Refer to the graph shown. if the market price is p4, the firm will produce:

ECO 102 Summer 2014 (online) Exam 3 35 questions worth 3 points each + 105 possible points (5 extra credit points built in) 1. If a firm shuts down for a week, during that week: A. total cost is zero. B. total cost equals total fixed cost. C. total cost equals total variable cost. D. total variable cost exceeds total fixed cost. 2. Average fixed cost: A. is constant and doesn't vary with output. B. increases as output increases. C. decreases as output increases. D. equals total cost divided by output. 3. A firm is producing 100 units of output at a total cost of $400. The firm's average variable cost is $3 per unit. What is the firm's total fixed cost? A. $1 B. $50 C. $100 D. $300

4. Refer to the table shown. If the output of bicycles is 4 per week, the marginal cost of producing another bicycle per week is: A. $110. B. $120. C. $130. D. $140.

Reference: 11-­‐9 The following graph shows average fixed costs, average variable costs, average total costs, and marginal costs of production.

5. Refer to the graph shown. Why does the distance between curves II and III get smaller as quantity increases? A. Marginal cost is increasing. B. Average variable cost is increasing. C. Average fixed cost is declining. D. Average fixed cost is increasing. 6. Refer to the graph shown. Average variable cost is minimized when output equals: A. 12 units. B. 6 units. C. 21 units. D. 25 units. 7. Other things being equal, when average productivity falls: A. average fixed cost must rise. B. marginal cost must rise. C. average total cost must rise. D. average variable cost must rise. 8. If marginal cost is less than average total cost: A. average total cost is increasing with output. B. average total cost is decreasing with output. C. average variable cost is increasing with output. D. average variable cost is decreasing with output. 9. Diseconomies of scale are associated with: A. an upward-­‐sloping long-­‐run average cost curve. B. an upward-­‐sloping short-­‐run average cost curve. C. a downward-­‐sloping long-­‐run average cost curve. D. a downward-­‐sloping short-­‐run average cost curve.

10. In a perfectly competitive market, firms set: A. prices and quantities. B. prices but not quantities. C. quantities but not prices. D. neither prices nor quantities. 11. In a perfectly competitive market, the demand curve faced by an individual firm is: A. perfectly inelastic. B. relatively inelastic. C. perfectly elastic. D. relatively elastic. 12. A perfectly competitive firm's marginal revenue is: A. less than the selling price. B. greater than the selling price. C. equal to the selling price. D. sometimes below and sometimes above the selling price. 13. If the marginal revenue of the next widget a firm produces is $50 and its marginal cost is $35, a firm should: A. reconsider past production decisions. B. decrease production. C. increase production. D. hold production constant.

14. Refer to the graph shown. Currently, if this perfectly competitive firm is maximizing profit, the market price is: A. $6.50 and marginal revenue for the firm is $5.00 B. $5.00 and marginal revenue for the firm is $3.00 C. $5.00 and marginal revenue for the firm is $5.00 D. $6.50 and marginal revenue for the firm is $6.50

15. The supply curve of a perfectly competitive firm is: A. the marginal cost curve only if price exceeds average variable cost. B. the marginal cost curve only if price exceeds average total cost. C. the average total cost curve only if price exceeds average variable cost. D. nonexistent. Reference: 13-­‐6

16. Refer to the graph shown. What level of output should the perfectly competitive firm produce to maximize profits? A. 7. B. 8. C. 6. D. 4. 17. This firm is A. earning economic profit = $1,200 B. earning normal profit = $1,200 C. earning economic profit = $800 D. earning normal profit = $800 18. Refer to the graph shown. Total Fixed Cost = A. $80 B. $400 C. $1600 D. $800

19. Refer to the graph above. What price represents the shutdown price? A. P1 B. P2 C. P3 D. P4

20. Refer to the graph above. Suppose the market price is $4. At this price, a perfectly competitive firm should: A. continue to produce in the short run but shut down in the long run. B. continue to produce in both the short run and the long run. C. shut down in the short run but continue production in the long run. D. shut down immediately.

21. Refer to the following graphs.

Which graph depicts a perfectly competitive firm in long-­‐run equilibrium? A. graph I B. graph II C. graph III D. graph IV 22. The existence of positive economic profits induces firms to: A. enter an industry, which shifts the market supply curve to the left and decreases market price. B. enter an industry, which shifts the market supply curve to the right and increases market price. C. exit an industry, which shifts the market supply curve to the right and decreases market price. D. enter an industry, which shifts the market supply curve to the right and decreases market price.

23. Refer to the graphs shown, which depict a perfectly competitive market and firm. If market demand is D0: A. this market is in long-­‐run equilibrium because the firm is earning positive economic profit. B. this market is in long-­‐run equilibrium because the firm is earning zero economic profit. C. this market is in short-­‐run equilibrium but not long-­‐run equilibrium. D. the firm will raise the price above P0 to increase profit. 24. Refer to the graphs shown, which depict a perfectly competitive market and firm. If market demand increases from D0 to D1, the firm will: A. lower the price it charges. B. earn negative economic profit in the short run. C. earn positive economic profit in the short run. D. earn positive economic profit in the long run.

25. With the long-­‐run average cost curve above, the minimum efficient scale of production is: A. 16. B. 18 to 21. C. 21. D. 23.

26. Perfectly competitive firms: A. are price takers. B. are individually able to influence the market price. C. will succeed by charging a price higher than that charged by the rest of the market. D. can influence the prices of other firms in the same industry by altering their own prices. 27. The U shape of the average total cost curve reflects the fact that: A. average productivity falls and then rises. B. average productivity rises and then falls. C. average productivity is constant. D. marginal product falls and then rises. Use the following to answer questions 28-­‐30. There IS enough information. These are difficult because you must derive relevant data from the information given.

28. Refer to the above data. If product price is $60, the firm will: A) shut down. B) produce 4 units and realize a $120 economic profit. C) produce 6 units and realize a $100 economic profit. D) produce 3 units and incur a $40 loss. 29. Refer to the above data. If product price is $45, the firm will: A) shut down. B) produce 4 units and realize a $120 economic profit. C) produce 5 units and realize a $15 economic profit. D) produce 6 units and realize a $100 economic profit. 30. Refer to the above data. If product price is $25, the firm will: A) shut down and incur a $90 loss. B) shut down and incur a $50 loss. C) produce 3 units and incur a $65 loss. D) produce 4 units and realize a $10 economic profit.

T o t a l O u t p u t c o s t

0 $ 5 0 1 9 0 2 1 2 0 3 1 4 0 4 1 7 0 5 2 1 0 6 2 6 0 7 3 3 0

31) If an individual perfectly competitive firm charges a price above the industry equilibrium price, it will A) sell all that it can produce and gain equal revenue with competitors. B) sell all that it can produce and gain more revenue than competitors. C) sell part of what it can produce and gain less revenue than competitors will. D) not sell any of what it produces. 32) Perfectly competitive firms A) sell homogeneous products. B) are price takers. C) are small relative to the size of the market. D) All of the above are correct. 33) Assume firms break even in an industry. New firms ________ attracted to the industry and current ones ________ exiting it. A) are not; are not B) are not; are C) are; are not D) are; are 34) Firms that are "breaking even" are A) earning zero economic profits. B) earning less than a normal rate of return. C) shutting down in the short run. D) All of the above are correct. 35) You are hired as an economic consultant to The Pampered Pet Shop. The Pampered Pet Shop operates in a perfectly competitive industry. This firm is currently producing at a point where market price equals its marginal cost. The Shopʹs total revenue exceeds its total variable cost, but is less than its total cost. You should advise the firm to A) cease production immediately because it is incurring a loss. B) lower its price so that it can sell more units of output. C) produce in the short run to minimize its loss, but exit in the long run. D) raise its price until it breaks even.