1) Diseconomies of scale occur when a. long-run average total costs rise as output increases.

2. Calculate the monopolist’s profit under the following conditions. The intersection of the marginalrevenue and marginal cost curves occurs where output is 10 units. At an output of 10 units, themonopoly price is $20 per unit, the marginal cost is $12 per unit, and the average variable cost is $4per unit, and average fixed cost is $8 per unit.
a. $120
b. $100
c. $80
d. $60

3. Marginal revenue is equal to price for a competitive firm because

a. Total revenue increases by less than the price of the good when an additional unit is sold
b. Firms need to lower price to increase the quantity sold
c. Firms can increase price and still increase the quantity sold
d. Total revenues increases by more than the price of the good when an additional unit is sold
e. Individual firms do not affect the market price of the good when they increase the quantity theyproduce.

4. Which of the following statements is false?
a. In the long run, there are no fixed costs.
b. Marginal cost is independent of fixed costs.
c. Economies of scale is a short-run concept.
d. Diminishing marginal product explains increasing marginal cost.

5. Refer to the above graph. The firm is making a __________ of ___________
a. profit; $88
b. loss; $88
c. profit; $8
d. loss; $8
e. profit; $16

6. A firm’s output is 80 units, its MC is $44, its ATC is $43, and its AFC is $10. AVC is
a. Increasing
b. Decreasing
c. Constant
d. Not enough information

7. Table 1 presents the cost schedule for Lauren’s cookies. If Lauren produces 4 figs, Lauren’s fixed costsare
a. $0.
b. $100.
c. $190.
d. $50.

8. Table 1 presents the cost schedule for Lauren’s Cookies. If Lauren produces five figs, Lauren’smarginal costs are
a. $40.
b. $50.
c. $150.
d. $650.
e. None of the above.

9. The marginal cost curve intersects the
a. ATC, AVC, and AFC curves at their minimum points
b. ATC and AFC at their minimum points
c. AVC and AFC at their minimum points
d. ATC and AVC at their minimum points

10. Assume that a competitive constant-cost industry is in long-run equilibrium when market demandsuddenly increases. Which of the following statements is correct?
a. Existing firms will start suffering losses in the short run
b. Existing firms will stop producing in the short run if AVC exceeds AR at the profit maximizing outputlevel
c. Some firms will exit the industry in the long run
d. Market supply will shift to the right in the long run

Table 2
Price per unit Output
$8
600

$7
$6
$5
$4
$3
$2
$1

800
1000
1200
1400
1600
1800
2000

11. Suppose that Sam L. is a monopolist in the donut market, which has the demand shown in Table2.When Sam L. increases output from 800 to 1000 units, what happens to Sam L.’s revenues?
a. Revenues increase by $200
b. Revenues increase by $400
c. Revenues decrease by $200
d. Revenues increase by $1000
e. Revenues do not change

12. A firm is deciding whether to produce or shut down in the short run. Its total costs are $20,000 ofwhich $5,000 are the total fixed costs of production. The firm should produce in the short run as longas its total revenues are at least
a. $0
b. $15,000.
c. $10,000.
d. $5,000.
13. Which of the following is true for a profit maximizing firm in a competitive market in the long run butnot true for a monopolist?
a. MC=MR
b. MC=P
c. AR=P
d. Only one firm exists

14. Refer to Table 2. Sam L. remains a monopolist in the donut market. Suppose Sam L.’s marginal cost of
producing each donut is constant and equal to $2. Sam L. will maximize his profits by charging a priceof
a. $20
b. $4
c. $5
d. $6
e. None of the above

15. In the short run, when price is below average total cost, a firm in a competitive market will
a. Shut down and incur the loss of both variable and fixed costs
b. Continue to operate as long as average revenue exceeds marginal cost
c. Continue to operate as long as average revenue exceeds average variable cost
d. Always exit the industry

16. Assume that the Law of Diminishing Marginal Product applies at the current output level of acompetitive firm. The price is $20 and, at the current output level, marginal cost is $22 and averagetotal cost is $21. To maximize profits the firm should:
a. produce the current output level
b. produce more
c. produce less
d. any of the above is possible, without further information.
17. A competitive firm might choose to set its price above the market price, because
a. this would result in higher average revenue.
b. this would result in higher profits.
c. this would result in lower total costs.
d. None of the above is correct.
18. The practice of selling the same goods to different customers at different prices, but with the samemarginal cost, is known as
a. price discrimination.
b. monopoly pricing.
c. arbitrage.
d. price segregation.

19. A firm’s average variable cost is $80, its total fixed cost is $6,000, and its output is 600 units. Itsaverage total cost must be:
a. less than $80.
b. $80
c. $90
d. more than $90.