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##### Economics Test Bank with Solution

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Question;1) Diseconomies of scale occur whena. long-run average total costs rise as output increases.b. long-run average total costs fall as output increases.c. average fixed costs are falling.d. average fixed costs are constant.;2. Calculate the monopolist's profit under the following conditions. The intersection of the marginalrevenue and marginal cost curves occurs where output is 10 units. At an output of 10 units, themonopoly price is \$20 per unit, the marginal cost is \$12 per unit, and the average variable cost is \$4per unit, and average fixed cost is \$8 per unit.a. \$120b. \$100c. \$80d. \$60;3. Marginal revenue is equal to price for a competitive firm because;a. Total revenue increases by less than the price of the good when an additional unit is soldb. Firms need to lower price to increase the quantity soldc. Firms can increase price and still increase the quantity soldd. Total revenues increases by more than the price of the good when an additional unit is solde. Individual firms do not affect the market price of the good when they increase the quantity theyproduce.;4. Which of the following statements is false?a. In the long run, there are no fixed costs.b. Marginal cost is independent of fixed costs.c. Economies of scale is a short-run concept.d. Diminishing marginal product explains increasing marginal cost.5. Refer to the above graph. The firm is making a __________ of ___________a. profit, \$88b. loss, \$88c. profit, \$8d. loss, \$8e. profit, \$16;6. A firm's output is 80 units, its MC is \$44, its ATC is \$43, and its AFC is \$10. AVC isa. Increasingb. Decreasingc. Constantd. Not enough information7. Table 1 presents the cost schedule for Lauren's cookies. If Lauren produces 4 figs, Lauren's fixed costsarea. \$0.b. \$100.c. \$190.d. \$50.;8. Table 1 presents the cost schedule for Lauren's Cookies. If Lauren produces five figs, Lauren'smarginal costs area. \$40.b. \$50.c. \$150.d. \$650.e. None of the above.;9. The marginal cost curve intersects thea. ATC, AVC, and AFC curves at their minimum pointsb. ATC and AFC at their minimum pointsc. AVC and AFC at their minimum pointsd. ATC and AVC at their minimum points;10. Assume that a competitive constant-cost industry is in long-run equilibrium when market demandsuddenly increases. Which of the following statements is correct?a. Existing firms will start suffering losses in the short runb. Existing firms will stop producing in the short run if AVC exceeds AR at the profit maximizing outputlevelc. Some firms will exit the industry in the long rund. Market supply will shift to the right in the long runTable 2Price per unit Output\$8600\$7\$6\$5\$4\$3\$2\$180010001200140016001800200011. Suppose that Sam L. is a monopolist in the donut market, which has the demand shown in Table2.When Sam L. increases output from 800 to 1000 units, what happens to Sam L.?s revenues?a. Revenues increase by \$200b. Revenues increase by \$400c. Revenues decrease by \$200d. Revenues increase by \$1000e. Revenues do not change;12. A firm is deciding whether to produce or shut down in the short run. Its total costs are \$20,000 ofwhich \$5,000 are the total fixed costs of production. The firm should produce in the short run as longas its total revenues are at leasta. \$0b. \$15,000.c. \$10,000.d. \$5,000.13. Which of the following is true for a profit maximizing firm in a competitive market in the long run butnot true for a monopolist?a. MC=MRb. MC=Pc. AR=Pd. Only one firm exists;14. Refer to Table 2. Sam L. remains a monopolist in the donut market. Suppose Sam L.?s marginal cost ofproducing each donut is constant and equal to \$2. Sam L. will maximize his profits by charging a priceofa. \$20b. \$4c. \$5d. \$6e. None of the above;15. In the short run, when price is below average total cost, a firm in a competitive market willa. Shut down and incur the loss of both variable and fixed costsb. Continue to operate as long as average revenue exceeds marginal costc. Continue to operate as long as average revenue exceeds average variable costd. Always exit the industry;16. Assume that the Law of Diminishing Marginal Product applies at the current output level of acompetitive firm. The price is \$20 and, at the current output level, marginal cost is \$22 and averagetotal cost is \$21. To maximize profits the firm should:a. produce the current output levelb. produce morec. produce lessd. any of the above is possible, without further information.17. A competitive firm might choose to set its price above the market price, becausea. this would result in higher average revenue.b. this would result in higher profits.c. this would result in lower total costs.d. None of the above is correct.18. The practice of selling the same goods to different customers at different prices, but with the samemarginal cost, is known asa. price discrimination.b. monopoly pricing.c. arbitrage.d. price segregation.;19. A firm's average variable cost is \$80, its total fixed cost is \$6,000, and its output is 600 units. Itsaverage total cost must be:a. less than \$80.b. \$80c. \$90d. more than \$90.;20. Which is a true statement?a. Diseconomies of scale and diminishing marginal products are two ways of stating the same thing.b. Economies of scale is a short-run concept, and diminishing marginal product is a long-run concept.c. Constant returns to scale is a short-run concept, and diminishing marginal product is a long-runconcept.d. None of the above.;Long Problems ?;21. The market for gilders is initially competitive and the market demand is: P? 231? 0.9QD. Thecombined marginal costs of the firms in the gilder industry are:MC? 11? 0.2Q.a. Graph the market demand and MC curves, and indicate the MR curve for the firms in the gilderindustry below. How much is produced in the industry and what is the price of gilders?b. What are consumer surplus and producer surplus in the marketc. What is the DWL, if any, for this market?d) Now suppose that one company buys out all of the firms in the gilder market, but has the samecombined MC. Draw the monopolist?s MR on your original graph above. How much does themonopolist produce and what price do they charge?e. What are CS and PS with the monopoly?f. What is the DWL, if any, with the monopoly?

Paper#57452 | Written in 18-Jul-2015

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