ECON 1 missed practice problem questions

Which of the following would be an example of the rationing function of the price?
a. Switching from a Ph.D. in Economics to Finance because finance salaries are higher.
b. Bill Gates purchasing the Mona Lisa for $5 billion.
c. A firm attempting to lower its explicit costs.
d. Government price controls.
e. Choosing to skip classes and hang out

Which ordering best describes how a perfectly competitive industry would respond to a sudden increase in popularity
of the product? The market demand function will shift to the right causing the market
a. price to increase, and a new stable equilibrium to be established at a higher price and higher quantity.
b. price to increase, and all firms in the industry will earn higher profits at lower quantities of output.
c. price to increase. Increased profits will encourage new firms to enter shifting the market supply function to
the right. Long-run market equilibrium will be at a higher quantity but at the same price as before the surge in
popularity.
d. price and quantity supplied to increase. The market supply function will shift to the left. Long-run market
equilibrium will be at the original quantity of output but at a higher price than before the surge in popularity.
e. price and quantity supplied to increase. Increased profits will encourage new firms to enter shifting the market
supply function upward. Long-run market equilibrium will be at a higher quantity and higher price than
before the surge in popularity.

One assumption of the perfectly competitive model is that there are no barriers to entry. This assumption most directly
leads to the implication that
a. firms will spend significant amounts of money on advertising.
b. positive economic profits will only be possible for a fairly short period of time.
c. fixed costs will be relatively high.
d. firms will compete on the basis of better service and amenities rather than price.
e. price will equal marginal revenue.

A price ceiling below the equilibrium price will cause
a. producer surplus to fall.
b. total economic surplus to rise.
c. quantity supplied to exceed quantity demanded.
d. quantity supplied to increase.
e. demand to increase.

Of the following characteristics, which one applies exclusively to a perfectly competitive firm?
a. It always earns a profit.
b. It seeks only to minimize costs.
c. It can sell all it wants to at the market price.
d. It will never earn a profit.
e. It has a narrow range of prices it can charge for its output.

One reason that variable factors of production tend to show diminishing returns in the short run is that
a. costs are too high.
b. too much capital equipment is idle.
c. there are too many workers using a fixed amount of productive resources.
d. the firm has become too large to effectively manage workers.
e. the cost of hiring additional workers increases as firms seek to hire more

Suppose a firm is collecting $1,250 in total revenues and the total costs of its variable factors of production are $1,000
at its current level of output. In the short run, one can predict that the firm will
a. shutdown.
b. earn a profit.
c. earn a loss.
d. continue to operate.
e. raise its price.

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.D

A firm's output price is $7 and the firm is producing 1,000 units with a marginal cost of $7. The firm should
a. leave production unchanged because it is profit maximizing.
b. decrease production to increase profits.
c. increase production to lower losses.
d. increase production to increase profits.
e. decrease production to lower losses.

When plotting marginal and average cost curves, the _________ cost curve always crosses the ___________ cost
curve at its _______________.
a. average variable; average total; minimum
b. marginal; average total; minimum
c. marginal; average variable; maximum
d. average variable; marginal; maximum
e. average variable; marginal; minimum