MICROECONOMICS Review for Exam Three (Chapters 11 - 13) Fall 2014

RULES: EACH TEAM WILL HAVE TWO MINUTES TO DECIDE ON AN ANSWER. EACH CORRECT ANSWER WILL BE GIVEN THE APPLICABLE POINTS. THE TEAMS WITH THE TWO BEST POINT TOTALS WILL BE GIVEN 5 EXTRA CREDIT POINTS ON EXAM THREE. THE REMAINING TEAMS WILL BE GIVEN 3 EXTRA CREDIT POINTS ON EXAM THREE. NOTE: THE QUESTIONS ON THIS REVIEW WILL BE LOADED ON THE WEBSITE TONIGHT.

Round One – One Point Each 1. Total revenue minus explicit measurable costs equals: A. economic profit. B. normal profit. C. accounting profit. D. average profit. Correct Answer: C

Round One – One Point Each 2. A business produces 400 items and sells them for $15 each for a total of $6,000. The total cost of producing the items is $4,500 in explicit cost and $1,000 in implicit cost. Economic profit is: A. $0. B. $500. C. $1,000. D. $1,500. Correct Answer: B

Round One – One Point Each 3. Economic profit is: A. total revenue minus explicit measurable costs. B. explicit revenues minus explicit costs. C. implicit and explicit revenues minus implicit and explicit costs. D. implicit and explicit revenues minus implicit costs. Correct Answer: C

Round One – One Point Each 4. Refer to the graph shown. With efficient production, this firm can maximize production at point: A. A. B. B. C. C. D. D. Correct Answer: C

Round One – One Point Each 5. Output per worker is also called: A. marginal product. B. average product. C. total product. D. variable product. Correct Answer: B

Round Two – Two Point Each 6. Refer to the table shown. If the number of workers is three, total output is: A. 9. B. 16. C. 27. D. 36. Correct Answer: C

Round Two – Two Point Each 7. Refer to the table shown. The marginal product of the 5th worker is: A. 10. B. 14. C. 16. D. 24. Correct Answer: D

Round Two – Two Point Each 8. Suppose that a business incurred implicit costs of $500,000 and explicit costs of $5 million in a specific year. If the firm sold 100,000 units of its output at $50 per unit, its accounting:  A. profits were $100,000 and its economic profits were zero. B. losses were $500,000 and its economic losses were zero. C. profits were $500,000 and its economic profits were $1 million. D. profits were zero and its economic losses were $500,000. Correct Answer: D

Round Two – Two Point Each 9. When car makers began to cut the costs of producing cars by designing the chassis, engine, and transmissions so that different models could be produced on the same assembly line, production costs fell $240 per car. This idea best illustrates: A. economies of scale. B. diseconomies of scale. C. constant returns to scale. D. diminishing marginal product. Correct Answer: A

Round Two – Two Point Each 10. With the long-run average cost curve below, the minimum efficient scale of production is: A. 16. B. 18 to 21. C. 21. D. 23. Correct Answer: B

Round Two – Two Point Each 11. Refer to the graph shown. The output range in region c is associated with: A. diminishing marginal productivity. B. constant returns to scale. C. economies of scale. D. diseconomies of scale. Correct Answer: D

Round Two – Two Point Each 12. In the short run a purely competitive seller will shut down if:  A. it cannot produce at an economic profit. B. price is less than average variable cost at all outputs. C. price is less than average fixed cost at all outputs. D. there is no point at which marginal revenue and marginal cost are equal. Correct Answer: B

Round Two – Two Point Each 13. If you know that when a firm produces 10 units of output, total costs are $1,030 and average fixed costs are $10, then total variable costs are: A. $104 B. $930 C. $1,040 D. $1,130 Correct Answer: B

Round Three – Three Point Each 14. Which of the following statements applies to a purely competitive producer?  A. It will not advertise its product. B. In long-run equilibrium it will earn an economic profit. C. Its product will have a brand name. D. Its product is slightly different from those of its competitors. Correct Answer: A

Round Three – Three Point Each 15. Refer to the diagram below. 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. Correct Answer: C

Round Three – Three Point Each 16. If a purely competitive firm is producing at the MR = MC output level and earning an economic profit, then:  A. the selling price for this firm is above the market equilibrium price. B. new firms will enter this market. C. some existing firms in this market will leave. D. there must be price fixing by the industry's firms. Correct Answer: B

Bonus Round – FOUR Points 17. Refer to the above diagrams which pertain to a purely competitive firm producing output q and the industry in which it operates. In the long run we should expect:  A. firms to enter the industry, market supply to rise, and product price to fall. B. firms to leave the industry, market supply to rise, and product price to fall. C. firms to leave the industry, market supply to fall, and product price to rise. D. no change in the number of firms in this industry. Correct Answer: C

Good Luck on Exam Three!!