Economics Quiz

In the short run, which of the following costs must continuously decrease as output produced increases?

• Total variable cost

• Total fixed cost

• Average variable cost

• Average fixed cost

• Average total cost

Which of the following statements about a constant-cost perfectly competitive industry in long-run equilibrium must be true?

• An increase in demand will cause no change in the long-run equilibrium price.

• An increase in demand will cause no change in the long-run equilibrium quantity.

• The long-run supply curve is upward sloping.

• The long-run supply curve is perfectly inelastic.

• The total cost of production remains the same as output increases.

In which of the following market structures do firms recognize their mutual interdependence?

• Oligopoly

• Monopoly

• Perfect competition

• Unregulated natural monopoly

• Monopsony

Assume that a profit-maximizing firm is perfectly competitive in both the output and the factor markets and is at its long-run equilibrium. The firm's output is 100 units, its total revenue is $600.00, and the fixed cost of production is $50.00. Based on this information, which of the following is true for the firm?

• Its marginal cost is $5.50, and its average total cost is $5.50.

• Its marginal cost is $5.50, and its average variable cost is $5.50.

• Its marginal cost is $6.00, and its average total cost is $5.50.

• Its marginal cost is $6.00, and its average fixed cost is $5.50.

• Its marginal cost is $6.00, and its average variable cost is $5.50.

A farmer grows wheat using two inputs: labor and land whose prices are constant. If she doubles her inputs, she finds that the quantity of wheat produced more than doubles. Therefore, it must be true that in this output range her long-run average total cost curve is

• upward sloping

• downward sloping

• horizontal

• vertical

• U-shaped

A constant-cost, perfectly competitive gadget industry is in long-run equilibrium. An increase in the number of consumers of gadgets will most likely result in

• higher short-run and long-run prices for gadgets

• reduced short-run profits, followed by the exit of some firms

• an upward shift in all short-run cost curves, followed by a higher long-run price for gadgets

• a higher short-run price for gadgets, followed by an increase in the quantity produced

• a decrease in the demand for gadgets, followed by a decrease in the supply of gadgets

If the average variable cost of producing 5 units of a good is $100 and the average variable cost of producing 6 units is $150, then the marginal cost of increasing output from 5 to 6 units is

• $50

• $250

• $300

• $400

• $500

Instead of being employed at a printing company at a salary of $25,000 per year, Sally starts her own printing firm. Rather than renting a building that she owns to someone else for $10,000 per year, she uses it as the location for her company. Her costs for workers, materials, advertising, and energy during her first year are $125,000. If the total revenue from her printing company is $155,000, her total economic profit is

• -$5,000

• $5,000

• $20,000

• $30,000

• $120,000

If labor is the only variable input in the production process, the short-run marginal cost curve is upward sloping because which of the following occurs as more and more labor is added?

• Output decreases, and thus marginal cost increases.

• Output increases, and thus marginal cost increases.

• Output increases at an increasing rate, and thus the cost of producing each additional unit of output increases.

• Output increases at a decreasing rate, and thus the cost of producing each additional unit of output increases.

• Output increases at a decreasing rate, and thus the cost of producing each additional unit of output decreases.

At a firm's current rate of output, the marginal cost is $65, the average variable cost is $35, the average fixed cost is $30, and the product price is $65. Which of the following statements is true for the firm?

• Economic profits are zero because marginal revenue equals marginal cost.

• Economic profits are negative because total revenue is less than total cost.

• Economic profits are positive because total revenue is greater than total cost.

• Economic profits are negative because price is greater than average variable cost.

• Economic profits are zero because price equals average total cost.