** REVIEW SHEET ** Test - 3 MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) In the long run, 1) ) there are no fixed factors of production. ) all firms must make economic profits. C) a firm can vary all inputs, but it cannot change the mix of inputs it uses. D) a firm can shut down, but it cannot exit the industry. 2) In the short run, a firm 2) ) can exit an industry and all of its factors of production are variable.. ) has at least one fixed factor of production. C) can enter an industry where positive profits are being earned. D) both and C are correct. TRUE/FLSE. Write 'T' if the statement is true and 'F' if the statement is false. 3) In the short run, firms can enter an industry but not exit an industry. 3) MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. Use the information provided in Table 7.1 below to answer the questions that follow. Table 7.1 Inputs Required to Produce a Product Using lternative Technologies Technology Units of Capital Number of Employees 4 1 6 C D 6 4) Refer to Table 7.1 above. Which technology is the most labor intensive? 4) ) ) C) C D) D 5) Refer to Table 7.1 above. Which technology is the most capital intensive? 5) ) ) C) C D) D 6) Refer to Table 7.1. If the hourly wage rate is $10 and the hourly price of capital is $25, which production technology should be selected? ) ) C) C D) D 6) Refer to Scenario 7.4 below to answer the questions that follow. SCENRIO 7.4: lawn service company has the following production possibilities. With one, two, three, and four workers, the company can mow 4, 9,, and 14 lawns per day, respectively. 7) Refer to Scenario 4. The marginal product of the second worker is 7) ) 3 ) 4 C) 5 D) 9 1
) What is the formula for the average product of labor? ) ) L q ) q L C) L/q D) q/l 9) The Farley Farm, a dairy company, has total costs of $15,000 and total variable costs of $2,000. The Farley Farm's total fixed costs are ) $0. ) $13,000. C) $17,000. D) indeterminate because the firm's output level is not known. 9) Refer to the information provided in Figure.2 below to answer the questions that follow. Figure.2 10) Refer to Figure.2 above. The total fixed costs for The arber Shop are $3,000. If The arber Shop produces 300 hair cuts, the average fixed costs are ) $0.20. ) $5. C) $10. D) $100. 10) 11) s output increases, average fixed costs 11) ) remain constant. ) initially decrease and then increase. C) decrease. D) increase. ) are likely a fixed cost of a firm. ) ) Lease payments for office space ) Wages paid to employees C) Travel expenses to meet with clients D) The payments for supplies 2
Refer to the information provided in Table.1 below to answer the questions that follow. Produce 1 unit of output 2 units of output 3 units of output Table.1 Using Techniques Units of Variable K 4 14 16 Inputs L 20 22 13) Refer to Table.1. ssuming the price of labor (L) is $5 per unit and the price of capital (K) is $10 per unit, what production technique should this firm use to produce 2 units of output? ) It is impossible to determine if the firm should select production technique or because total fixed costs are not given. ) The firm is indifferent between production technique and production technique. C) Production technique D) Production technique 13) 14) Marginal revenue is the 14) ) additional profit the firm earns when it sells an additional unit of output. ) ratio of total revenue to quantity. C) added revenue that a firm takes in when it increases output by one additional unit. D) difference between total revenue and total costs. 15) ssume Dell Computer Company operates in a perfectly competitive market producing 5,000 computers per day. t this output level, price exceeds this firm's marginal cost. To maximize profits, Dell should ) decrease their output. ) make no adjustments as they are already maximizing their profits. C) increase their output. D) stop producing since it is earning a loss. 15) 16) If a firm's demand curve is perfectly elastic, then at the profit maximizing level of output 16) ) P < MR < MC. ) P > 0 and MR = 0. C) P = MR = MC. D) P > MR > MC. 3
Refer to the information provided in Figure. below to answer the questions that follow. Figure. 17) Refer to Figure.. This farmer's profit-maximizing level of output is units of output. 17) ) 200 ) 700 C) 1,000 D) 1,400 1) If P = MC and MC > TC, then a perfectly competitive firm will earn profits. 1) ) positive ) negative C) breakeven D) zero 19) Perfectly competitive firms 19) ) are small relative to the size of the market. ) are price takers. C) sell homogeneous products. D) ll of the above are correct. 20) Free entry implies that 20) ) if firms in an industry are making excessively high profits, new firms are likely to enter the industry. ) the government regulates the number of firms that are allowed in an industry. C) a perfectly competitive firm can never earn a profit. D) firms will always earn a profit, as new firms can enter the industry at any time they like. Refer to Scenario 9.4 below to answer the questions that follow. SCENRIO 9.4: Sponsors invest $100,000 in a new deli on the promise that they will earn a return of 10% per year on their investment. The deli sells 52,000 sandwiches per year. The deli's fixed costs include the return to investors and $42,000 in other fixed costs. Variable costs consist of wages ($1,000 per week) plus materials, electricity, etc. ($2,000 per week). The deli is open 52 weeks per year. 21) Refer to Scenario 9.4. The annual fixed cost of the deli are. 21) ) $10,000 ) $42,000 C) $52,000 D) $156,000 22) Refer to Scenario 9.4. The annual total cost of the deli are. 22) ) $42,000 ) $52,000 C) $156,000 D) $20,000 23) If a firm's economic profit is $0, then it must be true that 23) ) TR equals TVC. ) TFC is zero. C) TR equals TFC. D) TR equals TC. 4
24) For economies of scale, a(n) in a firm's scale of production leads to average total cost. ) decrease; lower ) increase; lower C) decrease; no change in D) increase; higher 24) 25) Twenty-five students in a class take a test for which the average grade is 75. Then a twenty-sixth student enters the class, takes the test, and scores 0. The test average calculated with 26 students will. ) rise above 75 ) still equal 75 C) change from 75 but the direction is unclear D) fall below 75 25) 5