INSTRUCTIONS: Select the BEST answer for each question by marking the circle next to your selection

1.

Normal profit is:

A.

determined by subtracting implicit costs from total revenue.

B.

determined by subtracting explicit costs from total revenue.

C.

the return to the entrepreneur when economic profits are zero.

D.

the average profitability of an industry over the preceding 10 years.

2.

Suppose that a business incurred implicit costs of $200,000 and explicit costs of $1 million in a specific year. If the firm sold 4,000 units of its output at $300 per unit, its accounting profits were:

$100,000 and its economic profits were zero.

$200,000 and its economic profits were zero.

$100,000 and its economic profits were $100,000.

zero and its economic loss was $200,000.

3.

The basic characteristic of the short run is that:

barriers to entry prevent new firms from entering the industry.

the firm does not have sufficient time to change the size of its plant.

the firm does not have sufficient time to cut its rate of output to zero.

a firm does not have sufficient time to change the amounts of any of the resources it employs.

4.

Marginal product is:

the increase in total output attributable to the employment of one more worker.

the increase in total revenue attributable to the employment of one more worker.

the increase in total cost attributable to the employment of one more worker.

total product divided by the number of workers employed.

5.

The first, second, and third workers employed by a firm add 24, 18, and 9 units to total product respectively. We can conclude that:

the marginal product of the third worker is 9.

the total product of the three workers is 54.

the average product of the three workers is 18.

the average product of the first two workers is 18.

6.

R-1 F22039

In the above diagram curves 1, 2, and 3 represent the:

average, marginal, and total product curves respectively.

marginal, average, and total product curves respectively.

total, average, and marginal product curves respectively.

total, marginal, and average product curves respectively.

7.

The above diagram suggests that:

when marginal product is zero, total product is at a maximum.

when marginal product lies above average product, average product is rising.

when marginal product lies below average product, average product is falling.

all of the above hold true.

8.

If you owned a small farm, which of the following would be a fixed cost?

harvest labor

hail insurance

fertilizer

seed

9.

Marginal cost is the:

rate of change in total fixed cost which results from producing one more unit of output.

change in total cost which results from producing one more unit of output.

change in average variable cost which results from producing one more unit of output.

change in average total cost which results from producing one more unit of output.

10.

Assume that in the short run a firm is producing 100 units of output, has average total costs of $200, and average variable costs of $150. The firm's total fixed costs are:

$5,000.

$500.

$.50.

$50.

11.

If a firm decides to produce no output in the short run, its costs will be:

its marginal costs.

its fixed plus its variable costs.

its fixed costs.

zero.

12.

Answer the next question(s) on the basis of the following cost data:

0

$ 24

1

33

2

41

3

48

4

54

5

61

6

69

R-2 REF22070

Refer to the above data. The total variable cost of producing 5 units:

is $61.

is $48.

is $37.

is $24.

13.

Refer to the above data. The average total cost of producing 3 units of output:

is $14.

is $12.

is $13.50.

is $16.

14.

Refer to the above data. The average fixed cost of producing 3 units of output:

is $8.

is $7.40.

is $5.50.

is $6.

15.

Refer to the above data. The marginal cost of producing the sixth unit of output:

16.

In the above figure, curves 1, 2, 3, and 4 represent the:

ATC, MC, AFC, and AVC curves respectively.

AFC, MC, AVC, and ATC curves respectively.

MC, ATC, AVC, and AFC curves respectively.

ATC, AVC, AFC, and MC curves respectively.

17.

Economies and diseconomies of scale explain:

the profit-maximizing level of production.

why the firm's long-run average total cost curve is U-shaped.

why the firm's short-run marginal cost curve cuts the short-run average variable cost curve at its minimum point.

the distinction between fixed and variable costs.

18.

R-3 F22144

The above diagram shows the short-run average total cost curves for five different plant sizes of a firm. In the long run the firm should produce output 0_{*B x} with a plant of size:

#4

#3.

#2.

#1.

19.

Use the following data to answer the next question(s). The letters A, B, and C designate three successively larger plant sizes.

10

$6

$13

$44

20

9

35

30

27

40

50

7

14

60

11

70

8

80

19

90

25

100

32

16

R-4 REF22147

Refer to the above data. At what level of output is minimum efficient scale realized?

E.

20.

R-5 F22055

Refer to the above diagram. At output level Q:

marginal product is falling.

marginal product is rising.

marginal product is negative.

one cannot determine whether marginal product is falling or rising.

21.

Refer to the above diagram. At output level Q average fixed cost:

is equal to EF.

is equal to QE.

is measured by both QF and ED.

cannot be determined from the information given.

22.

Refer to the above diagram. At output level Q total cost is:

0BEQ.

BCDE.

0BEQ plus BCDE.

0AFQ plus BCDE.

23.

Refer to the above diagram. At output level Q total fixed cost is:

0BEQ-0AFQ.

0CDQ.

24.

Refer to the above diagram. At output level Q total variable cost is:

0AFQ.