The presence of indivisible inputs explains the

Quiz #1 questions from chapter 5-6

Chapter 5

1. Economic profit equals _A__ minus _B__.

A.a. Accounting cost b. economics cost c. revenue B.a.Accounting cost b. economics cost c.revenue

2.The __ run is defined as a period over which a firm cannot change its production facility.

a. short b. long

3.A firm’s explicit cost is the

A. opportunity cost of the inputs.

B.actual monetary payment for inputs plus opportunity cost of the inputs.

C.cost of​ capital, an implicit cost is the cost of labor.

D.actual monetary payment for inputs

4. Total revenue minus accounting cost equals _A__ ​which will always be the greater than the _B_ .

A.a.accounting profit b.economic profit B. a.accounting profit b.economic profit

5. At the current level of​ output, the marginal cost of MP 3 players exceeds the average cost. If you increase​ output, the average cost will__ .

A.Increase B. decrease

6. A marginal cost curve intersects the average cost curve at the __ point of the average cost curve .

A.Maximun B.Minimum

7. For a firm that doubles its workforce and adds a second shift at its​ factory, production _A_

subject to diminishing​ returns, so marginal cost is _B_.

A.a.is not b.is B. a.increaseing b.constant

8. The presence of indivisible inputs explains the _A_portion of a​ long-run average-cost​ curve, and the notion of replication explains the _B_ portion of a​ long-run average-cost curve.

A.a.negatively sloped b.positively sloped c.horizontal

B. a.positively sloped b.negatively sloped c.horizontal

9. Deregulation and the Cost of Trucking. Suppose the government initially limits the number of trucking firms that can haul freight. The market for truck freight is initially served by a single firm that produces 5 million ton miles of service per​ year, where 1 ton mile is the hauling of 1 ton of freight 1 mile. The newly elected governor has proposed that other firms be allowed to enter the market. At a public hearing on the issue of eliminating the entry​ restrictions, the manager of the existing firm issued a grim​ warning: ​ "If you allow entry into the​ market, 4 or 5 firms will​ enter, and the unit cost of truck freight will at least triple. There are big economies of scale in​ trucking, so a single large firm is more​ cost-efficient than several small firms would​ be." What's your reaction to this​ statement?

A.Economies of scale are slight. Unit cost will​ rise, but not by much

B.According to the​ graph, there are no economies of scale.

C.Although economies of scale are​ large, unit cost will not rise because of competition.

D.The manager is​ correct, large economies of scale will triple unit costs.

10. For information goods such as a music video distributed​ online, the cost of producing the first copy is very _A_ but the marginal cost of reproduction is _B_ .

A. a.low b.high B.a.very low b.very high

Chaprter 6

1. Which of the following is NOT a condition of perfect​ competition?

A.There are many firms.

B.There are no barriers to entry.

C.Firm specific demand is perfectly elastic.

D.The product is differentiated.

2. Economic cost equals _A_ cost plus _B_ cost.

Aa.explicit b.sunk B.a.implicit b.accounting cost.

3. At the current output​ level, a​ farmer's marginal cost of producing sugar is ​$0.34. If the price of sugar is ​$0.29 per​ pound, the farmer should _A_ production. If the price of sugar is ​$0.38 per​ pound, the farmer should _B_ production.

A.a.increase b.decrease B.a.increase b.decrease

4. A firm will shut down an unprofitable business if _A_ is less than _B_ .

A.a.average cost b.marginal cost c.total revenue B.a variable cost b.marginal revenue

5. A firm that is losing money should continue to operate in the short run if the market price exceeds _ .

A. Average total cost b. average variable cost

6. What best describes a sunk​ cost?

A.A fixed cost that can be resold or rented out.

B.Money sunk into reducing costs.

C.Costs that vary directly with production.

D.Money paid that can not be recovered.

7. The​ short-run supply curve is the

A.average variable cost curve above the​ break-even price.

B.marginal cost curve above the​ break-even price.

C.average variable cost curve above the​ shut-down price.

D.marginal cost curve above the​ shut-down price.

8. The​ long-run supply curve shows the relationship between _A_ on the horizontal axis and _B_ on the vertical axis .

Aa.quantity supplied b.price Ba.quantity supplied b. price

9. Sugar Import Ban. The sugar industry is another example of an​ increasing-cost industry. If the price of sugar is only 11 cents per​ pound, sugar production is profitable in areas with relatively low production​ costs, including the​ Caribbean, Latin​ America, Australia, and South Africa. At a price of 11​ cents, the world supply of sugar equals the amount produced in these areas. As the price​ increases, sugar production becomes profitable in areas where production costs are​ higher, and as these areas enter the world​ market, the quantity of sugar supplied increases. For​ example, at a price of 14 cents per​ pound, sugar production is profitable in some countries in the European Union too. At a price of 24​ cents, production is profitable even in the United States.  

a. If the world price is 13 cents per​ pound, what areas of the world supply sugar to the world market and the United​ States?

A.The​ Caribbean, Latin​ America, Australia, South​ Africa, and some countries in the EU.

B.The​ Caribbean, Latin​ America, Australia, South​ Africa, and the U.S.

C.The​ Caribbean, Latin​ America, Australia, and South Africa.

D.The Caribbean and Latin America.

b. Suppose the United States bans sugar imports. You predict that the new price of sugar in the U.S. will be at least ​$__. ​(Enter your response to two decimal​ places.)

10. Related to​ Application: The Upward Jump and Downward Slide of Wine Prices

Suppose the demand for shirts increases. In the short​ run, the price _A_ by a relatively large amount. As firms enter the​ market, the price _B_ . In the new​ long-run equilibrium, there is a net _C_ in price relative to the old equilibrium.

A.a.increases b. decrease B.a.increases b. decreases C.a.increase b.decrease