost.
b. Fixed costs are large relative to variable costs.
c. Prices exceeds marginal revenue
d. Marginal revenue exceed marginal cost.
Explanation / Answer
1) Greater than economic profits because the former do not take explicit costs into account
As Economic profit = accounting profit-explicit cost
2)c. TP reaches a maximum when the MP of the variable input becomes zero.
As MP=d(TP)/dx. So TP reaches a maximum when the MP of the variable input becomes zero.
3) c)Marginal product could be either increasing or decreasing
marginal product may increase or decrease
4)b)Average variable cost declines continuously as total output is expanded
as average var cost=total cost/quantity
5)b)Total variable cost at first increases at an increasing rate and then increases at a decreasing rate.
As fixed cost does not change due to marginal product
1) b). Economic of scale, followed by diseconomies of scale.
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