Question: All members of the US population who are legal citizens over the age of 16 and under the age of 65 are considered part of the US labor force.
Answer Choices:
True
False
Answer: False
Question: Which of the following describes the transition toward “market saturation” (long-run competitive equilibrium) in competitive markets?
Answer Choices:
As businesses expand, costs increase. This causes higher prices and lower demand.
As a market expands due to increased competition, prices naturally rise. This causes consumers to look for substitutes.
The demand for new products eventually fades, and the market stops attracting new businesses.
Positive profits draw new businesses into the market. Negative profits force some businesses out of the market.
Answer: Positive profits draw new businesses into the market. Negative profits force some businesses out of the market.
Question: What is the basic idea of “Returns to Scale”?
Answer Choices:
How profitability changes when new suppliers enter a market.
How revenue changes with changes in price.
How efficiency and unit costs change as a business changes the scale of operations.
How price changes affect quantity supplied.
Answer: How efficiency and unit costs change as a business changes the scale of operations.
Question: At current levels of production for your perfectly competitive firm marginal cost = $45 and market price = $55. Which of the following is true?
Answer Choices:
The firm is currently maximizing profits.
If the firm produces less output, profits will increase.
If the firm produces more output, profits will decrease.
If the firm produces more output, profits will increase.
Answer: If the firm produces more output, profits will increase.
Question: Suppose that in 2018 Acme web designs had 4 employees (1 manager and 3 designers) working in a 1200 square-foot facility with 4 computers. In 2018 Acme produced a total of 900 units of output.
In 2019, Acme remained in the same facility, and hired 2 new designers and purchased 2 new computers. In 2019 Acme produced 1,800 units of output.
True or False: From 2018 to 2019, Acme experienced increasing returns to scale (IRTS).
Answer Choices:
True
False
Answer: True
Question: In the long-run, a competitive firm should stay in the market if market price is above average total costs.
Answer Choices:
True
False
Answer: True
Question: Use the following information for a representative perfectly competitive firm to answer this question.
Minimum ATC = $19
Minimum AVC = $15
Current market equilibrium price (P*) = $18
(* assume opportunity costs are included in fixed costs)
This firm is earning…
Answer Choices:
Positive (economic) profit.
Negative (economic) profit.
Zero (economic) profit.
Maximum (economic) profit.
Answer: Negative (economic) profit.
Question: After the point of diminishing marginal returns (when the marginal product of labor is decreasing), marginal cost will be increasing.
Answer Choices:
True
False
Answer: True
Question: Citing a decrease in demand for their service, Twitter reduces the size of its workforce, laying off 350 people. What type of unemployment is this?
Answer Choices:
Structural unemployment
Frictional unemployment
Cyclical unemployment
This is not unemployment
Answer: Cyclical unemployment
Question: All businesses will eventually experience decreasing returns to scale (DRTS), meaning that average total costs will increase as output is expanded in the long-run.
Answer Choices:
True
False
Answer: False
Question: Consider the following data for farmer John who sells tomatoes in a perfectly competitive market. Assume the current market price for tomatoes is $9.00 per bushel, and costs change with quantity as given below.
Q (bushels) Fixed Costs Variable Costs
0 200 0
100 200 500
200 200 900
300 200 1200
400 200 1400
500 200 1800
600 200 1500
700 200 2500
800 200 3400
900 200 4400
How many bushels should John produce to maximize profit? Hint: Apply the profit-maximizing rule.
Answer: 800
Question: Suppose that economic profits in the retail e-cigarette market are positive. In the long-run, we would expect firms to (enter, decrease) this market, which will cause market price to (rise, decrease). Assuming no change in demand, after this movement of firms, economic profits will be (zero, positive, negative) for firms in this market.
Answer Choices:
enter, decrease, higher
enter, decrease, lower
exit, increase, higher
exit, decrease, lower
Answer: enter, decrease, zero
Question: Suppose a business is experiencing Increasing Returns to Scale (IRTS). If this business expands operations, increasing the use of all inputs by 50%, output will…
Answer Choices:
Increase by 50%
Increase by more than 50%
Increase by less than 50%
Stay constant
Answer: Increase by more than 50%
Question: If the marginal cost of producing the 25th unit of output is $10 and the marginal cost of producing the 26th unit is $12, then the business is operating at a level of production that is past the point of diminishing marginal product.
Answer Choices:
True
False
Answer: True
Question: Which of the following are reasons why a firm might experience increasing returns to scale (IRTS)?
(choose all that are correct)
Answer Choices:
Large firms use more labor and more management, which can lead to efficiency gains through specialization.
Large firms produce enough output to justify the use of high-tech capital equipment, which is often more efficient.
Large firms have fewer layers of management, which leads to faster decision-making.
Large firms have more consumers, which means they will be able to charge more than smaller firms.
Answer: Large firms use more labor and more management, which can lead to efficiency gains through specialization.
Large firms produce enough output to justify the use of high-tech capital equipment, which is often more efficient.
Question: Which of the following best describes the profit-maximizing condition (rule) for a perfectly competitive firm?
Answer Choices:
Produce at a point for which marginal revenue is greater than (or equal to) marginal costs.
Produce up to the point of diminishing marginal returns.
Produce where average total costs are minimized.
Produce all units for which marginal revenue is equal to market price.
Answer: Produce all units for which marginal revenue is equal to market price.
Question: Using the CPI data given below, how much was inflation in 2017?
That is, what was the percentage change in prices between 2016 and 2017?
Year | CPI
2011 | 224.9
2012 | 229.6
2013 | 233.0
2014 | 236.7
2015 | 237.0
2016 | 240.0
2017 | 245.1
2018 | 250.5
Answer Choices:
102.12%
12.23%
2.08%
2.12%
5.19%
16.15%
Answer: 2.12%
Question: Suppose that when a business sells 300 units of output, total cost is equal to $1800 and total revenue is equal to $2100.
When the business sells 301 units, total cost is equal to $1812 and total revenue is equal to $2110. This business (should, should not) produce the 301st unit of output because (marginal cost is greater than, marginal revenue is greater than, price is greater than, price is less than) marginal (cost, revenue).
Answer Choices:
should not, marginal cost, marginal revenue
should not, marginal revenue, marginal cost
should, marginal cost, marginal revenue
should, marginal revenue, marginal cost
should, price, average total cost
Answer: should, marginal revenue, marginal cost
Question: If marginal cost is less than average total cost, then average total cost must be increasing.
Answer Choices:
True
False
Answer: False
Question: GDP was first calculated in the 1930s to help policymakers understand spending patterns and develop policies to help the U.S. get out of the Great Depression.
Answer Choices:
True
False
Answer: True
Question: Consider the following data for farmer John who sells tomatoes in a perfectly competitive market. Assume the current market price of tomatoes is $5.00 per bushel, and costs change with quantity as given below.
Q (bushels) Fixed Costs Variable Costs
0 600 0
100 600 700
200 600 1000
300 600 1200
400 600 2200
500 600 2800
600 600 3600
700 600 4400
800 600 5400
What is John’s Average Variable Cost (AVC) if he produces 600 bushels of tomatoes?
Answer: 6
Question: Use the following information for a representative perfectly competitive firm to answer this question.
Minimum ATC = $19
Minimum AVC = $17
This firm should “shut down” and produce zero output if market price is…
Answer Choices:
greater than $19
greater than $17
less than $19
less than $17
Answer: less than $17
Question: Which of the following are the best examples of variable costs for a business?
Answer Choices:
Wages for hourly employees
Manager salaries
Materials used to produce the product that’s being sold
One-time costs for major capital equipment
Answer: Wages for hourly employees
Materials used to produce the product that’s being sold