question
Which of the following is most likely to be true of economic and accounting profits?
a. economic profits are less than accounting profits
b. accounting profits are less than economic profits
c. economic profits plus accounting profits equal zero
d. accounting profits minus economic profits equals zero
a. economic profits are less than accounting profits
b. accounting profits are less than economic profits
c. economic profits plus accounting profits equal zero
d. accounting profits minus economic profits equals zero
answer
a. economic profits are less than accounting profits
question
If most businesses in an industry are earning a 13 percent rate of return on their assets, but your firms is earning 23 percent, your rate of economic profit is
a. zero
b. 10 percent
c. 23 percent
d. 36 percent
a. zero
b. 10 percent
c. 23 percent
d. 36 percent
answer
b. 10 percent
question
Which of the following about costs is true?
a. the difference between the ATC and the AVC curves will decline as output expands
b. the AFC will remain constant as output increases
c. if ATC is increasing, then AVC must be greater than ATC
d. implicit costs and fixed costs are always the same
a. the difference between the ATC and the AVC curves will decline as output expands
b. the AFC will remain constant as output increases
c. if ATC is increasing, then AVC must be greater than ATC
d. implicit costs and fixed costs are always the same
answer
a. the difference between the ATC and the AVC curves will decline as output expands
question
Liam notes that if he produces 10 pairs of shoes per day, his average fixed cost (AFC) is $14 and his marginal cost (MC) is $8; if he produces 20 pairs of shoes per day, his MC is $15. What is his AFC when output is 20 pairs of shoes per day?
a. $5
b. $7
c. $8
d. $15
a. $5
b. $7
c. $8
d. $15
answer
b. $7
question
If fixed cost at quantity (Q) = 100 is $130, then
a. fixed cost at Q=0 is $0
b. fixed cost at Q=0 is less than $130
c. fixed cost at Q=200 is $260
d. fixed cost at Q=200 is $130
e. it is impossible to calculate fixed costs at any other quantity
a. fixed cost at Q=0 is $0
b. fixed cost at Q=0 is less than $130
c. fixed cost at Q=200 is $260
d. fixed cost at Q=200 is $130
e. it is impossible to calculate fixed costs at any other quantity
answer
d. fixed cost at Q=200 is $130
question
Whenever average total cost exceeds marginal cost,
a. average total cost is rising
b. average total cost is falling
c. marginal cost is rising
d. marginal cost is falling
a. average total cost is rising
b. average total cost is falling
c. marginal cost is rising
d. marginal cost is falling
answer
b. average total cost is falling
question
In order for the law of diminishing returns to be present, we must have
a. at least one factor of production to be fixed
b. output decreasing as more laborers are hired
c. the price of labor increasing as more workers are hired
d. simultaneous changes in labor and capital
e. double the output when labor input is doubled
a. at least one factor of production to be fixed
b. output decreasing as more laborers are hired
c. the price of labor increasing as more workers are hired
d. simultaneous changes in labor and capital
e. double the output when labor input is doubled
answer
a. at least one factor of production to be fixed
question
Which of the following about costs is always true?
a. when marginal costs are less than average total costs, average total costs will be decreasing
b. when average fixed costs are falling, marginal costs must be less than average fixed costs
c. when average fixed costs are rising, marginal costs must be greater than average total costs
d. when marginal costs are greater than average total costs, average total costs will be decreasing
a. when marginal costs are less than average total costs, average total costs will be decreasing
b. when average fixed costs are falling, marginal costs must be less than average fixed costs
c. when average fixed costs are rising, marginal costs must be greater than average total costs
d. when marginal costs are greater than average total costs, average total costs will be decreasing
answer
a. when marginal costs are less than average total costs, average total costs will be decreasing
question
If a firm enlarges its factory size and realizes higher average costs of production then
a. it has experienced economies of scale
b. it has experienced diseconomies of scale
c. it has experienced constant returns to scale
d. the long-run average cost curve slopes downward
e. the long-run average cost curve shifts upward
a. it has experienced economies of scale
b. it has experienced diseconomies of scale
c. it has experienced constant returns to scale
d. the long-run average cost curve slopes downward
e. the long-run average cost curve shifts upward
answer
b. it has experienced diseconomies of scale
question
If a firm has a U-shaped long-run average cost curve,
a. its fixed cost rises as output rises
b. it must have increasing returns to scale at low levels of production and decreasing returns to scale at high levels of production
c. it must have increasing returns to each input at low levels of production and decreasing returns to each input at high levels of production
d. the firm can maximize its output by operating at the point of minimum long-run average cost
a. its fixed cost rises as output rises
b. it must have increasing returns to scale at low levels of production and decreasing returns to scale at high levels of production
c. it must have increasing returns to each input at low levels of production and decreasing returns to each input at high levels of production
d. the firm can maximize its output by operating at the point of minimum long-run average cost
answer
b. it must have increasing returns to scale at low levels of production and decreasing returns to scale at high levels of production
question
Which of the following provides the best explanation for diseconomies of scale?
a. the firm is too small to take advantage of specialization
b. large management structures may be bureaucratic and inefficient
c. if there are too many employees, the work place becomes crowded and people become less productive
d. average fixed costs are rising
a. the firm is too small to take advantage of specialization
b. large management structures may be bureaucratic and inefficient
c. if there are too many employees, the work place becomes crowded and people become less productive
d. average fixed costs are rising
answer
b. large management structures may be bureaucratic and inefficient
question
Which of the following would increase a firm's average total costs?
a. economies of scale
b. an increase in input prices
c. an improvement in technology
d. an increase in demand for the firm's product
a. economies of scale
b. an increase in input prices
c. an improvement in technology
d. an increase in demand for the firm's product
answer
b. an increase in input prices
question
A local doughnut shop produces about 600 dozen doughnuts daily. If flour prices increase 20 percent
a. only marginal cost will shift up
b. only marginal cost and average total cost will shift up
c. marginal cost, average variable cost, and average total cost will shift up
d. marginal cost, average total cost, and average fixed cost will shift up
a. only marginal cost will shift up
b. only marginal cost and average total cost will shift up
c. marginal cost, average variable cost, and average total cost will shift up
d. marginal cost, average total cost, and average fixed cost will shift up
answer
c. marginal cost, average variable cost, and average total cost will shift up
question
An airline can increase its profit by offering standby customers an unsold seat at a substantial discount just before takeoff because
a. additional passengers are needed to balance the load
b. the marginal cost of additional passengers is very small
c. additional passengers add little to fixed costs
d. such passengers ass more to profits than do those with reserved seats
a. additional passengers are needed to balance the load
b. the marginal cost of additional passengers is very small
c. additional passengers add little to fixed costs
d. such passengers ass more to profits than do those with reserved seats
answer
b. the marginal cost of additional passengers is very small
question
When would sunk costs be irrelevant for current decision making?
a. when the sunk costs are completed using accounting methods
b. when the sunk costs are greater than variable costs
c. when the sunk costs have been incurred only a short time ago
d. sunk costs are always irrelevant when making current decisions
a. when the sunk costs are completed using accounting methods
b. when the sunk costs are greater than variable costs
c. when the sunk costs have been incurred only a short time ago
d. sunk costs are always irrelevant when making current decisions
answer
d. sunk costs are always irrelevant when making current decisions
question
Competition as a dynamic process implies that individual firms in a market
a. seek to utilize a variety of techniques such as product, style, and convenience of location, to win the dollar vote of consumers, but they never use price to compete
b. use price competition as well as other forms of competition to gain the dollar vote of consumers
c. produce a homogeneous product
d. cooperate, attempting to establish a price and output structure so each firm can survive and continue to serve the consumer
a. seek to utilize a variety of techniques such as product, style, and convenience of location, to win the dollar vote of consumers, but they never use price to compete
b. use price competition as well as other forms of competition to gain the dollar vote of consumers
c. produce a homogeneous product
d. cooperate, attempting to establish a price and output structure so each firm can survive and continue to serve the consumer
answer
b. use price competition as well as other forms of competition to gain the dollar vote of consumers
question
The dynamic process of competition
a. provides profit-seeking sellers with little incentive to heed consumer preferences
b. was shown by Adam Smith to be a major source of economic inefficiency
c. provides consumers with alternative suppliers and thus a mechanism with which they can discipline sellers
d. will permit business decision makers to earn long-run economic profit unless they are regulated by government officials
a. provides profit-seeking sellers with little incentive to heed consumer preferences
b. was shown by Adam Smith to be a major source of economic inefficiency
c. provides consumers with alternative suppliers and thus a mechanism with which they can discipline sellers
d. will permit business decision makers to earn long-run economic profit unless they are regulated by government officials
answer
c. provides consumers with alternative suppliers and thus a mechanism with which they can discipline sellers
question
Competitive price-taker firms respond to changing market conditions by varying their
a. price
b. output
c. market share
d. information
e. advertising campaign
a. price
b. output
c. market share
d. information
e. advertising campaign
answer
b. output
question
The intersection of a firm's marginal revenue and marginal cost curves determines the level of output at which
a. total revenue is equal to variable cost
b. total revenue is equal to fixed cost
c. total revenue is equal to total cost
d. profit is maximized
a. total revenue is equal to variable cost
b. total revenue is equal to fixed cost
c. total revenue is equal to total cost
d. profit is maximized
answer
d. profit is maximized
question
If a firm competing in a price-taker market seeks to maximize profit, the firm should
a. increase output whenever marginal cost is less than average total cost
b. increase output whenever marginal revenue is less than marginal cost
c. choose the output where per-unit profit is greatest
d. increase output whenever price exceeds marginal cost
a. increase output whenever marginal cost is less than average total cost
b. increase output whenever marginal revenue is less than marginal cost
c. choose the output where per-unit profit is greatest
d. increase output whenever price exceeds marginal cost
answer
d. increase output whenever price exceeds marginal cost
question
In a competitive price-taker market, the actions of any single buyer or seller will
a. have a negligible impact on the market price
b. have little effect on overall production but will ultimately change final product price
c. cause a noticeable change in overall production and a change in final product price
d. adversely affect the profitability of more than one firm in the market
a. have a negligible impact on the market price
b. have little effect on overall production but will ultimately change final product price
c. cause a noticeable change in overall production and a change in final product price
d. adversely affect the profitability of more than one firm in the market
answer
a. have a negligible impact on the market price
question
If a restaurant in a summer tourist area is highly profitable during the summer months but unable to cover even its variable costs during the winter months, the restaurant should
a. go out of business immediately, because no firm should continue to operate if it is losing money; doing so is contrary to the idea of profit maximization
b. go out of business as soon as the summer is over; losses should never be tolerated
c. operate during all months of the year as long as its profits during summer exceed its losses during the winter
d. shut down during the winter, but continue operating during the summer as long as the summer profits exceed the losses (fixed costs) during the winter shutdown period
a. go out of business immediately, because no firm should continue to operate if it is losing money; doing so is contrary to the idea of profit maximization
b. go out of business as soon as the summer is over; losses should never be tolerated
c. operate during all months of the year as long as its profits during summer exceed its losses during the winter
d. shut down during the winter, but continue operating during the summer as long as the summer profits exceed the losses (fixed costs) during the winter shutdown period
answer
d. shut down during the winter, but continue operating during the summer as long as the summer profits exceed the losses (fixed costs) during the winter shutdown period
question
If a competitive price-taker firm is currently producing a level of output at which marginal cost exceeds marginal revenue then
a. average revenue exceeds marginal cost
b. the firm is earning a positive profit
c. a one-unit decrease in output would increase the firm's profit
d. all of the above are correct
a. average revenue exceeds marginal cost
b. the firm is earning a positive profit
c. a one-unit decrease in output would increase the firm's profit
d. all of the above are correct
answer
c. a one-unit decrease in output would increase the firm's profit
question
When new firms enter a competitive price-taker market
a. economic profits of existing firms will continue to be zero
b. entering firms with earn zero economic profit upon entry into the market
c. existing firms may see their costs rise as more firms compete for limited resources
d. prices will rise as existing firms raise prices to keep new firms out of the market
a. economic profits of existing firms will continue to be zero
b. entering firms with earn zero economic profit upon entry into the market
c. existing firms may see their costs rise as more firms compete for limited resources
d. prices will rise as existing firms raise prices to keep new firms out of the market
answer
c. existing firms may see their costs rise as more firms compete for limited resources
question
There are 1,000 identical firms in a price-taker industry. In the short-run, the total revenues of each firm are less than the total costs. What will happen in the long run?
a. nothing, because each firm is already maximizing its profits
b. additional firms will enter the market, and price will be driven down to where each firm will be making just enough to stay in business (cover its variable costs)
c. additional firms will enter the market, but the price will remain the same because the existing firms will not allow it to decrease
d. firms will exit the market, and the market price will rise
a. nothing, because each firm is already maximizing its profits
b. additional firms will enter the market, and price will be driven down to where each firm will be making just enough to stay in business (cover its variable costs)
c. additional firms will enter the market, but the price will remain the same because the existing firms will not allow it to decrease
d. firms will exit the market, and the market price will rise
answer
b. additional firms will enter the market, and price will be driven down to where each firm will be making just enough to stay in business (cover its variable costs)
question
Several producers in industry A developed an improved technology that reduces the quantity of resources used to produce a given output. Which of the following would be expected?
a. the per-unit costs of production of the firms adopting the technology would increase
b. in the short-run, economic profits would be earned by the earliest firms adopting the technology
c. product price would immediately fall to the minimum average total cost of the firms quickly adopting the technology, thus retarding the rate at which firms enter the industry
d. producers who adopt the technology will have short-run economic losses
a. the per-unit costs of production of the firms adopting the technology would increase
b. in the short-run, economic profits would be earned by the earliest firms adopting the technology
c. product price would immediately fall to the minimum average total cost of the firms quickly adopting the technology, thus retarding the rate at which firms enter the industry
d. producers who adopt the technology will have short-run economic losses
answer
b. in the short-run, economic profits would be earned by the earliest firms adopting the technology
question
When entry barriers into a market are low, firms will tend to earn zero economic profit in the long run because
a. low entry barriers lead to rising costs
b. profit-seeking entrepreneurs will not enter a market when entry barriers are low
c. short-run profit attracts additional suppliers and drives down the market price
d. consumers will refuse to pay more than the cost of producing a good once they find out the producer's per-unit costs
a. low entry barriers lead to rising costs
b. profit-seeking entrepreneurs will not enter a market when entry barriers are low
c. short-run profit attracts additional suppliers and drives down the market price
d. consumers will refuse to pay more than the cost of producing a good once they find out the producer's per-unit costs
answer
c. short-run profit attracts additional suppliers and drives down the market price
question
The owners of a firm are earning economic profit if
a. return on their capital is lower than the opportunity cost of employing that capital in their industry
b. their total revenues exceed the monetary payments to labor and other resources in the long run after all plant size adjustments are made
c. price exceeds average variable costs at the shutdown point
d. they are earning a return on their capital that is higher than what can generally be earned in other markets
a. return on their capital is lower than the opportunity cost of employing that capital in their industry
b. their total revenues exceed the monetary payments to labor and other resources in the long run after all plant size adjustments are made
c. price exceeds average variable costs at the shutdown point
d. they are earning a return on their capital that is higher than what can generally be earned in other markets
answer
d. they are earning a return on their capital that is higher than what can generally be earned in other markets
question
In a price-taker market, economic losses indicate that
a. some firms are using unfair tactics to harm others
b. some firms have miscalculated, producing goods that are less valuable than the resources used to make them
c. the situation is normal and firms need to make no adjustments
d. the firms in the industry are not minimizing their cost; they should expand output in order to fully realize the economies of scale in the industry
a. some firms are using unfair tactics to harm others
b. some firms have miscalculated, producing goods that are less valuable than the resources used to make them
c. the situation is normal and firms need to make no adjustments
d. the firms in the industry are not minimizing their cost; they should expand output in order to fully realize the economies of scale in the industry
answer
b. some firms have miscalculated, producing goods that are less valuable than the resources used to make them
question
In a price-taker market, profits are
a. the result of consumers being charged arbitrarily high prices
b. a reward for creating value
c. the result of barriers to entry into the market
d. a signal that fewer resources are needed in a market
a. the result of consumers being charged arbitrarily high prices
b. a reward for creating value
c. the result of barriers to entry into the market
d. a signal that fewer resources are needed in a market
answer
b. a reward for creating value
question
If a price-taker firm selling in a competitive market offers its product at a higher price than others, it will
a. increase its profits
b. maintain its profit base if the demand for the product is inelastic
c. be able to expand output
d. not be able to sell any output
a. increase its profits
b. maintain its profit base if the demand for the product is inelastic
c. be able to expand output
d. not be able to sell any output
answer
d. not be able to sell any output
question
If a profit-maximizing firm shuts down in the short run, it must be true that before the shutdown, at all positive output levels,
a. average total cost was less than average variable cost
b. fixed costs was greater than total revenue
c. variable cost was greater than total revenue
d. profit was zero
e. total cost plus total revenue was less than profit
a. average total cost was less than average variable cost
b. fixed costs was greater than total revenue
c. variable cost was greater than total revenue
d. profit was zero
e. total cost plus total revenue was less than profit
answer
c. variable cost was greater than total revenue
question
When price is greater than marginal cost for a firm in a competitive market,
a. marginal cost must be falling
b. the firm must be minimizing its losses
c. there are opportunities to increase profit by increasing production
d. the firm should decrease output to maximize profit
a. marginal cost must be falling
b. the firm must be minimizing its losses
c. there are opportunities to increase profit by increasing production
d. the firm should decrease output to maximize profit
answer
c. there are opportunities to increase profit by increasing production
question
A price-taker firm will tend to expand its output so long as its
a. marginal revenue is positive
b. marginal revenue is greater than the market price
c. marginal revenue is less than the market price
d. marginal cost is less than the market price
a. marginal revenue is positive
b. marginal revenue is greater than the market price
c. marginal revenue is less than the market price
d. marginal cost is less than the market price
answer
d. marginal cost is less than the market price
question
The exit of existing firms from a competitive market will
a. increase market supply and increase market prices
b. increase market supply and decrease market prices
c. decrease market supply and increase market prices
d. decrease market supply and decrease market prices
a. increase market supply and increase market prices
b. increase market supply and decrease market prices
c. decrease market supply and increase market prices
d. decrease market supply and decrease market prices
answer
c. decrease market supply and increase market prices
question
When new firms have an incentive to enter a competitive price-taker marker, their entry will
a. increase the price of the product
b. drive down profits of existing firms in the market
c. shift the market supply curve to the left
d. increase demand for the product
a. increase the price of the product
b. drive down profits of existing firms in the market
c. shift the market supply curve to the left
d. increase demand for the product
answer
b. drive down profits of existing firms in the market
question
If long run equilibrium is present in a competitive market, the typical firm in the market will be
a. making economic losses
b. making zero economic profit
c. making economic profit
d. making a rate of return that is higher than the rate earned in other industries
e. both c and d are correct
a. making economic losses
b. making zero economic profit
c. making economic profit
d. making a rate of return that is higher than the rate earned in other industries
e. both c and d are correct
answer
b. making zero economic profit
question
In a competitive market, profit can be considered a reward to businesses that
a. produce a good that consumers value more highly than its component resources
b. reduce the value of resources used as inputs in production
c. prohibit rival firms from entering the market and competing
d. control costs, rather than following the wishes of consumers when deciding what products to produce
a. produce a good that consumers value more highly than its component resources
b. reduce the value of resources used as inputs in production
c. prohibit rival firms from entering the market and competing
d. control costs, rather than following the wishes of consumers when deciding what products to produce
answer
a. produce a good that consumers value more highly than its component resources
question
In the short run, a price searcher wishing to maximize profits or minimize losses should produce output that
a. equates marginal cost with marginal revenue
b. equates marginal cost with price
c. corresponds to the lowest point on the average variable cost curve
d. corresponds to the lowest point on the average total cost curve
a. equates marginal cost with marginal revenue
b. equates marginal cost with price
c. corresponds to the lowest point on the average variable cost curve
d. corresponds to the lowest point on the average total cost curve
answer
a. equates marginal cost with marginal revenue
question
a profit maximizing price searcher will expand output to the point where
a. total revenue equals total cost
b. marginal revenue equals marginal cost
c. price equals average total cost
d. price equals marginal cost
a. total revenue equals total cost
b. marginal revenue equals marginal cost
c. price equals average total cost
d. price equals marginal cost
answer
b. marginal revenue equals marginal cost
question
as new firms enter a competitive price searcher market, it can be expected that
a. market price will increase
b. the output of existing firms will increase
c. profits of existing firms will increase
d. market demand should decrease
e. profits of existing firms will decrease
a. market price will increase
b. the output of existing firms will increase
c. profits of existing firms will increase
d. market demand should decrease
e. profits of existing firms will decrease
answer
e. profits of existing firms will decrease
question
As new firms enter a competitive price-searcher market, profits of existing firms
a. rise and product diversity in the market increases
b. rise and product diversity in the market decreases
c. decline and product diversity in the market increases
d. decline and product diversity in the market decreases
a. rise and product diversity in the market increases
b. rise and product diversity in the market decreases
c. decline and product diversity in the market increases
d. decline and product diversity in the market decreases
answer
c. decline and product diversity in the market increases
question
The fact that barriers to entry are low in competitive price-searcher markets means that if current firms are making economic losses,
a. these losses will remain in the long run because no firms can exit the market
b. current firms will exit the market, causing the demand curves that face the remaining firms to increase
c. new firms will enter the market, causing the demand curves that face the existing firms to decrease
d. new firms will enter the market, causing no change in the demand curves that face the existing firms in the market
a. these losses will remain in the long run because no firms can exit the market
b. current firms will exit the market, causing the demand curves that face the remaining firms to increase
c. new firms will enter the market, causing the demand curves that face the existing firms to decrease
d. new firms will enter the market, causing no change in the demand curves that face the existing firms in the market
answer
b. current firms will exit the market, causing the demand curves that face the remaining firms to increase
question
When a firm exits a competitive price-searcher market, the individual demand curves faced by all remaining firms in that market will
a. shift in a direction that is unpredictable without further information
b. shift to the right
c. shift to the left
d. remain unchanged. It is the supply curve that will shift
a. shift in a direction that is unpredictable without further information
b. shift to the right
c. shift to the left
d. remain unchanged. It is the supply curve that will shift
answer
b. shift to the right
question
if a price searcher is producing at a level of output that its marginal cost is $16 and its marginal revenue is $9, the firm should
a. increase output in order to reduce per-unit costs
b. decrease the price of its product and expand output
c. increase price and reduce its rate of output
d. reduce both price and output
a. increase output in order to reduce per-unit costs
b. decrease the price of its product and expand output
c. increase price and reduce its rate of output
d. reduce both price and output
answer
c. increase price and reduce its rate of output
question
in a market that is contestable, but only has a few sellers, the
a. threat of new entrants will prevent prices from rising above the competitive level
b. producers will be able to charge prices that are high enough to produce long run economic profits
c. producers will not face new competition because the barriers to entry are high
d. market will never be expected to come close to the competitive result
a. threat of new entrants will prevent prices from rising above the competitive level
b. producers will be able to charge prices that are high enough to produce long run economic profits
c. producers will not face new competition because the barriers to entry are high
d. market will never be expected to come close to the competitive result
answer
a. threat of new entrants will prevent prices from rising above the competitive level
question
the traditional view of competitive price searcher markets holds that this type of market structure is inefficient because
a. there are too few firms to reach an efficient level of competition
b. barriers to entry are high
c. excessive advertising is encouraged
d. consumers are not allowed a sufficient amount of choice in which to express their individual preferences
a. there are too few firms to reach an efficient level of competition
b. barriers to entry are high
c. excessive advertising is encouraged
d. consumers are not allowed a sufficient amount of choice in which to express their individual preferences
answer
c. excessive advertising is encouraged
question
a major fruit juice manufacturer failed in its attempt to engage in price discrimination between students and all other consumers. What is the most likely explanation for this failure?
a. there was nothing to prevent the students from reselling the fruit juice to other consumers
b. the two groups of consumers have different demand elasticities for fruit juice
c. the cost of producing the product is relatively high
d. market demand for fruit juice is inelastic
a. there was nothing to prevent the students from reselling the fruit juice to other consumers
b. the two groups of consumers have different demand elasticities for fruit juice
c. the cost of producing the product is relatively high
d. market demand for fruit juice is inelastic
answer
a. there was nothing to prevent the students from reselling the fruit juice to other consumers
question
Airlines generally charge travelers willing to stay over Saturday night lower fares because
a. these travelers have lower incomes, and therefore, the airlines would like to help them
b. it costs less to transport travelers willing to stay over a Saturday night
c. the demand of these travelers is elastic, and therefore, the lower fares generate more revenue
d. the demand of these travelers is inelastic, therefore, the lower fares generate more revenue for the airlines
a. these travelers have lower incomes, and therefore, the airlines would like to help them
b. it costs less to transport travelers willing to stay over a Saturday night
c. the demand of these travelers is elastic, and therefore, the lower fares generate more revenue
d. the demand of these travelers is inelastic, therefore, the lower fares generate more revenue for the airlines
answer
c. the demand of these travelers is elastic, and therefore, the lower fares generate more revenue
question
a price-discriminating firm charges the lowest price to the group that
a. has the most elastic demand
b. purchases the largest quantity
c. engages in the most arbitrage
d. is least responsive to price changes
a. has the most elastic demand
b. purchases the largest quantity
c. engages in the most arbitrage
d. is least responsive to price changes
answer
a. has the most elastic demand
question
economic analysis suggests that in a competitive market economy, when an entrepreneur has made a large profit,
a. consumer benefits must have been reduced by at least the amount of the profit
b. other producers have lost profits of the same size
c. economic progress for society as a whole has normally been enhanced
d. luck or chance, rather than productive activity, has nearly always been the largest factor
a. consumer benefits must have been reduced by at least the amount of the profit
b. other producers have lost profits of the same size
c. economic progress for society as a whole has normally been enhanced
d. luck or chance, rather than productive activity, has nearly always been the largest factor
answer
c. economic progress for society as a whole has normally been enhanced
question
When an entrepreneur introduces a new improved product that is highly valued relative to cost
a. consumers will be worse off
b. the demand for the products that are good substitutes for the new product will increase
c. some of the existing products will become obsolete and businesses producing those products will fail
d. total employment will decline if there are business failures
a. consumers will be worse off
b. the demand for the products that are good substitutes for the new product will increase
c. some of the existing products will become obsolete and businesses producing those products will fail
d. total employment will decline if there are business failures
answer
c. some of the existing products will become obsolete and businesses producing those products will fail
question
Losses are important to a competitive price-searcher market (industry) because they send a message to the market participants that
a. more resources should be devoted to a particular industry
b. resources can rise in value if diverted away from that particular industry
c. resources are allocated exactly as they should be
d. the firms should charge lower prices
a. more resources should be devoted to a particular industry
b. resources can rise in value if diverted away from that particular industry
c. resources are allocated exactly as they should be
d. the firms should charge lower prices
answer
b. resources can rise in value if diverted away from that particular industry
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