Pearson Econ Exam Questions and
Answers
Should a competitive firm ever produce when it is losing money? Why or why not? -
Answer-Yes, as long as revenue can cover total variable costs plus any portion of fixed
costs.
Suppose a competitive firm has cost,
C = (0.002q3) + (22q) + 750,
marginal cost,
MC = 0.006q2 + 22,
and revenue,
R = 80q.
1) If the firm produces 150 units of output then what is true about MR and MC?
2)At this output level (150 units)....
3) The firm's profit maximizing level of output is - Answer-1) MR<MC
2) marginal profit is negative and profit is positive.
3) 98
Suppose the firm faces a price of $30, an average variable cost of $25, and has an
average fixed cost of $5. In the short-run, the firm - Answer-Will just cover all costs
According to "Oil Sands Shutdowns," the minimum average variable cost of processing
oil sands dropped from $25 a barrel in the 1960s to $18 today due to technological
advances.
How does this change affect the supply curve of a typical competitive firm?
1) How does this change affect the supply curve of a typical competitive firm?
2) What about for all firms? - Answer-1) It will start at a lower price and quantity.
2) It will shift supply curve to the left
If a firm is currently in a short-run equilibrium earning a profit, what impact will an
increase in variable factor prices have on its production decision? - Answer-The firm will
decrease output and earn a lower profit.
If a country imports a small fraction of the world's supply, we expect it to face - Answer-
a nearly perfectly elastic, horizontal residual supply curve.
, If the average cost of production is decreasing then there is - Answer-an advantage to
having only one music publisher because the average cost of production is decreasing
At Lequals=686, Kequals=142, the marginal product of labor is 10 and the marginal
product of capital is 10. What is the marginal rate of technical substitution (labor
measured on the horizontal axis)? - Answer-The marginal rate of technical substitution
is -1
To speed relief to isolated South Asian communities that were devastated by the
December 2004 tsunami, the U.S. government doubled the number of helicopters from
45 to 90 to deliver supplies in early 2005. Navy admiral Thomas Fargo, head of the U.S.
Pacific Command, was asked if doubling the number of helicopters would "produce
twice as much [relief]." He predicted, "Maybe pretty close to twice as much."
1) Identify the outputs and inputs and describe the production process.
2) This economic phenomena is called - Answer-1) Relief is produced from donated
supplies and helicopter transportation.
2) diminishing marginal returns.
Suppose that q=40, L=5, and K=25 is a point on the production function
q=f(L, K).
Is it possible for qequals=40, L=5, and K=26 to also be a point on this production
function? Why or why not? - Answer-it cannot be a point because we assume
production functions are efficient
The difference between a fixed and a variable input is that a - Answer-fixed input does
not change with output and a variable input changes with output.
A firm might not seek to maximize profit if instead its primary goal is to - Answer-be as
large as possible
A firm produces two products: q 1 and q 2. The firm's total cost curve is given by:
TCequals=$3,000+4q(1)q(2) plus+40q1+30q 2
If q 1=10 and q 2=70, does this firm have economies of scope? - Answer-Yes
To maximize profits, a firm must produce as efficiently as possible. A firm engages in
efficient production if: - Answer-given the quantity of inputs, cannot produce more
output.
it cannot produce its current level of output with fewer inputs.
it is maximizing profit.
Answers
Should a competitive firm ever produce when it is losing money? Why or why not? -
Answer-Yes, as long as revenue can cover total variable costs plus any portion of fixed
costs.
Suppose a competitive firm has cost,
C = (0.002q3) + (22q) + 750,
marginal cost,
MC = 0.006q2 + 22,
and revenue,
R = 80q.
1) If the firm produces 150 units of output then what is true about MR and MC?
2)At this output level (150 units)....
3) The firm's profit maximizing level of output is - Answer-1) MR<MC
2) marginal profit is negative and profit is positive.
3) 98
Suppose the firm faces a price of $30, an average variable cost of $25, and has an
average fixed cost of $5. In the short-run, the firm - Answer-Will just cover all costs
According to "Oil Sands Shutdowns," the minimum average variable cost of processing
oil sands dropped from $25 a barrel in the 1960s to $18 today due to technological
advances.
How does this change affect the supply curve of a typical competitive firm?
1) How does this change affect the supply curve of a typical competitive firm?
2) What about for all firms? - Answer-1) It will start at a lower price and quantity.
2) It will shift supply curve to the left
If a firm is currently in a short-run equilibrium earning a profit, what impact will an
increase in variable factor prices have on its production decision? - Answer-The firm will
decrease output and earn a lower profit.
If a country imports a small fraction of the world's supply, we expect it to face - Answer-
a nearly perfectly elastic, horizontal residual supply curve.
, If the average cost of production is decreasing then there is - Answer-an advantage to
having only one music publisher because the average cost of production is decreasing
At Lequals=686, Kequals=142, the marginal product of labor is 10 and the marginal
product of capital is 10. What is the marginal rate of technical substitution (labor
measured on the horizontal axis)? - Answer-The marginal rate of technical substitution
is -1
To speed relief to isolated South Asian communities that were devastated by the
December 2004 tsunami, the U.S. government doubled the number of helicopters from
45 to 90 to deliver supplies in early 2005. Navy admiral Thomas Fargo, head of the U.S.
Pacific Command, was asked if doubling the number of helicopters would "produce
twice as much [relief]." He predicted, "Maybe pretty close to twice as much."
1) Identify the outputs and inputs and describe the production process.
2) This economic phenomena is called - Answer-1) Relief is produced from donated
supplies and helicopter transportation.
2) diminishing marginal returns.
Suppose that q=40, L=5, and K=25 is a point on the production function
q=f(L, K).
Is it possible for qequals=40, L=5, and K=26 to also be a point on this production
function? Why or why not? - Answer-it cannot be a point because we assume
production functions are efficient
The difference between a fixed and a variable input is that a - Answer-fixed input does
not change with output and a variable input changes with output.
A firm might not seek to maximize profit if instead its primary goal is to - Answer-be as
large as possible
A firm produces two products: q 1 and q 2. The firm's total cost curve is given by:
TCequals=$3,000+4q(1)q(2) plus+40q1+30q 2
If q 1=10 and q 2=70, does this firm have economies of scope? - Answer-Yes
To maximize profits, a firm must produce as efficiently as possible. A firm engages in
efficient production if: - Answer-given the quantity of inputs, cannot produce more
output.
it cannot produce its current level of output with fewer inputs.
it is maximizing profit.
