Economics Assessment 1

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Instructions: Underline or boldface the correct answer.

1. Which of the following is most likely to be an implicit cost for Company X?

A. forgone rent from the building owned and used by Company X
B. rental payments on IBM equipment
C. payments for raw materials purchased from Company Y
D. transportation costs paid to a nearby trucking firm

2. To the economist, total cost includes:

A. explicit and implicit costs, including a normal profit.
B. neither implicit nor explicit costs.
C. implicit, but not explicit, costs.
D. explicit, but not implicit, costs.

3. Suppose that a business incurred implicit costs of $200,000 and explicit costs of $1 million in a
specific year. If the firm sold 4,000 units of its output at $300 per unit, its accounting profits were:
A. $100,000 and its economic profits were zero.
B. $200,000 and its economic profits were zero.
C. $100,000 and its economic profits were $100,000.
D. zero and its economic loss was $200,000.

4. Which of the following is a short-run adjustment?

A. A local bakery hires two additional bakers.
B. Six new firms enter the plastics industry.
C. The number of farms in the United States declines by 5 percent.
D. BMW constructs a new assembly plant in South Carolina.

5. The short run is characterized by:

A. plenty of time for firms to either enter or leave the industry.
B. increasing, but not diminishing returns.
C. fixed plant capacity.
D. zero fixed costs.

6. The law of diminishing returns indicates that:

A. as extra units of a variable resource are added to a fixed resource, marginal product will decline
beyond some point.
B. because of economies and diseconomies of scale a competitive firm’s long-run average total cost
curve will be U-shaped.
C. the demand for goods produced by purely competitive industries is downsloping.
D. beyond some point the extra utility derived from additional units of a product will yield the
consumer smaller and smaller extra amounts of satisfaction.

Answer the question on the basis of the following output data for a firm. Assume that the amounts of
all non-labor resources are fixed.

7. Refer to the above data. Diminishing marginal returns become evident with the addition of the:
A. sixth worker.
B. fourth worker.
C. third worker.
D. second worker.

8. Refer to the above data. The marginal product of the sixth worker is:
A. 180 units of output.
B. 30 units of output.
C. 15 units of output.
D. negative.

Econ exam questions

9. In the above diagram curves 1, 2, and 3 represent the:
A. average, marginal, and total product curves respectively.
B. marginal, average, and total product curves respectively.
C. total, average, and marginal product curves respectively.
D. total, marginal, and average product curves respectively.
 Macroeconomics Exam Questions
10. Refer to the above diagram. At output level Q total variable cost is:
A. 0BEQ.
B. BCDE.
C. 0CDQ.
D. 0AFQ.

Answer the question on the basis of the following cost data:

Refer to the above data. The total variable cost of producing 5 units is
11. Refer to the above data. The total variable cost of producing 5 units is:
A. $61.
B. $48.
C. $37.
D. $24.

12. Refer to the above data. The average total cost of producing 3 units of output is:
A. $14.
B. $12.
C. $13.50.
D. $16.

13. Refer to the above data. The marginal cost of producing the sixth unit of output is:
A. $24.
B. $12.
C. $16.
D. $8.
 MC, ATC, AVC and AFC Curves
14. In the above figure, curves 1, 2, 3, and 4 represent the:
A. ATC, MC, AFC, and AVC curves respectively.
B. MC, AFC, AVC, and ATC curves respectively.
C. MC, ATC, AVC, and AFC curves respectively.
D. ATC, AVC, AFC, and MC curves respectively.

15. In the long run:

A. all costs are variable costs.
B. all costs are fixed costs.
C. variable costs equal fixed costs.
D. fixed costs are greater than variable costs.

16. In which of the following market structures is there clear-cut mutual interdependence with
respect to price-output policies?
A. pure monopoly
B. oligopoly
C. monopolistic competition
D. pure competition

17. Which of the following industries most closely approximates pure competition?
A. agriculture
B. farm implements
C. clothing
D. steel

18. A purely competitive seller is:

A. both a “price maker” and a “price taker.”
B. neither a “price maker” nor a “price taker.”
C. a “price taker.”
D. a “price maker.”

19. The MR = MC rule applies:

A. to firms in all types of industries.
B. only when the firm is a “price taker.”
C. only to monopolies.
D. only to purely competitive firms.

20. Assume the XYZ Corporation is producing 20 units of output. It is selling this output in a purely
competitive market at $10 per unit. Its total fixed costs are $100 and its average variable cost is $3
at 20 units of output. This corporation:
A. should close down in the short run.
B. is maximizing its profits.
C. is realizing a loss of $60.
D. is realizing an economic profit of $40.

Answer the question on the basis of the following data confronting a firm:

Marginal Cost, Marginal Revenue, Output

21. Refer to the above data. This firm is selling its output in a(n):
A. monopolistically competitive market.
B. monopolistic market.
C. purely competitive market.
D. oligopolistic market.

22. Refer to the above data. If the firm’s minimum average variable cost is $10, the firm’s profit-
maximizing level of output would be:
A. 2.
B. 3.
C. 4.
D. 5.
 The Lowest Price a Purely Competitive Firm Should Produce at is where MC = ATC
23. Refer to the above diagram for a purely competitive producer. The lowest price at which the firm
should produce (as opposed to shutting down) is:
A. P1.
B. P2.
C. P3.
D. P4.

Set MR = MC to Maximize Profits

24. Refer to the above diagram. To maximize profit or minimize losses this firm will produce:
A. K units at price C.
B. D units at price J.
C. E units at price A.
D. E units at price B.

Answer the question on the basis of the following cost data for a firm that is selling in a purely
competitive market:

If the market price for the firm’s product is $12, the competitive firm will produce:
25. Refer to the above data. If the market price for the firm’s product is $12, the competitive firm will
produce:
A. 4 units at a loss of $109.
B. 4 units at an economic profit of $31.75.
C. 8 units at a loss of $48.80.
D. zero units at a loss of $100.
26. Refer to the above data. If the market price for the firm’s product is $32, the competitive firm will
produce:
A. 8 units at an economic profit of $16.
B. 6 units at an economic profit of $7.98.
C. 10 units at an economic profit of $4.
D. 7 units at an economic profit of $41.50.

Econ Exam Answers

27. Refer to the above diagram. At P2, this firm will:
A. produce 44 units and realize an economic profit.
B. produce 44 units and earn only a normal profit.
C. produce 68 units and earn only a normal profit.
D. shut down in the short run.

28. Refer to the above diagram. At P1, this firm will produce:
A. 47 units and break even.
B. 47 units and realize an economic profit.
C. 66 units and earn only a normal profit.
D. 24 units and earn only a normal profit.