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Negative $6000 Profit Loss Statement by nos76406

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									                                                                                                 ECON 110
                                                                                                   Fall 2005
                                                                          Instructor: Tsvetanka Karagyozova
MIDTERM 2
PRACTICE QUESTIONS
    Multiple Choice
    Identify the letter of the choice that best completes the statement or answers the question.

     1. All other things constant, higher implicit costs result in lower accounting profit.
        a. True
        b. False
     2. A firm's opportunity cost of using resources provided by the firm's owners is called
        a. sunk costs
        b. fixed costs
        c. explicit costs
        d. implicit costs
        e. entrepreneurial costs
     3. The opportunity cost of a resource
        a. includes both explicit and implicit costs
        b. includes explicit costs only
        c. includes implicit costs only
        d. is equal to the market price of the resource
        e. is not related to the market price of the resource
     4. Economic profit is defined as
        a. total revenue minus implicit costs
        b. total revenue plus explicit costs
        c. total revenue plus implicit costs
        d. wages plus interest minus rent
        e. total revenue minus implicit and explicit costs
     5. Gypco's accounting profit is equal to its
        a. total revenue minus opportunity costs
        b. total revenue plus opportunity costs
        c. total revenue minus imputed costs
        d. total revenue minus explicit costs
        e. total revenue minus explicit and implicit costs
     6. Suppose a soccer coach has been making $25,000 per year but gives up his coaching job in order to make
        lace doilies. If his revenue from the sale of these doilies is $50,000 and his materials cost $20,000, then
        his economic profit is
        a. $5,000
        b. $25,000
        c. $30,000
        d. $50,000
        e. $80,000
     7. Suppose a lawyer leaves his $50,000-a-year job and starts his own firm breeding pit bulls. In the first
        year, his accounting profits are $70,000. The lawyer finances his new business with $100,000 from his
        savings account, which had earned 10 percent interest. His economic profit is
        a. $10,000
        b. $60,000
        c. $70,000
     d. -$80,000
     e. -$90,000




 8. Sally owns a small business that she operates out of a small building she owns. Given the information in
    Exhibit 0101, Sally's accounting profit is
    a. $80,000
    b. $50,000
    c. $65,000
    d. $35,000
    e. $24,000
 9. The short run is a period of time
    a. equal to or less than six months
    b. during which all resources may be varied
    c. during which all resources are fixed
    d. during which at least one resource is fixed
    e. during which at least one resource may be varied




10. Given the information in Exhibit 0102, at what point do diminishing marginal returns set in?
    a. before the first unit of labor
    b. between the first and second units of labor
    c. between the second and third units of labor
    d. between the third and fourth units of labor
    e. between the fourth and fifth units of labor
11. Given the information in Exhibit 0102, at what point do negative marginal returns set in?
    a. before the first unit of labor
    b. between the first and second units of labor
    c. between the second and third units of labor
    d. between the third and fourth units of labor
    e. between the fourth and fifth units of labor
12. The law of diminishing returns explains why
    a. monopolies have a guaranteed profit margin
    b. short-run MC and AVC curves are U-shaped
    c. the production possibilities curve is bowed out
    d. long run supply curves are downward sloping
    e. total product is a straight line




13. In Exhibit 0103, diminishing marginal returns set in with the addition of the
    a. first worker
    b. third worker
    c. fourth worker
    d. fifth worker
    e. seventh worker
14. The marginal product of labor is the
    a. cost of one worker
    b. average output per worker
    c. change in revenue from selling one more unit of output
    d. change in revenue from using one more unit of labor
    e. change in output from using one more unit of labor
15. Which of the following is a fixed cost of driving a car?
    a. gasoline
    b. maintenance
    c. tires
    d. license plates
    e. motor oil
16. If variable cost at each output level doubles,
    a. ATC doubles
    b. AFC doubles
    c. MC remains unchanged
    d. MC doubles
    e. MC less than doubles
17. If labor is a firm's only variable input, marginal cost ultimately depends on
    a. fixed cost
    b. how much profit is made
    c. the price of the good produced
    d. how much output each worker produces
           e. fixed cost per unit




      18. In Exhibit 0106, what is fixed cost at 15 units of output?
          a. $0
          b. $10
          c. $30
          d. it is impossible to calculate fixed cost unless we know the daily wage
          e. it is impossible to calculate fixed cost unless we know variable cost at Q = 0




     19. In Exhibit 0107, the average total cost of producing 20 units is
         a. $2
         b. $20
         c. $30
         d. $100
         e. $1,100
____ 20. Suppose Thelma and Louise both sell fried green tomatoes in a perfectly competitive market. If Louise
         increases her output,
         a. Thelma must reduce output
         b. the price Thelma can charge falls
         c. the price Thelma can charge rises
         d. the price Thelma can charge is unaffected
         e. Thelma's profits must fall
____ 21. Because market price remains constant as a perfectly competitive firm expands output, each firm faces
         a. a downward-sloping demand curve
         b. a horizontal demand curve
         c. constant returns to scale
         d. constant costs
         e. diminishing marginal revenue
____ 22. Economic theory assumes that the goal of firms is to maximize
         a. sales
         b. total revenue
         c. profit
         d. price
         e. utility




____ 23. How much profit is the firm in Exhibit 0119 earning (or how much of a loss is it experiencing) as it
         attempts to maximize profits and minimize losses?
         a. -$17
         b. $10
         c. zero profit or loss
         d. -$10
         e. $30


____ 24. For perfectly competitive firms, what is the relationship among market price (P), average revenue (AR),
         and marginal revenue (MR)?
         a. P = AR = MR
         b. P > AR = MR
         c. P = AR > MR
         d. P = AR < MR
         e. P < AR = MR
____ 25. At which price and quantity is profit maximized for the perfectly competitive firm represented in Exhibit
         0124?
         a. $40 and 80
         b. $8 and 70
         c. $4 and 40
         d. $40 and 70
         e. $8 and zero output




____ 26. In Exhibit 0128, total cost at the profit-maximizing output level equals
         a. $4,800
         b. $6,000
         c. $2,800
           d. $3,600
           e. $4,000
____ 27.   In the short run, if a firm shuts down, its loss is equal to
           a. $0
           b. its variable costs
           c. its fixed costs
           d. fixed costs minus variable costs
           e. fixed costs minus total revenue
____ 28.   If the loss-minimizing output for a perfectly competitive firm is zero, then, at all other output levels,
           a. price must be greater than average variable cost
           b. the marginal cost curve must slope downward
           c. marginal cost is less than marginal revenue
           d. total revenue is less than variable cost
           e. total revenue is less than average variable cost
____ 29.   If a perfectly competitive firm shuts down in the short run, its variable cost equals zero.
           a. True
           b. False
____ 30.   If a perfectly competitive firm shuts down in the short run, its total cost equals zero.
           a. True
           b. False
____ 31.   Claude's Copper Clappers sells clappers for $40 each in a perfectly competitive market. At its present rate
           of output, Claude's marginal cost is $39, average variable cost is $45, and average total cost is $60. To
           improve his profit/loss situation, Claude should
           a. increase output
           b. reduce output but not to zero
           c. maintain the present rate of output
           d. shut down
           e. raise the price
____ 32.   Suppose a price-taking firm produces 400 units at its optimal output level. At that output rate marginal
           cost is $200, average total cost is $240, and average variable cost is $170. What can you determine about
           the market price that would force the firm to shut down in the short run?
           a. It equals $200.
           b. It is between $170 and $240.
           c. It is less than $170.
           d. It is between $170 and $200.
           e. It equals $240.
____ 33.   A perfectly competitive firm producing 100 units of output per time period finds that:

           Average total cost is $20;
           Average variable cost is $12;
           Marginal cost is $18 and increasing;
           Price of the product is $15.

           This firm should
           a. produce more output
           b. raise the price of its product
           c. reduce production without shutting down
           d. shut down (reduce output to zero)
           e. do nothing (it is currently maximizing profit)
____ 34. For the perfectly competitive firm represented in Exhibit 0134, the short-run supply curve is
         a. abcde
         b. bcde
         c. cde
         d. de
         e. abcd
____ 35. Which characteristic of perfect competition ensures that economic profit will be zero in the long run?
         a. each firm's output is small in relation to total market supply
         b. buyers and sellers are fully informed about the price and availability of all resources and
             products
         c. the product is homogeneous
         d. there is freedom of entry and exit in the market
         e. firms are price takers
____ 36. In a perfectly competitive industry, how does the elasticity of the market demand curve compare with the
         elasticity of the firm's demand curve?
         a. The price elasticity of demand is the same for both demand curves
         b. Both demand curves are perfectly elastic
         c. Both demand curves are perfectly inelastic
         d. The firm's demand curve is perfectly elastic while the industry demand curve is downward
             sloping
         e. The firm's demand curve is downward sloping, while the industry demand curve is
             perfectly elastic

____ 37. The demand curve a monopolist faces
         a. is more elastic than a perfectly competitive firm's demand curve
         b. is the market demand curve
         c. is as elastic as a perfectly competitive firm's demand curve
         d. is not affected by the prices of complements
         e. will not shift in response to a change in consumer tastes
____ 38 The demand curve faced by a firm with a patent on a marketable product
         a. is horizontal
         b. is vertical
         c. slopes upward
         d. slopes downward
         e. is nonexistent
____ 39. Average revenue, demand, and price are all depicted by the same curve for a monopoly.
         a. True
         b. False
____ 40. Which of the following is true of marginal revenue for a monopolist?
         a. P = MR because there are no close substitutes for the monopolist's product.
         b. P > MR because the monopolist must decrease price on all units sold in order to sell an
            additional unit.
         c. P < MR because the monopolist must decrease price on all units sold in order to sell an
            additional unit.
         d. AR = MR because there are no close substitutes for the monopolist's product.
         e. P = MR only at the profit-maximizing quantity.




____ 41. In Exhibit 0139, the average revenue of the fourth unit is
         a. $12
         b. $3
         c. $4
         d. -$4
         e. $0
____ 42. From the following demand schedule for a monopolist, what is the marginal revenue associated with the
         sale of the fourth unit?

              Price     Quantity
               90           1
               80           2
               70           3
               60           4
               50           5

         a. $10
         b. $30
         c. $60
         d. $240
         e. marginal revenue cannot be determined from the information given
____ 43. The demand curve facing a monopolist
         a. is kinked at the market price
         b. is perfectly elastic
         c. lies above its marginal revenue curve
         d. lies below its marginal revenue curve
         e. is the same as its marginal revenue curve
____ 44. A profit-maximizing monopolist never produces along the ________ portion of the demand curve
         because marginal revenue is ________ there.
         a. elastic; positive
         b. elastic; negative
         c. inelastic; negative
         d. inelastic; positive
         e. inelastic; zero
____ 45. Negative marginal revenue means that
         a. the firm is maximizing its economic profit
         b. the firm is maximizing its total revenue
         c. total revenue is increasing at an increasing rate as output increases
         d. total revenue is increasing at a decreasing rate as output increases
         e. total revenue is decreasing as output increases
____ 46. Monopolists always earn positive short-run economic profit.
         a. True
         b. False




____ 47. In Exhibit 0145, what is the profit-maximizing price for a monopolist?
         a. $36
         b. $32
         c. $28
         d. $24
         e. $20
____ 48. Total cost for the profit maximizing monopoly in Exhibit 0150 will be
         a. $95,200
         b. $84,000
         c. $77,000
         d. $53,200
         e. $42,000
____ 49. Assuming a constant cost industry, consumer surplus would be greater under monopoly than if the
         industry were perfectly competitive.
         a. True
         b. False
____ 50. Suppose that the demand for my new book, Spatulas From Around the World, is such that the demand
         curve lies everywhere below the average variable cost of producing it. To maximize profits or minimize
         losses, I should
         a. raise price
         b. lower price to increase demand
         c. shut down the presses printing my book
         d. lower price until demand is inelastic
         e. charge the highest price I can
____ 51. The supply curve for a monopolist
         a. is its marginal cost curve
         b. is vertical because there are no close substitutes for its product
         c. is horizontal because there are no close substitutes for its product
         d. slopes upward
         e. does not exist
____ 52. The firm in Exhibit 9-1 will have an economic
         a. profit of $85
         b. loss of $48
         c. profit of $132
         d. loss of $96
         e. loss of $34
____ 53. One of the ways that a perfectly competitive firm and a monopolist are different is that
         a. the marginal cost curve is U-shaped for a perfectly competitive firm but not for a
            monopolist
         b. P = AR for a perfectly competitive firm but not for a monopolist
         c. P = MR for a perfectly competitive firm but not for a monopolist
         d. the average revenue curve and demand curve are the same for a perfectly competitive firm
            but not for a monopolist
         e. only the monopolist seeks to maximize profits
____ 54. In economics, products are considered "differentiated" only if
         a. they are physically or chemically different
         b. sellers decide that they are different
         c. buyers think that they are different
         d. the government determines that they are different
         e. they are produced by different firms
____ 55. The defining characteristic of oligopoly is that each firm
         a. produces the same output as its rivals
         b. acts independently of its rivals
         c. is mutually interdependent
         d. is atomistic
         e. advertises how its products are different from its rivals' products
____ 56. Oligopolists are more sensitive to the pricing and output policies of their rivals when
         a. all firms produce identical products
         b. their products are highly differentiated
         c. there is freedom of entry and exit
         d. there are barriers to entry
         e. there are many firms in the industry
____ 57. A brand name may contribute to oligopolists' economic profit by
         a. shifting the demand curve leftward
         b. shifting the supply curve leftward
         c. overcoming diminishing marginal returns
         d. acting as a barrier to entry
         e. reducing advertising costs
____ 58. Collusion occurs when
         a. a firm chooses a level of output to maximize its own profit
         b. firms get together to maximize joint profits
         c. firms refuse to follow their price leaders
         d. firms petition their U.S. senators for favors
         e. two firms' price and output decisions come into conflict
____ 59. Each member of a cartel
         a. faces a temptation to cheat on the agreement because lowering its price slightly below the
             established price will usually increase the firm's sales and profit
         b. faces a temptation to cheat on the agreement because raising its price slightly above the
             established price will usually increase the firm's sales and profit
         c. has no temptation to cheat on the agreement because lowering its price slightly below the
             established price will usually have no impact on the firm's sales and profit
         d. has no temptation to cheat on the agreement because raising its price slightly above the
             established price will usually decrease the firm's sales and profit
         e. has no temptation to cheat on the agreement because lowering its price slightly below the
             established price will usually lower the firm's sales and profit
____ 60. The advantage of game theory is that it allows us to focus on the
         a. individual firm's incentives to cooperate or not
         b. relationship between the market and firm level demand curve
         c. costs and benefits
         d. government regulators and the firms in an industry
         e. models where there are no barriers to entry
Midterm 1, sample
Answer Section

MULTIPLE CHOICE

   1.    B
   2.    D
   3.    A
   4.    E
   5.    D
   6.    A
   7.    A
   8.    C
   9.    D
   10.   C
   11.   E
   12.   B
   13.   C
   14.   E
   15.   D
   16.   D
   17.   D
   18.   B
   19.   C
   20.   D
   21.   B
   22.   C
   23.   D
   24.   A
   25.   B
   26.   A
   27.   C
   28.   D
   29.   A
   30.   B
   31.   D
   32.   C
   33.   C
   34.   C
   35.   D
   36.   D
   37.   B
   38.   D
   39.   A
   40.   B
   41.   B
   42.   B
   43.   C
44.   C
45.   E
46.   B
47.   C
48.   C
49.   B
50.   C
51.   E
52.   E
53.   C
54.   C
55.   C
56.   A
57.   D
58.   B
59.   A
60.   A

								
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