Question

c. after the third worker is hired. d. after the fifth worker is hired, 8. When a firm is earning zero economic profit, this implies that the firm a. will be forced out of business unless market conditions change higher rate of return in other industries. c. is doing as well as it could in any other line of business d. is caming a zero rate of retum on its assets. 9. Which of the following is NOT a possible reason that economies of scale might occur? a. Organizational complexity, coordination problems, and bureaucratie inefficiencies. b. Spreading the overhead c. Quantity discounts on factors of production d. Better terms on loans for large firms 10. Owen runs a delivery business and currently employs three drivers. He owns three vans that employees use to make deliveries, but he is considering hiring a fourth driver. He does not want to purchase another van until his business becomes more well-established, but he has enough customers to justify hiring the driver. Owen's decision about hiring a 4 driver is: a. a long-run decision since he cannot hire a fourth driver without also purchasing a fourth delivery van. b. a long-run decision since he is holding some inputs (delivery vans) fixed and choosing whether or not to increase variable inputs (drivers). e. a short-run decision since he cannot hire a fourth driver without also purchasing a fourth delivery van. d. a short-run decision since he is holding some inputs (delivery vans) fixed and choosing whether or not to increase variable inputs (drivers). 11. Which of the following products would most closely fit the competitive price-taker model? a. Stereo Systems - there are many reputable brands b. Beer - it has many consumers c. Eggs - there are many producers of this relatively homogeneous product d. Automobiles - there are substantial economies of scale in production 12. Which of the following would NOT be considered a barrier to entry into a market? a. A law that requires hairdressers to undergo many hours of training and acquire a license before they can offer haircuts to the public, b. Economies of scale in production. c. A patent that grants exclusive rights to one firm. d. Both A and C. e. All are barriers to entry. 13. The average total cost of constructing homes is S50 per square foot. As a result of an increase in the demand for home construction, the equilibrium price of home construction rises to $60 per square foot. Assuming the home construction industry is perfectly competitive, these short-run profits will: a. cause firms to exit the industry and the price will fall to $50 in the long-run b. draw new firms into the industry and the price will rise above $60 in the long run c. draw new firms into the industry and the price will remain at $60 in the long-run d. draw new firms into the industry and the price will fall to $50 in the long-run Use the graph below to answer questions 14 and 15

Answer 1

8.

D

9.

A

Complexities and other inefficiencies, will increase the cost, so economy of scale will not occur due to this reason.

10.

D

I short run, all inputs cannot be changed. So, vans as capital input is kept fixed and drivers as labors can be increased.

11.

C

It is homogeneous, many producers, many consumers and easy entry and exits. So, it is a price taker competitive industry.

12.

E

All the mentioned points are barriers to entry for a firm.

13.

D

When some firms make positive economic profit, then new firms will enter the market. It will increase the supply and price will fall back to the initial level.