Lesson 3 Assignment Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) The main difference between the short run and the long run is that: A) in the short run all inputs are fixed, while in the long run all inputs are variable. B) in the long run, the firm is making a constrained decision about how to use existing plant and equipment efficiently. C) in the short run the firm varies all of its inputs to find the least-cost combination of inputs. D) in the short run, at least one of the firm's input levels is fixed. 2) Assume a firm is currently producing 100 units of output, total fixed costs are $10,000, and average variable costs are $8. Based on this information we can conclude, with certainty, that the firm's: A) total costs are $10,800. B) marginal costs are $8. C) average fixed costs are $2. D) total variable costs are $8000. 3) Which of the following statements is true of the relationship among the average cost functions? A) AVC = AFC + ATC B) ATC = AFC - AVC C) AFC = ATC - AVC D) AFC = ATC + AVC Scenario 2: Output (Q) 0 1 2 3 4 5 6 Total Cost (TC) $24 33 41 48 54 61 69 4) Refer to Scenario 2. The marginal cost of the sixth unit of output is: A) $1.33. B) $7.50. C) $8.00. D) $45.00. 5) Which of the following inputs is most likely to be "fixed" in the short run? A) Energy. B) Labor. C) Raw Material. D) Capital. Figure 1 0-3 Fixed Casts Total $5,000 . Fixed E 3 Cost 0 180 280 Quantity of output 6) Refer to Figure 10-3. What happens to the average fixed cost of production when the firm increases output from 150 to 200? A) It rises. B) It remains constant. C) It could rise or fall depending on what happens to total cost. D) It falls. 7) Use the following graph to answer the next question. Px Mc ATC AVC -D B K The firm will earn maximum total profits if it produces and sells quantity A) OB. B) QA. C) OC. D) OK. 10 Price Quantity 8) In the above figure, what is the profit at the profit-maximizing output level? A) $2 B) $70 C) $20 D) $10 9) All of the following are characteristics of a perfectly competitive market except: A) barriers to entry. B) a large number of sellers. C) perfectly elastic demand. D) a homogeneous product. 210) Which of the following statements regarding a price-taking firm is correct? A ) Dem and = price = average revenue = marginal revenue. B) Demand = price > average revenue > marginal revenue. () Demand = average revenue > marginal revenue. D ) Demand = marginal revenue > average revenue. 10 Price Quantity 11) In the above figure, at the profit-maximizing output level, the firm's output, ATC, and price are? A) 12, $10, $10B) 10, $8, $10 C) 10, $8, $8 D) 8, $7, $10 Scenario 3: Total Product (TP) 0 1 2 3 4 5 6 Total Cost (TC) $50 80 105 125 155 195 250 12) Refer to Scenario 3. The TVC of producing six units of output is: A) $ 250. B) $55. C) $ 200. D) FO. 13) Which of the following is an example of an "implicit cost"? A) Interest that could have been earned on retained earnings used by the firm to finance expansion. B) The interest payment made by the firm for funds borrowed from a bank. () The payment of wages by the firm. D) The payment of rent by the firm for the building in which it is housed. 14) Consider the production function for bottled water. All of the following would be considered variable inputs except : A ) the plastic bottles. B) the electricity used to power the machine used to fill the bottles. () the water the bottles are filled with. D) the machines used to fill each bottle. Scenario 1: The following is a hypothetical short-run production function: Hours of Total Amarginal Labor Out put Product100 100 ---- 80 240 15) Refer to Scenario 1. Total output when 2 hours of labor are employed is ---- and marginal product when the third hour is employed is ----. A) 80, 180 B) 100, 60 C) 180, 60 D) 60. 240 16) Which of the following is not a determinant of a firm's cost functions? 4) The productivity of the firm's labor. B) The price of capital. C) The price of the firm's output. D) The price of labor. Scenario 2: Output (Q) 1 2 3 4 5 6 Total Cost (TC) $24 33 41 48 54 61 69 17) Refer to Scenario 2. The average fixed cost of 2 units of output is: A) $8.00. B) $8.50. C) $12.00. D) $20.50. Scenario 3: Total Product (TP) 0 1 2 3 3 4 5 6 Total Cost (TC) $50 80 105 125 155 195 250 18) Refer to Scenario 3. Diminishing marginal returns begin when output is increased beyond: 4) 2 units of output. B) 4 units of output. C) 3 units of output. D) 5 units of output. 19) When a firm produces 50.000 units of output, its total cost equals $6.5 million. When it increases its production to 70.000 units of output, its total cost increases to $9.4 million. Within this range, the marginal cost of an additional unit of output is A) $41.43. B) $134.29. C) $135. D) $145. Figure 5-1 Output (Quantity of footwear) B 3 5 67 8 Labor (units) Fancy Footwear manufactures shoes. Figure 5-1 shows Fancy Footwear's marginal product of labor and average product of labor curves in the short run. 420) Refer to Figure 5-1. Which of the following statements correctly describes the curves in the figure? A) Average product is at maximum at the fifth worker. B) Curve A represents the average product curve and curve B represents the total product curve. () The marginal product of labor curve is represented by curve A and the average product of labor curve is represented by curve B. `) Average product is at maximum at the fourth worker. 21) Refer to Figure 5-1. For what quantity of labor does production begin to display diminishing returns? ( ) for more than 1 units of labor B) for more than 4 unit of labor () for more than 5 units of labor D) for more than 8 units of labor MC ATC AVC Price 10 Demand = MR 8 9 10 11 12 Quantity 22) In the above figure, if the market price is less than $7, the firm A ) shuts down operations. B) produces 11 units. C) produces 12 units. D) produces 10 units. 23) Suppose that Joe sells pork in a perfectly competitive market. The market price of pork is $6 per pound. Joe's marginal revenue from selling the 10th pound would be A) $12. B) $3. C) $72. D) $6. 24) Use the following graph showing cost curves for a competitive firm to answer the next question.MC ATC AVC 1.25 1.05 90 Unit .60 15 20 35 Output Rate If the market price falls to $0.60, the optimal output rate is A ) more than 15, but less than 35. B ) 15. C) 20. D) 0. Figure 1 1 -4 Price and cost $40 50 36.00 30.00 22.00 20.00 240 Quantity Figure 11-4 shows the cost and demand curves for a profit-maximizing firm in a perfectly competitive market. 25) Refer to Figure 11-4. If the market price is $22, should the firm represented in the diagram continue to produce in the short run? A ) No, it should shut down because it cannot cover its total variable cost. B) Yes, because it is making a profit. C) No, it should shut down because it is making a loss. D) Yes, because it is covering all of it's total variable cost and part of its total fixed cost. 26) Use the following table to answer the next question. Output Average Fixed Average Variable Cost Average Total Marginal Cost Cost Cost $300 $100 $400 $100 2 150 75 125 50 63 100 70 170 60 75 73 148 80 60 80 140 110 6 50 20 40 140 43 03 146 80 19 56 23( 33 38 171 291 10 30 160 90 360 The table shows cost data for a firm that is selling in a perfectly competitive market. If the market price for the firm's product is $60, the firm will A ) produce 4 units. B) produce 6 units. C) produce 5 units. D) shut down. 27) Which of the following is true of the relationship between the marginal cost function and the average total cost and average variable cost functions? A) The ATC and AVC curves intersect the MC curve at minimum MC. B) The MC curve, ATC curve, and AVC curve all intersect at the same point. () At each level of output, MC is equal to difference between AVC and ATC. D) If MC is greater than ATC and AVC, then ATC and AVC will increase. 28) Use the following figure to answer the next question. MC ATC A AVC Price Q1 Quantity If the firm is producing at Q1, the area ABED represents A ) total costs. B) total fixed costs. [) average variable costs. D) total variable costs. 29) The next question is based on the following table that provides information on the production of a product that requires one variable input 7Labor Total Product 1 5 2 20 32 42 50 55 58 58 56 With the addition of the second unit of Labor, the marginal product is A) 10 and the average product is 15. B) 15 and the average product is 10. C) 15 and the average product is 20. D) 25 and the average product is 10. Price P 30) Using the above figure, the price facing the perfectly competitive firm in the long run will be A) P3. B) P1. C) P2. D) P4. 31) ABCD, which is a price-taking firm, is currently producing 250 units of output. The market price is $3 per unit. the marginal cost of the 250th unit is $2.75, average total cost is $ 3.50 per unit, and average variable cost is $2.50 per unit. What advice should you give ABCD? A) Decrease output to 200 units. B) Shut down to minimize losses. () Continue to produce 250 units in the short run. ") Increase output to reduce losses. 32) Assume at the firm's profit-maximizing level of output P = AVC. In this case, the firm will be: A ) incurring an economic loss. B) breaking even. 8C) earning economic profit = 0. D) earning a positive economic profit. 33) Use the following table to answer questions 33-35. Output (Q): 1 2 3 5 6 Total Cost (TC): $36 $45 $52 $61 $74 $91 $110 The total fixed cost of producing 4 units of output is $36. A) True B) False 34) The marginal cost of producing the third unit of output is $9. A ) True B) False 35) The firm encounters diminishing marginal returns after the third unit of output. A) True B) False 36) Answer 36-37 based on the following graph for a perfectly competitive firm Cost MC (dollars per unit) ATC AVC $20 10 50 100 Quantity (units of output) If Q = 100 units, the firm's total variable cost is $1,000. A) True B) False 37) If market price is $12, the firm should shut-down. A) True B) False 38) Answer Questions 38-40 based on the following:Zara is a 12 year old enTrepreneur. She makes Lemonade in The family's kiTchen and sells aT a sTand seT up in fronT of her house everyday afTer school. Zara's sTreeT has many oTher children selling idenTical lemonade. Therefore, she operaTes in a perfechy compeTiTive markeT. The MarkeT price of a cup of lemonade is $2.00. Zara's ToTal cosT and marginal cosT are as follows: TC = 10 + 0.025Q2 MC = 0.05Q Zara's daily level of oquuT ThaT maximizes her profiT or minimizes her losses is 40 cups. A) True B) False 39) AT The level of oquuT deTermined in The previous quesTion, Zara is making $30 a day in economic profiT. A) True B) False 40) All else remains The same, Zara should shuT down her Lemonade operaTions if markeT price per cup falls To $1.5. A) True B) False 10