Deck 5: Perfectly Competitive Supply: the Cost Side of the Market

Question 1

To produce 150 units of output,the firm must use 3 employee-hours.To produce 300 units of output,the firm must use 8 employee-hours.Apparently,the firm is

A) not profitable.
B) in the long run.
C) experiencing diminishing marginal returns.
D) not using any fixed factors of production.
E) failing to maximize profit.

Answer 1

experiencing diminishing marginal returns.

Question 2

The law of diminishing marginal returns

A) holds only in the long run.
B) applies only to small-and medium-sized firms.
C) holds both in the short run and in the long run.
D) applies only to large firms.
E) holds only in the short run.

Answer 2

holds only in the short run.

Question 3

A variable factor of production

A) is fixed in the long run,but variable in the short run.
B) plays no role in the law of diminishing marginal returns.
C) is variable in both the short run and the long run.
D) is irrelevant to profit maximization decisions.
E) is variable only in the short run.

Answer 3

is variable in both the short run and the long run.

Question 4

Profit is the

A) difference between total revenue and total explicit costs.
B) ratio of total revenue to total cost.
C) difference between total cost and total revenue.
D) goal of only large firms.
E) difference between total revenue and the sum of explicit and implicit costs.

Question 5

The reason for the existence of the law of diminishing marginal returns is that

A) as production expands,the firm is forced to hire low-quality workers.
B) firms become less efficient as they produce more.
C) workers become fatigued as they are required to produce more.
D) equipment breaks down more frequently as production expands.
E) increasingly more workers must share the same workspace and tools.

Question 6

Which of the following factors of production is likely to be fixed in the short run?

A) The location of the firm.
B) The number of employee-hours.
C) The amount of electricity consumed.
D) The amount of paper used.
E) The amount of RAM installed on the network server.

Question 7

Which of the following factors of production is likely to be variable in the short run?

A) The location of the firm.
B) The number of employee-hours.
C) The size of the firm's plant or office.
D) The amount of specialized machinery.
E) The number of features in a custom-designed software application the firm uses.

Question 8

Profit maximization is the primary objective of

A) private firms.
B) the government.
C) the military.
D) labour unions.
E) political parties.

Question 9

As long as the marginal product of labour is positive,a

A) firm should continue to hire additional workers.
B) firm's profit will always rise as additional workers are hired.
C) firm's profit will always be positive as additional workers are hired.
D) firm's total output will always rise as additional workers are hired.
E) firm's total output will always rise,but its average output will always fall,as additional workers are hired.

Question 10

A profit-maximizing price taker must decide

A) only on what price to charge,taking output as fixed.
B) both what price to charge and how much to produce.
C) only on how much to produce,taking price as fixed.
D) only on which industry to join,taking price and output as fixed.
E) only on how much revenue it wishes to collect.

Question 11

The short run is defined as

A) one year or less.
B) a period in which all factors of production are variable.
C) three years or less.
D) a period in which at least one factor of production is fixed.
E) a period in which at most one factor of production is fixed.

Question 12

Total revenue minus the sum of explicit and implicit costs defines

A) gross earnings.
B) profit.
C) net earnings.
D) net worth.
E) retained earnings.

Question 13

The long run is defined as

A) one year or more.
B) a period in which all factors of production are variable.
C) three years or more.
D) a period in which only one factor of production is fixed.
E) a period in which at least one factor of production is fixed.

Question 14

When the existing factory is becoming increasingly crowded and workers must wait for their turn to use existing tools,it is an example of diminishing

A) marginal management.
B) marginal returns.
C) marginal utility.
D) marginal benefit.
E) microeconomics.

Question 15

Diminishing marginal returns often arise because the

A) additional worker hired is lazier than the existing workers.
B) additional worker hired must share the same machines and workspace.
C) additional worker hired must be trained for a long period of time to use the machines and tools.
D) existing plant size and workplace is much too large.
E) existing plant is technologically behind the industrial average.

Question 16

The location of a firm will be a _________ factor of production in ________ run.

A) variable;the short
B) variable;both the short and the long
C) variable;the long
D) fixed;the long
E) fixed;both the short and the long

Question 17

When some factors of production are fixed,equal-sized increases in production will eventually require

A) smaller increases in the variable factors.
B) equal-sized increases in the variable factors.
C) larger increases in the variable factors.
D) larger increases in the fixed factors.
E) higher profit.

Question 18

A period in which at least some factors of production are unchangeable defines

A) the long run.
B) one year or less.
C) the medium run.
D) two years or less.
E) the short run.

Question 19

A fixed factor of production

A) is fixed in the long run,but variable in the short run.
B) plays no role in the law of diminishing marginal returns.
C) is fixed in both the short run and the long run.
D) is common in large firms but rare in small firms.
E) is fixed only in the short run.

Question 20

Given a fixed amount of technology,machines,and work space,we expect the

A) marginal product of labour to eventually fall.
B) marginal cost of labour to eventually fall.
C) marginal product of labour to always increase.
D) marginal product of labour to always increase at an increasing rate.
E) total product of labour to always decrease.

Question 21

Refer to the graph above.The existing facilities are not being fully utilized when the firm hires less than

A) 2 workers.
B) 3 workers.
C) 4 workers.
D) 5 workers.
E) between 3 and 6 workers.

Question 22

Refer to the information above.The firm earns a ___________ of __________ when it produces 120 units of output.

A) loss;$64
B) profit;$64
C) loss;$114
D) profit;$114
E) profit;$54

Question 23

Refer to the information above.When the firm uses 9 employee-hours,it will experience _______ in labour costs.

A) $30
B) $56
C) $84
D) $126
E) $210

Question 24

The existence of fixed factors of production at a firm explains

A) high employee turnover.
B) increased workplace violence.
C) the law of diminishing marginal returns.
D) decreased employee morale.
E) increased self-employment.

Question 25

Which of the following is most likely to be a variable factor of production at a university?

A) The number of teaching assistants.
B) The size of the basketball arena or football stadium.
C) The school mascot.
D) The size of the campus.
E) The location of the university.

Question 26

Refer to the information above.To increase output from 99 to 132 units requires ______ extra employee-hour(s);to increase output from 132 to 165 units requires _____ extra employee-hour(s).

A) 11;18
B) 7;11
C) 4;3
D) 3;4
E) 1;1

Question 27

Refer to the information above.When the firm uses 23 employee-hours,it will collect total revenue of

A) $46.
B) $200.
C) $225.
D) $400.
E) $450.

Question 28

Refer to the graph above.The law of diminishing marginal returns begins after the firm hires

A) the first worker.
B) the second worker.
C) the third worker.
D) the fourth worker.
E) the fifth worker.

Question 29

Refer to the information above.The total labour cost of producing 99 units of output is

A) $5.
B) $10.
C) $20.
D) $35.
E) $55.

Question 30

Refer to the information above.To increase output from 33 to 66 units requires ______ extra employee-hour(s);to increase output from 66 to 99 units requires _____ extra employee-hour(s).

A) 1;1
B) 1;2
C) 2;1
D) 2;4
E) 3;7

Question 31

Refer to the information above.The total labour cost of producing 132 units of output is

A) $55.
B) $35.
C) $20.
D) $10.
E) $5.

Question 32

Refer to the information above.To produce 132 units of output,the firm must use _______ employee-hours.

A) 1
B) 2
C) 4
D) 7
E) 11

Question 33

Refer to the information above.The law of diminishing marginal returns becomes evident at ______ units of output.

A) 33
B) 66
C) 99
D) 132
E) 165

Question 34

Refer to the information above.When the firm uses 9 employee-hours,it will collect total revenue of

A) $240.
B) $160.
C) $80.
D) $18.
E) $2.

Question 35

Which of the following is most likely to be a fixed factor of production at a university?

A) The number of personal computers.
B) The number of books in the library.
C) The number of professors and lecturers.
D) The amount of chalk.
E) The size of the business and liberal arts buildings.

Question 36

Refer to the information above.As the firm increases employee-hours from 1 to 2,output increases by

A) 33 units.
B) 66 units.
C) 99 units.
D) 132 units.
E) an amount that is impossible to determine.

Question 37

Suppose 30 employee-hours can produce 50 units of output.If the law of diminishing marginal returns is present,producing 100 units of output will require

A) an additional 30 employee-hours.
B) more than 30 additional employee-hours.
C) a total of 60 or less employee-hours.
D) fewer than 30 additional employee-hours.
E) a total of 90 or more employee-hours.

Question 38

Suppose 40 employee-hours can produce 80 units of output.If the law of diminishing marginal returns is present,producing 160 units of output will require

A) an additional 40 employee-hours.
B) a total of 80 or less employee-hours.
C) less than 40 additional employee-hours.
D) a total of 81 or more employee-hours.
E) a total of 80 employee-hours.

Question 39

Refer to the information above.The general relationship between employee-hours and output is

A) negative.
B) constant.
C) positive.
D) inverse.
E) declining.

Question 40

Refer to the information above.The total cost of producing 120 units of output is

A) $50.
B) $54.
C) $56.
D) $106.
E) $176.

Question 41

Refer to the information above.Assume that the wage rate increases from $14 to $17.The profit-maximizing level of output is now _______ and the firm will earn a _________.

A) 40;profit of $13
B) 80;profit of $42
C) 80;loss of $36
D) 120;profit of $39
E) 160;profit of $15

Question 42

A price taker's output price is $8 and the firm is producing 77 units with a marginal cost of $11.The firm should

A) lower its price.
B) decrease production.
C) increase production.
D) raise its price.
E) hire more workers.

Question 43

To maximize profit,a price taker should produce the output level where

A) total cost is the lowest.
B) variable cost is the lowest.
C) total revenue is the highest.
D) price equals marginal cost.
E) marginal cost is the lowest.

Question 44

If a price taker experiences an increase in the cost of a fixed factor of production,it will

A) increase output.
B) raise its price.
C) decrease output.
D) lower its price.
E) leave its output decision unchanged.

Question 45

Refer to the information above.Which output level in the table allows the firm to earn the largest profit?

A) 40 units.
B) 80 units.
C) 120 units.
D) 160 units.
E) 200 units.

Question 46

Refer to the information above.When the firm uses 23 employee-hours,it will experience _______ in labour costs.

A) $322
B) $260
C) $180
D) $112
E) $46

Question 47

Refer to the information above.Assume that the amount the firm pays for rent increases from $50 to $60.The profit-maximizing level of output is now _______ and the firm will earn a _________.

A) 40;profit of $15
B) 80;loss of $30
C) 80;profit of $10
D) 120;profit of $44
E) 120;profit of $54

Question 48

A price taker's output price is $7 and the firm is producing 1000 units with a marginal cost of $7.The firm should

A) leave production unchanged because it is maximizing profit.
B) decrease production to increase its profit.
C) increase production to lower its loss.
D) increase production to increase its profit.
E) decrease production to lower its loss.

Question 49

A decrease in the price that a price taker receives for its output will cause the firm to

A) increase output and earn a smaller profit.
B) shut down and leave the industry.
C) leave output unchanged and earn a smaller profit.
D) decrease output and earn a smaller profit or a larger loss.
E) decrease output and increase fixed cost.

Question 50

Refer to the information above.The total cost of producing 200 units of output is

A) $440.
B) $372.
C) $280.
D) $240.
E) $190.

Question 51

An increase in the price that a price taker receives for its output will cause the firm to

A) increase output and earn a higher profit or a smaller loss.
B) increase output and reduce fixed cost.
C) leave output unchanged and reduce fixed cost.
D) leave output unchanged and earn a higher profit or a smaller loss.
E) decrease output and earn a higher profit.

Question 52

Suppose a price taker is collecting $1,345 in total revenue and the total cost of its fixed factors of production increases from $200 to $300.One can speculate that the firm will

A) increase output.
B) raise its price.
C) earn a higher profit or a smaller loss.
D) decrease output.
E) earn a smaller profit or a greater loss.

Question 53

The price equals marginal cost rule for profit maximization is a specific example of which of the following core principles?

A) Scarcity.
B) Cost-benefit.
C) Comparative advantage.
D) Equilibrium.
E) Efficiency.

Question 54

Refer to the information above.The firm earns a ___________ of __________ when it produces 200 units of output.

A) loss;$28
B) profit;$78
C) loss;$78
D) profit;$28
E) profit;$10

Question 55

If a price taker produces an output level where price is less than marginal cost,then the firm should

A) raise its price.
B) pay less to its fixed factors of production.
C) decrease output to earn a higher profit or a smaller loss.
D) increase output to earn a higher profit or a smaller loss.
E) leave its output decision unchanged.

Question 56

If a price taker produces an output level where price is greater than marginal cost,then the firm should

A) pay more to its variable factors of production.
B) pay more to its fixed factors of production.
C) decrease output to earn a higher profit or a smaller loss.
D) increase output to earn a higher profit or a smaller loss.
E) leave its output decision unchanged.

Question 57

The reason why the short-run supply curve is upward-sloping is

A) that suppliers are greedy.
B) that consumers are willing to pay more when they consume more.
C) the law of demand.
D) the law of diminishing marginal utility.
E) the law of diminishing marginal returns.

Question 58

Refer to the information above.Assume that the output price rises from $2 to $2.50.The profit-maximizing level of output is now _______ and the firm will earn a _________.

A) 200;profit of $128
B) 200;profit of $178
C) 160;profit of $140
D) 160;profit of $190
E) 120;profit of $124

Question 59

A price taker's output price is $5 and the firm is producing 37 units with a marginal cost of $3.The firm should

A) lower its price.
B) decrease production.
C) increase production.
D) raise its price.
E) lay off workers.

Question 60

Changes in the cost of fixed factors of production cause a price taker to

A) increase output.
B) raise its price.
C) experience a change in the size of its profit or loss.
D) decrease output.
E) lower its price.

Question 61

Refer to the information above.If the output price is 50 cents and rent decreases from $75 to $50,the price taker will

A) reduce output because marginal cost has fallen.
B) increase output because marginal cost has fallen.
C) leave output unchanged because marginal cost is unchanged.
D) reduce output because marginal cost has risen.
E) increase output because marginal cost has risen.

Question 62

Assume that a price taker uses 13 employee-hours and an office to produce 100 units of output.The price of output is $5,the wage rate is $10,and rent is $200.The firm will collect _____ in total revenue.

A) $500
B) $300
C) $170
D) $100
E) $5

Question 63

Suppose a price taker is collecting $1,999 in total revenue and the total cost of its fixed factors of production decreases from $500 to $400.One can speculate that the firm will

A) increase output.
B) lower its price.
C) earn a higher profit or a smaller loss.
D) decrease output.
E) earn a smaller profit or a greater loss.

Question 64

Assume that a price taker uses 13 employee-hours and an office to produce 100 units of output.The price of output is $5,the wage rate is $10,and rent is $200.The firm has total cost of

A) $500.
B) $330.
C) $230.
D) $200.
E) $3.30.

Question 65

Refer to the information above.If rent decreases from $75 to $50,the marginal cost of increasing output from 45 units to 90 units

A) remains constant at 44 cents.
B) falls to 16 cents.
C) falls to 8 cents.
D) remains constant at 31 cents.
E) falls to 26 cents.

Question 66

If a price-taking firm is experiencing diminishing marginal returns to its variable factors of production,as the output price falls,it will

A) produce more.
B) earn a positive profit.
C) produce less.
D) earn a loss.
E) expand.

Question 67

Refer to the information above.If the wage rate falls from $7 to $6,the marginal cost of increasing output from 45 units to 90 units

A) remains constant at 31 cents.
B) decreases to 13 cents.
C) remains constant at 37 cents.
D) decreases to 27 cents.
E) decreases to 18 cents.

Question 68

Refer to the information above.The marginal cost of increasing output from 135 units to 180 units is

A) $1.55.
B) 93 cents.
C) 62 cents.
D) 34 cents.
E) 22 cents.

Question 69

Refer to the information above.If the output price for its good is 80 cents,this price taker should produce

A) more than 225 units.
B) less than 45 units.
C) less than 225 units.
D) between 90 and 135 units.
E) less than 90 units.

Question 70

Assume that a price taker uses 13 employee-hours and an office to produce 100 units of output.The price of output is $5,the wage rate is $10,and rent is $200.The firm has total labour costs of

A) $500.
B) $300.
C) $200.
D) $130.
E) $10.

Question 71

Refer to the information above.As the law of diminishing marginal returns becomes more evident,marginal cost

A) falls.
B) becomes negative.
C) rises.
D) remains constant.
E) becomes positive.

Question 72

Refer to the information above.If the wage rate rises from $7 to $8,the marginal cost of increasing output from 135 units to 180 units

A) remains constant at 62 cents.
B) increases to 71 cents.
C) remains constant at 78 cents.
D) increases to 84 cents.
E) increases to 91 cents.

Question 73

Refer to the information above.The marginal cost of increasing output from 45 units to 90 units is

A) $1.07.
B) 94 cents.
C) 53 cents.
D) 44 cents.
E) 31 cents.

Question 74

Suppose a price taker knows that it is not going to shut down but it is going to earn a loss.It should pick the output level where

A) total cost is minimized.
B) price equals marginal cost.
C) total revenue is maximized.
D) the cost of the variable factors of production is minimized.
E) price is greater than marginal cost.

Question 75

If a price-taking firm is experiencing diminishing marginal returns to its variable factors of production,as the output price rises,it will

A) produce more.
B) earn a positive profit.
C) produce less.
D) earn a loss.
E) shut down.

Question 76

Refer to the information above.If the output price is 50 cents and rent increases from $75 to $100,the price taker will

A) reduce output because marginal cost has fallen.
B) increase output because marginal cost has fallen.
C) reduce output because marginal cost has risen.
D) increase output because marginal cost has risen.
E) leave output unchanged because marginal cost is unchanged.

Question 77

Refer to the information above.If the output price for its good is 50 cents,this price taker should produce

A) more than 225 units.
B) more than 135 units but less than 180 units.
C) between 45 and 90 units.
D) more than 180 units but less than 225 units.
E) between 0 and 45 units.

Question 78

Refer to the information above.If the output price for its good is 25 cents,this price taker should produce

A) more than 225 units.
B) less than 45 units.
C) more than 45 units but less than 90 units.
D) more than 90 units but less than 135 units.
E) less than 135 units.

Question 79

Refer to the information above.If rent increases from $75 to $100,the marginal cost of increasing output from 135 units to 180 units

A) remains constant at 62 cents.
B) rises to 81 cents.
C) rises to $1.03.
D) remains constant at 67 cents.
E) rises to 94 cents.

Question 80

Refer to the information above.The labour cost of 135 units of output is

A) $946.
B) $233.
C) $117.
D) $42.
E) $21.