question
In a perfectly competitive market economy, business failures can benefit society by causing:
- A reallocation of resources to better uses.
- An increase in market power for the remaining firms.
- A decline in market prices as remaining firms attempt to increase sales and stay in business.
- An increase in the number of jobs for bankruptcy lawyers and accountants.
- A reallocation of resources to better uses.
- An increase in market power for the remaining firms.
- A decline in market prices as remaining firms attempt to increase sales and stay in business.
- An increase in the number of jobs for bankruptcy lawyers and accountants.
answer
a reallocation of resources to better uses
question
The average variable cost curve slopes upward with a higher rate of output in the short run because of:
- The effect of diminishing returns.
- The shape of the average fixed cost curve.
- Diseconomies of scale.
- All other choices.
- The effect of diminishing returns.
- The shape of the average fixed cost curve.
- Diseconomies of scale.
- All other choices.
answer
the effect of diminishing returns
question
If a monopoly firm produces the quantity of output at which MR = MC,it necessarily
- maximizes its profit or minimizes its loss
- earns a profit
- maximizes total revenue.
- not producing the optimal quantiy
- maximizes its profit or minimizes its loss
- earns a profit
- maximizes total revenue.
- not producing the optimal quantiy
answer
maximizes its profit or minimizes its loss
question
For a perfectly competitive firm, profit maximization or loss minimization occurs at the output at which
- MR = MC.
- MR = AVC.
- P = ATC.
- MR = ATC.
- MR = MC.
- MR = AVC.
- P = ATC.
- MR = ATC.
answer
MR = MC
question
A production decision is a:
- Short-run choice about both fixed and variable factor levels.
- Short-run choice about only variable factor levels.
- Long-run choice about both fixed and variable factor levels.
- Long-run choice about only variable factor levels.
- Short-run choice about both fixed and variable factor levels.
- Short-run choice about only variable factor levels.
- Long-run choice about both fixed and variable factor levels.
- Long-run choice about only variable factor levels.
answer
short-run choice about only variable factor levels
question
Greater-than-normal profit represents:
- Compensation for risks incurred.
- Payment for entrepreneurship.
- Above-average returns to capital.
- All other choices.
- Compensation for risks incurred.
- Payment for entrepreneurship.
- Above-average returns to capital.
- All other choices.
answer
all other choices
question
Which of the following statements about a perfectly competitive firm is necessarily false?
- There are few substitutes for the firm's product.
- There are few complements to the firm's product.
- The firm equalizes marginal revenue and marginal cost.
- The firm sells a product that is identical in the eyes of buyers to any other product sold in the industry.
- There are few substitutes for the firm's product.
- There are few complements to the firm's product.
- The firm equalizes marginal revenue and marginal cost.
- The firm sells a product that is identical in the eyes of buyers to any other product sold in the industry.
answer
there are few substitutes for the firm's product
question
n the theory of perfect competition, the assumptions of many buyers and sellers, the production of a homogeneous product, and the possession of all relevant information by buyers and sellers imply that the perfectly competitive firm
- sets the price it wishes.
- has a demand curve that is downward sloping.
- has a demand curve that is perfectly elastic.
- none of the other choices
- sets the price it wishes.
- has a demand curve that is downward sloping.
- has a demand curve that is perfectly elastic.
- none of the other choices
answer
has a demand curve that is perfectly elastic
question
Which of the following statement is true?
- Economies of scale cause increasing returns to scale.
- Increasing returns to scale cause economies of scale.
- There are no causal relation between economies of scale and increasing returns to scale
- Increasing returns to scale is due to the sharing of fixed costs by more units of output.
- Economies of scale cause increasing returns to scale.
- Increasing returns to scale cause economies of scale.
- There are no causal relation between economies of scale and increasing returns to scale
- Increasing returns to scale is due to the sharing of fixed costs by more units of output.
answer
Increasing returns to scale cause economies of scale
question
A price-taker firm will not sell any of its product at less than equilibrium price because
- it is against the law to do this.
- it can sell all it wants at equilibrium price.
- it would invoke retaliation from other firms
- consumers will think their products are of low quality
- it is against the law to do this.
- it can sell all it wants at equilibrium price.
- it would invoke retaliation from other firms
- consumers will think their products are of low quality
answer
it can sell all it wants at equilibrium price
question
Which of the following is a short-run decision?
- The production decision.
- The investment decision.
- Whether to use implicit or explicit costs to calculate economic profit.
- Where the marginal cost curve intersects the average total cost curve.
- The production decision.
- The investment decision.
- Whether to use implicit or explicit costs to calculate economic profit.
- Where the marginal cost curve intersects the average total cost curve.
answer
the production decision
question
The average total cost to produce 100 cookies is $0.25 per cookie. The marginal cost is constant at $0.10 for all cookies produced. The total cost to produce 50 cookies is
- $20
- $25
- $50
- $60
- indeterminate
- $20
- $25
- $50
- $60
- indeterminate
answer
$20
question
Which of the following is characteristic of a perfectly competitive market?
- A small number of firms.
- Exit of small firms when profits are high for large firms.
- Zero economic profit in the long run.
- Marginal revenue lower than price for each firm.
- A small number of firms.
- Exit of small firms when profits are high for large firms.
- Zero economic profit in the long run.
- Marginal revenue lower than price for each firm.
answer
zero economic profit in the long run
question
The perfectly competitive firm's short-run supply curve is the
- upward-sloping portion of its average total cost curve.
- horizontal portion of its marginal revenue curve.
- portion of its average variable cost curve that lies above the average fixed cost curve.
- upward-sloping portion of its marginal cost curve.
- portion of its marginal cost curve that lies above its average variable cost curve.
- upward-sloping portion of its average total cost curve.
- horizontal portion of its marginal revenue curve.
- portion of its average variable cost curve that lies above the average fixed cost curve.
- upward-sloping portion of its marginal cost curve.
- portion of its marginal cost curve that lies above its average variable cost curve.
answer
portion of its marginal cost curve that lies above its average variable cost curve
question
Suppose your firm has a U-shaped average variable cost curve and operates in a perfectly competitive market. If you produce where the product price (marginal revenue) equals average variable cost (on the upward sloping portion of the AVC curve), then your output will:
- exceed the profit-maximizing level of output.
- be smaller than the profit-maximizing level of output.
- equal the profit-maximizing level of output.
- generate zero economic profits.
- exceed the profit-maximizing level of output.
- be smaller than the profit-maximizing level of output.
- equal the profit-maximizing level of output.
- generate zero economic profits.
answer
exceed the profit-maximizing level of output
question
Suppose that a firm operating in perfectly competitive market sells 400 units of output at a price of $4 each. Which of the following statements is correct? i) Marginal revenue equals $4. ii) Average revenue equals $100. iii) Total revenue equals $1,600.
- i) only
- ii) only
- iii) only
- i) and iii) only
- i), ii), and iii)
- i) only
- ii) only
- iii) only
- i) and iii) only
- i), ii), and iii)
answer
i) and iii) only
question
Which of the following is NOT true regarding monopoly?
- Monopoly is the sole producer in the market.
- Monopoly price is determined from the demand curve.
- Monopolist can charge as high a price as it likes.
- Monopoly demand curve is downward sloping.
- Monopoly is the sole producer in the market.
- Monopoly price is determined from the demand curve.
- Monopolist can charge as high a price as it likes.
- Monopoly demand curve is downward sloping.
answer
monopolist can charge as high a price as it likes
question
In making a production decision, an entrepreneur:
- Decides whether to enter or exit the market.
- Makes a long-run decision about production.
- Determines plant and equipment.
- Decides the short-run rate of output.
- Decides whether to enter or exit the market.
- Makes a long-run decision about production.
- Determines plant and equipment.
- Decides the short-run rate of output.
answer
decides the short-run rate of output
question
When a firm earns zero economic profit, it has
- not covered all its explicit costs.
- not covered all its implicit costs.
- not earned enough to stay in business.
- definitely earned an accounting profit if implicit costs are positive.
- none of the other choices
- not covered all its explicit costs.
- not covered all its implicit costs.
- not earned enough to stay in business.
- definitely earned an accounting profit if implicit costs are positive.
- none of the other choices
answer
definitely earned an accounting profit if implicit costs are positive
question
Which of the following is true?
- At some high level of output, AFC is zero.
- The MC curve is eventually upward-sloping.
- The marginal cost curve cuts the average variable cost curve at its midpoint.
- There are no fixed costs in the short run.
- At some high level of output, AFC is zero.
- The MC curve is eventually upward-sloping.
- The marginal cost curve cuts the average variable cost curve at its midpoint.
- There are no fixed costs in the short run.
answer
the MC curve is eventually upward-sloping
question
For the perfectly competitive firm, the marginal revenue is always:
- Below the firm's demand curve.
- Equal to the market price.
- Equal to marginal cost.
- Declining.
- Below the firm's demand curve.
- Equal to the market price.
- Equal to marginal cost.
- Declining.
answer
Equal to the market price
question
If the marginal cost curve is rising, then which of the following must be true?
- The average total cost curve must be rising.
- The average total cost curve must be below the marginal cost curve.
- The average total cost curve must be above the marginal cost curve.
- Total costs must be rising.
- The average total cost curve must be rising.
- The average total cost curve must be below the marginal cost curve.
- The average total cost curve must be above the marginal cost curve.
- Total costs must be rising.
answer
total costs must be rising
question
Consider the following statements when answering this question I. If the marginal product of labor falls whenever more labor is used, and labor is the only factor of production used by the firm, than at every output level the firm's short-run average variable cost exceeds marginal cost. II. If labor obeys the law of diminishing returns, and is the only factor of production used by the firm, then at every output level short-run average variable costs exceed marginal costs.
- I is true, and II is false.
- I is false, and II is true.
- I and II are both true.
- I and II are both false.
- I is true, and II is false.
- I is false, and II is true.
- I and II are both true.
- I and II are both false.
answer
I is true, and II is false
question
Which of the following rules is satisfied when a monopoly maximizes profits?
- Price > AVC.
- Price > MC.
- MR = MC.
- All other choices.
- Price > AVC.
- Price > MC.
- MR = MC.
- All other choices.
answer
all other choices
question
Technological improvements cause:
- ATC to shift down.
- MC to shift down.
- Output to increase.
- All other choices.
- ATC to shift down.
- MC to shift down.
- Output to increase.
- All other choices.
answer
all other choices
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