ECO 365T Wk 4 - Practice: The Microeconomics of Product Markets Quiz

Complete the Week 4 The Microeconomics of Product Markets Quiz in McGraw-Hill Connect®. These are randomized questions. 

Note: You have unlimited attempts available to complete practice assignments. The highest scored attempt will be recorded. These assignments have earlier due dates, so plan accordingly. Grades must be transferred manually to eCampus by your instructor. Don't worry, this might happen after the due date.

The table below presents the average and marginal cost of producing cheeseburgers per hour at a roadside diner.

 Cheeseburger Production Costs

Quantity(burgers per hour) Average Variable Cost (dollars) Average Total Cost (dollars) Marginal Cost (dollars)

0 — — —

10 $1.00 $6.60 $1.00

20 0.70 3.50 0.40

30 0.70 2.57 0.70

40 0.78 2.18 1.00

50 0.88 2.00 1.30

60 1.07 2.00 2.00

70 1.34 2.14 3.00

80 1.74 2.44 4.50

90 2.23 2.86 6.20

100 2.81 3.37 8.00

a. At a quantity of 40 cheeseburgers per hour, the average total cost of production is falling  and the marginal cost of cheeseburger production is rising  .

b. At a quantity of 60 cheeseburgers per hour, the average variable cost of production is rising  and the average total cost of cheeseburger production is at a minimum  .

A business owner makes 50 items by hand in 40 hours. She could have earned $20 an hour working for someone else. Her total explicit costs are $200. If each item she makes sells for $15, her economic profit equals:

Instructions: Enter your answer as a whole number. If you are entering a negative number be sure to include a negative sign (-) in front of that number.

A young Thomas Edison produces and sells 20 light bulbs a week in his dorm room. The parts for each light bulb cost $2.00. He sells each light bulb for $5.00. General Electric offers Thomas an executive job that pays $50.00 a week. Thomas’s weekly economic profit from making light bulbs is equal to:

Instructions: Enter your answer as a whole number.

Which of the following costs is an explicit cost for you?

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You spend your time running your own business even though a large corporation offered you a generous contract.

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You raise cattle on your family-owned farm even though you could sell your land to a developer.

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You hire a worker who could have received the same wage working for your competitor. 

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You decide to use an extra room for your business that you could have rented out to your neighbor.

Barney decides to quit his job as a corporate accountant, which pays $10,000 a month, and goes into business for himself as a certified public accountant. 

He runs his business from his converted garage apartment, which he could rent out for $300 a month if he wasn’t using it as a home office. He must purchase office supplies worth $75 a month, and his monthly electricity bill has increased by $50 now that he is working out of his home office. 

After six months of working from home, Barney has earned an average of $12,000 per month.

Instructions: Enter your answers as a whole number.

a. What are Barney’s average monthly accounting profits?

b. What are Barney’s average monthly economic profits?

Barney decides to quit his job as a corporate accountant, which pays $10,000 a month, and goes into business for himself as a certified public accountant. 

He runs his business from his converted garage apartment, which he could rent out for $300 a month if he wasn’t using it as a home office. He must purchase office supplies worth $75 a month, and his monthly electricity bill has increased by $50 now that he is working out of his home office. 

After six months of working from home, Barney has earned an average of $12,000 per month.

Instructions: Enter your answers as a whole number.

a. What are Barney’s monthly explicit costs?

b. What are Barney’s monthly implicit costs?

c. What are Barney’s monthly economic costs?

Which of the following is an implicit cost of owning and operating a farm?

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The money paid for repairing a tractor

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The money received for crops grown during the growing season

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The money a farmer could earn by working for someone else

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The money paid for fertilizer each growing season

Variable costs are

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Multiple Choice

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costs that change with the amount of output a firm produces.

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sunk costs.

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the change in total cost associated with the production of an additional unit of output.

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costs that change every day.

If all resources used in the production of a product are increased by 20% and total output increases by 20%, then the firm must be experiencing

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Multiple Choice

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economies of scale.

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diseconomies of scale.

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increasing average total costs.

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constant returns to scale.

The ability of Intel to spread product development cost over a larger number of units of output arises from 

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Multiple Choice

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constant returns to scale.

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diseconomies of scale.

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minimum efficient scale.

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economies of scale.

Marginal cost can be defined as the change in

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Multiple Choice

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average variable cost resulting from the production of an additional unit of output.

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total fixed cost resulting from the production of an additional unit of output.

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average total cost resulting from the production of an additional unit of output.

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total cost resulting from the production of an additional unit of output.

Suppose that you could either prepare your own tax return in 15 hours or hire a tax specialist to prepare it for you in 2 hours. You value your time at $11 an hour; the tax specialist will charge you $55 an hour. The opportunity cost of preparing your own tax return is

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Multiple Choice

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$40.

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$55.

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$110.

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$165.

A firm encountering economies of scale over some range of output will have a

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Multiple Choice

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rising long-run average total cost curve.

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constant long-run average cost curve.

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falling long-run average total cost curve.

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rising, then falling, then rising long-run average total cost curve.

If marginal cost exceeds average total cost in the short run, then which is likely to be true?

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Marginal cost is less than average variable cost.

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Average variable cost is decreasing.

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Average total cost is less than average variable cost.

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Average total cost is increasing.

Imagine that a firm expands the size of its plant, doubling its total cost of production but more than doubling its output. This situation is known as

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Multiple Choice

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a violation of the law of diminishing returns.

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constant returns to scale.

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diseconomies of scale.

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economies of scale.

If you know that when a firm produces 8 units of output, average fixed cost is $12.50 and average variable cost is $81.25, then the average total cost associated with this output level is

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Multiple Choice

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$93.75.

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$880.00.

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$97.78.

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$750.00.

Implicit costs are

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opportunity costs of using owned resources.

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composed entirely of variable costs.

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always greater in the short run than in the long run.

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equal to total fixed costs.

If the long-run average total cost curve for a firm is horizontal in a relevant range of production, then it indicates that there

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Multiple Choice

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isn’t a minimum efficiency scale.

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are constant returns to scale.

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are economies of scale.

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are diseconomies of scale.

To an economist, the economic costs associated with the use of resources include

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Multiple Choice

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explicit, but not implicit, costs.

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implicit, but not explicit, costs.

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neither implicit nor explicit costs.

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explicit and implicit costs.

Use the following information to answer the next question.

Harvey quit his job at State University where he earned $45,000 a year. He figures his entrepreneurial talent or forgone entrepreneurial income to be $5,000 a year. To start the business, he cashed in $100,000 in bonds that earned 10% interest annually to buy a software company, Extreme Gaming. In the first year, the firm sold 11,000 units of software at $75 each. Of the $75, $55 goes for the costs of production, packaging, marketing, employee wages and benefits, and rent on a building. 

The explicit costs of Harvey’s firm in the first year were

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Multiple Choice

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$655,000.

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$150,000.

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$605,000.

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$825,000.

If you know that total fixed cost is $200, total variable cost is $600, and total product is 4 units, then average total cost must be

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Multiple Choice

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$200.

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$800.

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$3,200.

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$250.

Answer the next question on the basis of the following information.

TFC = Total Fixed Cost 

MC = Marginal Cost

TVC = Total Variable Cost 

Q = Quantity of Output 

P = Product Price 

Select the marginal cost.

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Multiple Choice

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P−QChange  in QP−QChange⁢  in⁢ Q

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Change   in TFcChange   in QChange⁢   in⁢ TFcChange⁢⁢   in⁢ Q

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Change   in TVCQChange⁢   in⁢ TVCQ

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Change  in TVCChange  in Q

Monetary payments a firm makes to pay for resources are called

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normal profit.

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explicit costs.

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opportunity costs.

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implicit costs.

Answer the next question on the basis of the following data. 

Output Total Cost

0 $10

1 20

2 28

3 38

4 53

5 73

6 98

 The average variable cost of producing 3 units of output is

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Multiple Choice

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$12.67.

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$9.33.

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$10.00.

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$38.00.

The table below shows Ali’s monthly costs of producing wheat. Suppose the current market price of wheat is $56.00 per bushel.

Ali's Wheat Production Costs

Quantity (bushels) AVC (dollars) ATC (dollars) MC (dollars)

0 — — —

500 $40.00 $240.00 $40.00

1,000 35.00 85.00 30.00

1,500 30.00 63.33 20.00

2,000 30.00 55.00 30.00

2,500 31.00 51.00 35.00

3,000 32.67 49.33 41.00

3,500 34.86 49.15 48.00

4,000 37.50 50.00 56.00

4,500 40.57 51.67 65.00

5,000 44.00 54.00 75.00

Instructions: Enter your answers as a whole number. If you are entering any negative numbers be sure to include a negative sign (-) in front of those numbers.

a. If the market price is $56.00 per bushel of wheat, and Ali chooses to produce wheat, how much will he produce per month to maximize his profits in the short run?

b. Calculate Ali’s monthly profits (express a loss as a negative number) if he chooses to produce the profit-maximizing quantity of wheat at a price of $56.00.

c. Assume that the market price of wheat falls to $35.00 per bushel. How much wheat will Ali choose to produce per month in order to maximize his profits in the short run?

d. Calculate Ali’s monthly profits (express a loss as a negative number) if he chooses to produce the profit-maximizing quantity of wheat at a price of $35.00.

e. If the market price of wheat instead falls to $20.00 per bushel, how much wheat will Ali choose to produce per month in order to maximize his profits in the short run?

What are the likely reason(s) that the market for electricity is not perfectly competitive? Select all that apply.

Instructions: You must make a selection for each option. Click once to place a check mark for correct answers and click twice to empty the box for wrong answers.

• There are few sellers in the market

• Electricity is not a standardized (homogeneous) product

• It is difficult to enter or exit the industry as a supplier

• There are few buyers in the market. 

Which of the following markets is most likely to be perfectly competitive?

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The market for Saturday matinees at the movie theater

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The market for Three Musketeers candy bars

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The market for touring motorcycles

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The market for mushrooms

Which of the following is not a necessary characteristic of a perfectly competitive industry?

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The industry or market demand is highly elastic.

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There are so many firms that none can influence market price.

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Consumers see no difference between the product of one firm and that of another.

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Firms can easily enter or exit the industry.

Bobby decides to sell lemonade on a hot summer day. If Bobby sells 20 glasses of lemonade for $0.20 per cup, and his average total cost is $0.17, what are Bobby's economic profits for the day?

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$0.60 

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$0.20

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$0.80

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$0.00

Use the following graph to answer the next question.

At the profit-maximizing level of output, the profit earned by the perfectly competitive firm is given by the area

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Multiple Choice

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0AHE.

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ACFH.

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BCFG.

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ABGH

Assume a perfectly competitive constant-cost industry is initially at long-run equilibrium. Now suppose that a decrease in market demand occurs. After all the long-run adjustments have been completed, the new equilibrium price

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Multiple Choice

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will be less than the initial price, but the new output will be greater.

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will be the same as the initial price, and the output will be less.

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will be greater than the initial price, but the new output will be less.

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and industry output will be less than the initial price and output.

A constant-cost industry is one in which

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the long-run supply curve is perfectly inelastic.

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the long-run supply curve is upward sloping.

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the long-run supply curve is perfectly elastic.

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the long-run supply curve is downward sloping.

The marginal revenue curve faced by a perfectly competitive firm

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Multiple Choice

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is horizontal at the market price.

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is downward sloping, because price must be reduced to sell more output.

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lies below the firm's demand curve.

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has all of these characteristics.

The representative firm in a perfectly competitive industry

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Multiple Choice

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will always earn an economic profit in the short run.

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will always earn an economic profit in the long run.

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may earn either an economic profit or a loss in the long run.

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will earn a normal profit in the long run

In perfect competition, each additional unit of output that a firm sells will yield a marginal revenue that is

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Multiple Choice

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equal to price.

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less than price.

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greater than price.

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equal to average total cost.