# Essay on Costs and Total Cost

Submitted By NelsonLiang1
Words: 1402
Pages: 6

NAME: ________________________________ Section:__________________

PART I - MULTIPLE CHOICE PROBLEMS
Read each of the following questions carefully and circle the letter of the one best answer. Note that diagrams are often helpful in determining the correct answer.

1) and 2) At present output levels, a perfectly competitive firm is profit maximizing and producing 3000 units of output, selling for \$2 each. Total fixed costs are \$4000 and total variable costs are \$4000.

1) In the short-run this firm should
A) shut down
B) increase output produced
D) unable to determine due to insufficient information

2) In the long-run this firm should
A) shut down
B) increase output produced
D) unable to determine due to insufficient information

3) and 4) Initially, a perfectly competitive, constant cost industry, is in long run equilibrium. The industry demand curve shifts right and remains permanently at the new position.

3) In the short-run industry equilibrium following this shift in demand
A) both price and quantity are higher than they were initially.
B) both price and quantity are lower than they were initially.
C) price is higher than it was initially, but the quantity sold is lower.
D) price is lower than it was initially, and the quantity sold is higher.

4) When long-run industry equilibrium is restored following this shift in demand
A) both price and quantity are higher than they were initially.
B) both price and quantity are lower than they were initially.
C) both price and quantity are the same as they were initially.
D) price is the same as it was initially, and the quantity sold is higher.

5) A firm’s average total cost is \$100, its average variable cost is \$70, and its output is 100 units. Its total fixed cost is
A) \$1,000.
B) \$2,000.
C) \$3,000.
D) can’t determine.

6) A firm’s average total cost is \$100, its average variable cost is \$70, and its output is 100 units. Its total cost is
A) \$10,000.
B) \$7,000.
C) \$3,000.
D) can’t determine.

7) For a profit maximizing monopolistically competitive firm, all of the following are TRUE except:
B) price equals marginal revenue
C) marginal revenue is equal to marginal cost
D) all of the above are true

8) For a profit maximizing monopoly, all of the following are TRUE except:
B) price equals marginal revenue
C) marginal revenue is equal to marginal cost
D) all of the above are true

9) For a profit maximizing perfectly competitive firm:
A) price equals marginal cost
B) price equals marginal revenue
C) marginal revenue is equal to marginal cost
D) all of the above are true

10) If total fixed costs increase, then the average total cost curve ____ and the marginal cost curve ____.
A) does not shift; shifts upward/right
B) shifts upward/right; shifts upward/right
C) does not shift; does not shift
D) shifts upward/right; does not shift

11) If total variable costs (i.e., wages) increase, then the average total cost curve ____ and the marginal cost curve ____.
A) does not shift; shifts upward/right
B) shifts upward/right; shifts upward/right
C) does not shift; does not shift
D) shifts upward/right; does not shift

12) In the long run, a monopolistically competitive firm's profits
A) are positive.
B) are zero.
C) are negative.
D) both A) and B) are possible.

13) In the long run, a monopoly's profits
A) are positive.
B) are zero.
C) are negative.
D) both A) and B) are possible.

14) A monopolistically competitive firm is currently earning positive economic profits. From this information, we know the following must be true:
A) this is a short-run equilibrium
B) new firms will enter
C) price is greater than average total cost
D) all of the above are true
15) A perfectly competitive industry is in long-run equilibrium. Some firms adopt a new technology that reduces the average total cost