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1) Assume that a firm in a perfectly competitive market produces at the profit maximizing quantity and has an ATC of $10 and an AVC of $8. If the market price for the firms product is $10, which of the following is TRUE? A. The firm is sustaining a loss and should shut down B. The firm is earning zero economic profit and will remain in business C. The firms accounting profits exceed its implicit costs D. The firm will shut down temporarily until the market price rises E. The firm is making an economic profit and will attract other firms into the market Fixed = $2 2) When producing fewer than M quantity of automobiles as shown in graph above, the firm experiences: A. Economies of scale B. Diseconomies of scale C. Economic profit D. Accounting profit E. Diminishing marginal returns per day 3) Assume that a firm in a perfectly competitive market is operating at long run equilibrium. If the market demand for the product produced by the firm increases, how will the firm's price, output and profits change in the short run? A Price: Increase Output: Increase Profit: Increase Price: Increase Output: Decrease Profit: Decrease Price: Increase Output: Increase Profit: Decrease D Price: No change Output: Decrease Profit: Decrease Price: Decrease Output: Increase Profit: Increase 4) Whitney is an entrepreneur who has decided to open a small firm. She rents office space at a cost of $25,000 a year, she employs an assistant at a salary of $30,000 a year and she pays annual utility & office supply expenses of $20,000. In order to start her own firm, Whitney quits a job that pays her $50,000 a year. Assuming that that the new firm operates in a perfectly competitive market, how much annual revenue will Whitney's firm need to receive in order to stay in business in the long run? A. $90,000 B. $75,000 C. $100,000 D. $125,000 E. $150,000 5) Accounting profit is equal to A. Marginal revenue minus marginal cost B. Total revenue minus explicit costs C. Total revenue minus opportunity costs D. Average revenue minus average costs E. Implicit costs minus explicit costs 6) A firm produces 400 books and sells each book for $15. If the explicit cost of producing the books is $4,500 and the implicit cost is $1,000, the firm's economic profit is A. $0 B. $500 C. $1,000 D. $1,500 E. $5,000 7) According to the information in the table on the right, the firms total fixed costs are Quantity Produced Total Variable Costs ($) Total Costs (S) A. Increasing B. Decreasing 100 200 C. $90 N N D. $100 190 290 270 E. Impossible to determine 370 340 440 420 520 510 610 610 710 8) According to the information in the table above, if there is only a single variable input, diminishing marginal returns first occur with the production of which unit of output? A. 7th B. 6th C. 5th D. 3 rd E. 2nd