question
If marginal cost is rising,
a. marginal product must be falling.
b. marginal product must be rising.
c. average variable cost must be falling.
d. average fixed cost must be rising.
a. marginal product must be falling.
b. marginal product must be rising.
c. average variable cost must be falling.
d. average fixed cost must be rising.
answer
A
question
When marginal cost is less than average total cost,
a. average total cost is falling.
b. marginal cost must be falling.
c. average total cost is rising.
d. average variable cost must be falling.
a. average total cost is falling.
b. marginal cost must be falling.
c. average total cost is rising.
d. average variable cost must be falling.
answer
A
question
The most likely explanation for economies of scale is
a. coordination problems.
b. increasing marginal cost.
c. decreasing marginal cost.
d. specialization of labor
a. coordination problems.
b. increasing marginal cost.
c. decreasing marginal cost.
d. specialization of labor
answer
D
question
If a firm uses labor to produce output, the firm's production function depicts the relationship between
a. marginal product and marginal cost.
b. the maximum quantity that the firm can produce as it adds more capital to a fixed quantity of labor.
c. fixed inputs and variable inputs in the short run.
d. the number of workers and the quantity of output
a. marginal product and marginal cost.
b. the maximum quantity that the firm can produce as it adds more capital to a fixed quantity of labor.
c. fixed inputs and variable inputs in the short run.
d. the number of workers and the quantity of output
answer
D
question
Which of the following represents the firm's short-run condition for shutting down?
a. Shut down if TR < FC
b. Shut down if TR < TC
c. Shut down if P < ATC
d. Shut down if TR < VC
a. Shut down if TR < FC
b. Shut down if TR < TC
c. Shut down if P < ATC
d. Shut down if TR < VC
answer
D
question
If there is an increase in market demand in a perfectly competitive market, then in the short run
a. profits will rise.
b. there will be no change in the demand curves faced by individual firms in the market.
c. the demand curves facing firms will become more elastic.
d. the demand curves facing firms will shift downward.
a. profits will rise.
b. there will be no change in the demand curves faced by individual firms in the market.
c. the demand curves facing firms will become more elastic.
d. the demand curves facing firms will shift downward.
answer
A
question
A competitive market is in long-run equilibrium. If demand decreases, we can be certain that price will
a. fall in the short run. All firms will shut down, and some of them will exit the industry. Price will then rise to reach the new long-run equilibrium.
b. fall in the short run. All, some, or no firms will shut down, and some of them will exit the industry. Price will then rise to reach the new long-run equilibrium.
c. not fall in the short run because firms will exit to maintain the price.
d. fall in the short run. No firms will shut down, but some of them will exit the industry. Price will then rise to reach the new long-run equilibrium.
a. fall in the short run. All firms will shut down, and some of them will exit the industry. Price will then rise to reach the new long-run equilibrium.
b. fall in the short run. All, some, or no firms will shut down, and some of them will exit the industry. Price will then rise to reach the new long-run equilibrium.
c. not fall in the short run because firms will exit to maintain the price.
d. fall in the short run. No firms will shut down, but some of them will exit the industry. Price will then rise to reach the new long-run equilibrium.
answer
B
question
When firms are said to be price takers, it implies that if a firm raises its price,
a. competitors will also raise their prices.
b. buyers will pay the higher price in the short run.
c. firms in the industry will exercise market power.
d. buyers will go elsewhere
a. competitors will also raise their prices.
b. buyers will pay the higher price in the short run.
c. firms in the industry will exercise market power.
d. buyers will go elsewhere
answer
D
question
If a firm in a perfectly competitive market triples the quantity of output sold, then total revenue will
a. more than triple.
b. less than triple.
c. exactly triple.
d. be reduced by one third.
a. more than triple.
b. less than triple.
c. exactly triple.
d. be reduced by one third.
answer
C
question
Whenever a perfectly competitive firm chooses to change its level of output, its marginal revenue
a. increases if MR < ATC and decreases if MR > ATC.
b. always decreases.
c. does not change.
d. always increases.
a. increases if MR < ATC and decreases if MR > ATC.
b. always decreases.
c. does not change.
d. always increases.
answer
C
question
Farmer McDonald sells wheat to a broker in Kansas City, Missouri. Because the market for wheat is generally considered to be competitive, Mr. McDonald maximizes his profit by choosing
a. to produce the quantity at which average fixed cost is minimized.
b. the quantity at which market price is equal to Mr. McDonald's marginal cost of production.
c. to produce the quantity at which average variable cost is minimized.
d. the quantity at which market price exceeds Mr. McDonald's marginal cost of production by the greatest amount.
a. to produce the quantity at which average fixed cost is minimized.
b. the quantity at which market price is equal to Mr. McDonald's marginal cost of production.
c. to produce the quantity at which average variable cost is minimized.
d. the quantity at which market price exceeds Mr. McDonald's marginal cost of production by the greatest amount.
answer
B
question
Which of the following statements is true?
a. Average revenue is the same as price for competitive firms but not monopoly firms.
b. Average revenue is the same as price for monopoly firms but not competitive firms.
c. When a monopoly firm sells an additional unit of output, its revenue increases by an amount less than the price.
d. When a competitive firm sells an additional unit of output, its revenue increases by an amount less than the price.
a. Average revenue is the same as price for competitive firms but not monopoly firms.
b. Average revenue is the same as price for monopoly firms but not competitive firms.
c. When a monopoly firm sells an additional unit of output, its revenue increases by an amount less than the price.
d. When a competitive firm sells an additional unit of output, its revenue increases by an amount less than the price.
answer
C
question
The deadweight loss associated with a monopoly occurs because the monopolist
a. equates marginal revenue with marginal cost.
b. produces an output level less than the socially optimal level.
c. maximizes profits.
d. produces an output level greater than the socially optimal level.
a. equates marginal revenue with marginal cost.
b. produces an output level less than the socially optimal level.
c. maximizes profits.
d. produces an output level greater than the socially optimal level.
answer
B
question
Price discrimination is the business practice of
a. selling the same good at different prices to different customers.
b. hiring marketing experts to increase consumers' brand loyalty.
c. bundling related products to increase total sales.
d. pricing above marginal cost.
a. selling the same good at different prices to different customers.
b. hiring marketing experts to increase consumers' brand loyalty.
c. bundling related products to increase total sales.
d. pricing above marginal cost.
answer
A
question
Price discrimination is a rational strategy for a profit-maximizing monopolist when
a. the monopolist finds itself able to produce only limited quantities of output.
b. consumers are unable to be segmented into identifiable markets.
c. there is no opportunity for arbitrage across market segments.
d. the monopolist wishes to increase the deadweight loss that results from profit-maximizing behavior.
a. the monopolist finds itself able to produce only limited quantities of output.
b. consumers are unable to be segmented into identifiable markets.
c. there is no opportunity for arbitrage across market segments.
d. the monopolist wishes to increase the deadweight loss that results from profit-maximizing behavior.
answer
C
question
A monopoly can earn positive profits because it
a. can sell unlimited quantities at any price it chooses.
b. can set the price it charges for its output but faces a horizontal demand curve.
c. takes the market price as given and can sell unlimited quantities.
d. can maintain a price such that total revenues will exceed total costs.
a. can sell unlimited quantities at any price it chooses.
b. can set the price it charges for its output but faces a horizontal demand curve.
c. takes the market price as given and can sell unlimited quantities.
d. can maintain a price such that total revenues will exceed total costs.
answer
D
question
A natural monopoly occurs when
a. there are economies of scale over the relevant range of output.
b. the firm is characterized by a rising marginal cost curve.
c. the product is sold in its natural state, such as water or diamonds.
d. production requires the use of free natural resources, such as water or air.
a. there are economies of scale over the relevant range of output.
b. the firm is characterized by a rising marginal cost curve.
c. the product is sold in its natural state, such as water or diamonds.
d. production requires the use of free natural resources, such as water or air.
answer
A
question
The profit-maximization problem for a monopolist differs from that of a competitive firm in which of the following ways?
a. For a profit-maximizing competitive firm, thinking at the margin is much more important than it is for a profit-maximizing monopolist.
b. For a competitive firm, marginal revenue at the profit-maximizing level of output is equal to marginal revenue at all other levels of output; for a monopolist, marginal revenue at the profit-maximizing level of output is smaller than it is for larger levels of output.
c. A competitive firm maximizes profit at the point where average revenue equals marginal cost; a monopolist maximizes profit at the point where average revenue exceeds marginal cost.
d. A competitive firm maximizes profit at the point where marginal revenue equals marginal cost; a monopolist maximizes profit at the point where marginal revenue exceeds marginal cost.
a. For a profit-maximizing competitive firm, thinking at the margin is much more important than it is for a profit-maximizing monopolist.
b. For a competitive firm, marginal revenue at the profit-maximizing level of output is equal to marginal revenue at all other levels of output; for a monopolist, marginal revenue at the profit-maximizing level of output is smaller than it is for larger levels of output.
c. A competitive firm maximizes profit at the point where average revenue equals marginal cost; a monopolist maximizes profit at the point where average revenue exceeds marginal cost.
d. A competitive firm maximizes profit at the point where marginal revenue equals marginal cost; a monopolist maximizes profit at the point where marginal revenue exceeds marginal cost.
answer
C
question
The two types of imperfectly competitive markets are
a. monopolistic competition and cartels.
b. monopoly and monopolistic competition.
c. monopolistic competition and oligopoly.
d. monopoly and oligopoly.
a. monopolistic competition and cartels.
b. monopoly and monopolistic competition.
c. monopolistic competition and oligopoly.
d. monopoly and oligopoly.
answer
C
question
A market structure with only a few sellers, each offering similar or identical products, is known as
a. oligopoly.
b. monopoly.
c. monopolistic competition.
d. perfect competition.
a. oligopoly.
b. monopoly.
c. monopolistic competition.
d. perfect competition.
answer
A
question
Which of the following statements is correct?
a. Monopolistic competition is similar to oligopoly because both market structures are characterized by strategic interaction between firms in the market.
b. Monopolistic competition is similar to perfect competition because both market structures are characterized by perfectly elastic demand curves facing each firm.
c. Monopolistic competition is similar to monopoly because both market structures are characterized by firms being price makers rather than price takers.
d. Monopolistic competition is similar to perfect competition because both market structures are characterized by differentiated products.
a. Monopolistic competition is similar to oligopoly because both market structures are characterized by strategic interaction between firms in the market.
b. Monopolistic competition is similar to perfect competition because both market structures are characterized by perfectly elastic demand curves facing each firm.
c. Monopolistic competition is similar to monopoly because both market structures are characterized by firms being price makers rather than price takers.
d. Monopolistic competition is similar to perfect competition because both market structures are characterized by differentiated products.
answer
C
question
A similarity between monopoly and monopolistic competition is that in both market structures
a. there are only a few buyers but many sellers.
b. there are a small number of sellers.
c. strategic interactions among sellers are important.
d. sellers are price makers rather than price takers.
a. there are only a few buyers but many sellers.
b. there are a small number of sellers.
c. strategic interactions among sellers are important.
d. sellers are price makers rather than price takers.
answer
D
question
Which of the following conditions is characteristic of a monopolistically competitive firm in both the short run and the long run?
a. P < MR
b. P = ATC
c. MC = ATC
d. P > MC
a. P < MR
b. P = ATC
c. MC = ATC
d. P > MC
answer
D
question
Which of the following statements is correct?
a. If duopolists successfully collude, then their combined output will be equal to the output that would be observed if the market were a monopoly.
b. The logic of self-interest increases a duopoly's level of output above the monopoly level, and it pushes the duopolists to reach the competitive price.
c. If duopolists successfully collude, then their combined output will be less than the output that would be observed if the market were a monopoly.
d. The logic of self-interest decreases a duopoly's price below the monopoly price, and it pushes the duopolists to reach the competitive level of output.
a. If duopolists successfully collude, then their combined output will be equal to the output that would be observed if the market were a monopoly.
b. The logic of self-interest increases a duopoly's level of output above the monopoly level, and it pushes the duopolists to reach the competitive price.
c. If duopolists successfully collude, then their combined output will be less than the output that would be observed if the market were a monopoly.
d. The logic of self-interest decreases a duopoly's price below the monopoly price, and it pushes the duopolists to reach the competitive level of output.
answer
A
question
In the prisoners' dilemma game, self-interest leads
a. to an outcome that is better for both prisoners.
b. to the follow-through of any agreement that the prisoners might have made before being questioned.
c. each prisoner to stay silent.
d. each prisoner to confess.
a. to an outcome that is better for both prisoners.
b. to the follow-through of any agreement that the prisoners might have made before being questioned.
c. each prisoner to stay silent.
d. each prisoner to confess.
answer
D
question
Two suspected drug dealers are stopped by the highway patrol for speeding. The officer searches the car and finds a small bag of marijuana and arrests the two. During the interrogation, each is separately offered the following: "If you confess to dealing drugs and testify against your partner, you will be given immunity and released while your partner will get 10 years in prison. If you both confess, you will each get 5 years." If neither confesses, there is no evidence of drug dealing, and the most they could get is one year each for possession of marijuana. If each suspected drug dealer follows a dominant strategy, what should he/she do?
a. Confess regardless of the partner's decision
b. Don't confess only if the partner doesn't confess
c. Confess only if the partner confesses
d. Don't confess regardless of the partner's decision
a. Confess regardless of the partner's decision
b. Don't confess only if the partner doesn't confess
c. Confess only if the partner confesses
d. Don't confess regardless of the partner's decision
answer
A
question
The limit on the consumption bundles that a consumer can afford is known as
a. an indifference curve.
b. the marginal rate of substitution.
c. the budget constraint.
d. the consumption limit.
a. an indifference curve.
b. the marginal rate of substitution.
c. the budget constraint.
d. the consumption limit.
answer
C
question
The slope at any point on an indifference curve is known as
a. the marginal rate of indifference.
b. the trade-off rate.
c. the marginal rate of substitution.
d. the marginal rate of trade-off.
a. the marginal rate of indifference.
b. the trade-off rate.
c. the marginal rate of substitution.
d. the marginal rate of trade-off.
answer
C
question
Which of the following statements is not true with regard to the standard properties of indifference curves?
a. Indifference curves are bowed outward.
b. Indifference curves are downward sloping.
c. Indifference curves do not cross each other.
d. Higher indifference curves are preferred to lower ones.
a. Indifference curves are bowed outward.
b. Indifference curves are downward sloping.
c. Indifference curves do not cross each other.
d. Higher indifference curves are preferred to lower ones.
answer
A
question
The consumer's optimal purchase of any two goods is the point where
a. the budget constraint crosses the indifference curve.
b. the consumer reaches the highest indifference curve subject to remaining on the budget constraint.
c. the consumer has reached the highest indifference curve.
d. the two highest indifference curves cross.
a. the budget constraint crosses the indifference curve.
b. the consumer reaches the highest indifference curve subject to remaining on the budget constraint.
c. the consumer has reached the highest indifference curve.
d. the two highest indifference curves cross.
answer
B
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