MICRO FINAL EXAM WMU ECON 2010 | QUESTIONS
AND ANSWERS | 100% CORRECT.
When there are decreasing returns to scale --1-- as output -----. When there are
increasing returns to scale -2-- as output ----- Answer - 1. Average Cost will
increase as output increases
2. Average Cost will decrease as output decreases
The range of increasing returns to scale is? --3-- The range of decreasing
returns to scale is?
--4-- The range of constant returns to scale is? --5-- Answer - 3: IRS- 0-Q1
4: DRS-: Q1-Q2
5: CRS- P
Intuitively, across plants there will be what kind of returns to scale? --6-- Why?
--7-- Answer - 6: CRS
7: Because you'll get the same output on average as from the first operation.
In order for a firm to make a profit, it must be producing an output such that
what? --9-- Look at the graph above. Say the firm has to charge a price of $p.
Then the range of profitable outputs would be --10-- Answer - 9: Revenue >
input prices
10: Q0-Q2
, Very often we assume that the average cost curve for a plant is U-shaped, at
least in the short run. Why might a plant have an average cost curve with that
shape, in the short run? Answer - 11: Because in the short run, all the inputs
that the firm can employ in production are fixed.
When is there a "natural monopoly"? --12-- Why? --13-- Answer - Because a
firm producing a larger quantity could profitably charge a lower price than a
firm producing a smaller quantity.
Marginal cost is --14--. Say when a plant is producing 1,000 units per week, its
MC is $250. Then effectively --15--. Answer - 14: The increase in total cost
when output is increased by 1 unit.
15: The cost of producing unit #1001 is $250
Say market price is $50, market demand at that price is 35,000 and market
supply at that price is 30,000. Then according to --16-- what will happen to
market price? --17-- Answer - 16: The law of supply
17: The price will rise
If a market is competitive and market price is above equilibrium price, then --
18--. If a market is competitive and we observe price rising, then we would
suspect that --19-- Answer - 18: Price will fall
19: there is excess demand (B/c QD>QS then price will rise but if QD<QS price
will fall)
When is a competitive market in equilibrium? Answer - When MS=MD
Equilibrium price and market price are the same thing (always equal)? True or
False Answer - False
AND ANSWERS | 100% CORRECT.
When there are decreasing returns to scale --1-- as output -----. When there are
increasing returns to scale -2-- as output ----- Answer - 1. Average Cost will
increase as output increases
2. Average Cost will decrease as output decreases
The range of increasing returns to scale is? --3-- The range of decreasing
returns to scale is?
--4-- The range of constant returns to scale is? --5-- Answer - 3: IRS- 0-Q1
4: DRS-: Q1-Q2
5: CRS- P
Intuitively, across plants there will be what kind of returns to scale? --6-- Why?
--7-- Answer - 6: CRS
7: Because you'll get the same output on average as from the first operation.
In order for a firm to make a profit, it must be producing an output such that
what? --9-- Look at the graph above. Say the firm has to charge a price of $p.
Then the range of profitable outputs would be --10-- Answer - 9: Revenue >
input prices
10: Q0-Q2
, Very often we assume that the average cost curve for a plant is U-shaped, at
least in the short run. Why might a plant have an average cost curve with that
shape, in the short run? Answer - 11: Because in the short run, all the inputs
that the firm can employ in production are fixed.
When is there a "natural monopoly"? --12-- Why? --13-- Answer - Because a
firm producing a larger quantity could profitably charge a lower price than a
firm producing a smaller quantity.
Marginal cost is --14--. Say when a plant is producing 1,000 units per week, its
MC is $250. Then effectively --15--. Answer - 14: The increase in total cost
when output is increased by 1 unit.
15: The cost of producing unit #1001 is $250
Say market price is $50, market demand at that price is 35,000 and market
supply at that price is 30,000. Then according to --16-- what will happen to
market price? --17-- Answer - 16: The law of supply
17: The price will rise
If a market is competitive and market price is above equilibrium price, then --
18--. If a market is competitive and we observe price rising, then we would
suspect that --19-- Answer - 18: Price will fall
19: there is excess demand (B/c QD>QS then price will rise but if QD<QS price
will fall)
When is a competitive market in equilibrium? Answer - When MS=MD
Equilibrium price and market price are the same thing (always equal)? True or
False Answer - False
