1. What is the main goal of a firm? A) To be as big as possible. B) To hire as many people as possible. C) To make as much profit as possible. D) All of the above answers are correct. Practice Exam 3 Questions 2. Explicit s differ from implicit s in that A) explicit s are what an accountant would consider s and are usually less than implicit s. B) explicit s are paid in money, but implicit s are often non-paid opportunity s. C) implicit s are always present while some firms do not have any explicit s. D) explicit s are more important than implicit s. 3. Heidi quit her job as a chef making $40,000 per year to start her own restaurant. The first year, Heidi s restaurant earned $100,000 in revenue. Heidi pays $50,000 per year in wages to the waitresses and hostess, $20,000 per year to buy food etc. What is Heidi s economic profit for the year? A) $80,000 B) $50,000 C) $30,000 D) $10,000 4. The short run is a time period A) required over which profits can be earned from production. B) during which all resources are variable. C) during which at least one resource is fixed. D) during which all resources are fixed. Labor (workers per day) Total product (hats per day) 0 0 1 4 2 10 3 18 4 25 5 30 5. The above table shows the total product of producing baseball hats. The marginal product of the 4th worker is equal to A) 25 baseball hats. B) 21 baseball hats. C) 7 baseball hats. D) 6.25 baseball hats.
6. If a firm s marginal product of labor is less than its average product of labor, then an increase in the quantity of labor it employs definitely will A) decrease its total product. B) decrease its average product of labor. C) increase its marginal product of labor. D) not change its average product of labor. 7. A technological change that increases productivity A) shifts the total product curve and the average product curve upward, but leaves the marginal B) shifts the total product curve upward, but leaves the average product curve and the marginal C) shifts the total product curve and the marginal product curve upward, but leaves the average D) shifts the total product curve, the average product curve, and the marginal product curve upward. Labor (workers) Output (bikes) Total fixed Total variable 0 0 200 1 20 100 2 50 3 60 4 64 Total 8. The table above gives s at Jan s Bike Shop. Unfortunately, Jan s record keeping has been spotty. Each worker is paid $100 a day. Labor s are the only variable s of production. What is the total associated with producing 60 bikes? A) $200 B) $300 C) $400 D) $500 9. Flaming Fernando s is a restaurant that sells Fiery Frijoles. Fernando charges Flaming Fernando s $1,000 annually for use of his name. If Fernando increases the fee for use of his name, A) the restaurant s average fixed, average variable, average total, and marginal curves will all shift upward. B) only the restaurant s average fixed, average total, and marginal curves will shift upward. C) only the restaurant s average variable, average total, and marginal curves will shift upward. D) only the restaurant s average fixed and average total curves will shift upward.
10. The marginal eventually increases because A) of the law of diminishing returns. B) eventually each additional worker produces a successively smaller addition to output. C) the marginal product of the variable input eventually falls. D) All of the above answers are correct. 11. Economies of scale A) lead to rising long-run average s as output increases. B) occur if output more than doubles when capital and labor double. C) occur if output less than doubles when capital and labor double. D) occur when management complexity brings rising average. 12. One reason for diseconomies of scale is that, at very large scales, management systems can become A) more efficient because they can effectively manage more workers. B) increasingly complex and inefficient. C) more numerous than the workers they manage. D) None of the above. 13. Which of the following is NOT a defining characteristic of perfectly competitive markets? A) Many buyers and sellers. B) Unrestricted entry and exit. C) Consumer knowledge about prices charged by each firm. D) Higher prices being charged for certain name brands. 14. When a firm is considered to be a price taker that means that it A) can charge any price that it wants to charge, that is, take any price it wants. B) pays a fixed price for all of its inputs. C) will accept ( take ) the lowest price that its customers offer. D) cannot influence the industry price of the good that it sells. 15. In perfect competition, A) the market demand for the good is perfectly elastic but the demand for the output of one firm is not perfectly elastic. B) the market demand for the good is not perfectly elastic but the demand for the output of one firm is perfectly elastic. C) both the market demand for the good and the demand for the output of one firm are perfectly elastic. D) neither the market demand for the good nor the demand for the output of one firm is perfectly elastic. 16. Which of the following is a short-run decision for a firm? A) Whether to produce or shutdown. B) Whether to increase or decrease its plant size. C) Whether to enter or exit an industry. D) None of the above are short-run decisions.
Quantity (dozens of sea shells per day) Total variable 200 60.00 201 61.00 202 62.50 203 64.00 204 66.00 205 68.50 206 72.00 17. Sue s Sea Shells by the Sea Shore is a perfectly competitive firm selling sea shells at the market price of $2/dozen. Sue s Sea Shells by the Sea Shore has fixed s of $40/day and a daily variable schedule in the table above. The profit-maximizing level of output for Sue s Sea Shells by the Sea Shore is A) 202 dozen sea shells by the sea shore per day. B) 204 dozen sea shells by the sea shore per day. C) 205 dozen sea shells by the sea shore per day. D) 206 dozen sea shells by the sea shore per day. 18. In the above figure, given a price of $10, the firm s maximum total economic profit is equal to A) $60. B) $140. C) $200. D) MR MC.
19. Which of the following statements is TRUE? A) The presence of positive economic profit in a perfectly competitive industry is consistent with the characteristics of a long-run competitive equilibrium. B) When firms in a perfectly competitive industry earn economic losses, some will exit in the long run, causing the industry supply curve to shift rightward. C) If a profit-maximizing firm in a perfectly competitive industry is earning positive economic profit, then it must be producing at a level of output where marginal revenue is greater than average total. D) If a profit-maximizing firm in a perfectly competitive industry is earning an economic loss, then it must be producing at a level of output where price is greater than average total. 20. Suppose that newspaper companies are now required to use recycled paper, which is more expensive than new paper. Which of the following is most likely to result if the newspaper industry is highly competitive? A) The firms s will rise, resulting in positive economic profit in the short run and, hence, the industry supply curve will shift rightward in the long run. B) The firms s will rise, resulting in economic losses in the short run and, hence, the industry supply curve will shift rightward in the long run. C) The firms s will rise, resulting in economic losses in the short run and, hence, the industry supply curve will shift leftward in the long run. D) The industry supply curve will shift leftward in the short run, causing permanent long-run economic losses.