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ECO 102 Exam 3 Problems

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Question;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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