ECO 204                        HOMEWORK 7

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l.      If the price does not cover average variable cost, a firm will:

        a.      produce in the short run
        b.      produce in the long run
        c.      shut down in the long run, but produce in the short run
        d.      shut down in the short run

2.      A firm that is experiencing diminishing returns may be able to increase output by 
        hiring more labor as long as:

        a.      labor's marginal physical product is still positive
        b.      it also hires more of the fixed resources
        c.      other variable resources remain unchanged
        d.      costs do not rise faster than output

3.      When a firm experiences diminishing marginal returns in the short run, its marginal 
        product:

        a.      and marginal costs and average variable costs will rise
        b.      of labor falls, while its marginal costs rise
        c.      rises while marginal costs and average variable costs both fall
        d.      and average variable cost rise, while marginal costs fall

4.      The marginal product of labor is zero:

        a.      at the point of diminishing returns
        b.      at the point of no return
        c.      when average product is zero
        d.      when output is at its short-run maximum

5.      Suppose that a firm uses a fixed and a variable resources to produce its output.  As long 
        as the total output of the firm is increasing:

        a.      the marginal product of the variable resourcesinput is greater than zero
        b.      the marginal product of the variable resources is zero
        c.      the marginal product of the variable resources is negative
        d.      the marginal product of the variable resources is increasing

6.      In general, marginal costs:

        a.      are constant for all levels of output
        b.      are zero for low levels of output but begin to increase as output increases
        c.      are high for low levels of output but fall as output increases
        d.      start out high for low levels of output, fall as output increases, but then 
                increases as output continues to expand

7.      If a firm's output increases from l760 to l890 units when it increases its labor from 
        147 to 148 workers, the marginal product of the last worker hired is:

        a.      1890
        b.      1130
        c.      130
        d.      189
        e.      cannot be determined from the information provided

8.      If fixed cost at Q = 100 is $170, then:

        a.      fixed cost at Q = 0 is zero
        b.      fixed cost at Q = 0 is less than $170
        c.      fixed cost at Q = 200 is $340
        d.      fixed cost at Q = 200 is $170
        e.      it is impossible to calculate fixed costs at any other quantity


9.     When a firm in perfect competition is maximizing its profits and produces that level 
        of output where price, marginal revenue, and average total cost are all equal, the firm:

        a.      earns an economic profit, and this is greater than the return required to keep 
                it in business
        b.      earns an economic profit that will be carried into the long run
        c.      breaks even and is in short-run equilibrium
        d.      incurs a loss and will shut down in the long run

10.     For the competitive firm to supply any output in the long run:

        a.      it must cover all of its fixed cost of production
        b.      it must not incur a loss in the short run
        c.      the price received from selling an extra unit of output must not be less than 
                the long run per unit cost of producing the good
        d.      it must make an economic profit

11.     In the long run, the competitive firm:

        a.      earns an economic profit
        b.      may produce even if it suffers a loss
        c.      does not have a shut-down price
        d.      earns only a profit sufficient to cover all factors of production, including 
                the owner's time

12.     Suppose that the demand curve for the XYZ Corporation slopes downward and to the right,
        we can conclude that:

        a.      the firm operates in a perfectly competitive market
        b.      the firm can sell all that it wants to at the established market price
        c.      the XYZ Corporation is not a price taker in the market because it must lower
                price to sell additional units of output
        d.      the XYZ Corporation will not be able to maximize profits because price and 
                revenues are subject to change

        
13.     The Romel Company produces and distributes its output in a perfectly competitive 
        market.  If its marginal costs are rising but market price is greater than the cost of 
        producing an extra unit of output, the Romel Company should:

        a.      maintain its current level of output because the last unit that it produces 
                brings in more revenue than it costs to produce
        b.      expand its current level of output in order to increase its profits
        c.      reduce its level of current output in order to increase it profits
        d.      reduces its level of current output in order to minimize its losses
        e.      expand its current level of output in order to reduce its losses

14.     The signal for firms to enter a competitive industry in the short run is:

        a.      the typical firm earning profits just sufficient to cover the opportunity 
                costs of all inputs
        b.      the presence of excess, or economic, profits
        c.      at the established market price, some firms are not able to cover their 
                average total cost
        d.      a desire to promote the general welfare of society