Supplemental Instruction
Iowa State University / Leader: / Katie
Course: / Econ 101
Instructor: / Kreider
Date: / S
- Accounting profits are
a)always positive.
b)usually greater than economic profits.
c)The same as zero economic profits.
d)The result of technologically inefficient production.
e)Less than zero economic profits.
- The change in output that results when another unit of the variable factor is employed is referred to as the
a)marginal product.
b)Average product
c)Average fixed product
d)Total product
e)Average total product
- The cost-minimizing factor mix is obtained when
a)the marginal products of all factors are equalized.
b)The marginal product per dollar expended on each factor is equalized.
c)The marginal product of each factor divided by total expenditure on that factor is equalized across all factors.
d)The cost of employing an additional unit of each factor is equalized across all factors.
e)Each factor’s marginal cost is equalized.
- Which of the following is the best measure of productivity?
a)total output
b)total output per hour
c)total output per unit of resource input
d)total output per dollar of revenue
e)total profit per unit of output
- In the long run, some firms will exit the market if the price of the good offered for sale is less than
a)marginal revenue
b)marginal cost
c)average revenue
d)average total cost
- In long-run equilibrium in a competitive market, firms are operating at
a)the minimum of their average-total-cost curves
b)the intersection of marginal cost and marginal revenue
c)their efficient scale
d)zero economic profit
e)all of the above
- One possible explanation for economies of scale is
a)invention and innovation.
b)The introduction of new improved inputs
c)A decrease in a factor price
d)Increased specialization of production tasks
e)Technological improvement
- Which of the following characteristics of an industry is most conducive to competitive behavior by firms?
a)A large number of firms in the industry
b)Individual firms can sell more by reducing price
c)A firm can affect its profits only by changing its own output or costs
d)All firms in the industry produce an identical product
e)All of the above
- The assumption that each firm in a perfectly competitive market is a price take basically means that
a)market price is independent of the level of industry output
b)each firm’s supply curve is perfectly elastic
c)the industry supply curve is perfectly elastic
d)the firm can take any price it wants to choose and still sell all its output
e)changes in the output of an individual firm do not affect the market price
- The perfectly competitive firm will not increase its price above the price charged by competitive firms in the industry because
a)there is freedom of entry and exit
b)the other firms will react by reducing their prices
c)it doesn’t make enough profit to advertise how its product differs from that of its competitors
d)consumers know the prices being charged by other firms for the same product
e)it will increase its sales by reducing its price
- A profit-maximizing firm should shut down production and suffer a short-run loss equal to its fixed cost if
a)price is less than average variable cost
b)price is less than average total cost but greater than average variable cost
c)total revenue is less than total cost but greater than total variable cost
d)its economic profits are negative and smaller in absolute value than total fixed cost
e)profits are negative
- Zero economic profits implies
a)firms are not earning a normal operating profit
b)accounting profits are zero
c)firms are earning a normal profit sufficient to satisfy owner
d)firms should leave the industry
e)none of the above
13. Joe runs a small boat factory. He can make ten boats per year and sell them for $35,000 each. It costs Joe $250,000 for the raw materials (fiberglass, wood, paint and so on) to build the ten boats. Joe has invested $500,000 in the factory and equipment needed to produce the boats: $200,000 from his own savings and $300,000 borrowed at 10 percent interest (assume the Joe could have loaned his money out at 10 percent, too). Joe can work at a competing boat factory for $60,000 per year.
a)What is the total revenue Joe can earn in a year?
b)What are the explicit costs Joe incurs while producing ten boats?
c)What are the total opportunity costs of producing ten boasts (explicit and implicit)?
d)What is the value of Joe’s accounting profit?
e)What is the value of Joe’s economic profit?
f)Is it truly profitable for Joe to operate his boat factory? Explain.