question
1. Which of the following is an example of an implicit cost?
a. salaries paid to owners who work for the firm
b. interest on money borrowed to finance equipment purchases
c. cash payments for raw materials
d. foregone rent on office space owned and used by the firm
a. salaries paid to owners who work for the firm
b. interest on money borrowed to finance equipment purchases
c. cash payments for raw materials
d. foregone rent on office space owned and used by the firm
answer
d. foregone rent on office space owned and used by the firm
question
2. Which of the following expressions is correct?
a. accounting profit = economic profit + implicit costs
b. accounting profit = total revenue - implicit costs
c. economic profit = accounting profit + explicit costs
d. economic profit = total revenue - implicit costs
a. accounting profit = economic profit + implicit costs
b. accounting profit = total revenue - implicit costs
c. economic profit = accounting profit + explicit costs
d. economic profit = total revenue - implicit costs
answer
a. accounting profit = economic profit + implicit costs
question
3. Which of the following statements about a production function is correct for a firm that uses labor to produce output?
(see graph on pdf)
a. The production function depicts the relationship between the quantity of labor and the quantity of output
b. The slope of the production function measures marginal cost
c. The quantity of output determines the maximum amount of labor the firm will hire
d. All of the above are correct
(see graph on pdf)
a. The production function depicts the relationship between the quantity of labor and the quantity of output
b. The slope of the production function measures marginal cost
c. The quantity of output determines the maximum amount of labor the firm will hire
d. All of the above are correct
answer
a. The production function depict the relationship between the quantity of labor and the quantity of output
question
4. As the number of workers increases, (see graph)
a. total output increases but at a decreasing rate
b. marginal product increases but at a decreasing rate
c. marginal product increases
a. total output increases but at a decreasing rate
b. marginal product increases but at a decreasing rate
c. marginal product increases
answer
a. total output increases but at a decreasing rate
question
5. As the number of workers increases, (see graph)
a. marginal product decreases
b. total output decreases
c. marginal product increases but at a decreasing rate
d. Both a and b are correct
a. marginal product decreases
b. total output decreases
c. marginal product increases but at a decreasing rate
d. Both a and b are correct
answer
a. marginal product decreases
question
6. The graph illustrates a typical total cost curve. Based on its shape, what does the corresponding production function look like?
(see graph on pdf)
a. an upward-sloping curve that increases at an increaing rate
b. an upward-sloping curve that increases at a decreasing rate
c. a downward-sloping curve
d. a horizontal straight line
(see graph on pdf)
a. an upward-sloping curve that increases at an increaing rate
b. an upward-sloping curve that increases at a decreasing rate
c. a downward-sloping curve
d. a horizontal straight line
answer
b. an upward-sloping curve that increases at a decreasing rate
question
7. The changing slope of the total cost curve reflects
(see graph on pdf)
a. decreasing average variable cost
b. decreasing average total cost
c. decreasing marginal product
d. increasing fixed cost
(see graph on pdf)
a. decreasing average variable cost
b. decreasing average total cost
c. decreasing marginal product
d. increasing fixed cost
answer
c. decreasing marginal product
question
8. The cost of producing the typical unit of output the firm's
a. average total cost
b. opportunity cost
c. variable cost
d. marginal cost
a. average total cost
b. opportunity cost
c. variable cost
d. marginal cost
answer
a. average total cost
question
9. Average total cost is equal to
a. output/total cost
b. total cost - total quantity of output
c. average variable cost + total fixed cost
d. total cost/output
a. output/total cost
b. total cost - total quantity of output
c. average variable cost + total fixed cost
d. total cost/output
answer
d. total cost/output
question
10. Curve A represents which type of cost curve
(see graph)
a. marginal cost
b. average total cost
c. average variable cost
d. average fixed cost
(see graph)
a. marginal cost
b. average total cost
c. average variable cost
d. average fixed cost
answer
d. average fixed cost
question
11. Which of the curve is most likely to represent average fixed cost?
(see graph)
a. A
b. B
c. C
d. D
(see graph)
a. A
b. B
c. C
d. D
answer
...
question
12. Curve C represents which type of cost curve?
(see graph)
a. marginal cost
b. average total cost
c. average variable cost
d. average fixed cost
(see graph)
a. marginal cost
b. average total cost
c. average variable cost
d. average fixed cost
answer
b. average total cost
question
13. When is a firm is operating at an efficient scale,
a. average variable cost is minimized
b. average fixed cost is minimized
c. average total cost is minimized
d. marginal cost is minimized
a. average variable cost is minimized
b. average fixed cost is minimized
c. average total cost is minimized
d. marginal cost is minimized
answer
c. average total cost is minimized
question
14. Diminishing marginal product suggests that the marginal
a. cost of an extra worker is unchanged
b. cost of an extra worker is less than the previous worker's marginal cost
c. product of extra worker is less than the previous worker's marginal product
d. product of an extra worker is greater than the previous worker's marginal product
a. cost of an extra worker is unchanged
b. cost of an extra worker is less than the previous worker's marginal cost
c. product of extra worker is less than the previous worker's marginal product
d. product of an extra worker is greater than the previous worker's marginal product
answer
c. product of an extra worker is less than the previous worker's marginal product
question
15. One assumption that distinguishes short-run cost analysis for a profit-maximizing firm is that in the short run,
a. output is not variable
b. the number of workers used to produce the firm's product is fixed
c. the size of the factory is fixed
d. there are no fixed costs
a. output is not variable
b. the number of workers used to produce the firm's product is fixed
c. the size of the factory is fixed
d. there are no fixed costs
answer
c. the size of the factory is fixed
question
16. In the short run, a firm that produces and sells computers can adjust
a. how many workers to hire
b. the size of its factories
c. where to produce along its long-run average-total-cost curve
d. All of the above are correct
a. how many workers to hire
b. the size of its factories
c. where to produce along its long-run average-total-cost curve
d. All of the above are correct
answer
a. how many workers to hire
question
17. In the long run, a firm that produces and sells computers can adjust
a. how many workers to hire
b. the size of its factories
c. which short-run average-total-cost curve to use
d. All of the above are correct
a. how many workers to hire
b. the size of its factories
c. which short-run average-total-cost curve to use
d. All of the above are correct
answer
d. All of the above are correct
question
18. which of the curves is most likely to characterize the short-run average total cost curve of the smallest factory?
(see graph on pdf)
a. ATCa
b. ATCb
c. ATCc
d. ATCd
(see graph on pdf)
a. ATCa
b. ATCb
c. ATCc
d. ATCd
answer
a. ATCa
question
19. The firm experiences economies of scale at which output levels?
a. output levels less than M
b. output levels between M and N
c. output levels greater than N
d. All of the above are correct as long as the firm is operating in the long run
a. output levels less than M
b. output levels between M and N
c. output levels greater than N
d. All of the above are correct as long as the firm is operating in the long run
answer
a. output levels less than M
question
20. The firm experiences diseconomies of scale if it changes its level of output from
(see graph on pdf)
a. Q1 to Q2
b. Q2 to Q3
c. Q3 to Q4
d. Q4 to Q5
(see graph on pdf)
a. Q1 to Q2
b. Q2 to Q3
c. Q3 to Q4
d. Q4 to Q5
answer
d. Q4 to Q5
question
21. Competitive markets are characterized by
a. a small number of buyers and sellers
b. unique products
c. the interdependence of firms
d. free entry and exit by firms
a. a small number of buyers and sellers
b. unique products
c. the interdependence of firms
d. free entry and exit by firms
answer
d. free entry and exit by firms
question
22. In a competitive market, no single producer can influence the market price because
a. many other sellers are offering a product that is essentially identical
b. consumers have more influence over the market price than producers do
c. government intervention prevents firms from influencing price
d. producers agree not to change the price
a. many other sellers are offering a product that is essentially identical
b. consumers have more influence over the market price than producers do
c. government intervention prevents firms from influencing price
d. producers agree not to change the price
answer
a. many other sellers are offering a product that is essentially identical
question
23. If the market price is P1, in the short run, the perfectly competitive firm will earn
(see graph on pdf)
a. positive economic profits
b. negative economic profits but will try to remain open
c. negative economic profits and will shut down
d. zero economic profits
(see graph on pdf)
a. positive economic profits
b. negative economic profits but will try to remain open
c. negative economic profits and will shut down
d. zero economic profits
answer
a. positive economic profits
question
24. If the market price is $10, what is the firm's short-run economic profit?
(see graph on pdf)
a. $9
b. $15
c. $30
d. $50
(see graph on pdf)
a. $9
b. $15
c. $30
d. $50
answer
b. $15
question
25. The firm will earn zero economic profit if the market price is
(see graph on pdf)
a. $0
b. $6
c. $7
d. $10
(see graph on pdf)
a. $0
b. $6
c. $7
d. $10
answer
b. $6
question
26. Firms will be encouraged to enter this market for all prices that exceed
(see graph on pdf)
a. P1
b. P2
c. P3
d. None of the above are correct
(see graph on pdf)
a. P1
b. P2
c. P3
d. None of the above are correct
answer
c. P3
question
27. When a perfectly competitive firm decides to shut down, it is most likely that
a. marginal cost is above average variable cost
b. marginal cost is above average total cost
c. price is below the firm's average variable cost
d. fixed costs exceed variable costs
a. marginal cost is above average variable cost
b. marginal cost is above average total cost
c. price is below the firm's average variable cost
d. fixed costs exceed variable costs
answer
c. price is below the firm's average variable cost
question
28. When price exceeds average variable cost in the short run, a competitive firm's marginal cost curve is regarded as its supply curve because
a. the position of the marginal cost curve determines the price for which the firm should sell its product
b. among the various cost curves, the marginal cost curve is the only one that slopes upward
c. the marginal cost curve determines the quantity of output the firm is willing to supply at any price
d. the firm is aware that marginal revenue must exceed marginal cost in order for profit to be maximized
a. the position of the marginal cost curve determines the price for which the firm should sell its product
b. among the various cost curves, the marginal cost curve is the only one that slopes upward
c. the marginal cost curve determines the quantity of output the firm is willing to supply at any price
d. the firm is aware that marginal revenue must exceed marginal cost in order for profit to be maximized
answer
c. the marginal cost curve determines the quantity of output the firm is willing to supply at any price
question
29. In the long run, a profit-maximizing firm will choose to exit a market when
a. average fixed cost is falling
b. variable costs exceed sunk costs
c. marginal cost exceeds marginal revenue at the current level of production
d. total revenue is less than total cost
a. average fixed cost is falling
b. variable costs exceed sunk costs
c. marginal cost exceeds marginal revenue at the current level of production
d. total revenue is less than total cost
answer
c. marginal cost exceeds marginal revenue at the current level of production
question
30. A firm that exits its market has to pay
a. its variable costs but not its fixed costs
b. its fixed costs but not its variable costs
c. both its variable costs and its fixed costs
d. neither its variable costs nor its fixed costs
a. its variable costs but not its fixed costs
b. its fixed costs but not its variable costs
c. both its variable costs and its fixed costs
d. neither its variable costs nor its fixed costs
answer
d. neither its variable costs nor its fixed costs
question
31. In the short-run, a firm's supply curve is equal to the
a. marginal cost curve about its average variable cost curve
b. marginal cost curve above its average total cost curve
c. average variable cost curve above its marginal cost curve
d. average total cost curve above its marginal cost curve
a. marginal cost curve about its average variable cost curve
b. marginal cost curve above its average total cost curve
c. average variable cost curve above its marginal cost curve
d. average total cost curve above its marginal cost curve
answer
b. marginal cost curve above its average total cost curve
question
32. The entry of new firms into a competitive market will
a. increase market supply and increase market price
b. increase market supply and decrease market price
c. decrease market supply and increase market price
d. decrease market supply and decrease market price
a. increase market supply and increase market price
b. increase market supply and decrease market price
c. decrease market supply and increase market price
d. decrease market supply and decrease market price
answer
b. increase market supply and decrease market price
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