AP Micro - Costs and PC

If the market price is $10, how many widgets should this profit-maximizing firm produce?

• 3,000

• 6000

• 12000

• 16000

• 21000

Raheem is currently working as a financial analyst earning job to start an art gallery. The estimated annual revenue from the art gallery is . The annual cost of labor, advertising, and acquiring the art inventory is . What are Raheem’s accounting and economic profits if he opens the art gallery?

• Accounting profit is -25,000 and economic profit is 50,000

• Accounting profit is 100,000 and economic profit is 50,000

• Accounting profit is 50,000 and economic profit is -25,000

• Accounting profit is 100,000 and economic profit is -25,000

• Accounting profit is 50,000 and economic profit is 100,000

4. Which of the following is true about a firm's average variable cost?

• It will rise if marginal cost is less than average variable cost.

• It will never equal the firm's marginal cost.

• It will decline when the firm's marginal product declines.

•  It will be negative if marginal revenue declines.

• It will equal average total cost when fixed costs are zero.

Suppose a firm’s production process exhibits diseconomies of scale. How and why will costs change if the firm reduces its output?

• Long-run average total cost will increase because it becomes more difficult for the firm to manage its workforce.

• Long-run average fixed costs will increase because the firm produces fewer units of output.

• Long-run average total cost will decrease because it becomes easier for the firm to manage its workforce.

• Long-run average fixed costs will decrease because the firm produces fewer units of output.

• Long-run average total cost will decrease because it becomes more difficult for the firm to manage its workforce.

The table above shows the amount of labor inputs necessary to produce given levels of output. If the cost of a unit of labor is $20 and total fixed cost is $100, the average total cost of producing 20 units of output is

• 1

• 2

• 7

• 40

• 120

6. Assume that total fixed costs are $46, that the average product of labor is 5 units when 10 units of output are produced, and that the wage rate is $12. If labor is the only variable input, what is the average total cost of producing 10 units of output?

• 2

• 5

• 7

• 9

• 12

In the short run in perfect competition, the industry's demand curve and a firm's demand curve have which of the following slopes?

• Industry: Horizontal

  Firm: Downward sloping

• Industry: Horizontal

  Firm: Horizontal

• Industry: Downward sloping

  Firm: Horizontal

• Industry: Downward sloping

  Firm: Downward sloping

• Industry: Vertical

  Firm: Horizontal

A competitive firm produces a product using labor and plastic. The firm is initially in equilibrium. If the cost of plastic suddenly increases, which of the following will occur?

• The demand curve for the product will shift to the left.

• The firm's demand curve for plastic will shift to the left.

• The firm will increase the number of units offered for sale.

• The firm will definitely go out of business, since competitive firms earn zero economic profits in equilibrium.

• The firm's marginal costs will increase at each level of output.

The relationship in the graph above best illustrates the economic concept of

• opportunity cost

• diminishing marginal utility in consumption

• diminishing marginal returns in production

• production possibilities

• comparative advantage

Which of the following are characteristics of a perfectly competitive industry?

I. New firms can enter the industry easily.

II. There is no product differentiation.

III. The industry's demand curve is perfectly elastic.

IV. The supply curve of an individual firm in the industry is perfectly elastic.

• I and II only

• I and III only

• II and IV only

• I, II, and IV only

• I, III, and IV only