Q&A Hero

Q: Consider the following diagram where a perfectly competitive firm faces a price of $40.The profit-maximizing output isA) 30.B) 54.C) 60.D) 67.E) 79.

Q: The following table contains information for a price taking competitive firm. Complete the table and determine the profit maximizing level of output (round your answer to the nearest whole number). Total Marginal Fixed Average Total Average Marginal Output Cost Cost Cost Cost Revenue Revenue Revenue 0 25 1 35 2 30 3 45 4 185 5 57 6 120 240

Q: The following table contains information for a price taking competitive firm. Complete the table and determine the profit maximizing level of output (round your answer to the nearest whole number). Total Marginal Fixed Average Total Average Marginal Output Cost Cost Cost Cost Revenue Revenue Revenue 0 5 0 1 7 10 2 11 20 3 17 30 4 27 40 5 41 50 6 61 60

Q: Suppose we plot the total revenue curve with quantity on the horizontal axis and revenue on the vertical axis (as in Figure 8.1 in the book). Under price-taking behavior, the total revenue curve should be: A) an inverted U-shaped curve (first increasing and then decreasing). B) a U-shaped curve (first decreasing and then increasing). C) a horizontal line with vertical axis intercept equal to the market price. D) a straight line from the origin with slope equal to the market price.

Q: Suppose your firm operates in a perfectly competitive market and decides to double its output. How does this affect the firm's marginal profit? A) Marginal revenue and marginal cost increase B) Marginal revenue increases but marginal cost remains the same C) Marginal cost may change but marginal revenue remains the same D) Marginal revenue and marginal cost decrease

Q: Suppose the state legislature in your state imposes a state licensing fee of $100 per year to be paid by all firms that file state tax revenue reports. This new business tax: A) increases marginal cost. B) decreases marginal cost. C) increases marginal revenue. D) decreases marginal revenue. E) none of the above

Q: Marginal profit is negative when: A) marginal revenue is negative. B) total cost exceeds total revenue. C) output exceeds the profit-maximizing level. D) profit is negative.

Q: If the market price for a competitive firm's output doubles then A) the profit maximizing output will double B) the marginal revenue doubles C) at the new profit maximizing output, price has increased more than marginal cost D) at the new profit maximizing output, price has risen more than marginal revenue E) competitive firms will earn an economic profit in the long-run.

Q: The amount of output that a firm decides to sell has no effect on the market price in a competitive industry because A) the market price is determined (through regulation) by the government B) the firm supplies a different good than its rivals C) the firm's output is a small fraction of the entire industry's output D) the short run market price is determined solely by the firm's technology E) the demand curve for the industry's output is downward sloping

Q: Because of the relationship between a perfectly competitive firm's demand curve and its marginal revenue curve, the profit maximization condition for the firm can be written as A) P = MR. B) P = AVC. C) AR = MR. D) P = MC. E) P = AC.

Q: The perfectly competitive firm's marginal revenue curve is A) exactly the same as the marginal cost curve. B) downward-sloping, at twice the (negative) slope of the market demand curve. C) vertical. D) horizontal. E) upward-sloping.

Q: The demand curve facing a perfectly competitive firm is A) the same as its average revenue curve, but not the same as its marginal revenue curve. B) the same as its average revenue curve and its marginal revenue curve. C) the same as its marginal revenue curve, but not its average revenue curve. D) not the same as either its marginal revenue curve or its average revenue curve. E) not defined in terms of average or marginal revenue.

Q: The demand curve facing a perfectly competitive firm is A) the same as the market demand curve. B) downward-sloping and less flat than the market demand curve. C) downward-sloping and more flat than the market demand curve. D) perfectly horizontal. E) perfectly vertical.

Q: At the profit-maximizing level of output, marginal profit A) is also maximized. B) is zero. C) is positive. D) is increasing. E) may be positive, negative or zero.

Q: Marginal profit is equal to A) marginal revenue minus marginal cost. B) marginal revenue plus marginal cost. C) marginal cost minus marginal revenue. D) marginal revenue times marginal cost. E) marginal revenue divided by marginal cost.

Q: If current output is less than the profit-maximizing output, which must be true? A) Total revenue is less than total cost. B) Average revenue is less than average cost. C) Average revenue is greater than average cost. D) Marginal revenue is less than marginal cost. E) Marginal revenue is greater than marginal cost.

Q: If current output is less than the profit-maximizing output, then the next unit produced A) will decrease profit. B) will increase cost more than it increases revenue. C) will increase revenue more than it increases cost. D) will increase revenue without increasing cost. E) may or may not increase profit.

Q: When the TR and TC curves have the same slope, A) they are the furthest from each other. B) they are closest to each other. C) they intersect each other. D) profit is negative. E) profit is zero.

Q: At the profit-maximizing level of output, what is relationship between the total revenue (TR) and total cost (TC) curves? A) They must intersect, with TC cutting TR from below. B) They must intersect, with TC cutting TR from above. C) They must be tangent to each other. D) They cannot be tangent to each other. E) They must have the same slope.

Q: A firm maximizes profit by operating at the level of output where A) average revenue equals average cost. B) average revenue equals average variable cost. C) total costs are minimized. D) marginal revenue equals marginal cost. E) marginal revenue exceeds marginal cost by the greatest amount.

Q: Marginal revenue, graphically, is A) the slope of a line from the origin to a point on the total revenue curve. B) the slope of a line from the origin to the end of the total revenue curve. C) the slope of the total revenue curve at a given point. D) the vertical intercept of a line tangent to the total revenue curve at a given point. E) the horizontal intercept of a line tangent to the total revenue curve at a given point.

Q: Revenue is equal to A) price times quantity. B) price times quantity minus total cost. C) price times quantity minus average cost. D) price times quantity minus marginal cost. E) expenditure on production of output.

Q: What do cooperative firms do if they make a profit? A) Cooperatives never earn profits, so this issue does not occur. B) Cooperatives must pay their profits to the federal governments as a windfall profit tax. C) Cooperatives must keep half of the profits and return the other half to their members. D) Cooperatives generally return the profits to their members as a dividend.

Q: Which of the following statements identifies a key difference between condominiums and cooperative housing? A) Condos tends to be less expensive. B) Condo owners are not responsible for maintaining the common spaces in the building. C) Co-op owners have more control over who can move into their building. D) Co-op owners generally commit less time to the building governance.

Q: In many rural areas, electric generation and distribution utilities were initially set up as cooperatives in which the electricity customers were member-owners. Like most cooperatives, the objective of these firms was to: A) maximize profits for the member-owners. B) maximize total revenue that could be redistributed to the member-owners. C) operate at zero profit in order to provide low electricity prices for the member-owners. D) minimize the costs of production.

Q: An association of businesses that are jointly owned and operated by members for mutual benefit is a: A) condominium. B) corporation. C) cooperative. D) joint tenancy.

Q: The authors note that the goal of maximizing the market value of the firm may be more appropriate than maximizing short-run profits because: A) the market value of the firm is based on long-run profits. B) managers will not focus on increasing short-run profits at the expense of long-run profits. C) this would more closely align the interests of owners and managers. D) all of the above

Q: The "perfect information" assumption of perfect competition includes all of the following except one. Which one? A) Consumers know their preferences. B) Consumers know their income levels. C) Consumers know the prices available. D) Consumers can anticipate price changes. E) Firms know their costs, prices and technology.

Q: If any of the assumptions of perfect competition are violated, A) supply-and-demand analysis cannot be used to study the industry. B) graphs with flat demand curves cannot be used to study the firm. C) graphs with downward-sloping demand curves cannot be used to study the firm. D) there may still be enough competition in the industry to make the model of perfect competition usable. E) one must use the monopoly model instead.

Q: The textbook for your class was not produced in a perfectly competitive industry because A) there are so few firms in the industry that market shares are not small, and firms' decisions have an impact on market price. B) upper-division microeconomics texts are not all alike. C) it is not costless to enter or exit the textbook industry. D) of all of the above reasons.

Q: Owners and managers A) must be the same people. B) may be different people with different goals, and in the long run firms that do best are those in which the managers are allowed to pursue their own independent goals. C) may be different people with different goals, but in the long run firms that do best are those in which the managers pursue the goals of the owners. D) may be different people with different but exactly complementary goals. E) may be different people with the same goals.

Q: If managers do not choose to maximize profit, but pursue some other goal such as revenue maximization or growth, A) they are more likely to become takeover targets of profit-maximizing firms. B) they are less likely to be replaced by stockholders. C) they are less likely to be replaced by the board of directors. D) they are more likely to have higher profit than if they had pursued that policy explicitly. E) their companies are more likely to survive in the long run.

Q: Use the following statements to answer this question: I. Markets may be highly (but not perfectly) competitive even if there are a few sellers. II. There is no simple indicator that tells us when markets are highly competitive. A) I and II are true B) I is true and II is false C) I is false and II is true D) I and II are false

Q: Which of the following costs may provide barriers to entry in a market? A) High research and development expenditures B) License fees C) Sunk costs associated with specialized facilities D) all of the above

Q: A few sellers may behave as if they operate in a perfectly competitive market if the market demand is: A) highly inelastic. B) very elastic. C) unitary elastic. D) composed of many small buyers.

Q: Firms often use patent rights as a: A) barrier to exit. B) barrier to entry. C) way to achieve perfect competition. D) none of the above

Q: Use the following statements to answer this question: I. Markets that have only a few sellers cannot be highly competitive. II. Markets with many sellers are always perfectly competitive. A) I and II are true. B) I is true and II is false. C) II is true and I is false. D) I and II are false.

Q: Several years ago, Alcoa was effectively the sole seller of aluminum because the firm owned nearly all of the aluminum ore reserves in the world. This market was not perfectly competitive because this situation violated the: A) price-taking assumption. B) homogeneous product assumption. C) free entry assumption. D) A and B are correct. E) A and C are correct.

Q: Which of following is a key assumption of a perfectly competitive market? A) Firms can influence market price. B) Commodities have few sellers. C) It is difficult for new sellers to enter the market. D) Each seller has a very small share of the market. E) none of the above

Q: Which of following is an example of a homogeneous product? A) Gasoline B) Copper C) Personal computers D) Winter parkas E) both A and B

Q: A price taker is A) a firm that accepts different prices from different customers. B) a consumer who accepts different prices from different firms. C) a perfectly competitive firm. D) a firm that cannot influence the market price. E) both C and D

Q: Complete the following table:

Q: As an economy recovers from a recession, the observed level of labor productivity tends to decline. Why? A) The total product remains the same during the recovery, but the number of workers declines. B) The total product increases during the recovery, but the number of workers declines. C) The marginal product of labor declines as new workers enter the expanding work force. D) The marginal product of labor increases at a slower rate than the decline in employment.

Q: Which of the following statements does not explain why US health care expenditures are higher than in other countries? A) Government policies have shifted the health care production function downward over time. B) Consumer incomes have increased, which allows consumers to purchase more health care. C) The US health care system is relatively inefficient compared to other countries. D) Demand for health care in the US has increased, so health care production occurs at a higher point on the total product curve than in other countries.

Q: The concerns about world food production raised by Malthus have not materialized because: A) input prices have fallen over time. B) crop prices have risen over time. C) Malthus was wrong about the diminishing returns to labor in agriculture. D) technological improvements have increased our ability to produce food over time.

Q: Joe owns a coffee house and produces coffee drinks under the production function q = 5KL where q is the number of cups generated per hour, K is the number of coffee machines (capital), and L is the number of employees hired per hour (labor). The average product of labor and the marginal product of labor are both equal to AP = MP = 5K. Does labor exhibit diminishing marginal returns in this case? A) Yes, if capital also exhibits diminishing marginal returns. B) Yes, this is true for all values of K. C) No, the marginal product of labor is constant (for a given K). D) No, the marginal product of labor is increasing (for a given K).

Q: Joe owns a coffee house and produces coffee drinks under the production function q = 5KL where q is the number of cups generated per hour, K is the number of coffee machines (capital), and L is the number of employees hired per hour (labor). What is the marginal product of labor? A) MP = 5 B) MP = 5K C) MP = 5L D) MP = 5K/L

Q: Joe owns a coffee house and produces coffee drinks under the production function q = 5KL where q is the number of cups generated per hour, K is the number of coffee machines (capital), and L is the number of employees hired per hour (labor). What is the average product of labor? A) AP = 5 B) AP = 5K C) AP = 5L D) AP = 5K/L

Q: An important factor that contributes to labor productivity growth is: A) growth in the capital stock. B) technological change. C) the standard of living. D) A and B only E) A, B, and C are correct.

Q: You operate a car detailing business with a fixed amount of machinery (capital), but you have recently altered the number of workers that you employ per hour. As you increased the number of employees hired per hour from three to five, your total output increased by 5 cars to 15 cars per hour. What is the average product of labor at the new levels of labor? A) AP = 3 cars per worker B) AP = 5 cars per worker C) AP = 4 cars per worker D) We do not have enough information to answer this question.

Q: You operate a car detailing business with a fixed amount of machinery (capital), but you have recently altered the number of workers that you employ per hour. Three employees can generate an average product of 4 cars per person in each hour, and five employees can generate an average product of 3 cars per person in each hour. What is the marginal product of labor as you increase the labor from three to five employees? A) MP = 3 cars B) MP = 1.5 cars C) MP = 15 cars D) MP = -1 cars

Q: Consider the following statements when answering this question; I. Whenever the marginal product of labor curve is a downward sloping curve, the average product of labor curve is also a downward sloping curve that lies above the marginal product of labor curve. II. If a firm uses only labor to produce, and the production function is given by a straight line, then the marginal product of labor always equals the average product of labor as labor employment expands. A) I is true, and II is false. B) I is false, and II is true. C) Both I and II are true. D) Both I and II are false.

Q: Consider the following statements when answering this question; I. Suppose a semiconductor chip factory uses a technology where the average product of labor is constant for all employment levels. This technology obeys the law of diminishing returns. II. Suppose a semiconductor chip factory uses a technology where the marginal product of labor rises, then is constant and finally falls as employment increases. This technology obeys the law of diminishing returns. A) I is true, and II is false. B) I is false, and II is true. C) Both I and II are true. D) Both I and II are false.

Q: What describes the graphical relationship between average product and marginal product? A) Average product cuts marginal product from above, at the maximum point of marginal product. B) Average product cuts marginal product from below, at the maximum point of marginal product. C) Marginal product cuts average product from above, at the maximum point of average product. D) Marginal product cuts average product from below, at the maximum point of average product. E) Average and marginal product do not intersect.

Q: One of the factors contributing to the fact that labor productivity is higher in the U.S. than in the People's Republic of China is A) China's larger stock of capital. B) the higher capital/labor ratio in China. C) the higher capital/labor ratio in the U.S. D) China's smaller stock of fossil fuels. E) the fact that much labor in the U.S. is in management.

Q: Which would not increase the productivity of labor? A) An increase in the size of the labor force B) An increase in the quality of capital C) An increase in the quantity of capital D) An increase in technology E) An increase in the efficiency of energy

Q: The link between the productivity of labor and the standard of living is A) tenuous and changing. B) inverse. C) that over the long run, consumers as a whole can increase their rate of consumption only by increasing labor productivity. D) that over the long run, consumers' rate of consumption is not related to labor productivity. E) that the productivity of labor grows much more erratically than the standard of living.

Q: For consideration of such issues as labor's productivity growth nationwide, the relevant measure is theA) marginal product of labor.B) average product of labor.C) total product of labor.D) wage.E) cost of capital.

Q: Figure 6.1Refer to Figure 6.1. At point CA) the marginal product of labor is greater than the average product of labor.B) the average product of labor is greater than the marginal product of labor.C) the marginal product of labor and the average product of labor are equal.D) the marginal product of labor and the average product of labor are both increasing.E) Both B and D are correct.

Q: Figure 6.1Refer to Figure 6.1. Which of the following statements is false?A) At point E the marginal product of labor is decreasing.B) At point E the marginal product of labor is negative.C) At point E the average product of labor is decreasing.D) At point E the average product of labor is negative.E) At point E the marginal product of labor is less than the average product of labor.

Q: Figure 6.1Refer to Figure 6.1. At which point on the total product curve is the average product of labor the highest?A) point A.B) point B.C) point C.D) point D.E) none of the above

Q: Figure 6.1Refer to Figure 6.1. At point A, the marginal product of labor isA) rising.B) at its minimum.C) at its maximum.D) diminishing.

Q: Assume that average product for six workers is fifteen. If the marginal product of the seventh worker is eighteen, A) marginal product is rising. B) marginal product is falling. C) average product is rising. D) average product is falling.

Q: Marginal product crosses the horizontal axis (is equal to zero) at the point where A) average product is maximized. B) total product is maximized. C) diminishing returns set in. D) output per worker reaches a maximum. E) All of the above are true.

Q: The Malthusian dilemma relates to marginal product in that A) starvation can be averted only if marginal product is constant. B) because of diminishing marginal product, the amount of food produced by each additional member of the population increases. C) because of diminishing marginal product, the amount of food produced by each additional member of the population decreases. D) because of diminishing marginal product, the wage falls as the population decreases. E) because of diminishing average product, the population will not have additional capital to work with.

Q: The law of diminishing returns applies to A) the short run only. B) the long run only. C) both the short and the long run. D) neither the short nor the long run. E) all inputs, with no reference to the time period.

Q: If the law of diminishing returns applies to labor then A) the marginal product of labor must eventually become negative. B) the average product of labor must eventually become negative. C) the marginal product of labor must rise and then fall as employment rises. D) the average product of labor must rise and then fall as employment increases. E) after some level of employment, the marginal product of labor must fall.

Q: At a given level of labor employment, knowing the difference between the average product of labor and the marginal product of labor tells you A) whether increasing labor use raises output. B) whether increasing labor use changes the marginal product of labor. C) whether economies of scale exist. D) whether the law of diminishing returns applies. E) how increasing labor use alters the average product of labor.

Q: In a certain textile firm, labor is the only short term variable input. The manager notices that the marginal product of labor is the same for each unit of labor, which implies that A) the average product of labor is always greater that the marginal product of labor B) the average product of labor is always equal to the marginal product of labor C) the average product of labor is always less than the marginal product of labor D) as more labor is used, the average product of labor falls E) there is no unambiguous relationship between labor's marginal and average products.

Q: Use the following two statements to answer this question: I. The marginal product of labor is the slope of the line from the origin to the total product curve at that level of labor usage. II The average product of labor is the slope of the line that is tangent to the total product curve at that level of labor usage. A) Both I and II are true. B) I is true, and II is false. C) I is false, and II is true. D) Both I and II are false.

Q: According to the law of diminishing returns A) the total product of an input will eventually be negative. B) the total product of an input will eventually decline. C) the marginal product of an input will eventually be negative. D) the marginal product of an input will eventually decline. E) none of the above

Q: The law of diminishing returns assumes that A) there is at least one fixed input. B) all inputs are changed by the same percentage. C) additional inputs are added in smaller and smaller increments. D) all inputs are held constant.

Q: Which of the following ideas were central to the conclusions drawn by Thomas Malthus in his 1798 "Essay on the Principle of Population"? A) Short-run time period B) Shortage of labor C) Law of diminishing resource availability D) Law of diminishing returns

Q: Technological improvement A) can hide the presence of diminishing returns. B) can be shown as a shift in the total product curve. C) allows more output to be produced with the same combination of inputs. D) All of the above are true.

Q: When the average product is decreasing, marginal productA) equals average product.B) is increasing.C) exceeds average product.D) is decreasing.E) is less than average product.

Q: The marginal product of an input isA) total product divided by the amount of the input used to produce this amount of output.B) the addition to total output that adds nothing to total revenue.C) the addition to total output that adds nothing to profit.D) the addition to total output due to the addition of one unit of all other inputs.E) the addition to total output due to the addition of the last unit of an input, holding all other inputs constant.

Q: When labor usage is at 12 units, output is 36 units. From this we may infer that A) the marginal product of labor is 3. B) the total product of labor is 1/3. C) the average product of labor is 3. D) none of the above

Q: The law of diminishing returns refers to diminishingA) total returns.B) marginal returns.C) average returns.D) all of these.

Q: The slope of the total product curve is the A) average product. B) slope of a line from the origin to the point. C) marginal product. D) marginal rate of technical substitution.

Q: Writing total output as Q, change in output as Q, total labor employment as L, and change in labor employment as L, the marginal product of labor can be written algebraically asA) Q L.B) Q / L.C) L / Q.D) Q / L.