Economics Answers

possible multiple choice
1. Assume a constant - cost industry that is initially in long - run competitive equilibrium. An increase in demand will cause a(n) __________ in prices and profits, and as a result, firms will __________ the industry, causing the market supply curve to shift __________, which, in turn, will eventually cause the equilibrium price to be __________ before.
a. decrease; exit; leftward; lower than
b. increase; enter; rightward; higher than
c. decrease; exit; rightward; higher than
d. increase; enter; rightward; the same as
e. increase; exit; leftward; lower than.

Multiple choice
1.Suppose that, in the long run, the price of feature films rises as the movie production industry expands. We can conclude that movie production is a(n):
a. increasing - cost industry.
b. constant - cost industry.
c. decreasing - cost industry.
d. marginal - cost industry.

2. As the electronic components industry expands, the salaries paid to electrical engineers rise in
response to higher demand. We can conclude that the electronic components industry is:
a. a constant-cost industry.
b. an increasing-cost industry.
c. a decreasing-cost industry.
d. a marginal-cost industry.

multiple choice
1. In long-run equilibrium, a competitive firm produces the level of output at which:
a. marginal cost is at a minimum.
b. short - run average total cost and long-run average cost are at a minimum.
c. total revenue is at a maximum.
d. diseconomies of scale end.

2. Which of the following statements is true?
a. To maximize profits, a firm must maximize total revenue.
b. In long-run equilibrium, a competitive firm produces at the point of minimum average
total cost.
c. In the short-run, a perfectly competitive firm produces where total cost is minimum.
d. In the short-run, a perfectly competitive firm will close down whenever price is less than
average total cost.

multiple choice
1. The supply curve of a price-taker firm in the short run is the:
a. firm's average variable cost curve.
b. portion of the firm's average total cost curve that lies above average variable cost curve.
c. portion of the firm's marginal cost curve that lies above average variable cost curve.
d.firm's marginal revenue curve.

2. If a competitive firm is losing money then it should:
a. always shut down.
b. shut down if its losses are greater than total fixed costs.
c. shut down if its total fixed costs are greater than losses.
d. raise its price.

2. Suppose a company increases production from a point where marginal cost equals average total cost to a point where marginal revenue and marginal cost are equal. Is it a good idea for the company to do this? Why?
a. No, average total costs have increased which means the company is not minimizing losses.
b. Yes, because average variable costs are always less than average total costs.
c. No, because the marginal cost of producing the last unit is the same as the marginal
revenue.
d. Yes, even though the previous level of output had minimized the average total cost, there
was still profit to be earned by producing additional units.
e. No, the previous level of output was the most efficient because it had the lowest average
total cost.

Multiple choice
1. Suppose the price of a product is less than its average variable cost. When the firm's fixed obligations are completely ended, it will now most likely:
a. make an economic profit.
b. go out of business.
c. expand to a bigger operation.
d. break even.

1. A sandwich shop owner has the following information: P = MR = $ 4, ATC = $ 2, AVC
= $ 1, MC = 4, and Q = 500. From this, she can determine:
a. her profits are not being maximized.
b. she has earned economic profits of $ 1,000.
c. she has earned economic profits of $ 1,500.
d. she should sell fewer sandwiches.

2. If a firm shuts down in the short run, it will:
a. incur losses equal to its fixed costs.
b. produce at the output level where MC = MR.
c. reduce its losses to zero.
d. do this because P > AVC.

Multiple choice
1. Suppose product price is fixed at BAM 24; MR = MC at Q = 200; AFC = BAM 6; AVC = BAM 16.
What do you advise this firm to do?
a. Increase output.
b. Shut down operations.
c. Stay at the current output; the firm is earning a profit of BAM 400.
d. Stay at the current output; the firm is losing BAM 200.

2. If a potato farmer expands output, he finds that the increase in total revenue is less than the increase in total costs. This means that:
a. profit is being maximized.
b. he should not have expanded output.
c. he should produce even more output.
d. the firm is wasting resources.
e. the farmer should go out of business.

Multiple choice
1. If a business firm is not operating at the point where MR = MC, then:
a. it should shut down.
b. it cannot be earning a profit.
c. its profit is zero.
d. it is not earning the maximum potential profit.

2. If, at the point where MR = MC, the firm incurs losses, in the short run the firm should:
a. shut down.
b. decrease output.
c. continue at its current output if P > AVC.
d. continue at its current output if P > ATC.

Multiple choice
1. A perfectly competitive firm sells its output for $100 per unit and marginal cost is $100 per unit. To maximize short-run profit, the firm should:
a. increase output.
b. decrease output.
c. maintain its current output.
d. shut down.

2. Suppose that price is below the minimum average total cost (ATC) but above the minimum average variable cost (AVC), and the market price is expected to rise at least to ATC in the near future. In the short run, a firm that is a price taker would:
a. immediately shut down and get out of the industry.
b. continue to produce a quantity such that marginal revenue equals marginal cost.
c. shut down temporarily, in hopes of restarting in the near future.
d. cut price and expand output in hopes of achieving economies of scale.