1. Your favorite local coffee shop currently employs 10 people, and produces 100 cups of coffee per day. In an effort to expand, they hire 10 more people, and can now produce 175 cups of coffee per day. Which of the following roughly describes the firm's returns to scale situation?

Group of answer choices

A. The firm has decreasing returns to marginal inputs.

B. The firm has constant returns to marginal inputs.

C. The firm has increasing returns to marginal inputs.

2. Which of the following would be an example of a fixed cost of production for a coffee shop?

Group of answer choices

A. Prices paid for coffee cups.

B. The cost of coffee beans.

C. Rent paid for the building.

D. Wages paid to workers.

3. Which of the following values is always decreasing in quantity?

Group of answer choices

A. Average cost

B. Total variable cost

C. Average variable cost

D. Average fixed costs

4. The marginal cost curve

Group of answer choices

A. Is always below the average cost curve.

B. Is always above the average variable cost curve.

C. Is always above the average fixed costs curve.

D. None of the other options are correct.

5. Which of the following industries is NOT likely to be perfectly competitive?

Group of answer choices

A. Milk

B. Corn

C. Smartphones

D. Salt

6. Assume the graph above shows the hybrid function for a firm in a perfectly competitive market, where ATC is the average cost function (often abbreviated AC in Prof. Evans' videos). If the market price is currently as shown, what do we expect will happen to firm profits in the long run?

A. They will remain unchanged.

B. They will fall.

C. There is not enough information to answer the question.

D. They will rise.

7. Assume the graph above shows the hybrid function for a firm in a perfectly competitive market. Once the market reaches long run equilibrium, at which quantity will this firm produce?

Group of answer choices

A. Q

B. O

C. S

D. R

8. Assume the graph above shows the hybrid function for a firm in a perfectly competitive market. In which quantity range would the firm choose to sell in the short run, but not in the long run?

Group of answer choices

A. O and Q

B. R and S

C. S and T

D. Q and R

9. The table above shows the cost functions for a perfectly competitive firm. What is the minimum number of non-zero units the firm would be willing to produce if we consider fixed costs sunk (unrecoverable)? Hint - remember to combine the two decision rules when we have fixed costs we can't undo: produce where P = MC, but only if MC AVC.

Group of answer choices

A. 3

B. 1

C. 2

D. 4

10. The table above shows the cost functions for a perfectly competitive firm. What are firm profits if the market price is $4 and fixed costs are sunk (unrecoverable)?

Group of answer choices

A. -10

B. -8

C. -14

D. 0

11. A typical perfectly competitive firm is currently making positive economic profit. What do we expect will eventually happen to the short run supply curve?

Group of answer choices

A. It will remain at its current location.

B. It will shift inward (left).

C. It will shift outward (right).

12. Which of the following cost factors are most likely to contribute to a perfectly competitive firm's ability to hold on to some profits in the long run?

Group of answer choices

A. A proprietary production technology.

B. An improvement in overall labor productivity.

C. An increase in market prices.

D. A decrease in the number of firms in the market.

13. The table above shows the cost function for a perfectly competitive firm (I suggest using Excel to fill in the missing columns, as you'll use this for several questions). What will be the long run market price? Hint: recall in our hybrid graph where the price converges in the long run.

Group of answer choices

A. 50

B. 30

C. 40

D. 20

14. The table above shows the cost function for a perfectly competitive firm (I suggest using Excel to fill in the missing columns, as you'll use this for several questions). If the market price is currently $20, what are firm profits?

Group of answer choices

A. -300

B. -50

C. -100

D. -200

15. The table above shows the cost function for a perfectly competitive firm (I suggest using Excel to fill in the missing columns, as you'll use this for several questions). What is the smallest quantity at which the firm will produce in the long run?

Group of answer choices

A. 8

B. 9

C. 10

D. 7

16. The table above shows the cost function for a perfectly competitive firm (I suggest using Excel to fill in the missing columns, as you'll use this for several questions). A new technology reduces fixed costs to $100. Does this change short run firm behavior?

A. Yes, they will now produce less than they used to.

B. No, their short run behavior will not change.

C. Yes, they will now produce more than they used to.

graph for question 7

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