Question

1. The numbers listed under each item below are the costs for producing Product A, Product B, and Products A and B together. Which set of costs exhibits economies of scope?

a. 100, 150, 250

b. 100, 150, 260

c. None of these cost listings exhibit economies of scope

d. 100, 150, 240

2. When MC rises above AC, then we know that

a. AC declines

b. AC remains the same

c. AC is negative

d. AC increases

3. The variety of Riverside Ranger logo T-shirts includes 12 different designs. Setup between designs takes one hour (and $18,000), and, after setting up, you can produce 1,000 units of a particular design per hour (at a cost of $8,000). Please assume that the firm faces the fixed set-up charge ($18,000) for all production runs, even if they only produce one variety of T-shirt. Based on the provided information, what is the cost character of this firm?

a. Economies of scale, but not economies of scope

b. Neither economies of scale or scope

c. Economies of scope, but not economies of scale

d. Both economies of scale and scope

4. When the demand for a product falls, which of the following events is NOT expected to occur?

a. Decrease in quantity supplied

b. Increase in product price

c. Leftward shift in the demand curve

d. Decrease in product price

5. If the price of a good increases, then

a. we move along the demand curve

b. the demand curve shifts right

c. the demand curve shifts left

d. we remain at the same point on the fixed demand curve

6. Suppose the market demand for milk shifts leftward and the market supply curve for milk shifts rightward. What is the expected impact of this change?

a. Equilibrium price declines, but we cannot predict the change in equilibrium quantity

b. Equilibrium price and quantity increase

c. Equilibrium price and quantity decline

d. Equilibrium price declines and equilibrium quantity increases

7. Several states are considering an increase in the tax collected on gasoline sold at retail gasoline stations within the state. What is the expected impact if the state gasoline tax is increased?

a. Supply curve shifts left and price paid by consumers rises

b. Supply curve shifts left and price paid by consumers declines

c. Supply curve shifts right and price paid by consumer rises

d. Supply curve shifts right and price paid by consumers declines

8. In the long-run, which of the following outcomes is most likely for a profit maximizing firm?

a. Economic profits are zero and accounting profits are positive

b. Accounting profits are zero and economic profits are zero

c. Both economic profits and accounting profits are zero

d. Both economic profits and accounting profits are positive

9. A price-taking firm in a perfectly competitive market faces what type of demand curve?

a. The demand curve could take any shape in this case

b. This is a trick question. Individual firms do not face demand curves under perfect competition

c. Perfectly inelastic

d. Perfectly elastic

10. If a firm is earning positive economic profits in the short run, what is expected to happen in this industry?

a. Some firms will enter the market until economic profits go to zero

b. Some firms will exit the market until economic profits go to zero

c. There is no entry or exit from the industry, but economic profits go to zero in the long run

d. There is no entry or exit from the industry, and economic profits remain positive in the long run

Answer 1

1- the following set of costs exhibits economies of scope:

d. 100, 150, 240

economies of scope means producing goods together at lower cost than the cost of goods separately

so the cost of producing product A is 100 and B is 150 so when the goods produced together (100 + 150 = 250) if the cost is lower than 250 then there is economies of scope

2- When MC rises above AC, then we know that

d. AC increases

when marginal cost is decreasing AC also decreases and when MC increases and rises above AC, AC also starts increases

3: the cost character of this firm is

a. Economies of scale, but not economies of scope

economies of scale means increase in production level and decrease in price and here firm shows economies of scale but does not exhibit economies of scope because the combined production of variety of t-shirts will not decrease the cost of production

4. When the demand for a product falls, the following events is NOT expected to occur:

b. Increase in product price

because if price increases the demand will fall more rapidly so producer will not increase the price of the product when its demand is falling

5. If the price of a good increases, then

a. we move along the demand curve

the increase in price will reduce the quantity demanded of the good so there will be a upward movement along the demand curve

the demand curve shifts when the other factors such as income, price of relative goods, taste and preferences etc. changes while price remain constant

6. Suppose the market demand for milk shifts leftward and the market supply curve for milk shifts rightward. The expected impact of this change is:

d. Equilibrium price declines and equilibrium quantity increases

as demand has decreased and supply has increased so the price will reduce while the quantity will increase