question
A market for a product reaches equilibrium when
answer
buyers intend to buy a quantity equal to the quantity that sellers intend to sell
question
There is an excess supply in a market for a product when
answer
quantity demanded is less than quantity supplied
question
In competitive markets, excess production or excess demand will
answer
cause changes in the quantities demanded and supplied that tend to eliminate the excess production or excess demand
question
There is excess production of tomatoes in the market. This implies that
answer
the current price is above the equilibrium level
question
There is an excess demand in a market for a product when
answer
quantity demanded is greater than quantity supplied
question
There is an excess demand in a market for a product when
answer
the current price is lower than the equilibrium price
question
Picture a competitive market with the usual upward sloping supply curve and downward sloping demand curve. If the current price is creating shortage, then market forces will cause the price to adjust and
answer
quantity supplied will increase
question
In competitive markets, a surplus or shortage will
answer
cause changes in the quantities demanded and supplied that tend to eliminate the surplus or shortage
question
An increase in the demand for MP3 music indicates that more is
answer
purchased even if prices of MP3 music stay the same
question
An increase in the price of digital cameras will result in a
answer
movement up and to the left along the demand curve for digital cameras
question
When economists say that demand for a product has decreased, they mean that
answer
consumers are now willing and able to buy less of this product at each possible price
question
An increase in the supply for MP3 music indicates that more will be
answer
sold even if prices of MP3 music stayed the same
question
A newspaper reports that the average price of new homes in a certain city had decreased, and the number of new homes sold had also decreased. This situation is probably caused by
answer
declining incomes of people in that city
question
Which of the following will cause a decrease in market equilibrium price and a decrease in equilibrium quantity?
answer
a decrease in demand
question
Suppose that in each of four successive years producers sell more of their product and at higher prices. This could be explained
answer
in terms of a stable supply curve and increasing demand
question
A headline reads "Lumber Prices Up Sharply." Lumber is used in home building. In a competitive market, this situation would lead to an
answer
increase in the price of new homes and decrease in quantity
question
Suppose that in each of four successive years producers sell more of their product and at lower prices. This could be explained
answer
in terms of a stable demand curve and increasing supply
question
A television station reports that the price of coffee has increased but the quantity traded in the market has decreased. This situation would be caused by a
answer
decrease in supply
question
Which of the following will cause a decrease in market equilibrium price and an increase in equilibrium quantity?
answer
an increase in supply
question
An increase in the demand for corn is more than offset by an increase in its supply. As a result the equilibrium price will
answer
decrease and the equilibrium quantity will increase
question
What combination of changes would most likely decrease the equilibrium price?
answer
supply increases and demand decreases
question
An increase in demand for oil along with a simultaneous increase in supply of oil will
answer
increase quantity, but whether it increases price depends on how much each curve shifts
question
A large increase in the supply of HD-TV sets occurs simultaneously with a smaller decrease in its demand. As a result the equilibrium price will
answer
decrease and the equilibrium quantity will increase
question
A decrease in demand and an increase in supply will
answer
decrease price and affect the equilibrium quantity in an indeterminate way
question
Which is most likely to be observed in a community where legal ceilings are imposed on residential rents?
answer
people moving into the community will have difficulty locating residential space to rent
question
If a price ceiling is set above the equilibrium price in a market then
answer
the quantity supplied will equal the quantity demanded (equilibrium)
question
If the price ceiling is set below the equilibrium price in a market then
answer
the quantity demanded will exceed the quantity supplied
question
Which of the following is an example of a price ceiling?
answer
Limits on interest rates charged by credit card companies
question
A government-set price floor on a product
answer
will attract more resources towards the production of the product
question
A government will create a surplus in a market when it sets a price ___________
answer
floor above the equilibrium price
question
If a price floor is set above the equilibrium price in a market then
answer
the quantity supplied will exceed the quantity demanded
question
A tax on suppliers will cause the ______ schedule to shift to the ______
answer
supply, left
question
If the government removes a tax on suppliers, then this will cause the _____ schedule to shift to the _____
answer
supply, right
question
A tax on suppliers will cause the equilibrium price paid by consumer to _________ and the equilibrium quantity to _________
answer
increase, decrease
question
A tax on buyers will cause the ________ schedule to shift to the ________
answer
demand, left
question
A tax on buyers will ________ the price paid by the consumer and ________ the price received by the seller
answer
increase, decrease
question
A tax on buyers will cause the equilibrium price paid by the consumer to _________ and the equilibrium quantity to ________
answer
increase, decrease
question
When the price of a product is increased by 15%, the quantity demanded decreases 10%. We can therefore conclude that the demand for this product is
answer
inelastic
question
The total revenue received by sellers of a good is computed by
answer
multiplying the price times the quantity sold
question
Total revenue falls as the price of a good is raised, if the demand for the good is
answer
elastic
question
The demand schedules for such products as eggs, bread, and electricity tend to be
answer
relatively price inelastic
question
A firm produces and sells two goods, A and B. Good A is known to have many close substitutes; good B makes up a significant portion of most families' budgets. A price increase for each good would most likely cause total revenues from good A to
answer
decrease and total revenues from good B to decrease
question
The elasticity of demand for a product is likely to be greater
answer
the greater the amount of time over which buyers adjust to a price change
question
What is the most likely effect of the development of DVDs, rental movies, and online movie streaming on the movie theater industry?
answer
increased price elasticity of demand for movie theater tickets
question
We would expect
answer
the demand for Coca-Cola to be more price elastic than the demand for soft drinks in general
question
If in the short run the demand for mass transit is inelastic and in the long run the demand is elastic, then a price
answer
increase will increase total revenue in the short run but decrease total revenue in the long run
question
Which of the following factors will make the demand for a product relatively elastic?
answer
the time interval considered is long
question
The demand for a luxury good whose purchase would exhaust a big portion of one's income is
answer
relatively price elastic
question
Which of the following generalizations is NOT correct?
answer
the price elasticity of demand is greater for necessities than it is for luxuries
question
Price elasticity of demand is generally
answer
greater in the long run than in the short run
question
The cross elasticity of demand for product X with respect to the price of product Y is 2. It can be inferred that X and Y are
answer
substitute products
question
The formula for cross elasticity of demand is percentage change in
answer
QD of x / percentage change in price of Y
question
If a 10% increase in the price of one good, A, results in an increase of 5% in the QD of another good, B, then it can be concluded that the two goods are
answer
substitute goods
question
The cross elasticity of demand between Quaker State motor oil and Texaco motor oil is likely to be
answer
a positive number
question
A 3% increase in the price of tea causes a 6% increase in the demand for coffee. The cross elasticity of demand for coffee with respect to the price of tea is
answer
+2.0
question
If a 10% increase in the price of one good results in NO change in the QD of another good then it can be concluded that the two goods are
answer
independent goods
question
The cross elasticity of demand for product X with respect to the price of product Y is -1.2. It can be inferred that X and Y are
answer
complementary products
question
Compared to coffee, we would expect the cross elasticity of demand for
answer
tea to be positive, but negative for cream
question
A negative income elasticity of demand indicated that the product
answer
is an inferior good
question
For which product is the income elasticity of demand most likely to be negative?
answer
used clothing
question
Most goods can be classified as normal goods rather than inferior goods. The definition of a normal good suggests that the
answer
income elasticity for the good is greater than 0
question
The supply of product X is inelastic if the price of X rises by
answer
7% and QS rises by 5%
question
The elasticity of supply of product X is unitary if the price of X rises by
answer
8% and the QS rises by 8%
question
Suppose the price of product X rises by 20% and the quantity supplied of X increases by 15%. The price elasticity of supply for good X is
answer
less than 1 and therefore supply is inelastic
question
To economists, the main difference between "the short run" and "the long run" are that
answer
in the long run all resources are variable, while in the short run at least one resource is fixed
question
Economists distinguish among the immediate market period, the short run, and the long run by noting that
answer
supply is most elastic in the long run and least elastic in the immediate market period
question
The supply of cars will be more elastic the
answer
longer the time interval considered
question
It takes a considerable amount of time to increase the production of pork. This implies
answer
the short-run supply curve for pork is less elastic than the long-run supply curve for pork
question
The price elasticity of demand coefficient measures:
A. buyer responsiveness to price changes.
B. the extent to which a demand curve shifts as incomes change.
C. the slope of the demand curve.
D. how far business executives can stretch their fixed costs.
The price elasticity of demand coefficient measures:
A. buyer responsiveness to price changes.
B. the extent to which a demand curve shifts as incomes change.
C. the slope of the demand curve.
D. how far business executives can stretch their fixed costs.
A. buyer responsiveness to price changes.
B. the extent to which a demand curve shifts as incomes change.
C. the slope of the demand curve.
D. how far business executives can stretch their fixed costs.
The price elasticity of demand coefficient measures:
A. buyer responsiveness to price changes.
B. the extent to which a demand curve shifts as incomes change.
C. the slope of the demand curve.
D. how far business executives can stretch their fixed costs.
answer
A
question
The basic formula for the price elasticity of demand coefficient is:
A. absolute decline in quantity demanded/absolute increase in price.
B. percentage change in quantity demanded/percentage change in price.
C. absolute decline in price/absolute increase in quantity demanded.
D. percentage change in price/percentage change in quantity demanded.
A. absolute decline in quantity demanded/absolute increase in price.
B. percentage change in quantity demanded/percentage change in price.
C. absolute decline in price/absolute increase in quantity demanded.
D. percentage change in price/percentage change in quantity demanded.
answer
B
question
The demand for a product is inelastic with respect to price if:
A. consumers are largely unresponsive to a per unit price change.
B. the elasticity coefficient is greater than 1.
C. a drop in price is accompanied by a decrease in the quantity demanded.
D. a drop in price is accompanied by an increase in the quantity demanded.
A. consumers are largely unresponsive to a per unit price change.
B. the elasticity coefficient is greater than 1.
C. a drop in price is accompanied by a decrease in the quantity demanded.
D. a drop in price is accompanied by an increase in the quantity demanded.
answer
A
question
If the price elasticity of demand for a product is 2.5, then a price cut from $2.00 to $1.80 will:
A. increase the quantity demanded by about 2.5 percent.
B. decrease the quantity demanded by about 2.5 percent.
C. increase the quantity demanded by about 25 percent.
D. increase the quantity demanded by about 250 percent.
A. increase the quantity demanded by about 2.5 percent.
B. decrease the quantity demanded by about 2.5 percent.
C. increase the quantity demanded by about 25 percent.
D. increase the quantity demanded by about 250 percent.
answer
C
question
Suppose that as the price of Y falls from $2.00 to $1.90 the quantity of Y demanded increases from 110 to 118. Then the price elasticity of demand is:
A) 4.00. B) 2.09. C) 1.37. D) 3.94.
A) 4.00. B) 2.09. C) 1.37. D) 3.94.
answer
c
question
Which of the following is not characteristic of the demand for a commodity that is elastic?
A. The relative change in quantity demanded is greater than the relative change in price.
B. Buyers are relatively sensitive to price changes.
C. Total revenue declines if price is increased.
D. The elasticity coefficient is less than one.
A. The relative change in quantity demanded is greater than the relative change in price.
B. Buyers are relatively sensitive to price changes.
C. Total revenue declines if price is increased.
D. The elasticity coefficient is less than one.
answer
D
question
If the demand for product X is inelastic, a 4 percent increase in the price of X will:
A. decrease the quantity of X demanded by more than 4 percent.
B. decrease the quantity of X demanded by less than 4 percent.
C. increase the quantity of X demanded by more than 4 percent.
D. increase the quantity of X demanded by less than 4 percent.
A. decrease the quantity of X demanded by more than 4 percent.
B. decrease the quantity of X demanded by less than 4 percent.
C. increase the quantity of X demanded by more than 4 percent.
D. increase the quantity of X demanded by less than 4 percent.
answer
B
question
If a firm can sell 3,000 units of product A at $10 per unit and 5,000 at $8, then:
A) the price elasticity of demand is 0.44.
C) the price elasticity of demand is 2.25.
B) A is a complementary good.
D) A is an inferior good.
A) the price elasticity of demand is 0.44.
C) the price elasticity of demand is 2.25.
B) A is a complementary good.
D) A is an inferior good.
answer
c
question
A perfectly inelastic demand schedule:
a. rises upward and to the right, but has a constant slope.
b. can be represented by a line parallel to the vertical axis.
c. cannot be shown on a two-dimensional graph.
d. can be represented by a line parallel to the horizontal axis.
a. rises upward and to the right, but has a constant slope.
b. can be represented by a line parallel to the vertical axis.
c. cannot be shown on a two-dimensional graph.
d. can be represented by a line parallel to the horizontal axis.
answer
b
question
The larger the coefficient of price elasticity of demand for a product, the:
A. larger the resulting price change for an increase in supply.
B. more rapid the rate at which the marginal utility of that product diminishes.
C. less competitive will be the industry supplying that product.
D. smaller the resulting price change for an increase in supply.
A. larger the resulting price change for an increase in supply.
B. more rapid the rate at which the marginal utility of that product diminishes.
C. less competitive will be the industry supplying that product.
D. smaller the resulting price change for an increase in supply.
answer
d
question
Most demand curves are relatively elastic in the upper-left portion because the original price:
A .and quantity from which the percentage changes in price and quantity are calculated are both large.
B. and quantity from which the percentage changes in price and quantity are calculated are both small.
C. from which the percentage price change is calculated is small and the original quantity from which the percentage change in quantity is calculated is large.
D. from which the percentage price change is calculated is large and the original quantity from which the percentage change in quantity is calculated is small.
A .and quantity from which the percentage changes in price and quantity are calculated are both large.
B. and quantity from which the percentage changes in price and quantity are calculated are both small.
C. from which the percentage price change is calculated is small and the original quantity from which the percentage change in quantity is calculated is large.
D. from which the percentage price change is calculated is large and the original quantity from which the percentage change in quantity is calculated is small.
answer
d
question
The price elasticity of demand for widgets is 0.80. Assuming no change in the demand curve for widgets, a 16 percent increase in sales implies a:
A) 1 percent reduction in price.
C) 40 percent reduction in price.
B) 12 percent reduction in price.
D) 20 percent reduction in price.
A) 1 percent reduction in price.
C) 40 percent reduction in price.
B) 12 percent reduction in price.
D) 20 percent reduction in price.
answer
D
question
Suppose Aiyanna's pizzeria currently faces a linear demand curve and is charging a very high price per pizza and doing very little business. Aiyanna now decides to lower pizza prices by 5 percent per week for an indefinite period of time. We can expect that each successive week:
A. demand will become more price elastic.
B. price elasticity of demand will not change as price is lowered.
C. demand will become less price elastic.
D. the elasticity of supply will increase.
A. demand will become more price elastic.
B. price elasticity of demand will not change as price is lowered.
C. demand will become less price elastic.
D. the elasticity of supply will increase.
answer
C
question
The price elasticity of demand of a straight-line demand curve is:
A. elastic in high-price ranges and inelastic on low-price ranges.
B. elastic, but does not change at various points on the curve.
C. inelastic, but does not change at various points on the curve.
D. 1 at all points on the curve.
A. elastic in high-price ranges and inelastic on low-price ranges.
B. elastic, but does not change at various points on the curve.
C. inelastic, but does not change at various points on the curve.
D. 1 at all points on the curve.
answer
A
question
A leftward shift in the supply curve of product X will increase equilibrium price to a greater extent the:
A) more elastic the supply curve.
C) more elastic the demand for the product.
B) larger the elasticity of demand coefficient. D) more inelastic the demand for the product.
A) more elastic the supply curve.
C) more elastic the demand for the product.
B) larger the elasticity of demand coefficient. D) more inelastic the demand for the product.
answer
d
question
If the demand for bacon is relatively elastic, a 10 percent decline in the price of bacon will:
A. decrease the amount demanded by more than 10 percent.
B. increase the amount demanded by more than 10 percent.
C. decrease the amount demanded by less than 10 percent.
D. increase the amount demanded by less than 10 percent.
A. decrease the amount demanded by more than 10 percent.
B. increase the amount demanded by more than 10 percent.
C. decrease the amount demanded by less than 10 percent.
D. increase the amount demanded by less than 10 percent.
answer
b
question
The price elasticity of demand is:
A. negative, but the minus sign is ignored.
B. positive, but the plus sign is ignored.
C. positive for normal goods and negative for inferior goods.
D. positive because price and quantity demanded are inversely related.
A. negative, but the minus sign is ignored.
B. positive, but the plus sign is ignored.
C. positive for normal goods and negative for inferior goods.
D. positive because price and quantity demanded are inversely related.
answer
a
question
For a linear demand curve:
A) elasticity is constant along the curve. C) demand is elastic at low prices.
B) elasticity is unity at every point on the curve.
D) demand is elastic at high prices.
A) elasticity is constant along the curve. C) demand is elastic at low prices.
B) elasticity is unity at every point on the curve.
D) demand is elastic at high prices.
answer
d
question
The price of product X is reduced from $100 to $90 and, as a result, the quantity demanded increases from 50 to 60 units. Therefore demand for X in this price range:
A) has declined. B) is of unit elasticity. C) is inelastic. D) is elastic.
A) has declined. B) is of unit elasticity. C) is inelastic. D) is elastic.
answer
d
question
Suppose we find that the price elasticity of demand for a product is 3.5 when its price is increased by 2 percent. We can conclude that quantity demanded:
A) increased by 7 percent. C) decreased by 9 percent.
B) decreased by 7 percent. D) decreased by 12 percent.
A) increased by 7 percent. C) decreased by 9 percent.
B) decreased by 7 percent. D) decreased by 12 percent.
answer
b
question
The price elasticity of demand for beef is about 0.60. Other things equal, this means that a 20 percent increase in the price of beef will cause the quantity of beef demanded to:
A) increase by approximately 12 percent. C) decrease by approximately 32 percent.
B) decrease by approximately 12 percent. D) decrease by approximately 26 percent.
A) increase by approximately 12 percent. C) decrease by approximately 32 percent.
B) decrease by approximately 12 percent. D) decrease by approximately 26 percent.
answer
b
question
The elasticity of demand:
A. is infinitely large for a perfectly inelastic demand curve.
B. tends to be inelastic in high-price ranges and elastic in low-price ranges.
C. tends to be elastic in high-price ranges and inelastic in low-price ranges.
D. is the same at each price-quantity combination on a stable demand curve.
A. is infinitely large for a perfectly inelastic demand curve.
B. tends to be inelastic in high-price ranges and elastic in low-price ranges.
C. tends to be elastic in high-price ranges and inelastic in low-price ranges.
D. is the same at each price-quantity combination on a stable demand curve.
answer
C
question
If a demand for a product is elastic, the value of the price elasticity coefficient is:
A) zero.
B) greater than one.
C) equal to one.
D) less than one.
A) zero.
B) greater than one.
C) equal to one.
D) less than one.
answer
b
question
The concept of price elasticity of demand measures:
A. the slope of the demand curve.
B. the number of buyers in a market.
C. the extent to which the demand curve shifts as the result of a price decline.
D. the sensitivity of consumer purchases to price changes.
A. the slope of the demand curve.
B. the number of buyers in a market.
C. the extent to which the demand curve shifts as the result of a price decline.
D. the sensitivity of consumer purchases to price changes.
answer
d
question
Suppose the price of local cable TV service increased from $16.20 to $19.80 and as a result the number of cable subscribers decreased from 224,000 to 176,000. Along this portion of the demand curve, price elasticity of demand is:
A. 0.8. B) 1.2. C) 1.6. D) 8.0
A. 0.8. B) 1.2. C) 1.6. D) 8.0
answer
b
question
If the price of hand calculators falls from $10 to $9 and, as a result, the quantity demanded increases from 100 to 125, then:
a. demand is elastic.
b. demand is inelastic.
c. demand is of unit elasticity.
d. not enough information is given to make a statement about elasticity.
a. demand is elastic.
b. demand is inelastic.
c. demand is of unit elasticity.
d. not enough information is given to make a statement about elasticity.
answer
a
question
A perfectly inelastic demand curve:
d. has a price elasticity coefficient greater than unity.
a. has a price elasticity coefficient of unity throughout.
b. graphs as a line parallel to the vertical axis.
c. graphs as a line parallel to the horizontal axis.
d. has a price elasticity coefficient greater than unity.
a. has a price elasticity coefficient of unity throughout.
b. graphs as a line parallel to the vertical axis.
c. graphs as a line parallel to the horizontal axis.
answer
b
question
Moving upward on a downward-sloping straight-line demand curve, we find that price elasticity:
A) is constant.
C) decreases continuously.
B) increases continuously.
D) may either increase or decrease.
A) is constant.
C) decreases continuously.
B) increases continuously.
D) may either increase or decrease.
answer
b
question
If the price elasticity of demand for gasoline is 0.20:
A the demand for gasoline is linear.
B. a rise in the price of gasoline will reduce total revenue.
C. a 10 percent rise in the price of gasoline will decrease the amount purchased by 2 percent.
D. a 10 percent fall in the price of gasoline will increase the amount purchased by 20 percent.
A the demand for gasoline is linear.
B. a rise in the price of gasoline will reduce total revenue.
C. a 10 percent rise in the price of gasoline will decrease the amount purchased by 2 percent.
D. a 10 percent fall in the price of gasoline will increase the amount purchased by 20 percent.
answer
c
question
In which price range of the accompanying demand schedule is demand elastic?
A) $4-$3 B) $3-$2 C) $2-$1
D) below $1
A) $4-$3 B) $3-$2 C) $2-$1
D) below $1
answer
a
question
When the percentage change in price is greater than the resulting percentage change in quantity demanded:
A) a decrease in price will increase total revenue.
C) an increase in price will increase total revenue.
B) demand may be either elastic or inelastic.
D) demand is elastic.
A) a decrease in price will increase total revenue.
C) an increase in price will increase total revenue.
B) demand may be either elastic or inelastic.
D) demand is elastic.
answer
c
question
Suppose the price elasticity coefficients of demand are 1.43, 0.67, 1.11, and 0.29 for products W, X, Y, and Z respectively. A 1 percent decrease in price will increase total revenue in the case(s) of:
A) W and Y.
B) Y and Z.
C) X and Z.
D) Z and W.
A) W and Y.
B) Y and Z.
C) X and Z.
D) Z and W.
answer
a
question
Which of the following statements is not correct?
A. If the relative change in price is greater than the relative change in the quantity demanded associated with it, demand is inelastic.
B. In the range of prices in which demand is elastic, total revenue will diminish as price decreases.
C. Total revenue will not change if price varies within a range where the elasticity coefficient is unity.
D. Demand tends to be elastic at high prices and inelastic at low prices.
A. If the relative change in price is greater than the relative change in the quantity demanded associated with it, demand is inelastic.
B. In the range of prices in which demand is elastic, total revenue will diminish as price decreases.
C. Total revenue will not change if price varies within a range where the elasticity coefficient is unity.
D. Demand tends to be elastic at high prices and inelastic at low prices.
answer
b
question
In which of the following instances will total revenue decline?
A) price rises and supply is elastic
C) price rises and demand is inelastic
B) price falls and demand is elastic
D) price rises and demand is elastic
A) price rises and supply is elastic
C) price rises and demand is inelastic
B) price falls and demand is elastic
D) price rises and demand is elastic
answer
D
question
If a firm's demand for labor is elastic, a union-negotiated wage increase will:
A) necessarily be inflationary.
C) cause the firm's total payroll to decline.
B) cause the firm's total payroll to increase. D) cause a shortage of labor.
A) necessarily be inflationary.
C) cause the firm's total payroll to decline.
B) cause the firm's total payroll to increase. D) cause a shortage of labor.
answer
C
question
Economic cost can best be defined as:
A. any contractual obligation that results in a flow of money expenditures from an enterprise to resource suppliers.
B. any contractual obligation to labor or material suppliers.
C. payments that must be received by resource owners to insure the resources' continued supply.
D. all costs exclusive of payments to fixed factors of production.
A. any contractual obligation that results in a flow of money expenditures from an enterprise to resource suppliers.
B. any contractual obligation to labor or material suppliers.
C. payments that must be received by resource owners to insure the resources' continued supply.
D. all costs exclusive of payments to fixed factors of production.
answer
C. payments that must be received by resource owners to insure the resources' continued supply.
question
Which of the following constitutes an implicit cost to the Johnston Manufacturing Company?
A. payments of wages to its office workers
B. rent paid for the use of equipment owned by the Schultz Machinery Company
C. use of savings to pay operating expenses instead of generating interest income
D. economic profits resulting from current production
A. payments of wages to its office workers
B. rent paid for the use of equipment owned by the Schultz Machinery Company
C. use of savings to pay operating expenses instead of generating interest income
D. economic profits resulting from current production
answer
C. use of savings to pay operating expenses instead of generating interest income
question
Which of the following is most likely to be an implicit cost for Company X?
A. forgone rent from the building owned and used by Company X
B. rental payments on IBM equipment
C. payments for raw materials purchased from Company Y
D. transportation costs paid to a nearby trucking firm
A. forgone rent from the building owned and used by Company X
B. rental payments on IBM equipment
C. payments for raw materials purchased from Company Y
D. transportation costs paid to a nearby trucking firm
answer
A. forgone rent from the building owned and used by Company X
question
Production costs to an economist:
A. consist only of explicit costs.
B. reflect opportunity costs.
C. never reflect monetary outlays.
D. always reflect monetary outlays.
A. consist only of explicit costs.
B. reflect opportunity costs.
C. never reflect monetary outlays.
D. always reflect monetary outlays.
answer
B. reflect opportunity costs.
question
What do wages paid to factory workers, interest paid on a bank loan, forgone interest, and the purchase of component parts have in common?
A. None are either implicit or explicit costs.
B. All are opportunity costs.
C. All are implicit costs.
D. All are explicit costs.
A. None are either implicit or explicit costs.
B. All are opportunity costs.
C. All are implicit costs.
D. All are explicit costs.
answer
B. All are opportunity costs.
question
To the economist, total cost includes:
A. explicit and implicit costs, including a normal profit.
B. neither implicit nor explicit costs.
C. implicit, but not explicit, costs.
D. explicit, but not implicit, costs.
A. explicit and implicit costs, including a normal profit.
B. neither implicit nor explicit costs.
C. implicit, but not explicit, costs.
D. explicit, but not implicit, costs.
answer
A. explicit and implicit costs, including a normal profit.
question
Implicit and explicit costs are different in that:
A. explicit costs are opportunity costs; implicit costs are not.
B. implicit costs are opportunity costs; explicit costs are not.
C. the latter refer to non-expenditure costs and the former to monetary payments.
D. the former refer to non-expenditure costs and the latter to monetary payments.
A. explicit costs are opportunity costs; implicit costs are not.
B. implicit costs are opportunity costs; explicit costs are not.
C. the latter refer to non-expenditure costs and the former to monetary payments.
D. the former refer to non-expenditure costs and the latter to monetary payments.
answer
D. the former refer to non-expenditure costs and the latter to monetary payments.
question
Accounting profits equal total revenue minus:
A. total explicit costs.
B. total implicit costs.
C. total economic costs.
D. economic profits.
A. total explicit costs.
B. total implicit costs.
C. total economic costs.
D. economic profits.
answer
A. total explicit costs.
question
An explicit cost is:
A. omitted when accounting profits are calculated.
B. a money payment made for resources not owned by the firm itself.
C. an implicit cost to the resource owner who receives that payment.
D. always in excess of a resource's opportunity cost.
A. omitted when accounting profits are calculated.
B. a money payment made for resources not owned by the firm itself.
C. an implicit cost to the resource owner who receives that payment.
D. always in excess of a resource's opportunity cost.
answer
B. a money payment made for resources not owned by the firm itself.
question
Accounting profits are typically:
A. greater than economic profits because the former do not take explicit costs into account.
B. equal to economic profits because accounting costs include all opportunity costs.
C. smaller than economic profits because the former do not take implicit costs into account.
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. equal to economic profits because accounting costs include all opportunity costs.
C. smaller than economic profits because the former do not take implicit costs into account.
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
Economic profits are calculated by subtracting:
A. explicit costs from total revenue.
B. implicit costs from total revenue.
C. implicit costs from normal profits.
D. explicit and implicit costs from total revenue.
A. explicit costs from total revenue.
B. implicit costs from total revenue.
C. implicit costs from normal profits.
D. explicit and implicit costs from total revenue.
answer
D. explicit and implicit costs from total revenue.
question
Normal profit is:
A. determined by subtracting implicit costs from total revenue.
B. determined by subtracting explicit costs from total revenue.
C. the return to the entrepreneur when economic profits are zero.
D. the average profitability of an industry over the preceding 10 years.
A. determined by subtracting implicit costs from total revenue.
B. determined by subtracting explicit costs from total revenue.
C. the return to the entrepreneur when economic profits are zero.
D. the average profitability of an industry over the preceding 10 years.
answer
C. the return to the entrepreneur when economic profits are zero.
question
Which of the following definitions is correct?
A. Accounting profit + economic profit = normal profit.
B. Economic profit - accounting profit = explicit costs.
C. Economic profit = accounting profit - implicit costs.
D. Economic profit - implicit costs = accounting profits.
A. Accounting profit + economic profit = normal profit.
B. Economic profit - accounting profit = explicit costs.
C. Economic profit = accounting profit - implicit costs.
D. Economic profit - implicit costs = accounting profits.
answer
C. Economic profit = accounting profit - implicit costs.
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. $100,000 and its economic profits were zero.
B. $200,000 and its economic profits were zero.
C. $100,000 and its economic profits were $100,000.
D. zero and its economic loss was $200,000.
A. $100,000 and its economic profits were zero.
B. $200,000 and its economic profits were zero.
C. $100,000 and its economic profits were $100,000.
D. zero and its economic loss was $200,000.
answer
B. $200,000 and its economic profits were zero.
question
Suppose that a business incurred implicit costs of $500,000 and explicit costs of $5 million in a specific year. If the firm sold 100,000 units of its output at $50 per unit, its accounting:
A. profits were $100,000 and its economic profits were zero.
B. losses were $500,000 and its economic losses were zero.
C. profits were $500,000 and its economic profits were $1 million.
D. profits were zero and its economic losses were $500,000.
A. profits were $100,000 and its economic profits were zero.
B. losses were $500,000 and its economic losses were zero.
C. profits were $500,000 and its economic profits were $1 million.
D. profits were zero and its economic losses were $500,000.
answer
D. profits were zero and its economic losses were $500,000.
question
The following is cost information for the Creamy Crisp Donut Company:
Entrepreneur's potential earnings as a salaried worker = $50,000
Annual lease on building = $22,000
Annual revenue from operations = $380,000
Payments to workers = $120,000
Utilities (electricity, water, disposal) costs = $8,000
Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000
Entrepreneur's forgone interest on personal funds used to finance the business = $6,000
Refer to the above data. Creamy Crisp's explicit costs are:
A. $286,000.
B. $150,000.
C. $94,000.
D. $156,000.
Entrepreneur's potential earnings as a salaried worker = $50,000
Annual lease on building = $22,000
Annual revenue from operations = $380,000
Payments to workers = $120,000
Utilities (electricity, water, disposal) costs = $8,000
Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000
Entrepreneur's forgone interest on personal funds used to finance the business = $6,000
Refer to the above data. Creamy Crisp's explicit costs are:
A. $286,000.
B. $150,000.
C. $94,000.
D. $156,000.
answer
B. $150,000.
question
The following is cost information for the Creamy Crisp Donut Company:
Entrepreneur's potential earnings as a salaried worker = $50,000
Annual lease on building = $22,000
Annual revenue from operations = $380,000
Payments to workers = $120,000
Utilities (electricity, water, disposal) costs = $8,000
Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000
Entrepreneur's forgone interest on personal funds used to finance the business = $6,000
Refer to the above data. Creamy Crisp's implicit costs, including a normal profit, are:
A. $136,000.
B. $150,000.
C. $94,000.
D. $156,000.
Entrepreneur's potential earnings as a salaried worker = $50,000
Annual lease on building = $22,000
Annual revenue from operations = $380,000
Payments to workers = $120,000
Utilities (electricity, water, disposal) costs = $8,000
Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000
Entrepreneur's forgone interest on personal funds used to finance the business = $6,000
Refer to the above data. Creamy Crisp's implicit costs, including a normal profit, are:
A. $136,000.
B. $150,000.
C. $94,000.
D. $156,000.
answer
A. $136,000.
question
The following is cost information for the Creamy Crisp Donut Company:
Entrepreneur's potential earnings as a salaried worker = $50,000
Annual lease on building = $22,000
Annual revenue from operations = $380,000
Payments to workers = $120,000
Utilities (electricity, water, disposal) costs = $8,000
Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000
Entrepreneur's forgone interest on personal funds used to finance the business = $6,000
Refer to the above data. Creamy Crisp's total economic costs are:
A. $286,000.
B. $150,000.
C. $94,000.
D. $156,000.
Entrepreneur's potential earnings as a salaried worker = $50,000
Annual lease on building = $22,000
Annual revenue from operations = $380,000
Payments to workers = $120,000
Utilities (electricity, water, disposal) costs = $8,000
Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000
Entrepreneur's forgone interest on personal funds used to finance the business = $6,000
Refer to the above data. Creamy Crisp's total economic costs are:
A. $286,000.
B. $150,000.
C. $94,000.
D. $156,000.
answer
A. $286,000.
question
The following is cost information for the Creamy Crisp Donut Company:
Entrepreneur's potential earnings as a salaried worker = $50,000
Annual lease on building = $22,000
Annual revenue from operations = $380,000
Payments to workers = $120,000
Utilities (electricity, water, disposal) costs = $8,000
Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000
Entrepreneur's forgone interest on personal funds used to finance the business = $6,000
Refer to the above data. Creamy Crisp's accounting profit is:
A. $150,000.
B. $380,000.
C. $230,000.
D. $294,000.
Entrepreneur's potential earnings as a salaried worker = $50,000
Annual lease on building = $22,000
Annual revenue from operations = $380,000
Payments to workers = $120,000
Utilities (electricity, water, disposal) costs = $8,000
Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000
Entrepreneur's forgone interest on personal funds used to finance the business = $6,000
Refer to the above data. Creamy Crisp's accounting profit is:
A. $150,000.
B. $380,000.
C. $230,000.
D. $294,000.
answer
C. $230,000.
question
The following is cost information for the Creamy Crisp Donut Company:
Entrepreneur's potential earnings as a salaried worker = $50,000
Annual lease on building = $22,000
Annual revenue from operations = $380,000
Payments to workers = $120,000
Utilities (electricity, water, disposal) costs = $8,000
Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000
Entrepreneur's forgone interest on personal funds used to finance the business = $6,000
Refer to the above data. Creamy Crisp's economic profit is:
A. $150,000.
B. $80,000.
C. $230,000.
D. $94,000.
Entrepreneur's potential earnings as a salaried worker = $50,000
Annual lease on building = $22,000
Annual revenue from operations = $380,000
Payments to workers = $120,000
Utilities (electricity, water, disposal) costs = $8,000
Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000
Entrepreneur's forgone interest on personal funds used to finance the business = $6,000
Refer to the above data. Creamy Crisp's economic profit is:
A. $150,000.
B. $80,000.
C. $230,000.
D. $94,000.
answer
D. $94,000.
question
The following is cost information for the Creamy Crisp Donut Company:
Entrepreneur's potential earnings as a salaried worker = $50,000
Annual lease on building = $22,000
Annual revenue from operations = $380,000
Payments to workers = $120,000
Utilities (electricity, water, disposal) costs = $8,000
Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000
Entrepreneur's forgone interest on personal funds used to finance the business = $6,000
Refer to the above data. Creamy Crisp's total revenues exceed its total costs, including a normal profit, by:
A. $150,000.
B. $94,000.
C. $80,000.
D. $230,000.
Entrepreneur's potential earnings as a salaried worker = $50,000
Annual lease on building = $22,000
Annual revenue from operations = $380,000
Payments to workers = $120,000
Utilities (electricity, water, disposal) costs = $8,000
Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000
Entrepreneur's forgone interest on personal funds used to finance the business = $6,000
Refer to the above data. Creamy Crisp's total revenues exceed its total costs, including a normal profit, by:
A. $150,000.
B. $94,000.
C. $80,000.
D. $230,000.
answer
B. $94,000.
question
The following is cost information for the Creamy Crisp Donut Company:
Entrepreneur's potential earnings as a salaried worker = $50,000
Annual lease on building = $22,000
Annual revenue from operations = $380,000
Payments to workers = $120,000
Utilities (electricity, water, disposal) costs = $8,000
Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000
Entrepreneur's forgone interest on personal funds used to finance the business = $6,000
Refer to the above data. Creamy Crisp:
A. has lower implicit costs, including a normal profit, than its explicit costs.
B. is earning a normal profit but not an economic profit.
C. is earning an economic profit.
D. is suffering an economic loss, when implicit costs are considered.
Entrepreneur's potential earnings as a salaried worker = $50,000
Annual lease on building = $22,000
Annual revenue from operations = $380,000
Payments to workers = $120,000
Utilities (electricity, water, disposal) costs = $8,000
Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000
Entrepreneur's forgone interest on personal funds used to finance the business = $6,000
Refer to the above data. Creamy Crisp:
A. has lower implicit costs, including a normal profit, than its explicit costs.
B. is earning a normal profit but not an economic profit.
C. is earning an economic profit.
D. is suffering an economic loss, when implicit costs are considered.
answer
C. is earning an economic profit.
question
The following is cost information for the Creamy Crisp Donut Company:
Entrepreneur's potential earnings as a salaried worker = $50,000
Annual lease on building = $22,000
Annual revenue from operations = $380,000
Payments to workers = $120,000
Utilities (electricity, water, disposal) costs = $8,000
Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000
Entrepreneur's forgone interest on personal funds used to finance the business = $6,000
Refer to the above data. If, other things equal, Creamy Crisp's revenue fell to $286,000:
A. its implicit costs, including a normal profit, would exceed its explicit costs.
B. it would earn a normal profit but not an economic profit.
C. it would suffer an economic loss.
D. its accounting profit would fall to zero.
Entrepreneur's potential earnings as a salaried worker = $50,000
Annual lease on building = $22,000
Annual revenue from operations = $380,000
Payments to workers = $120,000
Utilities (electricity, water, disposal) costs = $8,000
Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000
Entrepreneur's forgone interest on personal funds used to finance the business = $6,000
Refer to the above data. If, other things equal, Creamy Crisp's revenue fell to $286,000:
A. its implicit costs, including a normal profit, would exceed its explicit costs.
B. it would earn a normal profit but not an economic profit.
C. it would suffer an economic loss.
D. its accounting profit would fall to zero.
answer
B. it would earn a normal profit but not an economic profit.
question
The basic characteristic of the short run is that:
A. barriers to entry prevent new firms from entering the industry.
B. the firm does not have sufficient time to change the size of its plant.
C. the firm does not have sufficient time to cut its rate of output to zero.
D. a firm does not have sufficient time to change the amounts of any of the resources it employs.
A. barriers to entry prevent new firms from entering the industry.
B. the firm does not have sufficient time to change the size of its plant.
C. the firm does not have sufficient time to cut its rate of output to zero.
D. a firm does not have sufficient time to change the amounts of any of the resources it employs.
answer
B. the firm does not have sufficient time to change the size of its plant.
question
Which of the following represents a long-run adjustment?
A. a farmer uses an extra dose of fertilizer on his corn crop
B. unable to meet foreign competition, a U.S. watch manufacturer sells one of its branch plants
C. a steel manufacturer cuts back on its purchases of coke and iron ore
D. a supermarket hires four additional clerks
A. a farmer uses an extra dose of fertilizer on his corn crop
B. unable to meet foreign competition, a U.S. watch manufacturer sells one of its branch plants
C. a steel manufacturer cuts back on its purchases of coke and iron ore
D. a supermarket hires four additional clerks
answer
B. unable to meet foreign competition, a U.S. watch manufacturer sells one of its branch plants
question
Which of the following is a short-run adjustment?
A. A local bakery hires two additional bakers.
B. Six new firms enter the plastics industry.
C. The number of farms in the United States declines by 5 percent.
D. BMW constructs a new assembly plant in South Carolina.
A. A local bakery hires two additional bakers.
B. Six new firms enter the plastics industry.
C. The number of farms in the United States declines by 5 percent.
D. BMW constructs a new assembly plant in South Carolina.
answer
A. A local bakery hires two additional bakers.
question
The amount of calendar time associated with the long run:
A. is less than that associated with the immediate market period.
B. varies from industry to industry.
C. is the same for all firms.
D. is, by definition, any length of time greater than one year.
A. is less than that associated with the immediate market period.
B. varies from industry to industry.
C. is the same for all firms.
D. is, by definition, any length of time greater than one year.
answer
B. varies from industry to industry.
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. in the long run all resources are variable, while in the short run at least one resource is fixed.
C. fixed costs are more important to decision making in the long run than they are in the short run.
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. in the long run all resources are variable, while in the short run at least one resource is fixed.
C. fixed costs are more important to decision making in the long run than they are in the short run.
D. in the short run all resources are fixed, while in the long run all resources are variable.
answer
B. in the long run all resources are variable, while in the short run at least one resource is fixed.
question
The basic difference between the short run and the long run is that:
A. all costs are fixed in the short run, but all costs are variable in the long run.
B. the law of diminishing returns applies in the long run, but not in the short run.
C. at least one resource is fixed in the short run, while all resources are variable in the long run.
D. economies of scale may be present in the short run, but not in the long run.
A. all costs are fixed in the short run, but all costs are variable in the long run.
B. the law of diminishing returns applies in the long run, but not in the short run.
C. at least one resource is fixed in the short run, while all resources are variable in the long run.
D. economies of scale may be present in the short run, but not in the long run.
answer
C. at least one resource is fixed in the short run, while all resources are variable in the long run.
question
The short run is characterized by:
A. plenty of time for firms to either enter or leave the industry.
B. increasing, but not diminishing returns.
C. fixed plant capacity.
D. zero fixed costs.
A. plenty of time for firms to either enter or leave the industry.
B. increasing, but not diminishing returns.
C. fixed plant capacity.
D. zero fixed costs.
answer
C. fixed plant capacity.
question
The long run is characterized by:
A. the relevance of the law of diminishing returns.
B. at least one fixed input.
C. insufficient time for firms to enter or leave the industry.
D. the ability of the firm to change its plant size.
A. the relevance of the law of diminishing returns.
B. at least one fixed input.
C. insufficient time for firms to enter or leave the industry.
D. the ability of the firm to change its plant size.
answer
D. the ability of the firm to change its plant size.
question
Marginal product is:
A. the increase in total output attributable to the employment of one more worker.
B. the increase in total revenue attributable to the employment of one more worker.
C. the increase in total cost attributable to the employment of one more worker.
D. total product divided by the number of workers employed.
A. the increase in total output attributable to the employment of one more worker.
B. the increase in total revenue attributable to the employment of one more worker.
C. the increase in total cost attributable to the employment of one more worker.
D. total product divided by the number of workers employed.
answer
A. the increase in total output attributable to the employment of one more worker.
question
The law of diminishing returns indicates that:
A. as extra units of a variable resource are added to a fixed resource, marginal product will decline beyond some point.
B. because of economies and diseconomies of scale a competitive firm's long-run average total cost curve will be U-shaped.
C. the demand for goods produced by purely competitive industries is downsloping.
D. beyond some point the extra utility derived from additional units of a product will yield the consumer smaller and smaller extra amounts of satisfaction.
A. as extra units of a variable resource are added to a fixed resource, marginal product will decline beyond some point.
B. because of economies and diseconomies of scale a competitive firm's long-run average total cost curve will be U-shaped.
C. the demand for goods produced by purely competitive industries is downsloping.
D. beyond some point the extra utility derived from additional units of a product will yield the consumer smaller and smaller extra amounts of satisfaction.
answer
A. as extra units of a variable resource are added to a fixed resource, marginal product will decline beyond some point.
question
Which of the following statements concerning the relationships between total product (TP), average product (AP), and marginal product (MP) is not correct?
A. AP continues to rise so long as TP is rising.
B. AP reaches a maximum before TP reaches a maximum.
C. TP reaches a maximum when the MP of the variable input becomes zero.
D. MP cuts AP at the maximum AP.
A. AP continues to rise so long as TP is rising.
B. AP reaches a maximum before TP reaches a maximum.
C. TP reaches a maximum when the MP of the variable input becomes zero.
D. MP cuts AP at the maximum AP.
answer
A. AP continues to rise so long as TP is rising.
question
Which of the following best expresses the law of diminishing returns?
A. Because large-scale production allows the realization of economies of scale, the real costs of production vary directly with the level of output.
B. Population growth automatically adjusts to that level at which the average product per worker will be at a maximum.
C. As successive amounts of one resource (labor) are added to fixed amounts of other resources (capital), beyond some point the resulting extra output will decline.
D. Proportionate increases in the inputs of all resources will result in a less-than-proportionate increase in total output.
A. Because large-scale production allows the realization of economies of scale, the real costs of production vary directly with the level of output.
B. Population growth automatically adjusts to that level at which the average product per worker will be at a maximum.
C. As successive amounts of one resource (labor) are added to fixed amounts of other resources (capital), beyond some point the resulting extra output will decline.
D. Proportionate increases in the inputs of all resources will result in a less-than-proportionate increase in total output.
answer
C. As successive amounts of one resource (labor) are added to fixed amounts of other resources (capital), beyond some point the resulting extra output will decline.
question
Marginal product:
A. diminishes at all levels of production.
B. may initially increase, then diminish, but never become negative.
C. may initially increase, then diminish, and ultimately become negative.
D. is always less than average product.
A. diminishes at all levels of production.
B. may initially increase, then diminish, but never become negative.
C. may initially increase, then diminish, and ultimately become negative.
D. is always less than average product.
answer
C. may initially increase, then diminish, and ultimately become negative.
question
The first, second, and third workers employed by a firm add 24, 18, and 9 units to total product respectively. Therefore, we can conclude that:
A. marginal product of the third worker is 9.
B. the third worker has to work with poorer quality tools and raw materials.
C. firm will not want to hire more than three workers.
D. first worker puts forth more effort than the second and third workers.
A. marginal product of the third worker is 9.
B. the third worker has to work with poorer quality tools and raw materials.
C. firm will not want to hire more than three workers.
D. first worker puts forth more effort than the second and third workers.
answer
A. marginal product of the third worker is 9.
question
If a variable input is added to some fixed input, beyond some point the resulting extra output will decline. This statement describes:
A. economies and diseconomies of scale.
B. X-inefficiency.
C. the law of diminishing returns.
D. the law of diminishing marginal utility.
A. economies and diseconomies of scale.
B. X-inefficiency.
C. the law of diminishing returns.
D. the law of diminishing marginal utility.
answer
C. the law of diminishing returns.
question
If in the short run a firm's total product is increasing, then its:
A. marginal product must also be increasing.
B. marginal product must be decreasing.
C. marginal product could be either increasing or decreasing.
D. average product must also be increasing.
A. marginal product must also be increasing.
B. marginal product must be decreasing.
C. marginal product could be either increasing or decreasing.
D. average product must also be increasing.
answer
C. marginal product could be either increasing or decreasing.
question
The law of diminishing returns results in:
A. an eventually rising marginal product curve.
B. a total product curve that eventually increases at a decreasing rate.
C. an eventually falling marginal cost curve.
D. a total product curve that rises indefinitely.
A. an eventually rising marginal product curve.
B. a total product curve that eventually increases at a decreasing rate.
C. an eventually falling marginal cost curve.
D. a total product curve that rises indefinitely.
answer
B. a total product curve that eventually increases at a decreasing rate.
question
The law of diminishing returns describes the:
A. relationship between total costs and total revenues.
B. profit-maximizing position of a firm.
C. relationship between resource inputs and product outputs in the short run.
D. relationship between resource inputs and product outputs in the long run.
A. relationship between total costs and total revenues.
B. profit-maximizing position of a firm.
C. relationship between resource inputs and product outputs in the short run.
D. relationship between resource inputs and product outputs in the long run.
answer
C. relationship between resource inputs and product outputs in the short run.
question
Which of the following is correct?
A. When total product is rising, both average product and marginal product must also be rising.
B. When marginal product is falling, total product must be falling.
C. When marginal product is falling, average product must also be falling.
D. Marginal product rises faster than average product and also falls faster than average product.
A. When total product is rising, both average product and marginal product must also be rising.
B. When marginal product is falling, total product must be falling.
C. When marginal product is falling, average product must also be falling.
D. Marginal product rises faster than average product and also falls faster than average product.
answer
D. Marginal product rises faster than average product and also falls faster than average product.
question
Which of the following is not correct?
A. Where marginal product is greater than average product, average product is rising.
B. Where total product is at a maximum, average product is also at a maximum.
C. Where marginal product is zero, total product is at a maximum.
D. Marginal product becomes negative before average product becomes negative.
A. Where marginal product is greater than average product, average product is rising.
B. Where total product is at a maximum, average product is also at a maximum.
C. Where marginal product is zero, total product is at a maximum.
D. Marginal product becomes negative before average product becomes negative.
answer
B. Where total product is at a maximum, average product is also at a maximum.
question
The total output of a firm will be at a maximum where:
A. MP is at a maximum.
B. AP is at a minimum.
C. MP is zero.
D. AP is at a maximum.
A. MP is at a maximum.
B. AP is at a minimum.
C. MP is zero.
D. AP is at a maximum.
answer
C. MP is zero.
question
When total product is increasing at an increasing rate, marginal product is:
A. positive and increasing.
B. positive and decreasing.
C. constant.
D. negative.
A. positive and increasing.
B. positive and decreasing.
C. constant.
D. negative.
answer
A. positive and increasing.
question
When total product is increasing at a decreasing rate, marginal product is:
A. positive and increasing.
B. positive and decreasing.
C. constant.
D. negative.
A. positive and increasing.
B. positive and decreasing.
C. constant.
D. negative.
answer
B. positive and decreasing.
question
Fixed cost is:
A. the cost of producing one more unit of capital, for example, machinery.
B. any cost which does not change when the firm changes its output.
C. average cost multiplied by the firm's output.
D. usually zero in the short run.
A. the cost of producing one more unit of capital, for example, machinery.
B. any cost which does not change when the firm changes its output.
C. average cost multiplied by the firm's output.
D. usually zero in the short run.
answer
B. any cost which does not change when the firm changes its output.
question
Which of the following is most likely to be a fixed cost?
A. shipping charges
B. property insurance premiums
C. wages for unskilled labor
D. expenditures for raw materials
A. shipping charges
B. property insurance premiums
C. wages for unskilled labor
D. expenditures for raw materials
answer
B. property insurance premiums
question
If you owned a small farm, which of the following would most likely be a fixed cost?
A. harvest labor
B. hail insurance
C. fertilizer
D. seed
A. harvest labor
B. hail insurance
C. fertilizer
D. seed
answer
B. hail insurance
question
Which of the following is most likely to be a variable cost?
A. fuel and power payments
B. interest on business loans
C. rental payments on IBM equipment
D. real estate taxes
A. fuel and power payments
B. interest on business loans
C. rental payments on IBM equipment
D. real estate taxes
answer
A. fuel and power payments
question
If you operated a small bakery, which of the following would be a variable cost in the short run?
A. baking ovens
B. interest on business loans
C. annual lease payment for use of the building
D. baking supplies (flour, salt, etc.)
A. baking ovens
B. interest on business loans
C. annual lease payment for use of the building
D. baking supplies (flour, salt, etc.)
answer
D. baking supplies (flour, salt, etc.)
question
Marginal cost is the:
A. rate of change in total fixed cost that results from producing one more unit of output.
B. change in total cost that results from producing one more unit of output.
C. change in average variable cost that results from producing one more unit of output.
D. change in average total cost that results from producing one more unit of output.
A. rate of change in total fixed cost that results from producing one more unit of output.
B. change in total cost that results from producing one more unit of output.
C. change in average variable cost that results from producing one more unit of output.
D. change in average total cost that results from producing one more unit of output.
answer
B. change in total cost that results from producing one more unit of output.
question
For most producing firms:
A. marginal cost rises as output is carried to a certain level, and then begins to decline.
B. total costs rise as output is carried to a certain level, and then begin to decline.
C. average total costs decline as output is carried to a certain level, and then begin to rise.
D. average total costs rise as output is carried to a certain level, and then begin to decline.
A. marginal cost rises as output is carried to a certain level, and then begins to decline.
B. total costs rise as output is carried to a certain level, and then begin to decline.
C. average total costs decline as output is carried to a certain level, and then begin to rise.
D. average total costs rise as output is carried to a certain level, and then begin to decline.
answer
C. average total costs decline as output is carried to a certain level, and then begin to rise.
question
Average fixed cost:
A. equals marginal cost when average total cost is at its minimum.
B. may be found for any output by adding average variable cost and average total cost.
C. graphs as a U-shaped curve.
D. declines continually as output increases.
A. equals marginal cost when average total cost is at its minimum.
B. may be found for any output by adding average variable cost and average total cost.
C. graphs as a U-shaped curve.
D. declines continually as output increases.
answer
D. declines continually as output increases.
question
Which of the following is correct as it relates to cost curves?
A. Average variable cost intersects marginal cost at the latter's minimum point.
B. Marginal cost intersects average total cost at the latter's minimum point.
C. Average fixed cost intersects marginal cost at the latter's minimum point.
D. Marginal cost intersects average fixed cost at the latter's minimum point.
A. Average variable cost intersects marginal cost at the latter's minimum point.
B. Marginal cost intersects average total cost at the latter's minimum point.
C. Average fixed cost intersects marginal cost at the latter's minimum point.
D. Marginal cost intersects average fixed cost at the latter's minimum point.
answer
B. Marginal cost intersects average total cost at the latter's minimum point.
question
Marginal cost:
A. equals both average variable cost and average total cost at their respective minimums.
B. is the difference between total cost and total variable cost.
C. rises for a time, but then begins to decline when diminishing returns set in.
D. declines continuously as output increases.
A. equals both average variable cost and average total cost at their respective minimums.
B. is the difference between total cost and total variable cost.
C. rises for a time, but then begins to decline when diminishing returns set in.
D. declines continuously as output increases.
answer
A. equals both average variable cost and average total cost at their respective minimums.
question
Which of the following statements is correct?
A. Average total cost is the difference between average variable cost and average fixed cost.
B. Marginal cost measures the cost per unit of output associated with any level of production.
C. When marginal product rises, marginal cost must also rise.
D. Marginal cost is the price or cost of an extra variable input (for example, an additional worker or machine) divided by its marginal product.
A. Average total cost is the difference between average variable cost and average fixed cost.
B. Marginal cost measures the cost per unit of output associated with any level of production.
C. When marginal product rises, marginal cost must also rise.
D. Marginal cost is the price or cost of an extra variable input (for example, an additional worker or machine) divided by its marginal product.
answer
D. Marginal cost is the price or cost of an extra variable input (for example, an additional worker or machine) divided by its marginal product.
question
Assume that in the short run a firm is producing 100 units of output, has average total costs of $200, and average variable costs of $150. The firm's total fixed costs are:
A. $5,000.
B. $500.
C. $0.50.
D. $50.
A. $5,000.
B. $500.
C. $0.50.
D. $50.
answer
A. $5,000.
question
Other things equal, if the prices of a firm's variable inputs were to fall:
A. one could not predict how unit costs of production would be affected.
B. marginal cost, average variable cost, and average fixed cost would all fall.
C. marginal cost, average variable cost, and average total cost would all fall.
D. average variable cost would fall, but marginal cost would be unchanged.
A. one could not predict how unit costs of production would be affected.
B. marginal cost, average variable cost, and average fixed cost would all fall.
C. marginal cost, average variable cost, and average total cost would all fall.
D. average variable cost would fall, but marginal cost would be unchanged.
answer
C. marginal cost, average variable cost, and average total cost would all fall.
question
Other things equal, if the fixed costs of a firm were to increase by $100,000 per year, which of the following would happen?
A. Marginal costs and average variable costs would both rise.
B. Average fixed costs and average variable costs would rise.
C. Average fixed costs and average total costs would rise.
D. Average fixed costs would rise, but marginal costs would fall.
A. Marginal costs and average variable costs would both rise.
B. Average fixed costs and average variable costs would rise.
C. Average fixed costs and average total costs would rise.
D. Average fixed costs would rise, but marginal costs would fall.
answer
C. Average fixed costs and average total costs would rise.
question
If a firm decides to produce no output in the short run, its costs will be:
A. its marginal costs.
B. its variable costs.
C. its fixed costs.
D. zero.
A. its marginal costs.
B. its variable costs.
C. its fixed costs.
D. zero.
answer
C. its fixed costs.
question
In comparing the changes in TVC and TC associated with an additional unit of output, we find that:
A. no generalization about the changes in TC and TVC can be made.
B. the changes in TC and TVC are equal.
C. the change in TC is greater than the change in TVC.
D. the change in TVC is greater than the change in TC.
A. no generalization about the changes in TC and TVC can be made.
B. the changes in TC and TVC are equal.
C. the change in TC is greater than the change in TVC.
D. the change in TVC is greater than the change in TC.
answer
B. the changes in TC and TVC are equal.
question
If a technological advance reduces the amount of variable resources needed to produce any level of output, then the:
A. AVC curve will shift upward.
B. MC curve will shift downward.
C. ATC curve will shift upward.
D. AFC curve will shift downward.
A. AVC curve will shift upward.
B. MC curve will shift downward.
C. ATC curve will shift upward.
D. AFC curve will shift downward.
answer
B. MC curve will shift downward.
question
In the short run, which of the following statements is correct?
A. The marginal cost curve intersects the average variable and average fixed cost curves at their minimum points.
B. Average variable cost declines continuously as total output is expanded.
C. Total cost will exceed variable cost.
D. If the inputs of all resources are increased by equal amounts, total output will expand by diminishing amounts.
A. The marginal cost curve intersects the average variable and average fixed cost curves at their minimum points.
B. Average variable cost declines continuously as total output is expanded.
C. Total cost will exceed variable cost.
D. If the inputs of all resources are increased by equal amounts, total output will expand by diminishing amounts.
answer
C. Total cost will exceed variable cost.
question
Total fixed cost (TFC):
A. falls as the firm expands output from zero, but eventually rises.
B. falls continuously as total output expands.
C. varies directly with total output.
D. does not change as total output increases or decreases.
A. falls as the firm expands output from zero, but eventually rises.
B. falls continuously as total output expands.
C. varies directly with total output.
D. does not change as total output increases or decreases.
answer
D. does not change as total output increases or decreases.
question
Fixed costs are associated with:
A. highly adjustable inputs such as labor.
B. both the short run and the long run.
C. the short run only.
D. the long run only.
A. highly adjustable inputs such as labor.
B. both the short run and the long run.
C. the short run only.
D. the long run only.
answer
C. the short run only.
question
Which of the following is correct?
A. There is no relationship between MP and MC.
B. When AP is rising MC is falling, and when AP is falling MC is rising.
C. When MP is rising MC is rising, and when MP is falling MC is falling.
D. When MP is rising MC is falling, and when MP is falling MC is rising.
A. There is no relationship between MP and MC.
B. When AP is rising MC is falling, and when AP is falling MC is rising.
C. When MP is rising MC is rising, and when MP is falling MC is falling.
D. When MP is rising MC is falling, and when MP is falling MC is rising.
answer
D. When MP is rising MC is falling, and when MP is falling MC is rising.
question
If a firm wanted to know how much it would save by producing one less unit of output, it would look to:
A. MC.
B. ATC.
C. AVC.
D. AFC.
A. MC.
B. ATC.
C. AVC.
D. AFC.
answer
A. MC.
question
Which of the following holds true?
A. There is no relationship between AP and AVC.
B. When MP is rising AVC is falling, and when MP is falling AVC is rising.
C. When AP is rising AVC is falling, and when AP is falling AVC is rising.
D. When AP is rising AVC is rising, and when AP is falling AVC is falling.
A. There is no relationship between AP and AVC.
B. When MP is rising AVC is falling, and when MP is falling AVC is rising.
C. When AP is rising AVC is falling, and when AP is falling AVC is rising.
D. When AP is rising AVC is rising, and when AP is falling AVC is falling.
answer
C. When AP is rising AVC is falling, and when AP is falling AVC is rising.
question
In the short run it is impossible for an expansion of output to increase:
A. average total cost.
B. average fixed cost.
C. marginal cost.
D. average variable cost.
A. average total cost.
B. average fixed cost.
C. marginal cost.
D. average variable cost.
answer
B. average fixed cost.
question
Average fixed costs can be determined graphically by:
A. summing the marginal costs of any number of units of output and dividing the sum by that output.
B. the vertical distance between TC and TVC.
C. the vertical distance between AVC and MC.
D. the vertical distance between ATC and AVC.
A. summing the marginal costs of any number of units of output and dividing the sum by that output.
B. the vertical distance between TC and TVC.
C. the vertical distance between AVC and MC.
D. the vertical distance between ATC and AVC.
answer
D. the vertical distance between ATC and AVC.
question
The vertical distance between the total cost and the total variable cost curves differs by an amount which:
A. initially increases, but then decreases, as output increases.
B. is constant as output changes.
C. decreases as output increases.
D. increases as output increases.
A. initially increases, but then decreases, as output increases.
B. is constant as output changes.
C. decreases as output increases.
D. increases as output increases.
answer
B. is constant as output changes.
question
The vertical distance between a firm's ATC and AVC curves represents:
A. AFC, which increases as output increases.
B. AFC, which decreases as output increases.
C. marginal costs, which decrease as output decreases.
D. marginal costs, which increase as output increases.
A. AFC, which increases as output increases.
B. AFC, which decreases as output increases.
C. marginal costs, which decrease as output decreases.
D. marginal costs, which increase as output increases.
answer
B. AFC, which decreases as output increases.
question
In the short run:
A. TVC will increase for a time at a diminishing rate, but then beyond some point will increase at an increasing rate.
B. TVC will increase for a time at an increasing rate, but then beyond some point will increase at a diminishing rate.
C. TVC will increase by the same absolute amount for each additional unit of output produced.
D. one cannot generalize concerning the behavior of TVC as output increases.
A. TVC will increase for a time at a diminishing rate, but then beyond some point will increase at an increasing rate.
B. TVC will increase for a time at an increasing rate, but then beyond some point will increase at a diminishing rate.
C. TVC will increase by the same absolute amount for each additional unit of output produced.
D. one cannot generalize concerning the behavior of TVC as output increases.
answer
A. TVC will increase for a time at a diminishing rate, but then beyond some point will increase at an increasing rate.
question
As output increases, total variable cost:
A. increases more rapidly than does total cost.
B. increases continuously at a decreasing rate.
C. increases at a decreasing rate and then at an increasing rate.
D. increases at a constant rate.
A. increases more rapidly than does total cost.
B. increases continuously at a decreasing rate.
C. increases at a decreasing rate and then at an increasing rate.
D. increases at a constant rate.
answer
C. increases at a decreasing rate and then at an increasing rate.
question
In the short run the Sure-Screen T-Shirt Company is producing 500 units of output. Its average variable costs are $2.00 and its average fixed costs are $.50. The firm's total costs:
A. are $2.50.
B. are $1,250.
C. are $750.
D. are $1,100.
A. are $2.50.
B. are $1,250.
C. are $750.
D. are $1,100.
answer
B. are $1,250.
question
Because the marginal product of a variable resource at first increases and then decreases as the output of the firm is increased:
A. total cost at first increases at a decreasing rate and then increases at an increasing rate.
B. total variable cost at first increases at an increasing rate and then increases at a decreasing rate.
C. average total cost at first increases and then diminishes.
D. average fixed cost will rise beyond the point of diminishing returns.
A. total cost at first increases at a decreasing rate and then increases at an increasing rate.
B. total variable cost at first increases at an increasing rate and then increases at a decreasing rate.
C. average total cost at first increases and then diminishes.
D. average fixed cost will rise beyond the point of diminishing returns.
answer
A. total cost at first increases at a decreasing rate and then increases at an increasing rate.
question
Suppose that, when producing 10 units of output, a firm's AVC is $22, its AFC is $5, and its MC is $30. This:
A. firm's ATC is $35.
B. firm's ATC is $57.
C. firm's total cost is $270.
D. firm's total cost is $30.
A. firm's ATC is $35.
B. firm's ATC is $57.
C. firm's total cost is $270.
D. firm's total cost is $30.
answer
C. firm's total cost is $270.
question
In comparing the changes in TC and TVC associated with an additional unit of output, we find that:
A. the change in TVC is equal to MC, while the change in TC is equal to TFC.
B. the change in TC exceeds the change in TVC.
C. the change in TVC exceeds the change in TC.
D. both are equal to MC.
A. the change in TVC is equal to MC, while the change in TC is equal to TFC.
B. the change in TC exceeds the change in TVC.
C. the change in TVC exceeds the change in TC.
D. both are equal to MC.
answer
D. both are equal to MC.
question
Other things equal, if the wage rates paid to a firm's labor inputs were to rise, we would expect the:
A. AFC, AVC, ATC, and MC curves all to rise.
B. AVC, ATC, and MC curves all to rise.
C. AFC and ATC curves to fall.
D. MP curve to fall.
A. AFC, AVC, ATC, and MC curves all to rise.
B. AVC, ATC, and MC curves all to rise.
C. AFC and ATC curves to fall.
D. MP curve to fall.
answer
B. AVC, ATC, and MC curves all to rise.
question
If a technological advance increases a firm's labor productivity, we would expect its:
A. average total cost curve to rise.
B. average total cost curve to fall.
C. total cost curve to rise.
D. average total cost curve to be unaffected.
A. average total cost curve to rise.
B. average total cost curve to fall.
C. total cost curve to rise.
D. average total cost curve to be unaffected.
answer
B. average total cost curve to fall.
question
Assume a firm closes down in the short run and produces no output. Under these conditions:
A. TVC is positive, but TFC and TC are zero.
B. TFC is positive, but TVC and TC are zero.
C. TFC and TC are positive, but TVC is zero.
D. TFC, TVC, and TC will all be positive.
A. TVC is positive, but TFC and TC are zero.
B. TFC is positive, but TVC and TC are zero.
C. TFC and TC are positive, but TVC is zero.
D. TFC, TVC, and TC will all be positive.
answer
C. TFC and TC are positive, but TVC is zero.
question
If marginal cost is:
A. falling, then average total cost must also be falling.
B. rising, then average total cost must also be rising.
C. rising, then average total cost could be either falling or rising.
D. falling, then average total cost could be either falling or rising.
A. falling, then average total cost must also be falling.
B. rising, then average total cost must also be rising.
C. rising, then average total cost could be either falling or rising.
D. falling, then average total cost could be either falling or rising.
answer
C. rising, then average total cost could be either falling or rising.
question
If the total variable cost of 9 units of output is $90 and the total variable cost of 10 units of output is $120, then:
A. the average variable cost of 10 units is $10.
B. the average variable cost of 9 units is $10.
C. the marginal cost of the tenth unit is $90.
D. the firm is operating in the range of increasing marginal returns.
A. the average variable cost of 10 units is $10.
B. the average variable cost of 9 units is $10.
C. the marginal cost of the tenth unit is $90.
D. the firm is operating in the range of increasing marginal returns.
answer
B. the average variable cost of 9 units is $10.
question
The short-run average total cost curve is U-shaped because:
A. average fixed costs decline continuously as output increases.
B. of increasing and diminishing returns.
C. of economies and diseconomies of scale.
D. minimum efficient scale is encountered.
A. average fixed costs decline continuously as output increases.
B. of increasing and diminishing returns.
C. of economies and diseconomies of scale.
D. minimum efficient scale is encountered.
answer
B. of increasing and diminishing returns.
question
Economies and diseconomies of scale explain:
A. the profit-maximizing level of production.
B. why the firm's long-run average total cost curve is U-shaped.
C. why the firm's short-run marginal cost curve cuts the short-run average variable cost curve at its minimum point.
D. the distinction between fixed and variable costs.
A. the profit-maximizing level of production.
B. why the firm's long-run average total cost curve is U-shaped.
C. why the firm's short-run marginal cost curve cuts the short-run average variable cost curve at its minimum point.
D. the distinction between fixed and variable costs.
answer
B. why the firm's long-run average total cost curve is U-shaped.
question
In the long run:
A. all costs are variable costs.
B. all costs are fixed costs.
C. variable costs equal fixed costs.
D. fixed costs are greater than variable costs.
A. all costs are variable costs.
B. all costs are fixed costs.
C. variable costs equal fixed costs.
D. fixed costs are greater than variable costs.
answer
A. all costs are variable costs.
question
When diseconomies of scale occur:
A. the long-run average total cost curve falls.
B. marginal cost intersects average total cost.
C. the long-run average total cost curve rises.
D. average fixed costs will rise.
A. the long-run average total cost curve falls.
B. marginal cost intersects average total cost.
C. the long-run average total cost curve rises.
D. average fixed costs will rise.
answer
C. the long-run average total cost curve rises.
question
Which of the following is not a source of economies of scale?
A. learning-by-doing.
B. labor specialization.
C. use of larger machines.
D. inelastic resource supply curves.
A. learning-by-doing.
B. labor specialization.
C. use of larger machines.
D. inelastic resource supply curves.
answer
D. inelastic resource supply curves.
question
When a firm does more of something, it gets better at it. This learning-by-doing is:
A. a source of diseconomies of scale.
B. a source of economies of scale.
C. called the principle of natural progression.
D. called "spreading the overhead."
A. a source of diseconomies of scale.
B. a source of economies of scale.
C. called the principle of natural progression.
D. called "spreading the overhead."
answer
B. a source of economies of scale.
question
Economies of scale are indicated by:
A. the rising segment of the average variable cost curve.
B. the declining segment of the long-run average total cost curve.
C. the difference between total revenue and total cost.
D. a rising marginal cost curve.
A. the rising segment of the average variable cost curve.
B. the declining segment of the long-run average total cost curve.
C. the difference between total revenue and total cost.
D. a rising marginal cost curve.
answer
B. the declining segment of the long-run average total cost curve.
question
If a firm doubles its output in the long run and its unit costs of production decline, we can conclude that:
A. technological progress has occurred.
B. economies of scale are being realized.
C. the firm is encountering diminishing returns.
D. diseconomies of scale are being encountered.
A. technological progress has occurred.
B. economies of scale are being realized.
C. the firm is encountering diminishing returns.
D. diseconomies of scale are being encountered.
answer
B. economies of scale are being realized.
question
The minimum efficient scale of a firm:
A. is realized somewhere in the range of diseconomies of scale.
B. occurs where marginal product becomes zero.
C. is in the middle of the range of constant returns to scale.
D. is the smallest level of output at which long-run average total cost is minimized.
A. is realized somewhere in the range of diseconomies of scale.
B. occurs where marginal product becomes zero.
C. is in the middle of the range of constant returns to scale.
D. is the smallest level of output at which long-run average total cost is minimized.
answer
D. is the smallest level of output at which long-run average total cost is minimized.
question
If an industry's long-run average total cost curve has an extended range of constant returns to scale, this implies that:
A. technology precludes both economies and diseconomies of scale.
B. the industry will be a natural monopoly.
C. both relatively small and relatively large firms can be viable in the industry.
D. the industry will be comprised of a very large number of small firms.
A. technology precludes both economies and diseconomies of scale.
B. the industry will be a natural monopoly.
C. both relatively small and relatively large firms can be viable in the industry.
D. the industry will be comprised of a very large number of small firms.
answer
C. both relatively small and relatively large firms can be viable in the industry.
question
A natural monopoly exists when:
A. unit costs are minimized by having one firm produce an industry's entire output.
B. several formerly competing producers merge to become the only firm in an industry.
C. short-run average total cost curves are tangent to long-run average total cost curves.
D. minimum efficient scale is attained at a small level of output.
A. unit costs are minimized by having one firm produce an industry's entire output.
B. several formerly competing producers merge to become the only firm in an industry.
C. short-run average total cost curves are tangent to long-run average total cost curves.
D. minimum efficient scale is attained at a small level of output.
answer
A. unit costs are minimized by having one firm produce an industry's entire output.
question
Diseconomies of scale arise primarily because:
A. the short-run average total cost curve rises when marginal product is increasing.
B. of the difficulties involved in managing and coordinating a large business enterprise.
C. firms must be large both absolutely and relative to the market to employ the most efficient productive techniques available.
D. beyond some point marginal product declines as additional units of a variable resource (labor) are added to a fixed resource (capital).
A. the short-run average total cost curve rises when marginal product is increasing.
B. of the difficulties involved in managing and coordinating a large business enterprise.
C. firms must be large both absolutely and relative to the market to employ the most efficient productive techniques available.
D. beyond some point marginal product declines as additional units of a variable resource (labor) are added to a fixed resource (capital).
answer
B. of the difficulties involved in managing and coordinating a large business enterprise.
question
The long-run average total cost curve:
A. displays declining unit costs so long as output is increasing.
B. indicates the lowest unit costs achievable when a firm has had sufficient time to alter plant size.
C. has a shape which is the inverse of the law of diminishing returns.
D. can be derived by summing horizontally the average total cost curves of all firms in an industry.
A. displays declining unit costs so long as output is increasing.
B. indicates the lowest unit costs achievable when a firm has had sufficient time to alter plant size.
C. has a shape which is the inverse of the law of diminishing returns.
D. can be derived by summing horizontally the average total cost curves of all firms in an industry.
answer
B. indicates the lowest unit costs achievable when a firm has had sufficient time to alter plant size.
question
If a firm increases all of its inputs by 10 percent and its output increases by 15 percent, then:
A. it is encountering diseconomies of scale.
B. it is encountering economies of scale.
C. the law of diminishing returns is taking hold.
D. the firm's long-run ATC curve will be rising.
A. it is encountering diseconomies of scale.
B. it is encountering economies of scale.
C. the law of diminishing returns is taking hold.
D. the firm's long-run ATC curve will be rising.
answer
B. it is encountering economies of scale.
question
If a firm increases all of its inputs by 10 percent and its output increases by 10 percent, then:
A. it is encountering diseconomies of scale.
B. it is encountering economies of scale.
C. it is encountering constant returns to scale.
D. the marginal products of all inputs are falling.
A. it is encountering diseconomies of scale.
B. it is encountering economies of scale.
C. it is encountering constant returns to scale.
D. the marginal products of all inputs are falling.
answer
C. it is encountering constant returns to scale.
question
The ABC Corporation decreases all of its inputs by 12 percent and finds that its output falls by only 8 percent. This means that initially it was producing:
A. in the range of diseconomies of scale.
B. in the range of economies of scale.
C. where AP is less than MP.
D. at the point of minimum efficient scale.
A. in the range of diseconomies of scale.
B. in the range of economies of scale.
C. where AP is less than MP.
D. at the point of minimum efficient scale.
answer
A. in the range of diseconomies of scale.
question
Suppose a firm is in a range of production where it is experiencing economies of scale. Knowing this, we can predict that:
A. the long-run average total cost curve is upsloping.
B. a 10 percent increase in all inputs will increase output by less than 10 percent.
C. a 10 percent increase in all inputs will increase output by more than 10 percent.
D. the firm is encountering problems of managerial bureaucracy because of its size.
A. the long-run average total cost curve is upsloping.
B. a 10 percent increase in all inputs will increase output by less than 10 percent.
C. a 10 percent increase in all inputs will increase output by more than 10 percent.
D. the firm is encountering problems of managerial bureaucracy because of its size.
answer
C. a 10 percent increase in all inputs will increase output by more than 10 percent.
question
Because of higher gasoline prices, firms using gasoline intensively in the production or distribution of their goods have experienced:
A. an upward shift in their MC, AVC, and ATC curves.
B. an upward shift in their AFC, AVC, and ATC curves.
C. a downward shift in their MC, AFC, and AVC curves.
D. greater economies of scale.
A. an upward shift in their MC, AVC, and ATC curves.
B. an upward shift in their AFC, AVC, and ATC curves.
C. a downward shift in their MC, AFC, and AVC curves.
D. greater economies of scale.
answer
A. an upward shift in their MC, AVC, and ATC curves.
question
Which of the following types of firms are least likely to have their MC, AVC, and ATC curves affected by fluctuations in gasoline prices?
A. firms like UPS that use a fleet of gasoline-powered vehicles.
B. taxi cab and limousine companies.
C. companies that operate bus tours to popular vacation destinations.
D. firms like iTunes that distribute their products over the Internet.
A. firms like UPS that use a fleet of gasoline-powered vehicles.
B. taxi cab and limousine companies.
C. companies that operate bus tours to popular vacation destinations.
D. firms like iTunes that distribute their products over the Internet.
answer
D. firms like iTunes that distribute their products over the Internet.
question
Introduction of the Verson Stamping Machine helped firms in the automobile industry:
A. eliminate diminishing returns in production.
B. achieve greater economies of scale.
C. reach their minimum efficient scale at a lower level of production.
D. shift their AVC, ATC, and MC curves upward.
A. eliminate diminishing returns in production.
B. achieve greater economies of scale.
C. reach their minimum efficient scale at a lower level of production.
D. shift their AVC, ATC, and MC curves upward.
answer
B. achieve greater economies of scale.
question
In which of the following industries are economies of scale exhausted at relatively low levels of output?
A. aircraft production
B. automobile manufacturing
C. concrete mixing
D. newspaper printing
A. aircraft production
B. automobile manufacturing
C. concrete mixing
D. newspaper printing
answer
C. concrete mixing
question
Daily newspapers have been rising in price in recent years because:
A. wages in the newspaper industry have risen dramatically.
B. the overhead costs have recently been spread over a shrinking number of buyers.
C. capital has replaced virtually all labor used to produce a newspaper.
D. long-standing government subsidizes have been removed in most major cities.
A. wages in the newspaper industry have risen dramatically.
B. the overhead costs have recently been spread over a shrinking number of buyers.
C. capital has replaced virtually all labor used to produce a newspaper.
D. long-standing government subsidizes have been removed in most major cities.
answer
B. the overhead costs have recently been spread over a shrinking number of buyers.
question
economies and diseconomies of scale explain
answer
why the firm's long run average total cost curve is u-shaped
question
diseconomies of scale occur when
answer
when the long run ATC curve rises
question
when a firm doubles its inputs and finds that its output has more than doubled, this is known as
answer
economies of scale
question
when economies of scale occur:
answer
the long run ATC curve falls
question
suppose a firm is in a range of production where it is experiencing economies of scale. Knowing this, we can predict that
answer
a 10% increase in all inputs will increase outputs by more than 10%
question
T/F: If the MC of producing the 10th unit of output is $3, and if the ATC of producing the 10th unit of output is $2, then at ten unit of output, ATC is falling
answer
F
question
The cost of producing an additional unit of a good could b the same as the avg cost of a good
answer
T
question
diseconomies of scale often arise bc higher production levels allow specialization among workers
answer
F: false for econ of scale too
question
for a firm operating in a perfectly competitive industry, TR, MR, and avg rev are all =
answer
F
question
Firms operating in perfectly competitive markets produce an output level where p=MC
answer
T
question
a firm will shit down in SR if rev is not sufficient to cover its fixed costs of production
answer
F
question
the supply curve of a firm in a competitive market is the ATC curve above the minimum of marginal cost
answer
F
question
if production is occurring where MC > P, the purely competitive firm will fail to maximize profit and resources will be over allocated to the product
answer
T
question
after all LR adjustments have been completed, a firm in a competitive industry will produce that level of output where AVC is at a minimum
answer
F: where ATC is at a minimum
question
if an increase in demand for a particular product leads to a lower LR equilibrium price, firms in the market are apart of a decreasing cost indusrty
answer
T
question
an increasing cost industry is a result of:
answer
higher resource prices which occur as the industry expands
question
Which of the following constitutes an implicit cost to the Johnston Manufacturing Company?
answer
Depreciation charges on company owned equipment
question
Implicit and explicit costs are different in that
answer
the former refer to non-expenditure costs and the latter to out-of-pocket costs.
question
Implicit costs are:
answer
nonexpenditure costs
question
Economic profits are calculated by subtracting
answer
Explicit and implicit costs from total revenue
question
The basic characteristics of the short run is that
answer
the firm does not have sufficient time to change the size of its plant
question
Which of the following is a short run adjustment?
answer
A local bakery hires two additional bakers
question
To an economist the main difference between the short run and the long run is that
answer
in the long run all resources are variable, while in the short run at least one resource is fixed.
question
The short run is characterized by
answer
at least one fixed resource
question
The long run is characterized by
answer
The ability of the firm to change its plant size
question
If a variable input is added to some fixed input beyond some point the resulting extra output will decline. This statement describes
answer
the law of diminishing returns
question
Fixed cost is:
answer
any cost which does not change when the firm changes its output
question
Which of the following is most likely to be a fixed cost?
answer
Property insurance premiums
question
Which of the following is most likely to be a variable cost?
answer
Fuel and power payments
question
If you operated a small bakery, which of the following would be a variable cost in the short run?
answer
Baking supplies (flour, salt, etc.)
question
Marginal cost is the
answer
change in total cost that results from producing one more unit of output
question
Average fixed cost
answer
declines continually as output increases
question
If a firm decides to produce no output in the short run, its cost will be
answer
its fixed cost
question
Fixed costs are associated with
answer
the short run only
question
Total cost minus total variable cost equals
answer
total fixed cost
question
In the long run
answer
all costs are variable costs
question
Diseconomics of scale
answer
pertain to the long run
question
Which of the following industries most closely approximates pure competition?
answer
agriculture
question
Economists use the term imperfect competition to describe
answer
those markets which are not purely competitive
question
A purely competitve seller is
answer
a "price taker"
question
The demand schedule or curve confronted by the individual purely competitive firmis
answer
perfectly elastic
question
A perfectly elastic demand curve implies that the firm
answer
can sell as much output as it chooses at the existing price
question
Marginal revenue for a purely competitive firm
answer
is equal to price
question
Firms seek to mazimize
answer
total profit
question
If a purely competitive firm shuts down in the short run
answer
it will realize a loss equal to it total fixed costs.
question
In the short run a purely competitive seller will shut down if product price
answer
is less the AVC
question
A purely competitive firm's short-run supply curve
answer
its marginal cost curve above average variable cost.
question
A constant cost industry is one in which
answer
resource prices remain unchanged as output is increased
question
Under pure competition i the long run
answer
both allocative efficiency and productive efficiency are achieved.
question
Pure monopoly means:
answer
a single firm producing a product for which there are no close substitutes.
question
Which of the following is correct?
answer
A purely competitive firm is a "price taker," while a monopolist is a "price maker."
question
A pure monopolist is:
answer
a one-firm industry
question
In the short run, a monopolist's economic profits:
answer
may be positive or negative depending on market demand and cost.
question
There is some evidence to suggest that X-inefficiency is:
answer
more likely to occur in monopolistic firms than in competitive firms
question
Monopolistic competition means:
answer
many firms producing differentiated products.
question
Under monopolistic competition entry to the industry is:
answer
more difficult than under pure competition but not nearly as difficult as under pure monopoly.
question
The restaurant, legal assistance, and clothing industries are each illustrations of:
answer
monopolistic competition.
question
In the short run a monopolistically competitive firm's economic profit:
answer
may be positive, zero, or negative.
question
The term oligopoly indicates:
answer
a few firms producing either a differentiated or a homogeneous product.
question
In an oligopolistic market:
answer
products may be standardized or differentiated.
question
The automobile, household appliance, and automobile tire industries are all illustrations of:
answer
differentiated oligopoly.
question
The copper, aluminum, cement, and industrial alcohol industries are examples of:
answer
homogeneous oligopoly.
question
Which of the following is the best example of oligopoly?
answer
automobile manufacturing
question
Homogeneous oligopoly exists where a small number of firms are:
answer
producing virtually identical products.
question
Which of the following is a unique feature of oligopoly?
answer
mutual interdependence
question
Concentration ratios measure the:
answer
percentage of total sales accounted for by the four largest firms in the industry.
question
If the four-firm concentration ratio for industry X is 80:
answer
the four largest firms account for 80 percent of total sales
question
An industry having a four-firm concentration ratio of 85 percent
answer
is an oligopoly.
question
OPEC provides an example of:
answer
an international cartel.
question
The Clayton Act of 1914:
answer
outlawed price discrimination, tying contracts, intercorporate stockholding, and interlocking directorates that lessen competition.
question
The Sherman Act was designed to:
answer
make monopoly and acts that restrain trade illegal.
question
The function of investigating instances of fraudulent advertising has been assigned to the:
answer
Federal Trade Commission
question
Which of the following gave the Federal Trade Commission responsibility to protect the public against false and misleading advertising?
answer
Wheeler-Lea Act of 1938
question
The basic issue in the DuPont cellophane case was:
answer
defining the relevant market.
question
The price elasticity of demand coefficient measures
answer
Buyers responsiveness to price changes
question
The basic formula for the price elasticity of demand coefficient is
answer
Percent change in quantity demanded/percentage change in price
question
The demand for a product is inelastic with respect to price if
answer
consumers are largely unresponsive to a per unit price change
question
If the price elasticity of demand for a product is 2.5, then a price cut from $2.00 to $1.80 will
answer
Increase the quantity demanded by about 25 percent
question
Suppose that as the price of Y falls from $2 to $1.90 the quantity of Y demanded increases from from 110 to 118. Then the price elasticity of demand is
answer
$1.37
question
Which of the following is not characteristic of the demand for a commodity that is elastic?
answer
The elasticity coefficient is less than one
question
If the demand for product X is inelastic, a 4 percent increase in the price of X will
answer
Decrease the quantity of X demanded by less than 4%
question
If a firm can sell 3,000 units of product A at $10 per unit and 5,000 at $8, then
answer
The price elasticity of demand is 2.25
question
A perfectly inelastic demand schedule
answer
Can be represented by a line parallel to the vertical axis
question
The larger the coefficient of price elasticity of demand for a product, the
answer
smaller the resulting price change for an increase in supply
question
Most demand curves are relatively elastic in the upper-left portion because the original price
answer
from which the percentage price change is calculated is large and the original quantity from which the percentage change in quantity is calculated is small
question
The price elasticity of demand for widgets is 0.80. Assuming no change in the demand curve for widgets, a 16% increase in sales implies a
answer
20% reduction in price
question
Suppose Aiyanna's Pizzeria currently faces a linear demand curve and is charging a very high price per pizza and doing very little business. Aiyanna now decides to lower pizza prices by 5% per week for an indefinite period of time. We can expect that each successive week
answer
Demand will become less price elastic
question
The price elasticity of demand of a straight-line demand curve is
answer
Elastic in high-price ranges and inelastic in low-price ranges
question
A leftward shift in the supply curve of product X will increase equilibrium price to a greater extent the
answer
More inelastic the demand for the product
question
If the demand for bacon is relatively elastic, a 10% delcine in price of bacon will
answer
Increase the amount demanded by more than 10%
question
The price elasticity of demand is generally
answer
Negative, but the minus sign is ignored
question
For a linear demand curve
answer
Demand is elastic at high prices
question
The price of product X is reduced from $100 to $90 and, as a result, the quantity demanded increases from 50 to 60 units. Therefore demand for X in this price range
answer
Is elastic
question
Suppose we find that the price elasticity of demand for a product is 3.5 when its price is increased by 2%. We can conclude that the quantity demanded
answer
decreased by 7%
question
The price elasticity of demand for beef is about .60. Other things equal, this means that a 20% increase in the price of beef will cause the quantity of beef demanded to
answer
Decrease by approximately 12%
question
If a demand for a product is elastic, the value of the price elasticity coefficient is
answer
Greater than one
question
The concept of price elasticity of demand measures
answer
The sensitivity of consumer purchases to price changes
question
Suppose the price of local cable TV services increased from $16.20 to $19.80 and as a result the number of cable subscribers decreased from 224,000 to 176,000. Along this portion of the demand curve, price elasticity of demand is
answer
1.2
question
If the price of hand calculators falls from $10 to $9 and, as a result, the quantity demanded increases from 100 to 125, then
answer
Demand is elastic
question
A perfectly inelastic demand curve
answer
Graphs as a line parallel to the vertical axis
question
If quantity demanded is completely unresponsive to price changes, demand is
answer
Perfectly inelastic
question
A firm can sell as much as it wants at a constant price. Demand is thus
answer
Perfectly elastic
question
A demand curve which is parallel to the horizontal axis is
answer
perfectly elastic
question
When the percentage change in price is greater than the resulting percentage change in quantity demanded
answer
an increase in price will increase total revenue
question
Suppose the price elasticity coefficients of demand are 1.43,.67,1.11, and .29 for products W,X,Y, and Z respectively. A 1% decrease in price will increase total revenure in the case(s) of
answer
W and Y
question
Which of the following statements is no correct
answer
In the range of prices in which demand is elastic, total revenue will diminish as price decreases
question
In which of the following instances will total revenue decline
answer
Price rises and demand is elastic
question
If a firm's demand for labor is elastic, a union-negotiated wage increase will
answer
Cause the firm's total payroll to decline
question
The Illonois Central Railroad once asked the Illinois Commerce Commission for permission to increase its commuter rates by 20%. The railroad argued that declining revenues made this rate increase essential. Opponents of the rate increase contended that the railroad's revenues would fall because of the rate hike. It can be concluded that
answer
The railroad felt that the demand for passenger service was inelastic and opponents of the rate increase felt it was elastic
question
If a firm finds that it can sell $13,000 worth of product when its price is $5 per unit and $11,000 worth of it when its price is $6, then
answer
The demand for the product is elastic in the $6-$5 price range
question
Suppose the price elasticity of demand for bread is .20. If the price of break falls by 10%, the quantity demanded will increase by
answer
2% and total expenditures on bread will fall
question
Gigantic State University raises tuition for the purpose of increasing its revenue so that more faculty can be hired. GSU is assuming that the demand for education at GSU is
answer
Relatively inelastic
question
If the demand for farm products is price inelastic, a good harvest will cause farm revenues to
answer
Decrease
question
Other things the same, if a price change causes total revenue to change in the opposite direction, demand is
answer
Relatively elastic
question
If the price elasticity of demand for a product is unity, a decrease in price will
answer
Increase the quantity demanded, but total revenue will be unchanged
question
In which of the following cases will total revenue increase
answer
Price rises and demand is inelastic
question
A manufacturer of frozen pizzas found that total revenue decreased when price was lowered from $5 to $4. It was also found that total revenue decreased when price was raised from $5 to $6. Thus
answer
The demand for pizza is elastic above $5 and inelastic below $5
question
The total-revenue test for elasticity
answer
Does not apply to supply because price and quantity are directly related
question
If the University Chamber Music Society decides to raise ticket prices to provide more funds to finance concerts, the Society is assuming that the demand for tickets is
answer
Inelastic
question
The state legislature has cut Gigantic State University's appropriations. GSU's Board of Regents decides to increase tuition fees to compensate for the loss of revenue. The board is assuming that the
answer
Demand for education at GSU is inelastic
question
Which of the following is correct
answer
If demand is elastic, a decrease in price will increase total revenue
question
Suppose that the price of peanuts falls from $3 to $2 per bushel and that, as a result, the total revenue received by peanut farmers changes from $16 to $14 billion. Thus
answer
The demand for peanuts is inelastic
question
Which of the following is correct?
answer
If the demand for a product is inelastic, a change in price will cause total revenue to change in the same direction
question
The demand schedules for such products as eggs, bread, and electricity tend to be
answer
Relatively price inelastic
question
The elasticity of demand for a product is likely to be greater
answer
The greater the amount of time over which buyers adjust to a price change
question
We would expect
answer
The demand for Coca-Cola to be more price elastic than the demand for soft drinks in general
question
The narrower the definition of a product
answer
The larger the number of substitutes and the greater the price elasticity of demand
question
The more time consumers have to adjust to a change in price
answer
The greater will be the price elasticity of demand
question
The demand for autos is likely to be
answer
Less price elastic than the demand for Honda Accords
question
Price elasticity of demand is generally
answer
Greater in the long run than in the short run
question
Which of the following generalizations is NOT correct
answer
The price elasticity of demand is greater for necessities than it is for luxuries
question
If price and total revenue vary in opposite directions, demand is
answer
Relatively elastic
question
The demand for a luxury good whose purchase would exhaust a big portion of one's income is
answer
Relatively price elastic
question
The demand for a necessity whose cost is a small portion of one's total income is
answer
Relatively price inelastic
question
The price elasticity of supply measures how
answer
Responsive the quantity supplied of X is to changes in the price of X
question
The main determinant of elasticity of supply is the
answer
Amount of time the producer has to adjust inputs in response to a price change
question
Suppose the supply of product X is perfectly inelastic. If there is an increase in the demand for this product, equilibrium price
answer
Will increase but equilibrium quantity will be unchanged
question
The supply of product X is elastic if the price of X rises by
answer
5% and the quantity supplied rises by 7%
question
The supply of product X is inelastic (but not perfectly inelastic) if the price of X rises by
answer
7% and the quantity supplied rises by 5%
question
The elasticity of supply of product X is unitary if the price of X rises by
answer
8% and the quantity supplied rises by 8%
question
The supply of product X is perfectly inelastic if the price of X rises by
answer
10% and the quantity supplied stays the same
question
It takes a considerable amount of time to increase the production of pork. This implies that
answer
The short-run supply curve for pork is less elastic than the long-run supply curve for pork
question
Suppose that the price of product X rises by 20% and the quantity supplied of X increases by 15%. The coefficient of price elasticity of supply for good X is
answer
Less than 1 and therefore supply is inelastic
question
If the supply of product X is perfectly elastic, an increase in the demand for it will increase
answer
equilibrium quantity but equilibrium price will be unchanged
question
Suppose the price of a product rises and the total revenue of sellers increases
answer
No conclusion can be reached with respect to the elasticity of supply
question
Supply curves tend to be
answer
More elastic in the long run because there is time for firms to enter or leave the industry
question
For an increase in demand the price effect is smallest and the quantity effect is largest
answer
In the long run
question
A supply curve that is vertical straight line indicates that
answer
A change in price will have no effect on the quantity supplied
question
A supply curve that is parallel to the horizontal axis suggests that
answer
A change in demand will change the equilibrium quantity but not the price
question
An increase in demand will increase equilibrium price to a greater extent
answer
The less elastic the supply curve
question
The supply of known Monet painting is
answer
Perfectly inelastic
question
Refer to the above information and assume the stadium capacity is 5,000. If the Mudhens' management charges
answer
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