Question

 1. If a firm is earning economic losses, 

a. it also has an accounting loss. 

b. the owner could be earning more in some other occupation. 

c. the firm must go out of business in the short run. 

d. new firms will want to get into that industry.

 2. Economists say that a firm has a normal profit when 

a. it earns a return of at least 10 percent. b. its accounting profit exceeds its implicit costs. c. it can pay all its variable costs. d. its economic profit is zero. a.

 3. During the course of a week, McDonald's has enough time to hire or layoff workers, but it does not have enough time to expand its kitchen or add an additional seating area. In this situation, McDonald's

 a. has no fixed costs. b. operates in the short run. c. suffers an economic loss. d. earns a large profit.

 4. When a firm increases its output in the short run, its marginal cost tends to rise because of

 a. excessive fixed costs. b. diseconomies of scale. c. diminishing marginal returns. d. communication and management problems.  

 5. The lowest point on the average total cost curve is

a.where it intersects the marginal cost curve. b. where it intersects the average variable cost curve. c. where it intersects the average fixed cost curve. d. where marginal product is maximized.

 6. Constant returns to scale cause the long-run average cost (LRAC) curve to be 

a. horizontal. b. vertical. c. upward-sloping. d. downward-sloping. 

Answer 1

Q1: A: Economic Loss = Accounting Loss + Opportunity Cost

Q2: D: Normal Profit means the net profit should be at least zero.

Q3: A: If he can not add chairs or expand kitchen , there will be no fixed costs

Q4: C: Marginal Cost increases because of diminishing marginal returns. Due to diminishing marginal returns it becomes expensive to produce more.

Q5: A: At the lowest point the curve intersects with Marginal Cost Curve

Q6: A: Horizontal: The curve of LRAC is Economies of Scale, Horizontal in Constant Returns to Scale and Upward sloping in Diseconomies of Scale