Assignment

Part 1

1. Economic profit equals _A__ minus _B__.

A.a. Accounting cost b. economics cost c. revenue B.a.Accounting cost b. economics cost c.revenue

2.The __ run is defined as a period over which a firm cannot change its production facility.

a. short b. long

3.A firm's explicit cost is the

A.opportunity cost of the inputs.
B.actual monetary payment for inputs plus opportunity cost of the inputs.
C.cost of capital, an implicit cost is the cost of labor.
D.actual monetary payment for inputs

4.Total revenue minus accounting cost equals_A__which will always be the greater than the _B_ .

A.a.accounting profit b.economic profit B.a.accounting profit b.economic profit

5.At the current level of output, the marginal cost of MP 3 players exceeds the average cost. If you increase output, the average cost will__ .

A.Increase B. decrease

6. A marginal cost curve intersects the average cost curve at the __ point of the average cost curve .

A.MaximunB.Minimum

7. For a firm that doubles its workforce and adds a second shift at its factory, production _A_ subject to diminishing returns, so marginal cost is _B_.

A.a.is not b.is B.a.increaseingb.constant

8.The presence of indivisible inputs explains the _A_portion of a long-run average-cost curve, and the notion of replication explains the _B_ portion of a long-run average-cost curve.

A.a.negatively sloped b.positively sloped c.horizontal
B.a.positively sloped b.negatively sloped c.horizontal

9. Deregulation and the Cost of Trucking. Suppose the government initially limits the number of trucking firms that can haul freight. The market for truck freight is initially served by a single firm that produces 5 million ton miles of service per year, where 1 ton mile is the hauling of 1 ton of freight 1 mile. The newly elected governor has proposed that other firms be allowed to enter the market. At a public hearing on the issue of eliminating the entry restrictions, the manager of the existing firm issued a grim warning: "If you allow entry into the market, 4 or 5 firms will enter, and the unit cost of truck freight will at least triple. There are big economies of scale in trucking, so a single large firm is more cost-efficient than several small firms would be." What's your reaction to this statement?

A.Economies of scale are slight. Unit cost will rise, but not by much
B.According to the graph, there are no economies of scale.
C.Although economies of scale are large, unit cost will not rise because of competition.
D.The manager is correct, large economies of scale will triple unit costs.

10.For information goods such as a music video distributed online, the cost of producing the first copy is very _A_ but the marginal cost of reproduction is _B_ .

A.a.lowb.highB.a.very low b.very high

Part 2

1. Which of the following is NOT a condition of perfect competition?

A.There are many firms.
B.There are no barriers to entry.
C.Firm specific demand is perfectly elastic.
D.The product is differentiated.

2.Economic cost equals _A_ cost plus _B_ cost.

Aa.explicitb.sunkB.a.implicitb.accounting cost.

3.At the current output level, a farmer's marginal cost of producing sugar is $0.34. If the price of sugar is $0.29 per pound, the farmer should_A_production. If the price of sugar is $0.38 per pound, the farmer should _B_ production.

A.a.increaseb.decreaseB.a.increaseb.decrease

4.A firm will shut down an unprofitable business if _A_ is less than _B_ .

A.a.average cost b.marginal cost c.total revenue B.a variable cost b.marginal revenue

5.A firm that is losing money should continue to operate in the short run if the market price exceeds _ .

A. Average total cost b. average variable cost

6.What best describes a sunk cost?

A.A fixed cost that can be resold or rented out.
B.Money sunk into reducing costs.
C.Costs that vary directly with production.
D.Money paid that can not be recovered.

7.The short-run supply curve is the

A.average variable cost curve above the break-even price.
B.marginal cost curve above the break-even price.
C.average variable cost curve above the shut-down price.
D.marginal cost curve above the shut-down price.

8.The long-run supply curve shows the relationship between _A_ on the horizontal axis and _B_ on the vertical axis .

Aa.quantity supplied b.priceBa.quantity supplied b. price

9. Sugar Import Ban. The sugar industry is another example of an increasing-cost industry. If the price of sugar is only 11 cents per pound, sugar production is profitable in areas with relatively low production costs, including the Caribbean, Latin America, Australia, and South Africa. At a price of 11 cents, the world supply of sugar equals the amount produced in these areas. As the price increases, sugar production becomes profitable in areas where production costs are higher, and as these areas enter the world market, the quantity of sugar supplied increases. For example, at a price of 14 cents per pound, sugar production is profitable in some countries in the European Union too. At a price of 24 cents, production is profitable even in the United States.

a. If the world price is 13 cents per pound, what areas of the world supply sugar to the world market and the United States?

A.The Caribbean, Latin America, Australia, South Africa, and some countries in the EU.
B.The Caribbean, Latin America, Australia, South Africa, and the U.S.
C.The Caribbean, Latin America, Australia, and South Africa.
D.The Caribbean and Latin America.

b. Suppose the United States bans sugar imports. You predict that the new price of sugar in the U.S. will be at least $__. (Enter your response to two decimal places.)

10.Related to Application: The Upward Jump and Downward Slide of Wine Prices

Suppose the demand for shirts increases. In the short run, the price _A_ by a relatively large amount. As firms enter the market, the price _B_ . In the new long-run equilibrium, there is a net _C_ in price relative to the old equilibrium.

A.a.increasesb. decrease B.a.increases b. decreases C.a.increaseb.decrease.