Exam 3 Make sure your name, date, section number and Exam 3 appear on the scantron please. 1. A student might describe information about the costs of production as a. dry and technical. b. boring. c. crucial to understanding firms and market structures. d. All of the above could be correct. 2. Economists normally assume that the goal of a firm is to (i) sell as much of its product as possible. (ii) set the price of the product as high as possible. (iii) maximize profit. a. (i) and (ii) only b. (ii) and (iii) only c. (iii) only d. (i), (ii), and (iii) 3. Trevor s Tire Company produced and sold 500 tires. The average cost of production per tire was $50. Each tire sold for a price of $65. Trevor s Tire Company s total costs are a. $7,500. b. $25,000. c. $32,500. d. $67,500. 4. Economic profit is equal to total revenue minus the a. explicit cost of producing goods and services. b. opportunity cost of producing goods and services. c. accounting cost of producing goods and services. d. implicit cost of producing goods and services. 5. Average total cost (ATC) is calculated as follows: a. ATC = (change in total cost)/(change in quantity of output). b. ATC = (change in total cost)/(change in quantity of input). c. ATC = (total cost)/(quantity of output). d. ATC = (total cost)/(quantity of input). Page 1
Table 13-2 Number of Workers Total Output Marginal Product 0 0 -- 1 200 2 450 3 600 4 650 6. Refer to Table 13-2. What is the marginal product of the first worker? a. 250 units b. 200 units c. 150 units d. 50 units 7. Refer to Table 13-2. At which number of workers does diminishing marginal product begin? a. 1 b. 2 c. 3 d. 4 8. As Bubba's Bubble Gum Company adds workers while using the same amount of machinery, some workers may be underutilized because they have little work to do while waiting in line to use the machinery. When this occurs, Bubba s Bubble Gum Company encounters a. economies of scale. b. diseconomies of scale. c. increasing marginal product. d. diminishing marginal product. 9. Which of the following costs of publishing a book is a fixed cost? a. author royalties of 5% per book b. the costs of paper and binding c. shipping and postage expenses d. composition, typesetting, and jacket design for the book Page 2
Table 13-7 The Flying Elvis Copter Rides Quantity Total Fixed Variable Marginal Average Fixed Average Variable 0 $50 $50 $0 -- -- -- -- 1 $150 A B C D E F 2 G H I $120 J K L 3 M N O P Q $120 R 10. Refer to Table 13-7. What is the value of G? a. $30 b. $120 c. $220 d. $270 11. Refer to Table 13-7. What is the value of H? a. $0 b. $50 c. $220 d. $270 12. Refer to Table 13-7. What is the value of I? a. $110 b. $120 c. $220 d. $270 Figure 13-7 Average Total 13. Refer to Figure 13-7. Which of the figures represents the total cost curve for a typical firm? a. Figure 1 b. Figure 2 c. Figure 3 d. Figure 4 Page 3
14. Refer to Figure 13-7. Which of the figures represents the marginal cost curve for a typical firm? a. Figure 1 b. Figure 2 c. Figure 3 d. Figure 4 Figure 13-9 The figure below depicts average total cost functions for a firm that produces automobiles. 15. Refer to Figure 13-9. Which of the curves is most likely to characterize the short-run average total cost curve of the smallest factory? a. ATC A b. ATC B c. ATC C d. ATC D 16. Refer to Figure 13-9. The firm experiences economies of scale at which output levels? a. output levels less than M b. output levels between M and N c. output levels greater than N d. All of the above are correct as long as the firm is operating in the long run. 17. A book store that has market power can a. influence the market price for the books it sells. b. minimize costs more efficiently than its competitors. c. reduce its advertising budget more so than its competitors. d. ignore profit-maximizing strategies when setting the price for its books. Page 4
18. Which of the following is not a characteristic of a perfectly competitive market? a. Buyers and sellers are price takers. b. Each firm sells a virtually identical product. c. Entry is limited. d. Each firm chooses an output level that maximizes profits. 19. The Doris Dairy Farm sells milk to a dairy broker in Prairie du Chien, Wisconsin. Because the market for milk is generally considered to be competitive, the Doris Dairy Farm does not choose the a. quantity of milk to produce. b. price at which it sells its milk. c. profits it earns. d. All of the above are correct. Table 14-2 The table represents a demand curve faced by a firm in a competitive market. Price Quantity $4 0 $4 1 $4 2 $4 3 $4 4 $4 5 20. Refer to Table 14-2. A firm operating in a competitive market maximizes total revenue by producing a. 2 units. b. 3 units. c. 4 units. d. as many units as possible. 21. Refer to Table 14-2. For a firm operating in a competitive market, the marginal revenue from selling the 3rd unit is a. $12. b. $4. c. $3. d. $1.25. Page 5
Table 14-7 Suppose that a firm in a competitive market faces the following revenues and costs: Marginal Marginal Quantity Revenue 12 $5 $9 13 $6 $9 14 $7 $9 15 $8 $9 16 $9 $9 17 $10 $9 22. Refer to Table 14-7. If the firm is currently producing 14 units, what would you advise the owners? a. decrease quantity to 13 units b. increase quantity to 17 units c. continue to operate at 14 units d. increase quantity to 16 units 23. Competitive firms that earn a loss in the short run should a. shut down if P < AVC. b. raise their price. c. lower their output. d. All of the above are correct. 24. Which of the following is a characteristic of a monopoly? a. low fixed costs as a portion of total costs b. free entry and exit c. barriers to entry d. declining marginal cost 25. Which of the following is an example of a barrier to entry? a. Tom charges a higher price than his competitors for his house-painting services. b. Dick obtains a copyright for the new computer game that he invented. c. Harry offers free concerts on Sunday afternoons as a form of advertising. d. Larry charges a lower price than his competitors for his lawn-mowing services. Page 6
Figure 15-6 26. Refer to Figure 15-6. In order to maximize profits, the monopolist should produce a. 9 units. b. 12 units. c. 15 units. d. more than 15 units. 27. Refer to Figure 15-6. In order to maximize profits, the monopolist should charge a price of a. $9. b. $12. c. $20. d. $23. 28. Refer to Figure 15-6. A profit-maximizing monopolist would earn total revenues of a. $81. b. $144. c. $225. d. $240. 29. Refer to Figure 15-6. A profit-maximizing monopolist would incur total costs of a. $81. b. $120. c. $144. d. $240. 30. Refer to Figure 15-6. A profit-maximizing monopolist would earn profits of a. $96. b. $117. c. $120. d. $126. Page 7
31. A monopoly is an inefficient way to produce a product because a. it can earn both short-run and long-run profits. b. it faces a downward-sloping demand curve. c. the cost to the monopolist of producing one more unit exceeds the value of that unit to potential buyers. d. it produces a smaller level of output than would be produced in a competitive market. 32. The social cost of a monopoly is equal to its a. economic profit. b. fixed cost. c. dead weight loss. d. variable cost. 33. During the holiday season, high-end retailers frequently place a high price on merchandise on weekends and discount the price during the week. They do this because they believe that two groups of customers exist: shoppers with little free time and bargain hunters. Bargain hunters have time to shop around and frequently shop during the week. What do economists call this price strategy used by high-end retailers? a. oligopoly b. price discrimination c. compensating differential d. in-kind transfers 34. Perfect price discrimination a. eliminates deadweight loss. b. reduces profits to the monopolist. c. decreases the total quantity sold by the monopolist. d. requires arbitrage in order for the monopolist to maximize profits. Page 8
ID: A Exam 3 Answer Section MULTIPLE CHOICE 1. D 2. C 3. B 4. B 5. C 6. B 7. C 8. D 9. D 10. D 11. B 12. C 13. B 14. A 15. A 16. A 17. A 18. C 19. B 20. D 21. B 22. D 23. A 24. C 25. B 26. B 27. C 28. D 29. B 30. C 31. D 32. C 33. B 34. A Page 1