ECONOMICS 201(06) FALL 2017 ASSIGNMENT 2

DUE DATE AND TIME: 18:30 NOVEMBER 28 IN LECTURE

LATE ASSIGNMENTS WILL NOT BE ACCEPTED UNDER ANY CIRCUMSTANCES

ASSIGNMENTS SENT ELECTRONICALLY WILL NOT BE ACCEPTED UNDER ANY

CIRCUMSTANCES

ONLY ASSIGNMENTS HANDED IN AT THE BEGINNING OF YOUR LECTURE ON NOVEMBER

28 WILL BE ACCEPTED

Students can collect an IBM bubble sheet in the lecture starting November 14 from the instructor or in a
tutorial.

Please ensure that you fill in the bubbles for your UCID# and your name. If an assignment does not have
both a UCID# and name filled in the bubble sheets, the score on that assignment will be zero.

Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.

1. An advantage of a proprietorship is that

a. it is difficult and expensive to set up
b. the owner has complete control over the business
c. the business can issue stocks and bonds
d. the owner has unlimited liability

2. Equity financing alternatives include

a. issuing bonds
b. issuing stocks
c. borrowing from a bank
d. all of the above

3. Economists normally assume that the goal of a firm is to

(i) make profit as large as possible even if it means reducing output.
(ii) make profit as large as possible even if it means incurring a higher total cost.
(iii) make revenue as large as possible.

a. (i) and (ii)

b. (i) and (iii)
c. (ii) and (iii)
d. None of the above are correct.
4. Which of the following costs would be regarded as an implicit cost?
a. the cost of accounting services
b. the opportunity cost of financial capital that has been invested in the business
c. the cost of compliance with government regulation
d. all costs that involve outlays of money by the firm

5. Economic profit is equal to

a. total revenue minus the explicit cost of producing goods and services.
b. total revenue minus the opportunity cost of producing goods and services.
c. total revenue minus the accounting cost of producing goods and services.
d. average revenue minus the average cost of producing the last unit of a good or service.

6. On a 100-acre farm, a farmer is able to produce 3,000 bushels of wheat when he hires 2 workers. He is able to
produce 4,400 bushels of wheat when he hires 3 workers. Which of the following possibilities is consistent
with the property of diminishing marginal product?
a. The farmer is able to produce 5,600 bushels of wheat when he hires 4 workers.
b. The farmer is able to produce 5,800 bushels of wheat when he hires 4 workers.
c. The farmer is able to produce 6,000 bushels of wheat when he hires 4 workers.
d. All of the above are correct.

7. When marginal cost is less than average total cost,

a. average fixed cost must be rising.
b. average total cost must be rising.
c. average total cost must be falling.
d. marginal cost must be falling.

8. Marginal cost increases as the quantity of output increases. This reflects the property of
a. increasing total cost.
b. diminishing total cost.
c. increasing marginal product.
d. diminishing marginal product.
 Figure 13-6

9. Refer to Figure 13-6. Which of the figures best represents the total cost curve for a firm?
a. Figure 1
b. Figure 2
c. Figure 3
d. Figure 4

Scenario 13-5
A certain firm produces and sells staplers. Last year, it produced 5,000 staplers and sold each stapler for $9. In
producing the 5,000 staplers, it incurred variable costs of $15,000 and a total cost of $40,000.

10. Refer to Scenario 13-5. The firm's fixed costs amounted to

a. $15,000.
b. $25,000.
c. $30,000.
d. $40,000.

11. Refer to Scenario 13-5. In producing the 5,000 staplers, the firm's average variable cost was
a. $3.
b. $5.
c. $8.
d. $9.

12. Refer to Scenario 13-5. In producing the 5,000 staplers, the firm's had an economic
a. Loss of $5,000
b. Profit of $5,000
c. Profit of $20,000.
d. Profit of $30,000.
 The figure below depicts average total cost functions for a firm that produces automobiles. Use the figure to
answer the following questions.

Figure 13-7

13. Refer to Figure 13-7. Which of the curves is most likely to characterize the short-run average total cost curve
of the largest factory?
a. ATCA
b. ATCB
c. ATCC
d. ATCD

14. Refer to Figure 13-7. This firm experiences diseconomies of scale at what output levels?
a. output levels above N
b. output levels between M and N
c. output levels below M
d. All of the above are correct, if the firm is operating in the long run.

15. When price is greater than marginal cost for a firm in a competitive market,
a. marginal cost must be falling.
b. the firm must be minimizing its losses.
c. there are opportunities to increase profit by increasing production.
d. the firm should decrease output to maximize profit.

16. When price is below average variable cost, a firm in a competitive market will
a. shut down and incur fixed costs.
b. shut down and incur both variable and fixed costs.
c. continue to operate as long as average revenue exceeds marginal cost.
d. continue to operate as long as average revenue exceeds average fixed cost.
17. When firms have an incentive to exit a perfectly competitive market, their exit will
a. lower market price.
b. necessarily raise the costs of firms that remain in the market.
c. raise profits for firms that remain in the market.
d. All of the above are correct.

18. In a perfectly competitive market that is characterized by free entry and exit,
a. all firms will operate at efficient scale in the short run.
b. all firms will operate at efficient scale in the long run.
c. the price of the product will differ across firms.
d. the number of sellers in the market will steadily decrease over time.

19. Natural barriers to entry in an industry include

a. economies of scale.
b. government regulations.
c. horizontal integration.
d. vertical integration.

20. When a company merges with or takes over a company that produces the same product, this represents
a. covert collusion.
b. overt collusion.
c. horizontal integration.
d. vertical integration.