Quiz IV

Question 1

Which of the following statements is correct?

a. Assuming that explicit costs are positive, economic profit is greater than accounting profit.
b. Assuming that implicit costs are positive, accounting profit is greater than economic profit.
c. Assuming that explicit costs are positive, accounting profit is equal to economic profit.
d. Assuming that implicit costs are positive, economic profit is positive.

Answer 1

ANS: B

Question 2

Katherine gives piano lessons for $15 per hour. She also grows flowers, which she arranges and sells at the local farmer’s market. One day she spends 5 hours planting $50 worth of seeds in her garden. Once the seeds have grown into flowers, she can sell them for $150 at the farmer’s market. Katherine’s accounting profits are

a. $100, and her economic profits are $25.
b. $100, and her economic profits are $75.
c. $25, and her economic profits are $100.
d. $75, and her economic profits are $125.

Answer 2

ANS: A

Question 3

For a firm, the relationship between the quantity of inputs and quantity of output is called the

a. profit function.
b. production function.
c. total-cost function.
d. quantity function.

Answer 3

ANS: B

Question 4

Suppose the production function shifts from TP1 to TP2. Such a shift in the total product curve is most likely due to an increase in the firm’s

a. costs of production.
b. productivity.
c. product price.
d. market share.

Answer 4

ANS: B

Question 5

The marginal product of the second worker is

a. 90 units.
b. 85 units.
c. 80 units.
d. 20 units.

Answer 5

ANS: C

Question 6

The marginal product of the third worker is

a. 230 units.
b. 100 units.
c. 77 units.
d. 60 units.

Answer 6

ANS: D

Question 7

The marginal product of the fourth worker is

a. 10 units.
b. 60 units.
c. 230 units.
d. 240 units.

Answer 7

ANS: A

Question 8

At which number of workers does diminishing marginal product begin?

a. 1
b. 2
c. 3
d. 4

Answer 8

ANS: B

Question 9

If the firm can sell its output for $1 per unit, what is the profit-maximizing level of output?

a. 240 units
b. 230 units
c. 190 units
d. 170 units

Answer 9

ANS: B

Question 10

Curve D is increasing because

a. of diminishing marginal product.
b. of increasing marginal product.
c. marginal product first increases, then decreases.
d. marginal product first decreases, then increases.

Answer 10

ANS: A

Question 11

Curve A is always declining because

a. of diminishing marginal product.
b. we are dividing fixed costs by higher and higher levels of output.
c. marginal product first increases, then decreases.
d. marginal product first decreases, then increases.

Answer 11

ANS: B

Question 12

When marginal cost is less than average total cost,

a. marginal cost must be falling.
b. average variable cost must be falling.
c. average total cost is falling.
d. average total cost is rising.

Answer 12

ANS: C

Question 13

When marginal cost exceeds average total cost,

a. average fixed cost must be rising.
b. average total cost must be rising.
c. average total cost must be falling.
d. marginal cost must be falling.

Answer 13

ANS: B

Question 14

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

Answer 14

ANS: C

Question 15

When a profit-maximizing firm is earning profits, those profits can be identified by

a. P X Q.
b. (MC - AVC) X Q.
c. (P - ATC) X Q.
d. (P - AVC) X Q.

Answer 15

ANS: C

Question 16

Assume a firm in a competitive industry 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.

Answer 16

ANS: B

Question 17

Suppose a profit-maximizing firm in a competitive market produces rubber bands. When the market price for rubber bands rises above the minimum of its average variable cost, but still lies below the minimum of average total cost, in the short run the firm will

a. experience losses but will continue to produce rubber bands.
b. shut down.
c. earn both economic and accounting profits.
d. raise the price of its product.

Answer 17

ANS: A

Question 18

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.

Answer 18

ANS: A

Question 19

When a profit-maximizing firm in a competitive market has zero economic profit, accounting profit

a. is negative.
b. is at least zero.
c. is also zero.
d. could be positive, negative or zero.

Answer 19

ANS: B

Question 20

If all firms have the same costs of production, then in long-run equilibrium,

a. price exceeds average total cost for all firms.
b. price exceeds marginal cost for all firms.
c. some firms may earn positive economic profits.
d. all firms have zero economic profits.

Answer 20

ANS: D