question
Which of the following statements is true for both General Motors and a locally owned restaurant?
A. Both are perfect competitors
B. Both confront perfectly elastic demand for their products.
C. Neither is able to influence the price of its products.
D. Both seek to maximize profits
E. Both seek to maximize revenues
A. Both are perfect competitors
B. Both confront perfectly elastic demand for their products.
C. Neither is able to influence the price of its products.
D. Both seek to maximize profits
E. Both seek to maximize revenues
answer
D
question
Which of the following firms best represents a price taker?
A. Microsoft
B. General Motors
C. The local Taco Bell
D. A corn farmer in Iowa
E. The Gap
A. Microsoft
B. General Motors
C. The local Taco Bell
D. A corn farmer in Iowa
E. The Gap
answer
D
question
Which of the following is NOT true of a perfectly competitive firm?
A. It faces a perfectly elastic demand curve.
B. It is unable to influence the market price of the good it sells.
C. It seeks to maximize revenue.
D. Relative to the size of the market, the firm is small.
E. The firm's only decision is how much output to produce
A. It faces a perfectly elastic demand curve.
B. It is unable to influence the market price of the good it sells.
C. It seeks to maximize revenue.
D. Relative to the size of the market, the firm is small.
E. The firm's only decision is how much output to produce
answer
C
question
A profit maximizing perfectly competitive firm must decide
A. only on what price to charge, taking output as fixed.
B. Both what price to charge and how much to produce
C. only on how much to produce, taking price of the good as fixed
D. only on which industry to join, talking price and output as fixed
E. only on how much revenue it wishes to collect
A. only on what price to charge, taking output as fixed.
B. Both what price to charge and how much to produce
C. only on how much to produce, taking price of the good as fixed
D. only on which industry to join, talking price and output as fixed
E. only on how much revenue it wishes to collect
answer
C
question
The short run is defined as
A. one year or less
B. a period in which all factors of production are variable
C. the period of time between quarterly accounting reports
D. a period in which at least one factor of production is fixed
E. a period in which at most one factor of production is fixed
A. one year or less
B. a period in which all factors of production are variable
C. the period of time between quarterly accounting reports
D. a period in which at least one factor of production is fixed
E. a period in which at most one factor of production is fixed
answer
D
question
Which of the following is most likely to be a fixed factor of production at a university?
A. the number of personal computers
B. the number of books in the library
C. The number of professors and lecturers
D. The amount of chalk
E. the number of lecture halls
A. the number of personal computers
B. the number of books in the library
C. The number of professors and lecturers
D. The amount of chalk
E. the number of lecture halls
answer
E
question
Which of the following is most likely to be a variable factor of production at a university?
A. the number of teaching assistants and work-study students
B. the size of the basketball arena or football stadium
C. the school mascot
D. the acreage of the campus
E. the location of the university
A. the number of teaching assistants and work-study students
B. the size of the basketball arena or football stadium
C. the school mascot
D. the acreage of the campus
E. the location of the university
answer
A
question
The reason we observe the law of diminishing marginal returns is that
A. as production expands, the firm is forced to hire low quality workers
B. firms become less efficient as they produce more
C. workers become fatigue as they are require to produce more
D. equipment breaks down more frequently as production expands
E. the production facility eventually becomes congested if the firms keeps adding more workers
A. as production expands, the firm is forced to hire low quality workers
B. firms become less efficient as they produce more
C. workers become fatigue as they are require to produce more
D. equipment breaks down more frequently as production expands
E. the production facility eventually becomes congested if the firms keeps adding more workers
answer
E
question
Marginal cost is calculated as
A. total revenue minus total cost
B. the change in output divided by the change in total costs.
C. the percentage change in total costs divided by the percentage change in output.
D. the change in total costs divided by the change in output
E. total revenue minus fixed costs
A. total revenue minus total cost
B. the change in output divided by the change in total costs.
C. the percentage change in total costs divided by the percentage change in output.
D. the change in total costs divided by the change in output
E. total revenue minus fixed costs
answer
D
question
In general, if the price of a fixed factor of production increases
A. total cost are unchanged
B. price rises
C. marginal costs are unchanged
D. marginal costs increase
E. the profit maximizing level of output falls
A. total cost are unchanged
B. price rises
C. marginal costs are unchanged
D. marginal costs increase
E. the profit maximizing level of output falls
answer
C
question
Suppose the firm knows that it is going to shutdown but is going to earn a loss. it should pick the output level where
A. total cost are minimized
B. price equals marginal costs
C. total revenues are maximized
D. the costs of the variable factors of production are minimized
E. price is greater than marginal costs.
A. total cost are minimized
B. price equals marginal costs
C. total revenues are maximized
D. the costs of the variable factors of production are minimized
E. price is greater than marginal costs.
answer
B
question
Firms maximize profit when
A. average cost are minimized
B. total costs are minimized
C. average costs equal price
D. marginal costs equal price
E. All of the above are necessary for profit maximization
A. average cost are minimized
B. total costs are minimized
C. average costs equal price
D. marginal costs equal price
E. All of the above are necessary for profit maximization
answer
D
question
If the firm produces an output level where price is less than marginal costs, then the firm should
A. raise its price
B. pay less to its fixed factors of production
C. contract output to earn greater profits or smaller losses
D. expand output to earn greater profits or smaller losses
E. leave its output decision unchanged
A. raise its price
B. pay less to its fixed factors of production
C. contract output to earn greater profits or smaller losses
D. expand output to earn greater profits or smaller losses
E. leave its output decision unchanged
answer
C
question
When the demand is P1=$30, what is the profit maximizing output?
A. 30
B. 45
C. 60
D. 80
E. 100
A. 30
B. 45
C. 60
D. 80
E. 100
answer
D
question
When the demand is P1=$30 what is the total cost?
A. $960
B. $1200
C. $1600
D. $2500
E. $3000
A. $960
B. $1200
C. $1600
D. $2500
E. $3000
answer
C
question
When the demand is P1=$30, how much profit is this producer earning?
A. $500
B. $800
C. $1200
D. $1600
E. $3000
A. $500
B. $800
C. $1200
D. $1600
E. $3000
answer
B
question
Part of the upward sloping portion of the marginal cost curve is the firm's
A. production function
B. total cost curve
C. supply curve
D. diminishing marginal returns curve
E. profit curve
A. production function
B. total cost curve
C. supply curve
D. diminishing marginal returns curve
E. profit curve
answer
C
question
If an industry experiences an increase in the number of firms, then
A. the original firms will produce more
B. the new firms will produce more than the original firms
C. the industry supply curve will shift left
D. the new firms will produce the same amount as the original firms
E. the industry supply curve will shift right.
A. the original firms will produce more
B. the new firms will produce more than the original firms
C. the industry supply curve will shift left
D. the new firms will produce the same amount as the original firms
E. the industry supply curve will shift right.
answer
E
question
Implicit costs
A. are always fixed
B. appear in the calculation of accounting profits
C. measure the forgone opportunities of the owners of the business
D. always exceed explicit costs
E. are irrelevant to business decisions
A. are always fixed
B. appear in the calculation of accounting profits
C. measure the forgone opportunities of the owners of the business
D. always exceed explicit costs
E. are irrelevant to business decisions
answer
C
question
Accounting profits are
A. the only measure of profitability
B. equal to the total revenues minus implicit costs.
C. the difference between total revenues and explicit costs
D. equal to total revenues minus explicit and implicit costs
E. less than economic profits
A. the only measure of profitability
B. equal to the total revenues minus implicit costs.
C. the difference between total revenues and explicit costs
D. equal to total revenues minus explicit and implicit costs
E. less than economic profits
answer
C
question
If you were to start your own business, your implicit costs would include
A. rent that you have paid in advance for use of a building
B. the opportunity cost of your time
C. any profit that you make
D. Profit over and above normal profit
E. interest that you pay on your business loans
A. rent that you have paid in advance for use of a building
B. the opportunity cost of your time
C. any profit that you make
D. Profit over and above normal profit
E. interest that you pay on your business loans
answer
B
question
Economic profits are
A. the same as accounting profits
B. equal to total revenue minus the sum of explicit fixed and variable costs.
C. equal to total revenue minus both explicit and implicit costs.
D. greater than accounting profits
E. only important to economists
A. the same as accounting profits
B. equal to total revenue minus the sum of explicit fixed and variable costs.
C. equal to total revenue minus both explicit and implicit costs.
D. greater than accounting profits
E. only important to economists
answer
C
question
In the perfectly competitive industry, economic profits
A. include only explicit costs.
B. have no relationship to accounting profits
C. serve to motivate entry or exit
D. are always greater than accounting profits
E. equal accounting profits plus implicit costs
A. include only explicit costs.
B. have no relationship to accounting profits
C. serve to motivate entry or exit
D. are always greater than accounting profits
E. equal accounting profits plus implicit costs
answer
C
question
Smith is a corn farmer earning economic profits and Wesson is a wheat farmer receiving a normal profit. Wesson has an incentive to become a corn farmer because
A. his accounting profits are negative
B. he is not currently covering his opportunity costs
C. he could earn more than his next best alternative
D. his accounting profits are zero
E. he dislikes smith and wants to undermine Smith's profit
A. his accounting profits are negative
B. he is not currently covering his opportunity costs
C. he could earn more than his next best alternative
D. his accounting profits are zero
E. he dislikes smith and wants to undermine Smith's profit
answer
C
question
Assume all firms in a particular perfectly competitive industry are earning economic profits. This will cause firms to ____ the industry, which will continue until ____.
A. exit; economic losses occur
B. enter; economic profits are zero
C. enter; accounting profits are zero
D. exit; economic profits are zero
E. enter; economic profits are negative
A. exit; economic losses occur
B. enter; economic profits are zero
C. enter; accounting profits are zero
D. exit; economic profits are zero
E. enter; economic profits are negative
answer
B
question
If you were to open a business in an industry that is approximately perfectly competitive, you would expect that
A. you would earn little to no profit in the short run, but higher profits eventually
B. your competition would respond to your entry into the industry by aggressively advertising
C. you would earn zero economic profits in the short run, and zero accounting profits in the long run.
D. in the long run you would earn zero economic and accounting profits
E. in the long run you would earn zero economic profits and positive accounting profits.
A. you would earn little to no profit in the short run, but higher profits eventually
B. your competition would respond to your entry into the industry by aggressively advertising
C. you would earn zero economic profits in the short run, and zero accounting profits in the long run.
D. in the long run you would earn zero economic and accounting profits
E. in the long run you would earn zero economic profits and positive accounting profits.
answer
E
question
The common feature in pure monopoly, oligopoly and monopolistic competition is
A. the absence of close substitutes
B. blocked entry
C. interdependent decision making by firms
D. price discrimination
E. downward sloping demand
A. the absence of close substitutes
B. blocked entry
C. interdependent decision making by firms
D. price discrimination
E. downward sloping demand
answer
E
question
In order to sell another unit, an imperfectly competitive firm must
A. raise its price.
B. increase the value of its product
C. lower its price
D. lower its quality
E. increase its advertising
A. raise its price.
B. increase the value of its product
C. lower its price
D. lower its quality
E. increase its advertising
answer
C
question
Which of the following statements is false?
A. to sell more, a price setter must lower price.
B. a price taker must charge the market price
C. if a price setter raises price, it will sell less
D. a price taker's revenues will rise if it sells more
E. Price setters can sell any quantity at any price
A. to sell more, a price setter must lower price.
B. a price taker must charge the market price
C. if a price setter raises price, it will sell less
D. a price taker's revenues will rise if it sells more
E. Price setters can sell any quantity at any price
answer
E
question
According to the textbook, the most important and enduring source of market power is
A. government franchise
B. patents
C. copyright
D. economies of scale
E. sole ownership of an important input
A. government franchise
B. patents
C. copyright
D. economies of scale
E. sole ownership of an important input
answer
D
question
Economies of scale exist when
A. constant returns to scale are present
B. input prices are falling
C. average costs fall as the scale of production grows
D. a 10% increase in all inputs causes a 9% increase in output
E. firms become extremely large
A. constant returns to scale are present
B. input prices are falling
C. average costs fall as the scale of production grows
D. a 10% increase in all inputs causes a 9% increase in output
E. firms become extremely large
answer
C
question
A firm that emerges as the only seller in an industry with economies of scale is termed a(n)
A. antitrust violator
B. oligopoly
C. monopoly
D. natural oligopoly
E. natural monopoly
A. antitrust violator
B. oligopoly
C. monopoly
D. natural oligopoly
E. natural monopoly
answer
E
question
For all firms, the additional revenue collected from the sale of one additional unit of output is
A. price
B. average revenue
C. marginal profit
D. Marginal revenue
E. marginal price
A. price
B. average revenue
C. marginal profit
D. Marginal revenue
E. marginal price
answer
D
question
Suppose a monopolist is charging $12 for output. One can infer that
A. marginal revenues are greater than $12
B. average revenues are less than $12
C. marginal revenues are $12
D. marginal revenues are less than $12
E. insufficient information to infer
A. marginal revenues are greater than $12
B. average revenues are less than $12
C. marginal revenues are $12
D. marginal revenues are less than $12
E. insufficient information to infer
answer
D
question
Because the monopolist charges a price in excess of marginal costs, it must be the case that the monopolists
A. earns an excessive profit
B. earns profit, excessive or otherwise
C. fails to equate the benefits to the costs of the last unit produced
D. produces less than the socially efficient level of output
E. exploits the consumers who do make a purchase
A. earns an excessive profit
B. earns profit, excessive or otherwise
C. fails to equate the benefits to the costs of the last unit produced
D. produces less than the socially efficient level of output
E. exploits the consumers who do make a purchase
answer
D
question
Price discrimination means charging
A. the same consumers the same price
B. different prices to different consumers because production costs are different
C. the same price to all consumers because production costs are different
D. different prices to different consumers when production costs are the same
E. higher prices to woman minorities
A. the same consumers the same price
B. different prices to different consumers because production costs are different
C. the same price to all consumers because production costs are different
D. different prices to different consumers when production costs are the same
E. higher prices to woman minorities
answer
D
question
When a consumer must take some sort of additional action to receive a lower price, the consumer is being subjected to
A. the "what-a-hassle" method of price discrimination
B. Perfect price discrimination
C. the "hurdle" method of price discrimination
D. the "rebate and wait" method of price discrimination
E. "bait and switch" sales tactics
A. the "what-a-hassle" method of price discrimination
B. Perfect price discrimination
C. the "hurdle" method of price discrimination
D. the "rebate and wait" method of price discrimination
E. "bait and switch" sales tactics
answer
C
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