ECO402 Quiz 3

Q1. Ali knows average total cost and average variable cost for a given level of output. Which of the following costs can not be determined from this information?

1. Variable cost
2. Fixed cost
3. Average fixed cost
4. Marginal Cost

Correct answer: Marginal Cost

Q2. The producer surplus for a market can be measured as:

1. Vertical intercept of the supply curve.
2. Area under the supply curve to the left of equilibrium output.
3. Area under the demand curve to the left of equilibrium output.
4. Area between the equilibrium price line and the supply curve to the left of equilibrium output.

Correct answer: Area between the equilibrium price line and the supply curve to the left of equilibrium output.

Q3. A firm maximizes profit by operating at the level of output where:

1. Marginal revenue equals marginal cost.
2. Average revenue equals average cost.
3. Average revenue equals average variable cost.
4. Total cost equals marginal cost.

Correct answer: Marginal revenue equals marginal cost.

Q4. Assume that a firm's production process is experiencing increasing returns to scale over a broad range of outputs. Long run average costs over this range of output will tend to:

1. Decline.
2. Remain constant.
3. Fall to a minimum and then rise.
4. Increase.

Correct answer: Decline.

Q5. What happens in a perfectly competitive industry when economic profit is greater than zero?

1. All of the given options.
2. Firms may move along their LRAC curves to new outputs.
3. New firms may enter the industry.
4. Existing firms may get larger.

Correct answer: All of the given options.

Q6. Suppose output of two automobile firms, one is producing cars and other is producing trucks, is less than the output of another automobile firm producing both cars and trucks jointly. We can conclude that the production process involves:

1. Economies of scale.
2. Economies of scope.
3. Increasing returns to scale.
4. Decreasing returns to scale.

Correct answer: Economies of scope.

Q7. In a perfectly competitive firm, the profit maximizing output is found where:

1. MC=MR and MC is increasing.
2. Price=MR and MC is constant.
3. Price=MR and MC is decreasing.
4. MC=MR and MC is decreasing.

Correct answer: MC=MR and MC is increasing.

Q8. Price ceilings:

1. May decrease consumer surplus if demand is sufficiently inelastic.
2. Always increase consumer surplus.
3. May decrease consumer surplus if demand is sufficiently elastic.
4. Always decrease consumer surplus.

Correct answer: May decrease consumer surplus if demand is sufficiently elastic.

Q9. Producer surplus is measured as the:

1. Area under the demand curve above market price.
2. Entire area under the supply curve.
3. Area under the demand curve above the supply curve.
4. Area above the supply curve up to the market price.

Correct answer: Area above the supply curve up to the market price.

Q10. Which of the following measures the degree of economies of scope (SC)?

1. SC = (C(Q1) + C(Q2) - C(Q1,Q2)) / C(Q1)
2. SC = (C(Q1) + C(Q2) - C(Q1,Q2)) / C(Q1,Q2)
3. SC = (C(Q1) - C(Q2) - C(Q1,Q2)) / C(Q1)
4. SC = (C(Q1) - C(Q2) - C(Q1,Q2)) / C(Q1,Q2)

Correct answer: SC = (C(Q1) + C(Q2) - C(Q1,Q2)) / C(Q1,Q2)