6. Total profit for a firm is calculated as a. (marginal revenue) minus (average cost). b. (average revenue) minus (average cost).

c. (marginal revenue) minus (marginal cost). d. (price minus average cost) times (quantity of output). 9. When price is greater than marginal cost for a firm in a competitive market, a. marginal cost must be falling. b. the firm must be minimizing its losses. c. there are opportunities to increase profit by increasing production. d. the firm should decrease output to maximize profit. 10. When a profit-maximizing competitive firm finds itself minimizing losses because it is unable to earn a positive profit, this task is accomplished by producing the quantity at which price is equal to a. sunk cost. b. average fixed cost. c. average variable cost. d. marginal cost. 11. In the long run, a profit-maximizing firm will choose to exit a market when a. average fixed cost is falling. b. variable costs exceed sunk costs. c. marginal cost exceeds marginal revenue at the current level of production. d. total revenue is less than total cost. 3. Which of the following is a correct statement about the relationship between average variable cost (AVC) and marginal cost (MC)? a) If MC exceeds AVC, then AVC is rising (that is, AVC has a positive slope at that point). b) If MC = AVC, then MC is at a minimum. c) If AVC is falling, then MC must be falling at that level of output as well. d) If MC exceeds AVC, then AVC is falling. 4. If the average variable cost (AVC) of the 5th hat is $30, then the total variable cost (TVC) of 5 hats is a) $6. b) $150. c) $1500. d) $1800. 5. If the Pumpkin Patch, a perfectly competitive firm, is earning "normal profit," you can deduce that this firm is producing where a) P > MC. b) P < ATC. c) TR > TC.

d) P > AVC. 6. The short run average total cost curve is U-shaped because of a) economies of scale. b) the constraint that the firm cannot change production technologies. c) diminishing marginal returns. d) increasing returns to scale. 9. Tom runs a grocery store and is earning normal profit. We can deduce that a) Tom is making economic profit as well. b) Tom will remain in the grocery store business. c) Tom will leave the grocery store business. d) Toms total costs exceed his total revenue.

11. Refer to Figure 9.1. For this farmer to maximize profits, he should produce __________ bushels of wheat. a) 6 b) 9 c) 12 d) 16 12. Refer to Figure 9.1. At what level of quantity does diminishing marginal returns begin? a) 3 bushels. b) 6 bushels. c) 9 bushels. d) 12 bushel. 13. Refer to Figure 9.1. What are average fixed costs (AFC) at a quantity of 6? a) $ 0.67. b) $ 4.00. c) $ 7.00. d) $ 11.00.

14. Refer to Figure 9.1. At a quantity of 16, the wheat farmer will a) make an economic loss. b) minimize profits. c) make zero economic profit. d) make economic profit. 18. Every point on the long-run average cost curve represents a) the minimum cost at which the associated output level can be produced when the scale of plant can be changed. b) the minimum point of the associated short-run average cost curve. c) the minimum cost at which the associated output level can be produced when the scale of the plant cannot be changed. d) both b and c.

21. The marginal product of the fourth worker is a) 5. b) 8. c) 10. d) 50. 22. The average product of the third worker is a) 3. b) 14. c) 30. d) 128. 23. If diminishing marginal returns have already set in for The Picture Perfect Framing Store and the marginal product of the fifth picture framer is 20, then the marginal product of the sixth picture framer must be a) negative. b) zero.

c) less than 20. d) greater than 20.

26. Refer to Figure 13.5. The profit maximizing level of output for this monopolist is __________ units of output. a) 20. b) 22. c) 24. d) 26. 27. Refer to Figure 13.5. If this firm is producing the profit-maximizing quantity and selling it at the profit-maximizing price, the firm's profit will be: a) $80. b) $84. c) $88. d) $132. 28. Refer to Figure 13.5. At the profit maximizing level of output, which of the following is true? a) ATC is minimized. b) ATC is maximized. c) Price equals MC. d) Price does not equal MC. 30. The Supply Room, a mail-order school supply store, grew rapidly, and as a result of achieving a much larger size, the Supply Room was able to realize: (1) volume discounts when buying from its suppliers, and (2) lower transport costs by shipping in bulk. The best explanation of this is that the

Supply Room was experiencing a) economies of scale. b) constant returns to scale. c) diseconomies of scale. d) diminishing marginal returns. 32. Stereo Sound Unlimited has a monopoly over the installation of quadraphonic sound systems. If Stereo Sound Unlimited's total revenue from installing 10 sound systems is $20,000 and its total revenue from installing 11 sound systems is $18,000, what is the marginal revenue of the eleventh sound system? a) -$2000. b) -$1000. c) $2000. d) $3800. 33. Society will produce the efficient mix of output if all firms produce in the long-run such that a) price equals marginal cost. b) price equals average variable cost. c) marginal cost equals average variable cost. d) price equals average fixed cost.

9. Refer to figure 3.1. What is the firms AFC when the firm produces 4.2 million units? a) $6. b) More than $6. c) Less than $6. d) Cannot be determined from the information given. 11. Refer to figure 3.1. At 4 million units of production, the firm a) makes a loss of $16 million. b) makes a loss of $24 million. c) makes a loss of $8 million d) makes an economic profit of $16 million. 14. If the total product of two workers is 100 and the total product of 3 workers is 120, then the

average product of the third worker is _____ and the marginal product of the third worker is _______. a) 40; 20 b) 20; 40 c) 13.33; 6.67 d) 120; 100 15. The law of diminishing marginal return implies that a) short-run marginal costs will eventually become negative for increases in production. b) marginal product must be negative for any input of labor. c) short-run marginal costs will eventually increase for increases in production. d) none of the above. 18. When an increase in scale of production leads to higher average costs, the industry is characterized by a) diminishing marginal returns. b) economies of scale. c) diseconomies of scale. d) constant returns to scale.

23. Whats the level of output at which ATC is minimized? a) 15 b) 75 c) 85 d) Would need more information to determine this. 25. What is marginal cost at the profit maximizing level of output? a) $8. b) $15. c) $16. d) Cannot be determined from figure 1. 27. The short-run supply curve of a competitive firm is a) the portion of the average variable cost curve that lies above its marginal cost curve.

b) the portion of its marginal cost curve that lies above its average variable cost curve. c) the portion of its marginal cost curve that lies above its average total cost curve. d) the portion of its average total cost curve that lies above its marginal cost curve. 28. When average cost is greater than marginal cost a) average cost is rising. b) average cost is falling. c) average cost is constant. d) Cannot determine from information given. 1) The period of time during which all inputs can be varied is known as the a) market period. b) short run. c) interim period. d) long run. 4) The marginal cost curve: a) first rises, then declines. b) intersects the average variable cost and average cost curves from below at their minimum points. c) increases when the average cost curve lies above the average variable cost curve. d) falls when the point of diminishing marginal returns is reached.

5) If the market wage is $10 and the change in output per hour of labor employed is 5 units, what is the marginal cost of producting the next unit of output? a) $50 b) $15 c) $ 2 d) $0.50 6) When price is less than marginal cost, a profit-maximizing producer in perfect competition will a) decrease production b) increase production c) raise the price charged by the firm and decrease output. d) leave the level of output unchanged.

7) Which point represents the point of diminishing marginal returns? a) point A. b) point B. c) point C. d) point D. e) point E. f) point F.

8) Which point represents the price and output combination where the firm would make normal profit, but not economic profit? a) point A. b) point B. c) point C. d) point D. e) point E. f) point F.

9) Given the price line, which point represents the output level the firm would choose to maximize profits? a) point A. b) point B. c) point C. d) point D. e) point E. f) point F. 11) As diagrammed, the firm is making a) normal profit, but not economic profit.

b) economic profit, but not normal profit. c) both normal and economic profit. d) neither normal nor economic profit. 12) The vertical distance between the ATC and AVC curve represents a) marginal cost (MC) b) average fixed cost (AFC) c) total fixed cost (TFC) d) total cost (TC) - total variable cost (TVC) 8) The concept of economies of scale implies that a) the average cost of production is lower when a larger plant is used. b) short-run marginal cost curves slope upward eventually. c) the average cost of production is the higher when a smaller plant is used. d) both a and b. e) both a and c. 9) The concept of diminishing marginal returns implies that a) the average cost of production is lower when a larger plant is used. b) short-run marginal cost curves slope upward eventually. c) the average cost of production is the higher when a smaller plant is used. d) both a and b. e) both a and c. 10. As Al's Radiator Company adds workers while keeping the same amount of machinery, some workers may be underutilized because they have little work to do while waiting in line to use the machinery. When this occurs, Al's Radiator Company encounters a. economies of scale. b. diseconomies of scale. c. increasing marginal returns. d. diminishing marginal returns. 11.Which of the following statements about costs is correct? a. When marginal cost is less than average total cost, average total cost is rising. b. The total cost curve is U-shaped. c. As the quantity of output increases, marginal cost eventually rises. d. All of the above are correct.

12. When a firm is operating at an efficient scale, a. average variable cost is minimized. b. average fixed cost is minimized. c. average total cost is minimized. d. marginal cost is minimized.

15. Refer to Figure 13-8. At levels of output below M the firm experiences a. economies of scale. b. diseconomies of scale. c. economic profit. d. accounting profit. 16. Diseconomies of scale occur when a. average fixed costs are falling. b. average fixed costs are constant. c. long-run average total costs rise as output increases. d. long-run average total costs fall as output increases. ____ 19. When marginal revenue equals marginal cost, the firm a. should increase the level of production to maximize its profit. b. may be minimizing its losses, rather than maximizing its profit. c. must be generating positive economic profits. d. must be generating positive accounting profits. 20. When price is greater than marginal cost for a firm in a competitive market, a. marginal cost must be falling. b. the firm must be minimizing its losses. c. there are opportunities to increase profit by increasing production. d. the firm should decrease output to maximize profit.

____ 26. The competitive firm's long-run supply curve is that portion of the marginal cost curve that lies above average a. fixed cost. b. variable cost. c. total cost. d. revenue. 7.2 Suppose that the firms operating budget is $10,000 and that the price of labor (PL) and price of capital (PK) are $25 and $50, respectively. The firm should hire: A. 100 units of labor and 150 units of capital. B. 100 units of labor and 200 units of capital. C. 150 units of labor and 100 units of capital. D. 200 units of labor and 150 units of capital. 7.1 Consider the production function Q = f(K, L), where K is capital and L is labor. The isocost equation: A. Summarizes the optimal employment of K and L when factor prices are varied. B. The same thing as an isoquant, except that K and L are measured in money terms. C. Summarizes all the possible combinations of K and L that firm can purchase with a given operating budget and variable factor prices. D. Summarizes all the possible combinations of K and L that firm can purchase with a given operating budget and fixed factor prices. 7.3 Suppose that Q = f(K, L). If K is measured along the vertical axis and L is measured along the horizontal axis, then an increase in the firms operating budget will cause: A. A parallel shift of the isocost curve towards the origin. B. A parallel shift of the isocost curve away from the origin. C. The isocost curve to rotate in a counter clockwise direction. D. The isocost curve to rotate in a clockwise direction. 7.4 Suppose that Q = f(K, L). If K is measured along the vertical axis and L is measured along the horizontal axis, then an increase in rental price of capital (PK) will cause: A. A parallel shift of the isocost curve towards the origin. B. A parallel shift of the isocost curve away from the origin. C. The isocost curve to rotate in a counter clockwise direction. D. The isocost curve to rotate in a clockwise direction. 7.7 Suppose that Q = f(K, L) where K is measured along the vertical axis and L is measured along the horizontal axis. An increase in PK and PL will cause:

A. A parallel shift of the isocost curve towards the origin. B. A parallel shift of the isocost curve away from the origin. C. The isocost curve to rotate in a counter clockwise direction. D. The isocost curve to rotate in a clockwise direction. 7.8 Suppose that Q = f(K, L) where K is measured along the vertical axis and L is measured along the horizontal axis. The least-cost combination of K and L is achieved when: A. When the slope of the isocost line is greater than the slope of the isoquant. B. When the slope of the isoquant is greater than the slope of the isocost line. C. When the slope of the isocost line is equal to the slope of the isoquant. D. When the slope of the isocost line is tangent to the isoquant. E. Both C and D are correct. 7.9 Suppose that Q = f(K, L) where K is measured along the vertical axis and L is measured along the horizontal axis. Suppose that at some input combination the slope of the isocost line is steeper than the slope of the isoquant. To increase output the firm should: A. Hire more K and less L. B. Hire more L and less K. C. Hire more of both K and L. D. Hire less of both K and L. 7.10 Suppose that Q = f(K, L). A firm that is using K and L efficiently when: A. P \ MPL = PL. B. P \ MPK = PK. C. MPL/MPL = PL/PK. D. Both A and B are correct. E. A, B, and C are correct. 7.11 Suppose that Q = f(K, L). If MPL/MPK > PL/PK, then: A. The firm should hire more capital. B. The firm should hire more labor. C. The firm should increase the price of labor. D. The firm should increase the price of capital. E. None of the above. 7.13 Suppose that the selling price of a product is $12.50. If the rental price of price of capital is $50, then marginal product of capital is: A. 1 unit. B. 2 units. C. 3 units. D. 4 units.

7.17 Suppose that Q = f(K, L). If MPL = 12, MPK = 24, PL = $50 and PK = $100, then a profit maximizing firm should: A. Hire more labor. B. Hire more capital. C. Hire more labor and capital. D. Do nothing. 7.18 Suppose that Q = f(K, L), where K is capital and L is labor. The expansion path of a Cobb-Douglas production function is: A. Always linear. B. Always quadratic. C. Always cubic. D. Depends upon whether the production function exhibits increasing, decreasing or constant returns to scale. 7.19 Suppose that Q = f(K, L) where K is measured along the vertical axis and L is measured along the horizontal axis. The slope of the expansion path is: A. The capital-labor ratio. B. The labor-capital ratio. C. The output-capital ratio. D. The output-labor ratio. 7.23 A profit-maximizing firm must always produce at an output level where: A. P = ATC. B. P = AVC. C. MR = ATR. D. P = MC. 7.24 Profit is maximized at the output level where the: A. Slope of the total revenue curve is greater than the slope of the total cost curve. B. Slope of the total revenue curve is the same as the slope of the total cost curve. C. Slope of the total revenue curve is less than the slope of the total cost curve. D. Slope of the marginal revenue curve is equal to slope of the marginal cost curve. 7.25 A perfectly-competitive firm maximizes profit at the output level where: A. Mp = 0. B. P = MC. C. MR = MC. D. Both A and C are correct. E. All of the above.