Question 1

Suppose that Jennifer and Megan are both buying a beach vacation home, each with the same selling price. Megan is paying for the home by taking out a 30-year mortgage at an annual interest rate of 5%. Over the course of her mortgage, Megan will have paid $300,000 in interest alone. Jennifer is considering using an inheritance received and paying cash for the home. If the current annual market interest rate paid on investments is 6% (i.e., market annual rate of return is equal to 6%), then is Jennifer better off paying cash for her vacation home or taking out the same mortgage as Megan? Explain.

Accepted Answer

If Jennifer pays cash for her home, she ...

Question 2

In a competitive, constant cost industry:

Accepted Answer

A)   there is no entry or exit.
B)   demand never changes.
C)   supply is inelastic.
D)   the long-run price is constant.E) A) and D)
F) None of the above

Question 3

Price times quantity minus total cost equals:

Accepted Answer

A)   total revenue.
B)   fixed costs.
C)   marginal revenue.
D)   profit.E) C) and D)
F) B) and D)

Question 4

Total revenue is equal to:

Accepted Answer

A)   price minus quantity.
B)   price plus quantity.
C)   price times quantity.
D)   price divided by quantity.E) None of the above
F) A) and B)

Question 5

At a ski resort located over one hour from the nearest large town, there is only one grocery store and it charges prices more than 200% percent above the typical retail prices. In the long run, we would expect that:

Accepted Answer

A)   another store will open that will charge equally high prices since competition is low.
B)   the store will continue to earn high profits even in the long run since the size of the market is small.
C)   demand will decrease since people will not want to pay the high prices.
D)   another store will open that will charge lower prices.E) B) and C)
F) None of the above

Question 6

Profit is defined as total revenue minus total cost.

Accepted Answer

A) True 
 B)False

Question 7

Stating that TR = TC is equivalent to stating that:

Accepted Answer

A)   MR = MC.
B)   P = AC.
C)   P = Average fixed cost.
D)   MR = P.E) All of the above
F) A) and B)

Question 8

Because only greater quantities of oil can be produced by using more expensive production methods, the industry is:

Accepted Answer

A)   an increasing cost industry.
B)   an economies of scale industry.
C)   noncompetitive industry.
D)   marginal cost industry.E) A) and D)
F) B) and C)

Question 9

If Homer operates a small bakery and sells donuts for $4/dozen, he should:

Accepted Answer

A)   sell an additional dozen donuts as long as the marginal cost of producing an additional dozen donuts is less than $4.
B)   sell an additional dozen donuts as long as the total cost of producing an additional dozen donuts is less than $4.
C)   only sell more donuts if his total revenue is greater than his total cost.
D)   sell an additional dozen donuts so long as the fixed cost of production is greater than $4.E) None of the above
F) A) and B)

Question 10

Julius builds dining chairs that he sells for $200 a chair. His fixed costs are $1,000 (for workshop equipment) . Each chair costs him $50 in materials to produce plus an extra $25 for each previous chair made that day which reflects Julius' increasing exhaustion. (Thus, the first chair cost $50, the second costs $75, the third cost $100, etc.)  Assume time requirements in producing a chair are not a factor. How many chairs should Julius produce each day?

Accepted Answer

A)   2
B)   5
C)   7
D)   12E) A) and B)
F) A) and C)

Question 11

When there are many buyers and sellers of a good and the product sold is identical across firms,:

Accepted Answer

A)   the demand curve for each firm's output is perfectly elastic.
B)   the industry demand curve is perfectly elastic.
C)   the demand curve for each firm's output is perfectly inelastic.
D)   the industry demand curve is perfectly inelastic.E) C) and D)
F) B) and D)

Question 12

Use the following to answer questions: Table: Competitive Firm 
-(Table: Competitive Firm)  Refer to the table. For the seventh unit of output, total profit is:

Accepted Answer

A)   $630.
B)   $90.
C)   $160.
D)   $470.E) A) and B)
F) None of the above

Question 13

Which of the following is NOT a key decision that a firm must make?

Accepted Answer

A)   what price to set
B)   what quantity to produce
C)   where to produce
D)   when to enter and exit an industryE) A) and B)
F) B) and C)

Question 14

In a perfectly competitive market, sellers who set their price above the market price will sell nothing.

Accepted Answer

A) True 
 B)False

Question 15

A constant cost industry is one in which:

Accepted Answer

A)   an increase in overall industry output does not lead to an increase in overall industry costs.
B)   costs are constant across all firms in the industry.
C)   market price is always equal to marginal cost in the industry.
D)   there are only a limited number of suppliers, all with equal costs of production.E) None of the above
F) A) and B)

Question 16

In a constant cost industry, the market price and average cost are equal to $23. Therefore, which of the following is correct?

Accepted Answer

A)   An increase in demand will cause the short-run price to rise above $23, but in the long run, the price will return to $23.
B)   An increase in demand will cause profits to rise and firms to enter the industry until profits return to normal.
C)   A decrease in demand will cause market price to fall below average cost and thus firms will earn negative profits.
D)   All of the answers are correct.E) A) and B)
F) All of the above

Question 17

In their calculation of profit, accountants typically do not take into account:

Accepted Answer

A)   variable costs.
B)   fixed costs.
C)   opportunity costs.
D)   explicit costs.E) C) and D)
F) A) and C)

Exam 11: Costs and Profit Maximization Under Competition

A constant cost industry is one in which:

Correct Answer
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Price times quantity minus total cost equals:

Correct Answer
verified

Stating that TR = TC is equivalent to stating that:

Correct Answer
verified

Use the following to answer questions: Table: Competitive Firm -(Table: Competitive Firm) Refer to the table. For the seventh unit of output, total profit is:

Correct Answer
verified

Profit is defined as total revenue minus total cost.

Correct Answer
verified

Total revenue is equal to:

Correct Answer
verified

Correct Answer
verified

In a constant cost industry, the market price and average cost are equal to $23. Therefore, which of the following is correct?

Correct Answer
verified

Because only greater quantities of oil can be produced by using more expensive production methods, the industry is:

Correct Answer
verified

If Homer operates a small bakery and sells donuts for $4/dozen, he should:

Correct Answer
verified

In their calculation of profit, accountants typically do not take into account:

Correct Answer
verified

When there are many buyers and sellers of a good and the product sold is identical across firms,:

Correct Answer
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Correct Answer
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If Jennifer pays cash for her home, she ...
View Answer

In a perfectly competitive market, sellers who set their price above the market price will sell nothing.

Correct Answer
verified

Which of the following is NOT a key decision that a firm must make?

Correct Answer
verified

At a ski resort located over one hour from the nearest large town, there is only one grocery store and it charges prices more than 200% percent above the typical retail prices. In the long run, we would expect that:

Correct Answer
verified

In a competitive, constant cost industry:

Correct Answer
verified

Exam 11: Costs and Profit Maximization Under Competition

A constant cost industry is one in which:

Correct AnswerverifiedShow Answer

Price times quantity minus total cost equals:

Correct AnswerverifiedShow Answer

Stating that TR = TC is equivalent to stating that:

Correct AnswerverifiedShow Answer

Use the following to answer questions: Table: Competitive Firm -(Table: Competitive Firm) Refer to the table. For the seventh unit of output, total profit is:

Correct AnswerverifiedShow Answer

Profit is defined as total revenue minus total cost.

Correct AnswerverifiedShow Answer

Total revenue is equal to:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In a constant cost industry, the market price and average cost are equal to $23. Therefore, which of the following is correct?

Correct AnswerverifiedShow Answer

Because only greater quantities of oil can be produced by using more expensive production methods, the industry is:

Correct AnswerverifiedShow Answer

If Homer operates a small bakery and sells donuts for $4/dozen, he should:

Correct AnswerverifiedShow Answer

In their calculation of profit, accountants typically do not take into account:

Correct AnswerverifiedShow Answer

When there are many buyers and sellers of a good and the product sold is identical across firms,:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedIf Jennifer pays cash for her home, she ...View AnswerShow Answer

In a perfectly competitive market, sellers who set their price above the market price will sell nothing.

Correct AnswerverifiedShow Answer

Which of the following is NOT a key decision that a firm must make?

Correct AnswerverifiedShow Answer

At a ski resort located over one hour from the nearest large town, there is only one grocery store and it charges prices more than 200% percent above the typical retail prices. In the long run, we would expect that:

Correct AnswerverifiedShow Answer

In a competitive, constant cost industry:

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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If Jennifer pays cash for her home, she ...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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