question
1) Perfectly competitive firms must make all of the following decisions EXCEPT
A) how much output to supply.
B) which production technology to use.
C) how much of each input to demand.
D) what price to charge for its output.
A) how much output to supply.
B) which production technology to use.
C) how much of each input to demand.
D) what price to charge for its output.
answer
D) what price to charge for its output.
question
2) A firm ________ if it earns zero economic profit.
A) earns a negative rate of return
B) will leave the industry
C) earns a positive but below normal rate of return
D) earns exactly a normal rate of return
A) earns a negative rate of return
B) will leave the industry
C) earns a positive but below normal rate of return
D) earns exactly a normal rate of return
answer
D) earns exactly a normal rate of return
question
3) Richard is consuming X and Y so that he is spending his entire income and MUx/Px = 12 and MUy/Py = 4. To maximize utility, he should
A) continue to consume the same amount of X and Y since he is already maximizing utility.
B) consume less of both X and Y.
C) consume more X and less Y.
D) consume less X and more Y.
A) continue to consume the same amount of X and Y since he is already maximizing utility.
B) consume less of both X and Y.
C) consume more X and less Y.
D) consume less X and more Y.
answer
C) consume more X and less Y.
question
4) The table below represents cost data for Matters for a firm that operates in a perfectly competitive market for a price of $50 per package. In order to maximize profits, how many units of the output will this firm produce?
Output Total Fixed Cost Total Variable Cost
0 150 0
1 150 20
2 150 50
3 150 80
4 150 120
5 150 140
6 150 190
7 150 250
a) Q = 1
b) Q = 3
c) Q = 6
d) Q = 50
Output Total Fixed Cost Total Variable Cost
0 150 0
1 150 20
2 150 50
3 150 80
4 150 120
5 150 140
6 150 190
7 150 250
a) Q = 1
b) Q = 3
c) Q = 6
d) Q = 50
answer
I dont know
question
5) If a household's income falls by 30%, its budget constraint will
A) shift out parallel to the old one.
B) pivot at the Y-intercept.
C) shift in parallel to the old one.
D) be unaffected.
A) shift out parallel to the old one.
B) pivot at the Y-intercept.
C) shift in parallel to the old one.
D) be unaffected.
answer
C) shift in parallel to the old one.
question
6) Marginal utility is the ________ satisfaction gained by consuming ________ of a good.
A) total; all units
B) total; one more unit
C) additional; all units
D) additional; one more unit
A) total; all units
B) total; one more unit
C) additional; all units
D) additional; one more unit
answer
D) additional; one more unit
question
7) If an individual perfectly competitive firm charges a price below the industry equilibrium price while competitors charge the equilibrium price, the firm will
A) not sell any of what it produces.
B) sell part of what it produces but forgo no revenue.
C) sell all that it produces and forgo no revenue.
D) sell all that it produces but forgo revenue that it could have had.
A) not sell any of what it produces.
B) sell part of what it produces but forgo no revenue.
C) sell all that it produces and forgo no revenue.
D) sell all that it produces but forgo revenue that it could have had.
answer
D) sell all that it produces but forgo revenue that it could have had.
question
8) Assuming the price of labor (L) is $10 per unit and the price of capital (K) is $5 per unit, what production technique should this firm use to produce 2 units of output?
Technology Units of K Units of L
A 14 5
B 10 8
C 5 15
D 9 12
a) Technology A
b) Technology B
c) Technology C
d) Technology D
Technology Units of K Units of L
A 14 5
B 10 8
C 5 15
D 9 12
a) Technology A
b) Technology B
c) Technology C
d) Technology D
answer
a) Technology A
question
9) If a profit maximizing firm is currently producing output where MR = MC, it should
A) increase output so that marginal revenue is less than marginal cost.
B) decrease output so that marginal revenue will be greater than marginal cost and the firmʹs profit will increase.
C) not change output because it is already maximizing profit.
D) exit the industry.
A) increase output so that marginal revenue is less than marginal cost.
B) decrease output so that marginal revenue will be greater than marginal cost and the firmʹs profit will increase.
C) not change output because it is already maximizing profit.
D) exit the industry.
answer
C) not change output because it is already maximizing profit.
question
10) The short-run supply curve of a competitive firm is the portion of
A) the average variable cost curve that lies above its marginal cost curve.
B) its marginal cost curve that lies above its average variable cost curve.
C) its marginal cost curve that lies above its average total cost curve.
D) its average total cost curve that lies above its marginal cost curve.
A) the average variable cost curve that lies above its marginal cost curve.
B) its marginal cost curve that lies above its average variable cost curve.
C) its marginal cost curve that lies above its average total cost curve.
D) its average total cost curve that lies above its marginal cost curve.
answer
B) its marginal cost curve that lies above its average variable cost curve.
question
11) An industry is in ________ if firms have an incentive to enter or exit in the ________ run.
A) disequilibrium; short
B) disequilibrium; long
C) equilibrium; short
D) equilibrium; long
A) disequilibrium; short
B) disequilibrium; long
C) equilibrium; short
D) equilibrium; long
answer
B) disequilibrium; long
question
12) To produce one unit of output, a firm can use either one unit of capital or one unit of labor. In this case, capital and labor are
A) complementary inputs.
B) substitutable inputs.
C) both complementary and substitutable inputs.
D) unrelated inputs.
A) complementary inputs.
B) substitutable inputs.
C) both complementary and substitutable inputs.
D) unrelated inputs.
answer
B) substitutable inputs.
question
13) If P = MC and P < ATC, then a perfectly competitive firm will earn ________ profits.
A) positive
B) zero
C) negative
D) breakeven
A) positive
B) zero
C) negative
D) breakeven
answer
C) negative
question
14) If TR > TC, a firm would ________ in the short run and ________ in the long run.
A) operate; expand
B) operate; contract
C) shut down; expand
D) shut down; contract
A) operate; expand
B) operate; contract
C) shut down; expand
D) shut down; contract
answer
A) operate; expand
question
15) Price decreases will ________ a household's choice set.
A) increase
B) decrease
C) not change
D) sometimes increase and other times decrease
A) increase
B) decrease
C) not change
D) sometimes increase and other times decrease
answer
A) increase
question
16) A firm is experiencing ________ on the downward sloping portion of a firm's long run average cost curve.
A) increasing returns to scale
B) constant returns to scale
C) decreasing returns to scale
D) diminishing marginal returns
A) increasing returns to scale
B) constant returns to scale
C) decreasing returns to scale
D) diminishing marginal returns
answer
A) increasing returns to scale
question
17) If labor is a variable input in production, the law of diminishing marginal returns implies that in the short run
A) laborʹs marginal product is constant.
B) laborʹs marginal product decreases after a certain point.
C) total product is negative.
D) total product is negative after a certain point has been reached.
A) laborʹs marginal product is constant.
B) laborʹs marginal product decreases after a certain point.
C) total product is negative.
D) total product is negative after a certain point has been reached.
answer
B) laborʹs marginal product decreases after a certain point.
question
18) A firm suffering economic losses decides whether or not to produce in the short run on the basis of whether
A) revenues cover variable costs.
B) revenues from operating are sufficient to cover fixed costs.
C) revenues from operating are sufficient to cover fixed plus variable costs.
D) firms suffering economic losses will always shut down.
A) revenues cover variable costs.
B) revenues from operating are sufficient to cover fixed costs.
C) revenues from operating are sufficient to cover fixed plus variable costs.
D) firms suffering economic losses will always shut down.
answer
A) revenues cover variable costs.
question
19) In the short run
A) existing firms do NOT face limits imposed by a fixed input.
B) all firms have costs that they must bear regardless of their output.
C) new firms can enter an industry.
D) existing firms can exit an industry.
A) existing firms do NOT face limits imposed by a fixed input.
B) all firms have costs that they must bear regardless of their output.
C) new firms can enter an industry.
D) existing firms can exit an industry.
answer
B) all firms have costs that they must bear regardless of their output.
question
20) If a firm shuts down in the short run, then
A) its economic profits are zero.
B) its losses are equal to its fixed cost.
C) its operating profits are negative.
D) its total costs are zero.
A) its economic profits are zero.
B) its losses are equal to its fixed cost.
C) its operating profits are negative.
D) its total costs are zero.
answer
B) its losses are equal to its fixed cost.
question
21) A firm earning positive short-run profits has an incentive to ________ its long-run scale of operation.
A) expand
B) contract
C) not change
D) encourage another firm to expand
A) expand
B) contract
C) not change
D) encourage another firm to expand
answer
A) expand
question
22) Average fixed costs
A) are the costs associated with producing an additional unit of output.
B) provide a per unit measure of costs.
C) fall as output rises.
D) reach their minimum at the output level where the average fixed cost curve is intersected by the marginal cost curve.
A) are the costs associated with producing an additional unit of output.
B) provide a per unit measure of costs.
C) fall as output rises.
D) reach their minimum at the output level where the average fixed cost curve is intersected by the marginal cost curve.
answer
C) fall as output rises.
question
23) For normal goods, the substitution and income effects of a price decrease will
A) both decrease the quantity of the good demanded.
B) both increase the quantity of the good demanded.
C) the substitution effect will increase the quantity of the good demanded while the income effect will decrease the quantity of the good demanded.
D) the substitution effect will decrease the quantity of the good demanded while the income effect will increase the quantity of the good demanded.
A) both decrease the quantity of the good demanded.
B) both increase the quantity of the good demanded.
C) the substitution effect will increase the quantity of the good demanded while the income effect will decrease the quantity of the good demanded.
D) the substitution effect will decrease the quantity of the good demanded while the income effect will increase the quantity of the good demanded.
answer
B) both increase the quantity of the good demanded.
question
24) The shape of a firm's ________ average cost curve depends on how costs vary with ________.
A) short-run; scale of operations
B) short-run; no fixed factor of production
C) long-run; scale of operations
D) long-run; a fixed factor of production
A) short-run; scale of operations
B) short-run; no fixed factor of production
C) long-run; scale of operations
D) long-run; a fixed factor of production
answer
C) long-run; scale of operations
question
25) A person maximizes utility when she equalizes the ________ across products.
A) total utility
B) total utility per dollar spent
C) marginal utility
D) marginal utility per dollar spent
A) total utility
B) total utility per dollar spent
C) marginal utility
D) marginal utility per dollar spent
answer
D) marginal utility per dollar spent
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