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Scenario 14-2
Assume a certain firm is producing Q = 1,000 units of output. At Q = 1,000, the firm's marginal cost equals $15 and its average total cost equals $11. The firm sells its output for $12 per unit. 110. Refer to Scenario 14-2. At Q = 1,000, the firm's profit amounts to
a. $-200. b. $1,000. c. $3,000. d. $4,000. ANS: B PTS: 1 DIF: 2 REF: 14-2 TOP: Profit MSC: Applicative 111. Refer to Scenario 14-2. At Q = 999, the firm's total cost amounts to
a. $10,985. b. $10,990. c. $10,995. d. $10,999. ANS: A PTS: 1 DIF: 3 REF: 14-2 TOP: Total cost MSC: Applicative
112. Refer to Scenario 14-2. At Q = 999, the firm's profit amounts to
a. $993. b. $997. c. $1,003. d. $1,007. ANS: C PTS: 1 DIF: 3 REF: 14-2 TOP: Profit MSC: Applicative 113. Refer to Scenario 14-2. To maximize its profit, the firm should
a. increase its output.
b. continue to produce 1,000 units.
c. decrease its output, but continue to produce. d. shut down. ANS: C PTS: 1 DIF: 2 REF: 14-2 TOP: Profit maximization MSC: Analytical 114. Which of these curves is the competitive firm's short-run supply curve?
a. The average variable cost curve above marginal cost. b. The average total cost curve above marginal cost. c. The marginal cost curve above average variable cost. d. The average fixed cost curve. ANS: C PTS: 1 DIF: 2 REF: 14-2 TOP: Supply curve MSC: Definitional
115. A competitive firm's marginal cost curve is regarded as its supply curve because
a. the position of the marginal cost curve determines the price for which the firm should sell its product. b. among the various cost curves, the marginal cost curve is the only one that slopes upward.
c. the marginal cost curve determines the quantity of output the firm is willing to supply at any price. d. the firm is aware that marginal revenue must exceed marginal cost in order for profit to be maximized. ANS: C PTS: 1 DIF: 2 REF: 14-2 TOP: Supply curve MSC: Interpretive 116. A competitive firm has been selling its output for $20 per unit and has been maximizing its profit, which is positive.
Then, the price rises to $25 and the firm makes whatever adjustments are necessary to maximize its profit at the now-higher price. Once the firm has adjusted, which of the following statements is correct? a. The firm's quantity of output is higher than it was previously. b. The firm's average total cost is higher than it was previously. c. The firm's marginal revenue is higher than it was previously. d. All of the above are correct. ANS: D PTS: 1 DIF: 2 REF: 14-2 TOP: Competitive firms MSC: Interpretive
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117. A competitive firm has been selling its output for $10 per unit and has been maximizing its profit. Then, the price
rises to $14 and the firm makes whatever adjustments are necessary to maximize its profit at the now-higher price. Once the firm has adjusted, which of the following statements is correct? a. The firm's marginal revenue is lower than it was previously. b. The firm's marginal cost is lower than it was previously.
c. The firm's quantity of output is higher than it was previously. d. All of the above are correct. ANS: C PTS: 1 DIF: 2 REF: 14-2 TOP: Competitive firms MSC: Interpretive 118. Which of the following statements is correct regarding a firm's decision-making?
a. The decision to shutdown and the decision to exit are both short-run decisions. b. The decision to shutdown and the decision to exit are both long-run decisions.
c. The decision to shutdown is a short-run decision, whereas the decision to exit is a long-run decision. d. The decision to exit is a short-run decision, whereas the decision to shutdown is a long-run decision. ANS: C PTS: 1 DIF: 2 REF: 14-2 TOP: Profit maximization MSC: Interpretive 119. A firm that shuts down temporarily
a. still has to pay its variable costs, but not its fixed costs. b. still has to pay its fixed costs, but not its variable costs. c. still has to pay both its variable costs and its fixed costs. d. has to pay neither its variable costs nor its fixed costs. ANS: B PTS: 1 DIF: 2 REF: 14-2 TOP: Fixed costs MSC: Interpretive
120. A firm that exits its market
a. still has to pay its variable costs, but not its fixed costs. b. still has to pay its fixed costs, but not its variable costs. c. still has to pay both its variable costs and its fixed costs. d. has to pay neither its variable costs nor its fixed costs. ANS: D PTS: 1 DIF: 2 REF: 14-2 TOP: Fixed costs MSC: Interpretive
121. A firm will shut down in the short run if the total revenue that it would get from producing and selling its output is
less than its
a. opportunity costs. b. fixed costs. c. variable costs. d. total costs. ANS: C PTS: 1 DIF: 2 REF: 14-2 TOP: Profit maximization MSC: Interpretive 122. A firm will shutdown in the short run if, for all positive levels of output,
a. its loss exceeds its fixed costs.
b. its total revenue is less than its variable costs.
c. the price of its product is less than its average variable cost. d. All of the above are correct. ANS: D PTS: 1 DIF: 2 REF: 14-2 TOP: Profit maximization MSC: Interpretive
123. A firm's marginal cost has a minimum value of $2, its average variable cost has a minimum value of $4, and its
average total cost has a minimum value of $5. Then the firm will shut down if the price of its product falls below a. $2. b. $4. c. $5.
d. There is not enough information given to answer the question. ANS: B PTS: 1 DIF: 2 REF: 14-2 TOP: Profit maximization MSC: Analytical
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124. The complete description of a competitive firm's supply curve is as follows: The competitive firm's short-run supply
curve is that portion of the
a. average variable cost curve that lies above marginal cost. b. average total cost curve that lies above marginal cost. c. marginal cost curve that lies above average variable cost. d. marginal cost curve that lies above average total cost. ANS: C PTS: 1 DIF: 2 REF: 14-2 TOP: Supply curve MSC: Definitional 125. Which of these types of costs can be ignored when an individual or a firm is making decisions?
a. Sunk costs b. Marginal costs c. Variable costs d. Information costs ANS: A PTS: 1 DIF: 1 REF: 14-2 TOP: Sunk costss MSC: Interpretive
126. Suppose you bought a ticket to a football game for $30, and that you place a $35 value on seeing the game. If you lose
the ticket, then what is the maximum price you should pay for another ticket? a. $5 b. $30 c. $35 d. $65 ANS: C PTS: 1 DIF: 2 REF: 14-2 TOP: Sunk costss MSC: Interpretive
127. The competitive firm's long-run supply curve is that portion of the marginal cost curve that lies above average
a. fixed cost. b. variable cost. c. total cost. d. revenue. ANS: C PTS: 1 DIF: 2 REF: 14-2 TOP: Supply curve MSC: Definitional 128. Assume a firm is producing 800 units of output, and it sells each unit for $6. Its average total cost is $4. Its profit is
a. $-1,600. b. $1,600. c. $3,200. d. $8,000. ANS: B PTS: 1 DIF: 2 REF: 14-2 TOP: Profit MSC: Applicative 129. Susan quit her job as a teacher, which paid her $36,000 per year, in order to start her own catering business. She spent
$12,000 of her savings, which had been earning 10 percent interest per year, on equipment for her business. She also borrowed $12,000 from her bank at 10 percent interest, which she also spent on equipment. For the past several months she has spent $1,000 per month on ingredients and other variable costs. Also for the past several months she has taken in $3,500 in monthly revenue.
a. In the short run, Susan should shut down her business and in the long run she should exit the industry.
b. In the short run, Susan should continue to operate her business, but in the long run she should exit the industry. c. In the short run, Susan should continue to operate her business, but in the long run she will probably face
competition from newly entering firms.
d. In the short run, Susan should continue to operate her business, and she is also in long-run equilibrium. ANS: B PTS: 1 DIF: 3 REF: 14-2 TOP: Profit maximization MSC: Analytical
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130. A firm in a competitive market has the following cost structure:
Output 0 1 2 3 4 5
If the market price is $4, this firm will
a. produce two units in the short run and exit in the long run. b. produce three units in the short run and exit in the long run. c. produce four units in the short run and exit in the long run. d. shut down in the short run and exit in the long run. ANS: B PTS: 1 DIF: 3 REF: 14-2 TOP: Profit maximization MSC: Applicative
131. A competitive market is in long-run equilibrium. If demand decreases, we can be certain that price will
a. fall in the short run. All firms will shut down and some of them will exit the industry. Price will then rise to reach
the new long-run equilibrium.
b. fall in the short run. No firms will shut down, but some of them will exit the industry. Price will then rise to reach
the new long-run equilibrium.
c. fall in the short run. All, some, or no firms will shut down, and some of them will exit the industry. Price will then
rise to reach the new long-run equilibrium.
d. not fall in the short run because firms will exit to maintain the price. ANS: C PTS: 1 DIF: 3 REF: 14-2 TOP: Competitive markets MSC: Analytical 132. Starting from a situation in which a firm in a competitive market produces and sells 500 doorknobs for a price of $10
per doorknob, which of the following events would decrease the firm's average revenue? a. The firm increases its output above 500 doorknobs. b. The firm decreases its output below 500 doorknobs. c. The market price of doorknobs rises above $10. d. The market price of doorknobs falls below $10. ANS: D PTS: 1 DIF: 1 REF: 14-2 TOP: Average revenue MSC: Interpretive
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133. Suppose the total cost for various levels of output for a competitive firm are given in the table below:
Q 0 1 2 3 4 5 6 7 8 9
If the market price is $8, how many units should the firm produce to maximize profit? a. 5 b. 6 c. 7 d. 8 ANS: B PTS: 1 DIF: 2 REF: 14-2 TOP: Profit maximization MSC: Analytical
134. The following table gives the average total cost of production for various levels of output for a competitive firm:
TC 10 12 15 19 24 30 37 46 55 65
Q 0 1 2 3 4 5
If the firm's fixed cost of production is $3 and the market price is $10, how many units should the firm produce to maximize its profit? a. 1 b. 2 c. 3 d. 4 ANS: C PTS: 1 DIF: 3 REF: 14-2 TOP: Profit maximization MSC: Analytical
ATC -- 10 8 7 8 10