Econ 112 Take-Home Quiz 3 1

Chapter 11 Questions

1. A fixed cost:

A) will exist only in the long run.

B) depends on the level of output.

C) can be positive, even if the firm doesn’t produce any output in the short run.

D) decreases until the point of diminishing returns is reached.

2. Marginal cost is the:

A) increase in total cost when one more unit of output is produced.

B) reduction in cost from economies of scale.

C) ratio of average total cost to total cost.

D) increase in output from the addition of one unit of labor.

Use the following to answer question 10:

Figure: The Average Total Cost Curve

3. (Figure: The Average Total Cost Curve) Look at the figure The Average Total Cost Curve. In the figure, the total cost of producing three pairs of boots is approximately:

a. $24.

b. $72.

c. $75.

d. $216.

4. Average total cost is:

a the change in variable cost divided by the change in quantity.

b total cost divided by quantity.

c the change in quantity divided by the change in labor costs.

d total cost times quantity.

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5. In the short run:

A. all inputs are fixed.

B. all inputs are variable.

C. some inputs are fixed and some inputs are variable.

D. all costs are variable.

6. Diminishing marginal returns occur when:

A. each additional unit of a variable factor adds more to total output than the previous unit.

B. an additional variable factor adds less to total output than the previous unit.

C. the marginal product of a variable factor is increasing but at a decreasing rate.

D. total product decreases.

7. Which of the following cost concepts is correctly defined?

A. MC = ΔTC / ΔFC

B. ATC = VC + FC

C. ATC = AVC + AFC

D. TC = AVC + AFC

Use the following to answer question 15:

8. (Table: Production Function for Soybeans) The table shows a production function for soybeans. Assume that the fixed input,

Econ 112 Take-Home Quiz 3 3

capital, is 10 acres of land and a tractor, which have a combined cost of $150 per day. The cost of labor is $100 per worker per day.

The total cost of producing 25 bushels of soybeans is:

A) $50

B) $100

C) $150

D) $250

9. When a cherry orchard in Oregon adds a worker, the total cost of production increases by $24,000. Adding the worker increases total cherry output by 600 pounds. Therefore, the marginal cost of the last pound of cherries produced is:

A. $19.

B. $4,000.

C. $24,000.

D. $40

10. The larger the output, the greater the quantity of output over which fixed cost is spread. Called the ________ effect, this leads

to a ___________.

A) spreading; lower average fixed cost.

B) spreading; higher average fixed cost.

C) diminishing returns; lower average variable cost.

D) diminishing returns; higher average variable cost.

Chapter 12 Questions

11. Which of the following is true for firms operating under perfect competition?

A. There are significant barriers to entry

B. There is a very high fixed cost, which reduces the number of firms in the industry

C. They must accept the market price, regardless of their output level

D. They can earn economic profit in the long run

Figure #1 – Perfectly Competitive Industry

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12. (Using the information in Figure #1). If the market price were $6, firms would earn:

A. Positive economic profit

B. Negative economic profit

C. Zero economic profit

13. (Using the information in Figure #1). If the market price were $10, firms would earn:

A. Positive economic profit

B. Negative economic profit

C. Zero economic profit

14. (Using the information in Figure #1). If the market price were $4, firms would earn:

A. Positive economic profit

B. Negative economic profit

C. Zero economic profit

15. (Using the information in Figure #1). The shut-down price is:

A. $2

B. $4

C. $6

D. $8

16. (Using the information in Figure #1). The break-even price is:

A. $2

B. $4

C. $6

D. $8

17. (Using the information in Figure #1). In the long run, firms would expect the market price to be:

A. $8

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B. $6

C. $4

D. $2

18. (Using the information in Figure #1). If the short run price were $10, then in the long run firms would:

A. Continue to receive the economic profit/loss

B. Enter the industry

C. Exit the industry

Chapter 13 Questions

19. Firms under monopoly maximize profit by choosing an output level where:

A. P=MC

B. MR=P

C. MR=MC

D. D=MC

Figure #2 – Monopoly

20. (Using the information in Figure #2). If the industry were perfectly competitive, the industry output level would be:

A. 4

B. 3

C. 2

D. 1

21. (Using the information in Figure #2). A monopolist would maximize profit by producing ____ units.

A. 1

B. 2

C. 3

D. 4

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22. (Using the information in Figure #2). A monopolist would maximize profit by charging ____ per unit.

A. $4

B. $6

C. $8

D. $10

23. (Using the information in Figure #2). A monopolist would receive short run economic profit of:

A. $24

B. $16

C. $12

D. $8

24. (Using the information in Figure #2). In the long run, the monopolist continues to earn the same profit as in the short run:

A. True

B. False

25. A natural monopoly arises when entering an industry requires:

A. Very high fixed cost

B. Approval by strict regulations

C. Very high taxes

D. Specialized technical knowledge

Figure #3 – Monopoly with constant MC of $3 and no fixed cost

26. (Using the information in Figure #3). The profit maximizing quantity for this monopolist is:

A. 10

B. 20

C. 30

D. 40

27. (Using the information in Figure #3). Using the formula for economic profit: Profit=(P-ATC)xQ*, determine profit for the monopolist:

A. $40

B. $60

C. $80

D. $150

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Chapter 14 Questions

Figure #4 – Oligopoly (Duopoly) Payoff Matrix

28. (Using the information in Figure #4). When a one-time game is played, the dominant strategy for West Mfg. is to:

A. Charge a low price

B. Charge a high price

29. (Using the information in Figure #4). The Nash equilibrium is:

A. Both firms charge a low price

B. West Mfg charges a low price, East Mfg charges a high price

C. West Mfg charges a high price, East Mfg charges a low price

D. Both firms charge high price

E. A Nash equilibrium does not exist

30. (Using the information in Figure #4). If the game were repeated 100 times more, the firms would most likely:

A. Always play the Nash equilibrium

B. Always charge a high price

C. Sometimes play a high price

D. Impossible to determine

31. Firms officially agree to collaboratively set industry output to maximize industry profit. This is known as:

A. Tacit collusion

B. Nash equilibrium

C. Cartel

32. Firms who behave cooperatively to maximize joint profits, but are not actively communicating, are engaging in:

A. Overt-collusion

B. Nash equilibrium

C. Tacit collusion

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Chapter 15 Questions

33. Industries under monopolistic competition have:

A. No barriers to entry

B. Significant barriers to entry

C. Extremely high fixed cost

D. Very strict regulations

34. Monopolistic competitors produce:

A. Commodities

B. Standardized products

C. Differentiated products

D. Inputs

Figure #5 – Monopolistic Competition

35. (Using the information in Figure #5). The profit maximizing level of output for this monopolistic competitor is:

A. 1

B. 3

C. 4

D. 6

36. (Using the information in Figure #5). The profit maximizing price for this monopolist is:

A. $5

B. $7

C. $9

D. $11

37. (Using the information in Figure #5). In the short run, this monopolistic competitor is earning:

A. Positive economic profit

B. Negative economic profit

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C. Zero economic profit

38. (Using the information in Figure #5). In the long run, profits will:

A. Remain the same

B. Increase to zero

C. Decrease to zero

39. (Using the information in Figure #5). In the long run, the:

A. MC curve will shift up

B. MC curve will shift down

C. Demand curve will shift right

D. Demand curve will shift left