question

Candy Cane Corporation (CCC) produces 100,000 boxes of candy bars per year which sell for $3 a box. If variable costs are $2 per box, and it has $125,000 in fixed operating costs, in the short run the CCC should:

answer

Keep producing as variable costs are covered

question

When a purely competitive industry is in long-run equilibrium, which statement is true?

answer

Price and average total cost are equal

question

An industry experiencing constant returns to scale and fixed factor prices will have a long run supply curve that is:

answer

Horizontal

question

A purely competitive firm does not try to sell more of its product by lowering its price below the market price because:

answer

It can sell all it wants to at the market price

question

In pure competition, the demand for the product of a single firm is perfectly:

answer

Elastic because many other firms produce the same product

question

In long-run equilibrium under conditions of pure competition and productive efficiency, all firms produce at minimum:

answer

Average total cost

question

A purely competitive firm can be identified by the fact that:

answer

Its average revenue equals marginal revenue

question

Farmer Jones is producing wheat, and must accept the market price of $6.00 per bushel. At this time, her average total costs and her marginal costs both equal $8.00 per bushel. Her average variable costs are $5 per bushel. In choosing her optimal output, farmer Jones should:

answer

Reduce output but continue production

question

In the standard model of pure competition, a profit-maximizing entrepreneur will shut down in the short run if:

answer

Total revenue is less than total variable costs

question

A firm sells a product in a purely competitive market. The marginal cost of the product at the current output is $5.00 and the market price is $5.00. What should the firm do?

answer

Shut down if the minimum possible average variable cost is $5.25

question

Allocative efficiency occurs when the:

answer

Marginal cost equals the marginal benefit to society

question

A firm sells a product in a purely competitive market. The marginal cost of the product at the current output of 1,000 units is $2.50. The minimum possible average variable cost is $2.00. The market price of the product is $2.50. To maximize profit or minimize losses, the firm should:

answer

Continue producing 1,000 units

question

T-Shirt Enterprises is selling in a purely competitive market. Its output is 300 units, which sell for $1 each. At this level of output, marginal cost is $1 and average variable cost is $1.50. The firm should:

answer

Produce zero units of output

question

The long-run supply curve would be downsloping in:

answer

A decreasing-cost industry

question

Total revenue for producing 8 units of output is $48. Total revenue for producing 9 units of output is $63. Given this information, the:

answer

Marginal revenue for producing the ninth unit is $15

question

Suppose that when 3000 units of output are produced, the marginal cost of the 3001st unit is $2. This amount is equal to the minimum of average total cost, and marginal cost is rising. If the optimal level of output in the short run is 3300 units, then at this higher level of output marginal cost is:

answer

Greater than $2 and marginal cost is greater than average total cost

question

In a purely competitive industry, each firm:

answer

Can easily enter or exit the industry

question

In pure competition, price is determined where the industry:

answer

Demand and supply curves intersect

question

A firm sells a product in a purely competitive market. The marginal cost of the product at the current output of 500 units is $1.50. The minimum possible average variable cost is $1.00. The market price of the product is $1.25. To maximize profit or minimize losses, the firm should:

answer

Produce less than 500 units

question

The long-run supply curve under pure competition will be:

answer

Downsloping in a decreasing-cost industry and upsloping in an increasing-cost industry

question

Pure competition produces a socially optimal allocation of resources in the long run because:

answer

Marginal cost equals price

question

If firms enter a purely competitive industry, then in the long run this change will shift the industry:

answer

Supply curve to the right, and the market price will decrease

question

The representative firm in a purely competitive industry:

answer

Will earn an economic profit of zero in the long run

question

A firm should always continue to operate at a loss in the short run if:

answer

It can cover its variable costs and some of its fixed costs

question

When a purely competitive firm is in long-run equilibrium and is allocatively efficient:

answer

Marginal cost equals marginal revenue

question

Which is true for a purely competitive firm in short-run equilibrium?

answer

The firm's marginal revenue is equal to its marginal cost

question

The long-run supply curve would be up-sloping in:

answer

An increasing-cost industry

question

Market failure occurs when:

answer

the competitive market system under-or overallocates resources to production of goods.

question

From the economist's perspective, "market failures" basically arise when:

answer

demand and supply do not accurately reflect all the benefits and all the costs of production.

question

If an economy is being "productively efficient," then that means the economy is:

answer

using the least costly production techniques.

question

With allocative efficiency:

answer

there is production of that particular mix of goods and services most wanted by society.

question

Private goods are characterized by:

answer

rivalry and excludability.

question

Which of the following statements is correct about measuring collective demand for public and private goods?

answer

Private good demand is found by horizontally adding individual demand curves; public good demand is found by vertically adding individual demand curves.

question

In a market where there are external or spillover costs associated with consumption and production, the equilibrium will not be efficient because:

answer

too many resources will be allocated to production of the good.

question

If there are positive externalities associated with the consumption of a good or service:

answer

the private demand curve will underestimate the true demand curve.

question

If the production of a product or service involves external or spillover benefits, then the government can improve efficiency in the market by:

answer

providing a subsidy to correct for an underallocation of resources.

question

If the production of a product or service involves external or spillover benefits, then the government can improve efficiency in the market by:

answer

much of the product at too low a price.

question

One condition for individual bargaining to occur, according to the Coase theorem, is that there must be:

answer

clearly defined property rights.

question

To internalize the external costs of pollution is to:

answer

make the polluter pay all of the costs associated with the polluting activity.

question

The optimal level of pollution in society occurs whenever:

answer

the marginal benefit of pollution control equals the marginal cost.

question

Suppose that the ABC industry produces a product which results in significant spillover costs to society. Such production suggests that:

answer

resources are overallocated to the industry.

question

If an activity results in a spillover benefit, then in a pure market economy the:

answer

quantity produced is too low.

question

What two basic philosophies underlie how an economy's tax burden is assigned?

answer

Benefits-received and ability-to-pay.

question

A factory, mine, store or warehouse that performs one or more functions in making and distributing goods and services is:

answer

A plant

question

A group of firms that produce the same or similar products is:

answer

An industry

question

To the economist, total cost includes:

answer

explicit and implicit costs, including a normal profit.

question

Accounting profits are typically:

answer

greater than economic profits because the former do not take implicit costs into account.

question

Economic profits are calculated by subtracting:

answer

explicit and implicit costs from total revenue.

question

Suppose that a business incurred implicit costs of $200,000 and explicit costs of $1 million in a specific year. If the firm sold 4,000 units of its output at $300 per unit, its accounting profits were:

answer

$200,000 and its economic profits were zero.

question

Suppose that a business incurred implicit costs of $500,000 and explicit costs of $5 million in a specific year. If the firm sold 100,000 units of its output at $50 per unit, its accounting:

answer

profits were zero and its economic losses were $500,000.

question

To economists, the main difference between the short run and the long run is that:

answer

in the long run all resources are variable, while in the short run at least one resource is fixed.

question

The amount of calendar time associated with the long run:

answer

varies from industry to industry.

question

The long run is characterized by:

answer

the ability of the firm to change its plant size.

question

The law of diminishing returns indicates that:

answer

as extra units of a variable resource are added to a fixed resource, marginal product will decline beyond some point.

question

Marginal product:

answer

may initially increase, then diminish, and ultimately become negative.

question

The total output of a firm will be at a maximum where:

answer

MP is zero.

question

When total product is increasing at an increasing rate, marginal product is:

answer

positive and increasing.

question

When total product is increasing at a decreasing rate, marginal product is:

answer

positive and decreasing.

question

Fixed cost is:

answer

any cost which does not change when the firm changes its output

question

Average fixed cost:

answer

declines continually as output increases.

question

Marginal cost is the:

answer

change in total cost that results from producing one more unit of output.

question

Which of the following is correct as it relates to cost curves?

answer

Marginal cost intersects average total cost at the latter's minimum point.

question

Assume that in the short run a firm is producing 100 units of output, has average total costs of $200, and average variable costs of $150. The firm's total fixed costs are:

answer

$5,000.00

question

In the short run the Sure-Screen T-Shirt Company is producing 500 units of output. Its average variable costs are $2.00 and its average fixed costs are $.50. The firm's total costs are:

answer

$1,250.00

question

Suppose that, when producing 10 units of output, a firm's AVC is $22, its AFC is $5, and its MC is $30. This:

answer

firm's total cost is $270.

question

If the total variable cost of 9 units of output is $90 and the total variable cost of 10 units of output is $120, then:

answer

the average variable cost of 9 units is $10.

question

When diseconomies of scale occur:

answer

the long-run average total cost curve rises.

question

The minimum efficient scale of a firm:

answer

is the smallest level of output at which long-run average total cost is minimized.

question

Under conditions of pure monopoly:

answer

Entry is blocked

question

Which is a barrier to entry?

answer

Patents

question

The demand curve confronting a nondiscriminating pure monopolist is:

answer

The same as the industry's demand curve

question

Under pure monopoly, a profit-maximizing firm will produce:

answer

In the elastic range of its demand curve

question

Which is true with respect to the demand data confronting a monopolist?

answer

Marginal revenue is less than price

question

Allocative inefficiency due to unregulated monopoly is characterized by the condition:

answer

P > MC

question

At an equilibrium level of output in a pure monopoly:

answer

P > MC and P > minimum ATC

question

Which of the following conditions is not required for price discrimination?

answer

Buyer with different elasticities must be physically separate from each other.

question

The practice of price discrimination is associated with pure monopoly because:

answer

monopolists have considerable ability to control output and price.

question

A monopolist seeks maximum unit profits.

answer

FALSE

question

In a monopoly, price is greater than marginal cost.

answer

TRUE

question

Price discrimination is not viable if consumers can resell the products they purchase.

answer

TRUE

question

Without regulations, monopolists will produce at an output level where marginal benefit is greater than marginal social cost.

answer

TRUE

question

One feature of pure monopoly is that the monopolist is:

answer

A price maker

question

Natural monopolies result from:

answer

Extensive economies of scale in production

question

One feature of pure monopoly is that the demand curve:

answer

Slopes downward

question

The non-discriminating monopolist's demand curve:

answer

is less elastic than a purely competitive firm's demand curve

question

At the profit-maximizing level of output, a monopolist will always operate where:

answer

Price is greater than marginal cost

question

Suppose that a monopolist calculates that at present output and sales levels, marginal revenue is $1.00 and marginal cost is $2.00. He or she could maximize profits or minimize losses by:

answer

Increasing price and decreasing output

question

Suppose that a monopolist calculates that at present output and sales, marginal cost is $1.00 and marginal revenue is $2.00. He or she could maximize profits by:

answer

Decreasing price and increasing output

question

The supply curve for a monopoly is:

answer

Nonexistent

question

A monopolist will definitely discontinue production in the short run if:

answer

Price is less than average variable cost

question

Which statement is correct?

answer

Pure monopolists do not always realize economic profits

question

The supply curve for a pure monopolist:

answer

Does not exist because there is no fixed relationship between price and quantity supplied

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