Demand and Supply Analysis: The Firm

7 questions

1. 1. A firm has revenue of $5 million. Its explicit costs are 4 million. The owner of the firm incurs $1 million in opportunity costs for his time and capital. Which of the following is true?
   Economic profit: $0 million, Accounting profit: $1 million Economic profit: $1 million, Accounting profit: $0 millionEconomic profit: $1 million, Accounting profit: $1 million
2. 2. In production, some factors of production such as capital and machinery are fixed:
   Only in short-runOnly in long-runIn both long-run and short run
3. 3. All of the following cost curves are U-shaped EXCEPT
   The marginal cost curveThe average variable cost curveThe average fixed cost curve
4. 4. Marginal cost and average total cost are related such that:
   when marginal cost is decreasing, average total cost is increasing when marginal cost is at a minimum, so is average total cost when marginal cost is at a minimum, so is average total cost
5. 5. If an increase in the scale of a firm’s operations causes a decrease in the average total cost, then the firm is said to benefit from economies of scale.
   Economies of scaleDiseconomies of scaleConstant scale
6. 6. If the long run average cost curve first falls, next is constant, and finally rises, the firm encounter
   First economies of scale, next constant returns to scale, then diseconomies of scale. First constant returns to scale, next economies of scale, then diseconomies of scale. First diseconomies of scale, then economies of scale, but no section of constant returns to scale.
7. 7. The fact that the marginal cost curve eventually slopes up as output expands reflects:
   The point that fixed costs eventually increase as output expands.The negative slope of the average total cost curve.The law of diminishing returns.