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Home / Questions / Suppose that you have returned from your fishing expedition with 20,000 fish. The

Suppose that you have returned from your fishing expedition with 20,000 fish. The

 Suppose that you have returned from your fishing expedition with 20,000 fish. The
                            market price is $3 per fish. Your average fixed cost was $1 and your total variable cost
                            was $5,000. If the price jumps to $3.50 before you sell your first fish, how much extra
                            profit, if any, do you earn?

a. $10,000

b. $25,000

c. $30,000

d. $45,000

e. $70,000

112.              If the market price is $5 and you are currently producing at a level where average total
                            cost is $3 and falling, you should

a. b or c, it doesn’t matter

b. shut down

c. produce only enough to cover variable costs

d. produce where MR = MC

e. produce until the average total cost and average revenue are equal

113.              The market price for wallets is $20. Your technology is such that at your most efficient
                            production point, the average total cost of producing a wallet is $2.50. Your manager
                            runs into your office and shouts, “Boss Average costs are rising Average costs are
                            rising” To make a profit-maximizing decision, you should

a. definitely decrease production

b. immediately stop production

c. completely ignore your manager

d. ask the manager about the marginal cost

e. ask the manager about the average total cost

114.              When choosing the production level for tomorrow you find that at an output of 100 units,
                            the total variable costs are $20,000 and the average fixed cost is only $50. If the market
                            price is $200, you should

a. hire an economic consultant

b. produce at a loss equal to $5,000

c. produce more than 100 units

d. produce fewer than 100 units

e. produce where MC  is at a minimum

115.              The marginal cost of producing fish increases by $.01 with each additional fish. The
                            marginal cost of the first fish is $.01, for the second it is $.02, etc. If the market price for
                            fish is $7 per fish and your total fixed cost is $7,000, you should

a. stop fishing after the 7,000th fish

b. stop fishing after the 700th fish

c. stop fishing after the 1,000th fish

d. shut down

e. there is not enough information to answer this question

116.              The marginal cost of catching a fish is the same as the average total cost at your current
                            level of 3,000 fish. If the price you receive for fish is greater than the marginal cost of the
                            3,000th fish, you should

a. add another boat to your fleet

b. decrease production until MC = MR

c. increase production until MC = MR

d. stop production at 3,000th fish

e. decrease production until the marginal cost of the next unit is enough to pay for the
workers, bait, and fuel

117.              Which controversy developed over a disagreement about how managers make profit
                            maximizing production decisions?

a. Lester-Satlow

b. Lester-Machlup

c. Friedman-Lester

d. Friedman-Phelps

e. Kalecki-Gottheil

118.              When we see a firm make a long-run decision to exit the industry, it is likely that

a. profits are positive but unattractive to the owner

b. market prices only covered average total, but not average variable costs

c. all loans have been paid back early

d. market prices will stay below marginal costs at all levels of production where
average total costs are falling

e. the cost of fixed factors of production have increased dramatically

119.              If a firm has not maximized its profit, it could be the case that

a. marginal cost is less than average total cost

b. marginal cost is greater than average total cost

c. marginal cost, average total cost, and marginal revenue all intersect at the same

d. marginal cost is higher than average  variable cost

e. the market price is higher than marginal cost

120.              Suppose a company increases production from a point where marginal cost equals
                            average total cost to a point where marginal revenue and marginal cost are equal. Is it a
                            good idea for the company to do this? Why?

a. No; average total costs have increased which means the company is not
minimizing losses.

b. Yes; because average variable costs are always less than average total costs.

c. No; because the marginal cost of producing the last unit is the same as the
marginal revenue.

d. Yes; even though the previous level of output had minimized the average total cost,
there was still profit to be earned by producing additional units.

e. No; the previous level of output was the most efficient because it had the lowest
average total cost.

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