PRINCIPLES OF MICROECONOMICS
EXAM 4 QUESTIONS AND ANSWERS
/. Zero economic profit is a(n) ____ rate of return. - Answer-✅Normal.
/.Economic profit is ____ accounting profit. - Answer-✅Usually less than.
/.The marginal physical product of labor is equal to: - Answer-✅The increase in
production that results from an increase in labor.
/.Because MPPL decreases as more workers are hired: - Answer-✅Marginal costs
increase.
/.The typical shape of the long-run average total cost curve is: - Answer-✅Like a U.
/.In the short run, businesses: - Answer-✅Are stuck on a chosen short-run average total
cost curve.
/.Because of the intensity of competition, the budget tablet market is viewed as a(n): -
Answer-✅Commodity.
/.If a stock market analyst says, "Computer memory chips are becoming a commodity,"
what is meant by this? - Answer-✅The market is becoming so competitive that firms
have no pricing power, and profits are low.
/.When should an automaker make the decision to permanently shut down one of its
factories? - Answer-✅When the factory is persistently operating at a loss.
/.When the market price of an item is below average total cost and businesses ____,
businesses will eventually ____ the market. - Answer-✅Incur losses; leave.
/.Calculating Average Total Cost for X amount units: - Answer-✅(Fixed Cost + Variable
Cost) / Quantity
Note: (Total Cost = FC + VC).
/.What is the average fixed cost when given a graph with 3 curves? - Answer-✅The
vertical distance between the average total cost and average variable cost at a given
point.
Both curves should be slightly U-shaped.
, /.____ is a source of diseconomies of scale. - Answer-✅The principal-agent problem.
/.Doreen's expenses for her landscaping business included rent of $1,000, payroll of
$3,000, utilities of $600, and gas for the lawnmowers of $500. What are her monthly
variable costs? - Answer-✅$3,500.
Payroll + Gas. Utilities aren't included.
/.A firm that is unable to impact the market price is a price: - Answer-✅Taker.
/.Some food stores and general retail stores like Walmart and Target stay open different
hours. In evaluating whether it makes sense to stay open from 1 AM to 2 AM, such a
store will want to know its marginal costs which include: - Answer-✅The costs of labor
that would otherwise not be used that hour.
/.Marginal revenue equals price in the ____ market structure. - Answer-✅Perfect
competition.
/.In Figure: Maximum Profit in Perfect Competition 3, profit is maximized at point: -
Answer-✅B (where Marginal revenue curve intersects with Marginal Cost curve).
/.A perfectly competitive firm can: - Answer-✅Sell as much as it can produce at the
market price.
/.A market structure with a very large number of sellers of a standardized product is
known as: - Answer-✅Perfect competition.
/.____ occurs when businesses in a competitive industry have zero economic profit. -
Answer-✅Long-run equilibrium.
/.In ____ cost industry, the entry of new firms increase average total costs. - Answer-
✅An increasing.
/.____ occurs when economic profit equals zero. - Answer-✅The breakeven point.
/.Suppose Tim's Cowboy boot factory produces in a perfectly competitive market.
Suppose the average total cost of cowboy boots is $65, the average variable cost of
cowboy boots is $60, and the price of cowboy boots is $62. If the firm is producing the
level of output where marginal cost equals price, then in the short run the firm: -
Answer-✅Should continue to produce since total revenue exceeds total variable cost.
/.In a market structure with low entry barriers, firms generally earn ____ economic profit
in the long run. - Answer-✅Zero.
EXAM 4 QUESTIONS AND ANSWERS
/. Zero economic profit is a(n) ____ rate of return. - Answer-✅Normal.
/.Economic profit is ____ accounting profit. - Answer-✅Usually less than.
/.The marginal physical product of labor is equal to: - Answer-✅The increase in
production that results from an increase in labor.
/.Because MPPL decreases as more workers are hired: - Answer-✅Marginal costs
increase.
/.The typical shape of the long-run average total cost curve is: - Answer-✅Like a U.
/.In the short run, businesses: - Answer-✅Are stuck on a chosen short-run average total
cost curve.
/.Because of the intensity of competition, the budget tablet market is viewed as a(n): -
Answer-✅Commodity.
/.If a stock market analyst says, "Computer memory chips are becoming a commodity,"
what is meant by this? - Answer-✅The market is becoming so competitive that firms
have no pricing power, and profits are low.
/.When should an automaker make the decision to permanently shut down one of its
factories? - Answer-✅When the factory is persistently operating at a loss.
/.When the market price of an item is below average total cost and businesses ____,
businesses will eventually ____ the market. - Answer-✅Incur losses; leave.
/.Calculating Average Total Cost for X amount units: - Answer-✅(Fixed Cost + Variable
Cost) / Quantity
Note: (Total Cost = FC + VC).
/.What is the average fixed cost when given a graph with 3 curves? - Answer-✅The
vertical distance between the average total cost and average variable cost at a given
point.
Both curves should be slightly U-shaped.
, /.____ is a source of diseconomies of scale. - Answer-✅The principal-agent problem.
/.Doreen's expenses for her landscaping business included rent of $1,000, payroll of
$3,000, utilities of $600, and gas for the lawnmowers of $500. What are her monthly
variable costs? - Answer-✅$3,500.
Payroll + Gas. Utilities aren't included.
/.A firm that is unable to impact the market price is a price: - Answer-✅Taker.
/.Some food stores and general retail stores like Walmart and Target stay open different
hours. In evaluating whether it makes sense to stay open from 1 AM to 2 AM, such a
store will want to know its marginal costs which include: - Answer-✅The costs of labor
that would otherwise not be used that hour.
/.Marginal revenue equals price in the ____ market structure. - Answer-✅Perfect
competition.
/.In Figure: Maximum Profit in Perfect Competition 3, profit is maximized at point: -
Answer-✅B (where Marginal revenue curve intersects with Marginal Cost curve).
/.A perfectly competitive firm can: - Answer-✅Sell as much as it can produce at the
market price.
/.A market structure with a very large number of sellers of a standardized product is
known as: - Answer-✅Perfect competition.
/.____ occurs when businesses in a competitive industry have zero economic profit. -
Answer-✅Long-run equilibrium.
/.In ____ cost industry, the entry of new firms increase average total costs. - Answer-
✅An increasing.
/.____ occurs when economic profit equals zero. - Answer-✅The breakeven point.
/.Suppose Tim's Cowboy boot factory produces in a perfectly competitive market.
Suppose the average total cost of cowboy boots is $65, the average variable cost of
cowboy boots is $60, and the price of cowboy boots is $62. If the firm is producing the
level of output where marginal cost equals price, then in the short run the firm: -
Answer-✅Should continue to produce since total revenue exceeds total variable cost.
/.In a market structure with low entry barriers, firms generally earn ____ economic profit
in the long run. - Answer-✅Zero.
