1. Normal profit is the return to _____. Normal profit is part of a firm’s _____ cost because it is the cost of not running another firm.

A. capital; fixed

B. capital; opportunity

C. foreign investment; sunk

D. entrepreneurship; opportunity

Answer: D. entrepreneurship; opportunity

2. Ty leases a farmer’s field and grows melons. He hires students to pick and pack the melons.

The table sets out Ty’s total product schedule.

What is the marginal product of the first student and the average product of 1 student??

The marginal product of the first student is _____ melons a day.

The average product of 1 student1 student is ______melons a day.

?>>> Answer to 1 decimal place.

Labor(students) Total product(melonsmelons per day)

0 0

1 100

2 220

3 300

4 360

5 400

6 420

7 430

Answer:

Marginal product of the first student = Total product with 1 student – Total product with 0 students = 100 – 0 = 100 melons a day

To calculate the average product of one student, divide the total product by the number of students. In this case, the average product of one student is the total product with one student divided by one.

Average product of 1 student = Total product with 1 student / Number of students = 100 / 1 = 100 melons a day

Therefore, the marginal product of the first student is 100 melons a day, and the average product of one student is also 100 melons a day.

3. Naomi’s birdhouse factory rents equipment for constructing birdhouses and hires students.

Naomi pays ?$50 a day for equipment and ?$120 a day for each student hired

The table shows Naomi’s total product schedule.

Construct Naomi’s total variable cost and total cost schedules. Fill in the columns in the table.

At each? output, total cost exceeds total variable cost by the? firm’s _______.?

A. average fixed cost

B. total fixed cost

C. average total cost

D. marginal cost

Answer: A. average fixed cost

4. The table gives the cost of producing? T-shirts.

The total fixed cost is? ______ and the marginal cost of increasing production from 10 to 12? T-shirts is? _______.

A. $56; $16??

B. $20; $64

C. $8; $20

D. $20; $8

Answer; D. $20; $8

5. The graph shows the average variable cost curve and average total cost curve for a firm that produces candles.

Draw the? firm’s marginal cost curve. Label it.

When the marginal cost of producing an output exceeds its average variable cost but is less than its average total? cost, _______.?

A. average variable cost is increasing while average total cost is decreasing

B. total variable cost is at its maximum value

C. both average variable cost and average total cost are increasing

D. average fixed cost is increasing

Question 6

hires students at ?$50 a day to paint houses.??

She leases equipment that costs ?$120 a day.??

Suppose that Judy doubles the number of students sheshe hires and doubles the amount of equipment that she leases.

If Judy experiences diseconomies of scale diseconomies of scale?, herher ?long-run average cost curve? ______.

A. slopes upward

B. shifts upward

C. slopes downward

D. shifts downward

E. is horizontal

Question 7

The table shows the demand schedule for Lila’s

Apple Orchard.

Lila’s Apple Orchard operates in a market called? ______.

A. monopolistic competition

B. a perfect oligopoly

C. a monopoly

D. perfect competition

E. an oligopoly

Lila’s marginal revenue for each crate of apples demanded is ?$_______

Price

?(dollars per

cratecrate?)

Quantity demanded

?(cratescrates

per? day)

35

0

35

1

35

2

35

3

35

4

35

5

35

6

Question 8

The table shows the cost structure of a firm selling bottles of water in a perfectly competitive market.

What is the quantity at the? firm’s shutdown? point?

The? firm’s shutdown point occurs at a quantity of _____bottles of water per week and the market price is ?$_____ a bottle

Quantity

?(bottles per? week)

Marginal

cost

Average variable cost

?(dollars per? bottle)

0

0

0

100

3.00

4.40

200

3.20

3.90

300

3.50

3.50

400

3.82

3.55

500

4.20

3.60

600

5.00

3.75

Question 9: Rose growing is a perfectly competitive industry and all rose growers have the same cost curves.  

The market price of roses is $10 a bunch and each grower maximizes profit by producing 800 bunches a week.  

The average total cost of producing roses is $19 a bunch. Minimum average variable cost is $5 a bunch and the minimum average total cost is $11 a bunch

In the long run, a rose grower’s economic profit is $______

Answer;

In the long run, a rose grower’s economic profit is $______

P=$10

TOTAL REVENUE *$10= $ 8000

MR=∆TR/∆Q

=$ 10

ATC=$ 19

MINIMUM AVC= $ 5

MINIMUM ATC= $ 11

TC= ATC*Q

MC=∆TC/∆Q

=$ 19

for long run;

Taking the minimum =$ 11

Profit = $11*800- $10*800= $800

Question 10: Consider a perfectly competitive market in which all firms have the same costs. Choose the statement that is incorrect.

A. The market demand is perfectly elastic at the market price.

B. Market demand and market supply determine the market price and market output.

C. The market supply curve is upward sloping at prices above the? firm’s shutdown price.

D. Each firm takes the market price as given and produces its? profit-maximizing output.

Answer; A. The market demand is perfectly elastic at the market price.

Question 11: Rose growing is a perfectly competitive industry and all rose growers have the same cost curves.

The market price of roses is ?$14 a bunch and each grower maximizes profit by producing 700700 bunches a week.

The average total cost of producing roses is ?$25 a bunch. Minimum average variable cost is ?$1212 a bunch?, and the minimum average total cost is ?$17 a bunch.

In the long? run, the market price of roses is? _____ a bunch.

A. ?$17

B. ?$14

C. ?$25

D. ?$12

E ?$59

In the long? run, a rose ?grower’s economic profit is ?$______

Question 12: Peter’s tattoos is a tattooing business in a perfectly competitive market in Fargo.

The table shows the total cost schedule of Peter’s Tattoos.

If the market price is ?$35.00 a tattoo?, Peter’s Tattoos _________ in the short run of ?$

____ an hour.

In the long? run, firms _____ the industry.

Quantity

?(tattoostattoos

per? hour)

Total cost

?(dollars per? hour)

1

70

2

100

3

120

4

150

5

190

6

250

Question 13: Allegiant? Air: The? tardy, gas-guzzling, most profitable airline in America

With 64? jets, Allegiant Air has achieved the lowest? costs, fullest? planes, and highest margins in the U.S. airline industry. It serves 75 small U.S. cities and faces competition on just 17 of its 203 routes. It offers? no-frills fare and charges for everything? else, from? carry-on luggage to water.

?Source: The Wall Street Journal?, June? 4, 2013

Read the news? clip, then answer the following questions.

Allegiant Air is? _________ monopoly on 186 routes.??

A. a legal

B. not a

C. ?cost-effective

D. a natural

The barrier to entry in the market in which Allegiant Air competes is? _________.???

A. a public franchise

B. a government license

C. ?Allegiant’s costs, which are lower than other airlines

D.?Allegiant’s decision to charge for? carry-on luggage and water

Question 14:

A multiplex cinema in downtown Minneapolis is a monopoly.

A. True

B.False

Tiffany, the upscale jeweler is a monopoly.

A. True

B. False

Costco, the discount retailer is a monopoly.

A. True

B. False??

The only bus service licensed to operate at an airport is a monopoly.

A. True

B. False?

The U.S. Postal Service is a monopoly.

A. True

B. False

Question 15: Mineral Springs is a? single-price monopoly.

The table shows the demand schedule for Mark’s Mineral Springs ?(columns 1 and ? 2) and the? firm’s total cost schedule? (columns 2 and? 3).

What is Mark’s ?profit-maximizing output,? price, and economic? profit?

Mark’s ?profit-maximizing output is _____bottles an hour.

Mark’s ?profit-maximizing price is ?$______ a bottle.

When Mark’s produces the? profit-maximizing output and charges the? profit-maximizing price, economic profit is

?$_____ an hour.

Price

?(dollars per

bottlebottle?)

Quantity

?(bottlesbottles

per? hour)

Total cost

?(dollars

per? hour)

14

0

1

13

1

8

12

2

17

11

3

28

10

4

41

9

5

56

Question 16

Out of This World is the only private rocket ride in the nation. ??

The table sets out the demand schedule for rides and the cost schedule for producing the rides.

???

Calculate Out of This World’s ?profit-maximizing price, output and economic profit if it charges a single price for all rides.

Out of This World’s ?profit-maximizing output is __________rides a day.

Out of This World’s ?profit-maximizing price is ?$____ a ride.

?>>> Answer to 2 decimal places.

When Out of This World produces the? profit-maximizing output and charges the? profit-maximizing price, economic profit is ?$_________

?>>> If the firm incurs an economic? loss, indicate the loss with a minus sign. If the firm earns an economic? profit, do not include a plus sign

Price

Quantity

Total cost

?(dollars per

rideride?)

?(ridesrides

per

dayday?)

?(dollars per

dayday?)

20

0

1,000

18

100

2,000

16

200

3,000

14

300

4,000

12

400

5,000

10

500

6,000

8

600

7,000

6

700

8,000

4

800

9 000

Question 17

Cook’s Tall Ship Cruises is a? single-price monopoly.

The table shows the demand schedule for cruises ?(columns 1 and? 2) and Cook’s total cost schedule? (columns 2 and? 3).

Calculate Cook’s total revenue and marginal revenue schedules and fill in the two right columns of the table.

Question 18

Fogg’s Adventure Holidays is a? single-price monopoly. ?

The table gives the demand schedule for holidays ?(columns 1 and? 2) and Fogg’s total cost schedule before taxes? (columns 2 and? 3).?

Suppose the government taxes Fogg’s by ?$50,000 per holiday.?

Calculate Fogg’s new? profit-maximizing output, price and economic profit.

?>>> Remember that the amounts in the table are given in thousands of dollars.

Fogg’s ?profit-maximizing output is ______holidays a month.

?>>> Answer to 1 decimal place.

Fogg’s ?profit-maximizing price is ?$_______a holiday.

When Fogg’s produces the? profit-maximizing output and charges the? profit-maximizing price, economic profit is _________dollars.

???>>> If your answer is? negative, include a minus sign. If your answer is? positive, do not include a plus sign.

Price

?(thousands of dollars

per

holidayholiday?)

Quantity

?(holidaysholidays

per

? month)

Total cost

?(thousands of dollars per

?month)

240

0

75

220

1

170

200

2

275

180

3

390

160

4

515

140

5

650

Question 19

?Bob’s Books is the only bookstore in town.

The graph shows the demand curve for books and? Bob’s Books’ marginal revenue curve and marginal cost curve.

?Bob’s Books maximizes its profit by charging? ______ a book and selling? ______ books a year.

A. ?$12; 26,000

B. ?$32; 6,000??

C. ?$8; 15,000

D. ?$23; 15,000

Question 20

Major league baseball is exempt from laws designed to limit market power and it operates as a monopoly.

If the baseball market became? competitive, the number of teams would? ______ and the economic profit of each team would? ______.

A.?increase; increase

B. ?increase; decrease

C.?decrease; decrease

D. not change because the current number of teams is the efficient? number; not change

E.?decrease; increase

Question 21

For each of the following situations in? California, indicate whether or not it is an example of price discrimination.

The weekend price of a hotel room is greater than the? mid-week price.

?Stand-by passengers can fly at lower fares than passengers who buy etickets.

Colleges charge? out-of-state students a higher tuition than Californian students.

A cruise line sells the second cruise booked within a year at a 20 percent discount.

A bank charges a higher interest rate on a car loan than it charges the same person for a student loan.

The price of water is higher for a car wash firm than it is for a farmer.

A tropical resort offers lower prices on holidays in low season.

A railway company offers discounts to families traveling with young children.

Question 22

Which of the following is an example of a price cap regulation??

A. Fast food employers have raised the wage rate to? $15 an hour following the new employee act.

B. A government regulation has forced cable TV operators to lower the price of cable TV from? $55 a month to? $30 a month.

C. Political parties are protesting against the? government’s decision to deregulate gas prices.

D. Cell phone companies have reported an increase in profits this quarter.

Question 23

A firm is a natural monopoly if? ______.

A. it can satisfy the market demand at a lower average total cost than other firms can

B. it can produce a larger quantity of the good than other firms could

C. the government grants it a public franchise or patent

D. it can produce the good at a price below its? competitor’s price

Question 24

Hostess Brands closing for good

When its customers switched to healthier? foods, Hostess incurred losses. To return to? profit, the firm proposed a wage? cut, but its workers went on strike. Hostess shut down its 33? bakeries, 565 distribution? centers, and 570 outlet stores.

?Source: CNN? Money, November? 16, 2012

Read the news? clip, then answer the following questions.

The switch to healthier foods brought economic loss to Hostess in the short run because? _______.??

A. the demand for Hostess products decreased

B. the average fixed cost of Hostess products increased

C. the marginal cost of Hostess products increased

D. the marginal revenue from Hostess products increased

Hostess decided to exit the market in the long run because it? _______.?

A. expected the economic loss to persist

B. expected new firms to enter the market

C. wanted to break the union

D. expected other firms in the market to exit

Question 25

Lorie teaches singing. Her fixed costs are? $1,000 a? month, and it costs her? $50 of labor to give one class. The table shows the demand schedule for? Lorie’s singing lessons.

In the long? run, the demand for? Lorie’s lessons? ______, and her economic profit? ______.

A.?increases; falls to zero

B. ?decreases; increases

C.?increases; increases

D.?decreases; falls to zero

Price

Quantity demanded

?(dollars per? lesson)

?(lessons per? month)

0

250

50

200

100

150

150

100

200

50

250

0

Question 26

The graph shows the demand curve and marginal revenue curve of At Home?, ?Inc., a producer of DVD players in monopolistic competition.?

Draw the? firm’s marginal cost curve if At Home produces 125 DVD players a week. Label it.?

Draw a point at the? profit-maximizing quantity and price.

If average total cost at the? profit-maximizing quantity is ?$150 a player?, At Home?’s economic profit is ?$__________

Question 27

Suppose that a new technology enables anyone with a small workshop to produce outstanding barbecues.

You would expect? ______ in production differentiation and? ______ competition on product? quality, price, and marketing.

A. no change? in; less

B. a decrease?; less

C. an increase?; more

D. an increase?; no change in

Question 28

If in the short? run, firms in monopolistic competition make _______ economic? profit, then in the long? run, new firms will enter the market.

The? ______ each individual? firm’s product will? ______.

A.demand? for; increase

B.supply? of; increase

C.supply? of; decrease

D.demand? for; decrease

In the new? long-run equilibrium, firms will make ________economic profit.

Question 29

The dry cleaning industry is in monopolistic competition.

In the short? run, the? profit-maximizing price is? $10 per item and the average total cost is? $6 per item.

In? long-run equilibrium, the? profit-maximizing price is? $8 per item.

In? long-run equilibrium, what is the economic profit of a firm in the dry cleaning? industry?

In? long-run equilibrium, the dry cleaning firm makes ?$_______economic profit.

Question 30

Which of the following firms produce at the efficient scale??

A. Dell produces 100 computers a week at which its average total cost is minimized.

B. A Gap outlet in Chicago sells 500 jackets a day and lowers its average variable cost.

C. Toyota produces 20 cars a day at its Texas plant at which its profit is maximized.

D. ?Starbucks’ makes 1000 chai lattes each day at which is total revenue is maximized.

Question 31

Curt bakes delicious cookies. His total fixed cost is ?$80 a? day, and his average variable cost is ?$1 a bag. He is maximizing his profit by selling 16 bags of cookies a day for?$6 a bag.

Few people know about Curt’s Cookies. Curt thinks that if he spends ?$10 a day on? advertising, he can sell 38 bags of cookies a day for ?$6 a bag.

If Curt’s belief about the effect of advertising is? correct, he ?______.

A. can increase his economic profit by advertising only if he raises the price of a bag of cookies

B. can increase his economic profit by advertising

C. cannot increase his economic profit by advertising because advertising increases hishis average total cost

D. cannot increase his economic profit by advertising because advertising increases hishis total cost

E. can increase his economic profit by advertising only if hehe lowers the price of a bag of cookies

Question 32

Hidden Valley has two wind turbines producing electricity?, one owned by Bill and the other owned by Ben.

The marginal cost of producing electricity is ?$8 a unit.

The table gives the demand schedule for electricity in this area.

If Bill and Ben are forced to sell at the perfectly competitive? price, what is the price of a unit of

electricity??

The perfectly competitive price of electricity is ?$_________ a unit.

The total quantity produced is ________ units a day.

Price

?(dollars per? unit)

Quantity demanded

?(units per? day)

24

0

20

6

16

12

12

18

8

24

4

30

0

36

Question 33

Duracell and Energizer are the only major producers of batteries. Each company has developed a long-lasting battery and aggressively advertises it.

The two firms are locked in a? duopolists’ dilemma.

The? duopolists’ dilemma facing Duracell and Energizer is? ______.

A. for each firm to be successful in eliminating the other firm from the long-lasting battery market

B. what they can do to protect their control of the long-lasting battery market

C. how to increase advertising but at the same time lower average total cost

D. whether they could trust each other to raise the price of a battery and decrease advertising to raise economic profit

Question 34

Choose the statement that is incorrect.

A. Firms in oligopoly might produce a differentiated product and compete on? price, product? quality, and marketing.

B. Firms in oligopoly might produce an identical product and compete only on price.

C. Oligopoly lies between perfect competition and monopoly.???

D. Oligopolies have a natural barrier preventing the entry of new firms.

Question 35

A cartel is a group of firms acting together to? _____ output,? _____ price, and increase? _____.

A. ?increase; raise; marginal revenue

B. ?increase; raise; economic profit

C. ?limit; lower; total revenue

D. ?limit; raise; economic profit

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