Question 1

All supply decisions are based on which one of the following questions?

Accepted Answer

The main goal of a business is to make a profit, therefore, the supply decisions are based on whether or not they will make money if they sell one more unit.

Question 2

-Refer to the graph above.The line segment that represents average variable cost of output level Q* is

Accepted Answer

The average variable cost at output level Q* is represented by the vertical distance from the origin to the point on the average variable cost curve directly above Q*, which is Q*F.

Question 3

Since ________ rises as a price taker produces more output,the firm will keep increasing output until ________.

Accepted Answer

The statement is referring to the marginal cost curve, which shows the additional cost of producing one more unit of output. In a competitive market, a firm is a price taker and must accept the market price as given. As long as the price is higher than the marginal cost of production, the firm will keep producing more output to increase profits. However, once the marginal cost equals the price, the firm will no longer have an incentive to produce more as it would be selling the additional output at cost, resulting in no profit. Therefore, the correct answer is A, where the firm will keep increasing output until marginal cost equals price.

Question 4

-Refer to the graph above.The line segment OC represents

Accepted Answer

The line segment OC represents the marginal cost of producing the last unit of output when total output is equal to Q*, as it typically shows the cost of producing one additional unit at that level of output.

Question 5

-Refer to the graph above.The area ___________ represents the total cost of producing output level Q*.

Accepted Answer

The answer of 
-Refer to the graph above.The area ___________...

Question 6

A firm producing calculators employs 6 workers.Each worker produces 40 calculators per week.Assuming that labour is the only variable input and the weekly wage is $500 per worker,the firm's

Accepted Answer

The average variable cost (AVC) is calculated by dividing the total variable cost by the total output. The total variable cost is the total wages paid to workers, which is 6 workers * $500 = $3000. The total output is 6 workers * 40 calculators = 240 calculators. Therefore, AVC = $3000 / 240 = $12.50.

Question 7

-Refer to the graph above.The line segment FE represents the

Accepted Answer

The answer of 
-Refer to the graph above.The line segment...

Question 8

-Refer to the graph above.The line segment OB represents

Accepted Answer

The answer of 
-Refer to the graph above.The line segment...

Question 9

If the law of diminishing marginal returns holds true,then eventually both the marginal cost curve and the average total cost curve must

Accepted Answer

The law of diminishing marginal returns states that as more and more units of a variable input (such as labor) are added to a fixed input (such as a factory), the marginal product of each additional unit of the variable input will eventually start to decrease. This means that each additional unit of the variable input will add less and less to total output. As a result, the marginal cost of production will eventually start to increase, since each additional unit of output will cost more to produce. This will cause the average total cost to also start to increase, since average total cost is the total cost divided by the quantity produced. Therefore, both the marginal cost curve and the average total cost curve will initially decrease due to increasing marginal returns, then reach a minimum, and then start to increase due to diminishing marginal returns.

Question 10

-Refer to the graph above.The area FEBA represents the

Accepted Answer

The area FEBA represents the total fixed cost of producing Q*, as it is the area between the average total cost curve and the average variable cost curve at the output level Q*.

Question 11

The marginal cost curve

Accepted Answer

The marginal cost curve rises when the marginal product of an input begins to fall due to the law of diminishing returns. As additional units of input contribute less to output, the cost of producing each additional unit increases.

Question 12

In areas without recycling laws,________ aluminum and ________ glass containers are recycled,because of the ________ value of scrap aluminum.

Accepted Answer

In areas without recycling laws, more aluminum and fewer glass containers are recycled because aluminum has a higher scrap value, making it more economically attractive to recycle.

Question 13

Whenever the marginal cost curve lies above the average total cost curve,

Accepted Answer

When the marginal cost curve is above the average total cost curve, it means that each additional unit produced is increasing the total cost of production by more than the average cost per unit already produced. This leads to an increase in the average total cost of production. Therefore, the correct choice is D, average total cost is increasing.

Question 14

The question "Can I make more money if I sell one more unit?" is the basis of all ________ decisions.

Accepted Answer

The question "Can I make more money if I sell one more unit?" is related to the supply side of the market. A seller would want to know if increasing the quantity they supply would result in a higher profit. Therefore, the answer is supply.

Question 15

For a price taker,the sales price is equivalent to the ________ of selling one more unit.

Accepted Answer

For a price taker, the sales price is equivalent to the benefit of selling one more unit, as they accept the market price and cannot influence it.

Question 16

Assume that the production technology required to produce goods X and Y is very similar.If a firm producing good X notices that the market price of good Y is rising,it will

Accepted Answer

Since the production technology required to produce goods X and Y is very similar, the firm can easily shift into producing good Y to take advantage of the rising market price. This will allow the firm to make higher profits by producing and selling more of the higher-priced good. intensifying production of good X, anticipating a price increase for good X, leaving its production decisions unchanged, or charging a higher price for good X would not be the best strategies in this situation.

Question 17

When recycling is left to market forces,more aluminum than glass containers will be recycled.This is because

Accepted Answer

Aluminum containers have a higher resale value compared to glass containers, which incentivizes recyclers to prioritize aluminum recycling over glass.

Question 18

For a price taker,the gain from selling one more unit is

Accepted Answer

As a price taker, the company has no control over the market price and must accept the prevailing price as given. Therefore, the gain from selling one more unit will be equal to the sales price.

Question 19

If the marginal cost of adding an extra unit of output exceeds average total cost,

Accepted Answer

When the marginal cost of adding an extra unit of output exceeds average total cost, it means that each additional unit of output is costing more on average than the previous units. This implies that the average total cost is increasing as output increases.

Question 20

-Refer to the graph above.The area OQ*FA represents the

Accepted Answer

The area OQ*FA represents the total variable cost of producing Q*, as it is the area under the marginal cost curve up to the quantity Q*.

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