Pradip Chattopadhyay

ECON 500

Fifth Assignment
1. Look at the following graphs, and indicate whether
they are a feasible representation of economic
reality? Please provide an explanation. Each part is
worth 2 points each.
ATC is Average Total Cost, AVC is Average Variable
Cost, MC is Marginal Cost, and AFC is Average Fixed
Cost
a. Graph 1
Cost
AT
C

MC

b. Graph 2
Cost
MC

AVC

ATC

Pradip Chattopadhyay
ECON 500

c. Graph 3
Cost

MC

ATC

AF
C
Q

a
b
c
d
e

2. Economies of Scope refers to situations where per unit costs are:

Unaffected when two or more products are produced
Reduced when two or more products are produced
Increased when two or more products are produced
Demonstrating constant returns to scale
Demonstrating decreasing returns to scale
3. Economies of scale exist whenever long-run average costs:
a Increase as output is increased
b Remain constant as output is increased
c Decrease as output is increased
d Decline and then rise as output is increased
e None of the above
4. Which of the following is true with regards to a long-run cost function?
a. The shape of the firms long-run cost function is important in decisions to
expand the scale of operations
b. The long-run average cost curve is U-shaped
c. The long-run average cost curve is flatter than the short-run average cost
curve.
d. The curve consists of the lower boundary of all the short-run cost curves
e. All of the above

Pradip Chattopadhyay
ECON 500

a.
b.
c.
d.
e.

5. If TC = 321 + 55Q - 5Q2, then average total cost at Q = 10 is:

10.2
102
37.1
371
321
6. The main difference between perfect competition and monopolistic competition
is:
a The number of sellers in the market
b The ease of entry and exit in the industry
c The degree of information about market price
d The degree of product differentiation
e Whether it is the short run or the long run
7. Long distance telephone service has become a perfectly competitive market. The
average cost per call is $0.05 a minute, and its declining. The likely reason for the
declining price for long distance service is:
a. Governmental pressure to lower the price
b. Reduced demand for long distance service
c. Entry into this industry pushes prices down
d. Lower price for a barrel of crude oil
e. Increased cost of providing long distance service
8. What is the profit maximization point for a firm in a perfectly competitive
environment?
a. The output where P = MC
b. The output where P < MC
c. The output where P > MC
d. The output where MR = MC
e. The output where AVC < P
9. Which of the following statements is (are) true concerning a perfect competition
situation?
a. Its demand curve is represented by a vertical line.
b. Firms must sell at or below market price.
c. Marginal revenue is equal to price.
d. both b and c

Pradip Chattopadhyay
ECON 500

e. both a and b
10. In perfect competition:
a. the optimal price-output solution occurs at the point where marginal
revenue is equal to price
b. a firm's demand curve is represented by a horizontal line
c. a firm is a price-taker since the products of every producer are perfect
substitutes for the products of every other producer
d. a and b only
e. a, b, and c
11. In the short-run for a perfectly competitive market, a manufacturer will stop
production when:
a. the total revenue is less than total costs
b. the contribution to fixed costs is zero or less
c. the price is greater than AVC
d. operating at a loss
e. a and b