question
Refer to the graph. It shows short-run cost curves for a competitive firm. At what price would the firm break even?
A) P2
B) P3
C) P4
D) P1
A) P2
B) P3
C) P4
D) P1
answer
C) P4
question
Suppose that a business incurred implicit costs of $200,000 and explicit costs of $1 million in a specific year. If the firm sold 4,000 units of its output at $300 per unit, its accounting profits were:
A) $100,00 and its economic profits were 0.
B) $200,000 and its economic profits were 0.
C) 0 and its economic loss was $200,000.
D) $100,000 and its economic profits were $100,000.
A) $100,00 and its economic profits were 0.
B) $200,000 and its economic profits were 0.
C) 0 and its economic loss was $200,000.
D) $100,000 and its economic profits were $100,000.
answer
B) $200,000 and its economic profits were 0.
question
The retail trade for clothing would be an example of which market model?
A) pure competition
B) monopolistic competition
C) pure monopoly
D) oligopoly
A) pure competition
B) monopolistic competition
C) pure monopoly
D) oligopoly
answer
B) monopolistic competition
question
A group of three plants that is owned and operated by a single firm and that consists of a farm growing wheat, a flour-milling plant, and a plant that bakes and sells bread would best be an example of a:
A) multiplant firm.
B) vertically integrated firm.
C) conglomerate..
D) partnership.
A) multiplant firm.
B) vertically integrated firm.
C) conglomerate..
D) partnership.
answer
B) vertically integrated firm.
question
One principal advantage of the corporations is that owners:
A) have limited liability.
B) are sole proprietors.
C) are not taxed for income received.
D) always control the company.
A) have limited liability.
B) are sole proprietors.
C) are not taxed for income received.
D) always control the company.
answer
A) have limited liability.
question
The law of diminishing returns describes the:
A) profit-maximizing position of a firm.
B) relationship between total costs and total revenues.
C) positive relationship between resource inputs and product outputs in the long run.
D) relationship between resource inputs and product outputs in the short run.
A) profit-maximizing position of a firm.
B) relationship between total costs and total revenues.
C) positive relationship between resource inputs and product outputs in the long run.
D) relationship between resource inputs and product outputs in the short run.
answer
D) relationship between resource inputs and product outputs in the short run.
question
Which is a feature of a purely competitive market?
A) The industry's demand curve is perfectly elastic.
B) Products are standardized or homogeneous.
C) There are price differences between firms producing the same product.
D) There are significant barriers to entry into the industry.
A) The industry's demand curve is perfectly elastic.
B) Products are standardized or homogeneous.
C) There are price differences between firms producing the same product.
D) There are significant barriers to entry into the industry.
answer
B) Products are standardized or homogeneous.
question
The production of agricultural products such as wheat or corn would best be described by which market model?
A) pure monopoly
B) monopolistic competition
C) pure competition
D) oligopoly
A) pure monopoly
B) monopolistic competition
C) pure competition
D) oligopoly
answer
C) pure competition
question
There would be some control over price within rather narrow limits in which market model?
A) Oligopoly
B) Pure competition
C) Monopolistic competition
D) Pure monopoly
A) Oligopoly
B) Pure competition
C) Monopolistic competition
D) Pure monopoly
answer
C) Monopolistic competition
question
The MR = MC profit maximization rule applies:
A) only to monopolies.
B) to firms in all types of industries.
C) only to purely competitive firms.
D) only when the firm is a "price taker."
A) only to monopolies.
B) to firms in all types of industries.
C) only to purely competitive firms.
D) only when the firm is a "price taker."
answer
B) to firms in all types of industries.
question
Mutual interdependence would tend to limit control over price in which market model?
A) Pure competition
B) Oligopoly
C) Monopolistic competition
D) Pure monopoly
A) Pure competition
B) Oligopoly
C) Monopolistic competition
D) Pure monopoly
answer
B) Oligopoly
question
The difference between the actual price that a producer receives and the minimum acceptable price a producer is willing to accept is:
A) allocative efficiency.
B) consumer surplus.
C) productive efficiency.
D) producer surplus.
A) allocative efficiency.
B) consumer surplus.
C) productive efficiency.
D) producer surplus.
answer
B) producer surplus.
question
A purely competitive firm does not try to sell more of its product by lowering its price below the market price because:
A) it can sell all it wants to at the market price.
B) its competitors would not permit it.
C) this would be considered unethical price chiseling.
D) its demand curve is inelastic, so total revenue will decline.
A) it can sell all it wants to at the market price.
B) its competitors would not permit it.
C) this would be considered unethical price chiseling.
D) its demand curve is inelastic, so total revenue will decline.
answer
A) it can sell all it wants to at the market price.
question
To economists, the main difference between the short run and the long run is that:
A) the law of diminishing returns applies in the long run, but not in the short run.
B) fixed costs are more important to decision making in the long run than they are in the short run.
C) in the long run all resources are variable, while in the short run at least one resource is fixed.
D) in the short run all resources are fixed, while in the long run all resources are variable.
A) the law of diminishing returns applies in the long run, but not in the short run.
B) fixed costs are more important to decision making in the long run than they are in the short run.
C) in the long run all resources are variable, while in the short run at least one resource is fixed.
D) in the short run all resources are fixed, while in the long run all resources are variable.
answer
C) in the long run all resources are variable, while in the short run at least one resource is fixed.
question
Which characteristic would best be associated with pure competition?
A) Few sellers
B) Price taker
C) Nonprice competition
D) Product differentiation
A) Few sellers
B) Price taker
C) Nonprice competition
D) Product differentiation
answer
B) Price taker
question
The difference between the maximum price a consumer is willing to pay for a product and the actual price the consumer pays is:
A) productive efficiency.
B) allocative efficiency.
C) producer surplus.
D) consumer surplus.
A) productive efficiency.
B) allocative efficiency.
C) producer surplus.
D) consumer surplus.
answer
D) consumer surplus.
question
A natural monopoly exists when:
A) unit costs are minimized by having one firm produce an industry's entire output.
B) minimum efficient scale is attained at a small level of output.
C) several formerly competing producers merge to become the only firm in an industry.
D) short-run average total cost curves are tangent to long-run average total cost curves.
A) unit costs are minimized by having one firm produce an industry's entire output.
B) minimum efficient scale is attained at a small level of output.
C) several formerly competing producers merge to become the only firm in an industry.
D) short-run average total cost curves are tangent to long-run average total cost curves.
answer
A) unit costs are minimized by having one firm produce an industry's entire output.
question
If the demand curve facing a firm is perfectly elastic, then:
A) its marginal revenue will equal price.
B) it can increase its total revenue by lowering the price of its product.
C) its marginal revenue schedule will decrease at an increasing rate.
D) its marginal revenue schedule decreases twice as fast as the demand curve.
A) its marginal revenue will equal price.
B) it can increase its total revenue by lowering the price of its product.
C) its marginal revenue schedule will decrease at an increasing rate.
D) its marginal revenue schedule decreases twice as fast as the demand curve.
answer
A) its marginal revenue will equal price.
question
Which of the following is most likely to be an implicit cost for Company X?
A) Payments for raw materials purchased from Company Y
B) Transportation costs paid to a nearby trucking firm
C) Rental payments on IBM equipment
D) Depreciation charges on company-owned equipment
A) Payments for raw materials purchased from Company Y
B) Transportation costs paid to a nearby trucking firm
C) Rental payments on IBM equipment
D) Depreciation charges on company-owned equipment
answer
D) Depreciation charges on company-owned equipment
question
There would be a unique product for which there are few close substitutes under which market model?
A) Pure competition
B) Oligopoly
C) Monopolistic competition
D) Pure monopoly
A) Pure competition
B) Oligopoly
C) Monopolistic competition
D) Pure monopoly
answer
D) Pure monopoly
question
Which of the following is most likely to be a fixed cost?
A) Wages for unskilled labor
B) Property insurance premiums
C)Expenditures for raw materials
D) Shipping charges
A) Wages for unskilled labor
B) Property insurance premiums
C)Expenditures for raw materials
D) Shipping charges
answer
B) Property insurance premiums
question
Accounting profits are typically:
A) greater than economic profits because the former do not take explicit costs into account.
B) smaller than economic profits because the former do not take implicit costs into account.
C) equal to economic profits because accounting costs include all opportunity costs.
D) greater than economic profits because the former do not take implicit costs into account.
A) greater than economic profits because the former do not take explicit costs into account.
B) smaller than economic profits because the former do not take implicit costs into account.
C) equal to economic profits because accounting costs include all opportunity costs.
D) greater than economic profits because the former do not take implicit costs into account.
answer
D) greater than economic profits because the former do not take implicit costs into account.
question
In a corporation, the interests of the owners, who seek to maximize profits, may differ from the interests of the managers, who seek prestige and high income. This divergence would be considered:
A) a principal-agent problem.
B) a free-rider problem.
C) a rationing problem.
D) a limited liability problem.
A) a principal-agent problem.
B) a free-rider problem.
C) a rationing problem.
D) a limited liability problem.
answer
A) a principal-agent problem.
question
Which of the following represents a long-run adjustment?
A) A supermarket hires four additional clerks.
B) A steel manufacturer cuts back on its purchases of coke and iron ore.
C) A farmer uses an extra dose of fertilizer on his corn crop.
D) Unable to meet foreign competition, a U.S. watch manufacturer sells one of its branch plants.
A) A supermarket hires four additional clerks.
B) A steel manufacturer cuts back on its purchases of coke and iron ore.
C) A farmer uses an extra dose of fertilizer on his corn crop.
D) Unable to meet foreign competition, a U.S. watch manufacturer sells one of its branch plants.
answer
D) Unable to meet foreign competition, a U.S. watch manufacturer sells one of its branch plants.
question
The major source of production in the economy comes from:
A) sole proprietorships.
B) conglomerates.
C) partnerships.
D) corporations.
A) sole proprietorships.
B) conglomerates.
C) partnerships.
D) corporations.
answer
D) corporations.
question
Implicit and explicit costs are different in that:
A) the former refer to nonexpenditure costs and the latter to out-of-pocket costs.
B) implicit costs are relevant only in the short run.
C) explicit costs are relevant only in the short run.
D) the latter refer to nonexpenditure costs and the former to out-of-pocket costs.
A) the former refer to nonexpenditure costs and the latter to out-of-pocket costs.
B) implicit costs are relevant only in the short run.
C) explicit costs are relevant only in the short run.
D) the latter refer to nonexpenditure costs and the former to out-of-pocket costs.
answer
A) the former refer to nonexpenditure costs and the latter to out-of-pocket costs.
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