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# UA ACCT 200 - Exam 2 Review Problems

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Slide 1Slide 2Slide 3Slide 4Slide 5Slide 6Slide 7Slide 8Slide 9Slide 10Slide 11Slide 12Slide 13Slide 14Slide 15Bread ProductionBread ProductionExam 2 Review ProblemsChapters 6, 7, and 8Which of the following would cause the AFC curve for cigarettes to shift up?I. An Increase in annual property tax.II. An increase in the cigarette tax (charged per pack).III. An increase in the cost of electricity.IV. An increase in advertising expenditures.A. I, II, III, IVB. I, II, IIIC. ID. I, IVFind which of these are FC in respect to output, does it vary with outputWhich of the following would shift the MC curve for cigarettes?A. An increase in the interest rate.B. A \$10 million penalty charged to each cigarette makerC. An increase in the demand for cigarettesD. A \$4 wage increase. Looking for variable cost, wage is the price of the labor which is a VC. When we talk about cost we are talking about the supply sideIf the market price is \$4, to maximize profit the firm should produce ______ thousand units and will earn a profit of approximately \$_____thousand.A. 350, 350B. 350, 1400C. 300, 1200D. None of the above are correctPrice = MC (@\$4.00) Q = 350 Profit = R-C (R-ATC)At a market price of ____ the firm will earn an economic profit of zero. In this case the firm should produce________.A. 3.50, 0B. 3.00, 0C. 2.00, 0D. 3.00, 300P = Min ATCIf the market price is \$2.50, to maximize profit the firm should produce ______ thousand units and will earn a profit of approximately \$_____thousand. Assume fixed cost is \$250 thousand.A. 0, 0B. 0, -250C. 250, 125D. 250, -125At a price of \$2.50 Q = 250 ATC = \$3 at Q 250 (-0.50)(250) = -125 In the short run if you shut down you are stuck with your fixed costsIf the market price is \$1.50, to maximize profit the firm should produce ______ thousand units and will earn a profit of approximately \$_____thousand. Assume fixed cost is \$250 thousand.A. 0, 0B. 0, -250C. 150, -250D. 150, -300It is more profitable to such down to incur a fixed cost of -\$250k then producing units at a profit of -\$300kTwo farmers raise barley. The farms are identical in every respect except farmer Anne bought her tractor for \$500,000 and farmer Betty rents her tractor for \$50,000. Farmer Anne could rent her tractor out for \$50,000 if she chose not to farm with it. If Anne sold the tractor and purchased bonds she would earn \$25,000 a year from interest. Which farmer has lower costs?A. Farmer AnneB. Farmer BettyC. Neither, the costs are identicalSee notes*Long-run equilibrium price of wheat is \$5 a bushel. Compared to every other wheat farmer, Sally has an extra \$2 of accounting profit for every bushel of wheat due to high-quality land. The extra \$2 per bushel is ______.A. economic rentB. long-run economic profit.C. sunk cost.D. B & CDefinition of economic rentThe total cost of making 100 donuts is \$100. The marginal cost of the 100th donut is \$1.10. The average total cost of the 100th donut isA. ConstantB. RisingC. DecreasingD. Less than average fixed costMC = TC/Q MC > ATC, ATC is increasingA firm employs 500 workers at a wage rate of \$20, and 50 units of capital at \$40 per hour. The marginal product of labor is 200, and the marginal product of capital is 800. The firm is producing its target level of output. To minimize costs the firm shouldA. continue employing the existing amounts of both capital and laborB. hire more capital and more laborC. hire more capital and less laborD. hire less capital and more laborSee notes*A firm’s MC equals 20 while its long-run average cost is 200. This firmA. is experiencing economies of scale.B. is experiencing diseconomies of scale.C. is experiencing learning economiesD. is producing an output greater than its minimum efficient scaleA movement from A to C in the figure represents A) economies of scale. B) diseconomies of scale. C) learning. D) economies of scope.In the perfectly competitive constant-cost parsnip market the market demand is Q=10,000 – 100p and the short-run market supply is Q=-2,000 + 200P. For each parsnip producer marginal cost equals long-run average cost at \$20. In this market we would expect there to be ______ until the market price ______.A. entry, equals \$20B. exit, equals \$20C. exit, equals \$40D. entry, equals \$40Cal’s Flour Mill competes in a highly competitive market where the market price is \$10 per 50 pound bag. His total and marginal cost curves are: TC=200 + .01q2 and MC=.02q.What is the profit maximizing output?Bread ProductionK L q MP AP10 0 010 1 1510 2 2010 3 2010 4 1010 5 15What is the average product when 3 workers are employed?Bread ProductionK L q MP AP10 0 010 1 15 15 1510 2 40 25 2010 3 60 20 2010 4 70 10 17.510 5 75 5 15What is the average product when 3 workers are

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