ECO 102 Exam 3 Problems

ECO102Summer2014 (online)
Exam3
35questionsworth3pointseach+105possiblepoints(5extracreditpointsbuiltin)

1.Ifafirmshutsdownforaweek,duringthatweek:
A.totalcostiszero.
B.totalcostequalstotalfixedcost.
C.totalcostequalstotalvariablecost.
D.totalvariablecostexceedstotalfixedcost.

2.Averagefixedcost:
A.isconstantanddoesn’tvarywithoutput.
B.increasesasoutputincreases.
C.decreasesasoutputincreases.
D.equalstotalcostdividedbyoutput.

3.Afirmisproducing100unitsofoutputatatotalcostof400.Thefirm’saverage
variablecostis3perunit.Whatisthefirm’stotalfixedcost?
A.1
B.50
C.100
D.300

4.Refertothetableshown.Iftheoutputofbicyclesis4perweek,themarginalcostof
producinganotherbicycleperweekis:
A.110.
B.120.
C.130.
D.140.

Reference:11U9
Thefollowinggraphshowsaveragefixedcosts,averagevariablecosts,averagetotalcosts,
andmarginalcostsofproduction.
5.Refertothegraphshown.WhydoesthedistancebetweencurvesIIandIIIgetsmalleras
quantityincreases?
A.Marginalcostisincreasing.
B.Averagevariablecostisincreasing.
C.Averagefixedcostisdeclining.
D.Averagefixedcostisincreasing.

6.Refertothegraphshown.Averagevariablecostisminimizedwhenoutputequals:
A.12units.
B.6units.
C.21units.
D.25units.

7.Otherthingsbeingequal,whenaverageproductivityfalls:
A.averagefixedcostmustrise.
B.marginalcostmustrise.
C.averagetotalcostmustrise.
D.averagevariablecostmustrise.

8.Ifmarginalcostislessthanaveragetotalcost:
A.averagetotalcostisincreasingwithoutput.
B.averagetotalcostisdecreasingwithoutput.
C.averagevariablecostisincreasingwithoutput.
D.averagevariablecostisdecreasingwithoutput.

9.Diseconomiesofscaleareassociatedwith:
A.anupwardUslopinglongUrunaveragecostcurve.
B.anupwardUslopingshortUrunaveragecostcurve.
C.adownwardUslopinglongUrunaveragecostcurve.
D.adownwardUslopingshortUrunaveragecostcurve.10.Inaperfectlycompetitivemarket,firmsset:
A.pricesandquantities.
B.pricesbutnotquantities.
C.quantitiesbutnotprices.
D.neitherpricesnorquantities.

11.Inaperfectlycompetitivemarket,thedemandcurvefacedbyanindividualfirmis:
A.perfectlyinelastic.
B.relativelyinelastic.
C.perfectlyelastic.
D.relativelyelastic.

12.Aperfectlycompetitivefirm’smarginalrevenueis:
A.lessthanthesellingprice.
B.greaterthanthesellingprice.
C.equaltothesellingprice.
D.sometimesbelowandsometimesabovethesellingprice.

13.Ifthemarginalrevenueofthenextwidgetafirmproducesis50anditsmarginalcost
is35,afirmshould:
A.reconsiderpastproductiondecisions.
B.decreaseproduction.
C.increaseproduction.
D.holdproductionconstant.

14.Refertothegraphshown.Currently,ifthisperfectlycompetitivefirmismaximizing
profit,themarketpriceis:
A.6.50andmarginalrevenueforthefirmis5.00
B.5.00andmarginalrevenueforthefirmis3.00
C.5.00andmarginalrevenueforthefirmis5.00
D.6.50andmarginalrevenueforthefirmis6.50
15.Thesupplycurveofaperfectlycompetitivefirmis:
A.themarginalcostcurveonlyifpriceexceedsaveragevariablecost.
B.themarginalcostcurveonlyifpriceexceedsaveragetotalcost.
C.theaveragetotalcostcurveonlyifpriceexceedsaveragevariablecost.
D.nonexistent.

Reference:13U6
16.Refertothegraphshown.Whatlevelofoutputshouldtheperfectlycompetitivefirm
producetomaximizeprofits?
A.7.
B.8.
C.6.
D.4.

17.Thisfirmis
A.earningeconomicprofit=1,200
B.earningnormalprofit=1,200
C.earningeconomicprofit=800
D.earningnormalprofit=800

18.Refertothegraphshown.TotalFixedCost=
A.80
B.400
C.1600
D.800

19.Refertothegraphabove.Whatpricerepresentstheshutdownprice?
A.P1
B.P2
C.P3
D.P4

20.Refertothegraphabove.Supposethemarketpriceis4.Atthisprice,aperfectly
competitivefirmshould:
A.continuetoproduceintheshortrunbutshutdowninthelongrun.
B.continuetoproduceinboththeshortrunandthelongrun.
C.shutdownintheshortrunbutcontinueproductioninthelongrun.
D.shutdownimmediately.

21.Refertothefollowinggraphs.

WhichgraphdepictsaperfectlycompetitivefirminlongUrunequilibrium?
A.graphI
B.graphII
C.graphIII
D.graphIV

22.Theexistenceofpositiveeconomicprofitsinducesfirmsto:
A.enteranindustry,whichshiftsthemarketsupplycurvetotheleftanddecreasesmarket
price.
B.enteranindustry,whichshiftsthemarketsupplycurvetotherightandincreases
marketprice.
C.exitanindustry,whichshiftsthemarketsupplycurvetotherightanddecreasesmarket
price.
D.enteranindustry,whichshiftsthemarketsupplycurvetotherightanddecreases
marketprice.

23.Refertothegraphsshown,whichdepictaperfectlycompetitivemarketandfirm.If
marketdemandisD0:
A.thismarketisinlongUrunequilibriumbecausethefirmisearningpositiveeconomic
profit.
B.thismarketisinlongUrunequilibriumbecausethefirmisearningzeroeconomicprofit.
C.thismarketisinshortUrunequilibriumbutnotlongUrunequilibrium.
D.thefirmwillraisethepriceaboveP0toincreaseprofit.

24.Refertothegraphsshown,whichdepictaperfectlycompetitivemarketandfirm.If
marketdemandincreasesfromD0toD1,thefirmwill:
A.lowerthepriceitcharges.
B.earnnegativeeconomicprofitintheshortrun.
C.earnpositiveeconomicprofitintheshortrun.
D.earnpositiveeconomicprofitinthelongrun.

25.WiththelongUrunaveragecostcurveabove,theminimumefficientscaleofproduction
is:
A.16.
B.18to21.
C.21.
D.23.
26.Perfectlycompetitivefirms:
A.arepricetakers.
B.areindividuallyabletoinfluencethemarketprice.
C.willsucceedbychargingapricehigherthanthatchargedbytherestofthemarket.
D.caninfluencethepricesofotherfirmsinthesameindustrybyalteringtheirownprices.

27.TheUshapeoftheaveragetotalcostcurvereflectsthefactthat:
A.averageproductivityfallsandthenrises.
B.averageproductivityrisesandthenfalls.
C.averageproductivityisconstant.
D.marginalproductfallsandthenrises.

Usethefollowingtoanswerquestions28U30.ThereISenoughinformation.Theseare
difficultbecauseyoumustderiverelevantdatafromtheinformationgiven.

28. Refertotheabovedata.Ifproductpriceis60,thefirmwill:
A) shutdown.
B) produce4unitsandrealizea120economicprofit.
C) produce6unitsandrealizea100economicprofit.
D) produce3unitsandincura40loss.

29. Refertotheabovedata.Ifproductpriceis45,thefirmwill:
A) shutdown.
B) produce4unitsandrealizea120economicprofit.
C) produce5unitsandrealizea15economicprofit.
D) produce6unitsandrealizea100economicprofit.

30. Refertotheabovedata.Ifproductpriceis25,thefirmwill:
A) shutdownandincura90loss.
B) shutdownandincura50loss.
C) produce3unitsandincura65loss.
D) produce4unitsandrealizea10economicprofit.
Total
O u tp u t cost
05 0
1 9 0
2 120
3 140
4 170
5 210
6 260
7 330
31) Ifanindividualperfectlycompetitivefirmchargesapriceabovetheindustry
equilibriumprice,itwill
A)sellallthatitcanproduceandgainequalrevenuewithcompetitors.
B)sellallthatitcanproduceandgainmorerevenuethancompetitors.
C)sellpartofwhatitcanproduceandgainlessrevenuethancompetitorswill.
D)notsellanyofwhatitproduces.

32) Perfectlycompetitivefirms
A)sellhomogeneousproducts.
B)arepricetakers.
C)aresmallrelativetothesizeofthemarket.
D)Alloftheabovearecorrect.

33) Assumefirmsbreakeveninanindustry.Newfirms________attractedtotheindustry
andcurrentones________exitingit.
A)arenot;arenot
B)arenot;are
C)are;arenot
D)are;are

34) Firmsthatare”breakingeven”are
A)earningzeroeconomicprofits.
B)earninglessthananormalrateofreturn.
C)shuttingdownintheshortrun.
D)Alloftheabovearecorrect.

35) YouarehiredasaneconomicconsultanttoThePamperedPetShop.The
PamperedPetShopoperatesinaperfectlycompetitiveindustry.Thisfirmiscurrently
producingatapointwheremarketpriceequalsitsmarginalcost.TheShop?stotalrevenue
exceedsitstotalvariablecost,butislessthanitstotalcost.Youshouldadvisethefirmto
A)ceaseproductionimmediatelybecauseitisincurringaloss.
B)loweritspricesothatitcansellmoreunitsofoutput.
C)produceintheshortruntominimizeitsloss,butexitinthelongrun.
D)raiseitspriceuntilitbreakseven.

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