question
Increasing and decreasing returns to scale (or economies or diseconomies of scale) determine the shape of the long-run average cost curve.
(A) True
(B) False
(A) True
(B) False
answer
(A) True
question
In the short run, if P < ATC the firm will shut down to minimize its losses.
(A) True
(B) False
(A) True
(B) False
answer
(B) False
question
A fixed input is held constant along an isoquant.
(A) True
(B) False
(A) True
(B) False
answer
(B) False
question
Typically, if marginal revenue is greater than marginal cost, then the firm should increase its output.
(A) True
(B) False
(A) True
(B) False
answer
(A) True
question
If the accounting profit is negative, the economic profit will be negative.
(A) True
(B) False
(A) True
(B) False
answer
(A) True
question
The marginal product of an input can be defined as the total output divided by the amount of the input used to produce that output.
(A) True
(B) False
(A) True
(B) False
answer
(B) False
question
Firms can survive with zero economic profits.
(A) True
(B) False
(A) True
(B) False
answer
(A) True
question
The short-run is defined as 4 months or less.
(A) True
(B) False
(A) True
(B) False
answer
(B) False
question
The slope of an isocost line measures the marginal rate of technical substitution.
(A) True
(B) False
(A) True
(B) False
answer
(B) False
question
Diminishing marginal returns imply that workers hired first have more skill than those hired last.
(A) True
(B) False
(A) True
(B) False
answer
(B) False
question
When a price ceiling is imposed in a competitive market at a level below the equilibrium price:
(A) The gain to producers outweighs the loss to consumers
(B) The producer surplus is increased
(C) The total surplus in the market is not affected
(D) The output level becomes inefficient
(A) The gain to producers outweighs the loss to consumers
(B) The producer surplus is increased
(C) The total surplus in the market is not affected
(D) The output level becomes inefficient
answer
(D) The output level becomes inefficient
question
Presently, the United States produces as well as imports crude oil. Suppose the government imposes a $10 per barrel excise tax on imported oil. What will happen?
(A) The price of oil will rise by $10; less oil will be consumed but sales of foreign producers will rise at the expense of domestic producers.
(B) The price of oil will rise by less than $10
(C) The price of oil will decline and more U.S.-produced oil will be sold in place of the heavily taxed foreign oil
(D) The price of oil will decline and more oil will be consumed but the relative shares of the oil market between the U.S. and foreign oil producers will be unchanged
(A) The price of oil will rise by $10; less oil will be consumed but sales of foreign producers will rise at the expense of domestic producers.
(B) The price of oil will rise by less than $10
(C) The price of oil will decline and more U.S.-produced oil will be sold in place of the heavily taxed foreign oil
(D) The price of oil will decline and more oil will be consumed but the relative shares of the oil market between the U.S. and foreign oil producers will be unchanged
answer
(B) The price of oil will rise by less than $10
question
Which if the following is constant along an isoquant?
(A) Productivity of the variable input
(B) Utility
(C) Cost
(D) Output
(A) Productivity of the variable input
(B) Utility
(C) Cost
(D) Output
answer
(D) Output
question
The law of diminishing returns holds only:
(A) For goods with inelastic demand
(B) When one input is fixed
(C) In the long run
(D) In a competitive market
(A) For goods with inelastic demand
(B) When one input is fixed
(C) In the long run
(D) In a competitive market
answer
(B) When one input is fixed
question
According to the law of diminishing marginal return:
(A) When the amount of some input is increased at equal increments, holding other inputs constant, the resulting increments in output will become smaller.
(B) When all inputs are increased proportionately, output eventually will decrease at a smaller rate.
(C) When the amount of some input is increased by equal increments, the resulting increments in output will be negative.
(D) Firms will not operate on the portion of the total product curve where marginal product is decreasing.
(A) When the amount of some input is increased at equal increments, holding other inputs constant, the resulting increments in output will become smaller.
(B) When all inputs are increased proportionately, output eventually will decrease at a smaller rate.
(C) When the amount of some input is increased by equal increments, the resulting increments in output will be negative.
(D) Firms will not operate on the portion of the total product curve where marginal product is decreasing.
answer
(A) When the amount of some input is increased at equal increments, holding other inputs constant, the resulting increments in output will become smaller.
question
The expansion path identifies:
(A)The least costly combination of inputs required to produce various levels of output.
(B) The firm's demand curves for the inputs.
(C) The various combination of inputs that can be used to produce a given level of output.
(D) The least-cost combination of outputs.
(A)The least costly combination of inputs required to produce various levels of output.
(B) The firm's demand curves for the inputs.
(C) The various combination of inputs that can be used to produce a given level of output.
(D) The least-cost combination of outputs.
answer
(A)The least costly combination of inputs required to produce various levels of output.
question
If the marginal cost curve intersects the average variable cost curve at 1,000 units per day, the rate of output at which average total cost is minimized is ________.
(A) Less than 500 units.
(B) More than 1,000 units.
(C) 1,000 units.
(D) 500 units.
(A) Less than 500 units.
(B) More than 1,000 units.
(C) 1,000 units.
(D) 500 units.
answer
(B) More than 1,000 units.
question
Suppose the government restricts the amount of capital equipment firms can purchase in an attempt to increase employment. If a firm expands output then its long-run average costs will be:
(A) Less than they would be without the restriction
(B) More than they would be without the restriction
(C) The same as they would be without the restriction
(A) Less than they would be without the restriction
(B) More than they would be without the restriction
(C) The same as they would be without the restriction
answer
(B) More than they would be without the restriction
question
Which of the following statements is not true?
(A) Average variable cost falls, reaches a minimum, and begins to rise.
(B) Average total cost falls, reaches a minimum, and begins to rise.
(C) Marginal cost falls, reaches a minimum, and begins to rise.
(D) Average fixed cost falls, reaches a minimum, and begins to rise.
(A) Average variable cost falls, reaches a minimum, and begins to rise.
(B) Average total cost falls, reaches a minimum, and begins to rise.
(C) Marginal cost falls, reaches a minimum, and begins to rise.
(D) Average fixed cost falls, reaches a minimum, and begins to rise.
answer
(D) Average fixed cost falls, reaches a minimum, and begins to rise.
question
The short-run supply curve for the firm operating in a perfectly competitive industry is:
(A) Its marginal cost curve.
(B) Its marginal cost curve above the minimum of average variable cost.
(C) Its marginal cost curve above the minimum of average total cost.
(A) Its marginal cost curve.
(B) Its marginal cost curve above the minimum of average variable cost.
(C) Its marginal cost curve above the minimum of average total cost.
answer
(B) Its marginal cost curve above the minimum of average variable cost.
question
The competitive firm is known as a price taker because:
(A) It sets the highest price it can charge.
(B) It can vary its price based on variations in its cost.
(C) It accepts the market price as a given.
(D) It produces output at a level that minimizes its marginal cost.
(A) It sets the highest price it can charge.
(B) It can vary its price based on variations in its cost.
(C) It accepts the market price as a given.
(D) It produces output at a level that minimizes its marginal cost.
answer
(C) It accepts the market price as a given.
question
Firms in an industry are unlikely to have pricing power if:
(A) Elasticity of demand for the product is high.
(B) The product is not homogeneous.
(C) The firms' elasticity of supply is high.
(D) There are barriers to entry in the market.
(A) Elasticity of demand for the product is high.
(B) The product is not homogeneous.
(C) The firms' elasticity of supply is high.
(D) There are barriers to entry in the market.
answer
(A) Elasticity of demand for the product is high.
question
What is meant by a deadweight loss?
(A) It is the sum of the consumer and producer surpluses in an inefficient market.
(B) It is the loss in a producer surplus due to output being at an inefficient level.
(C) It is the total loss in both consumer and producer surplus in an inefficient market.
(D) It is the loss in consumer surplus due to a price ceiling or floor in the market.
(A) It is the sum of the consumer and producer surpluses in an inefficient market.
(B) It is the loss in a producer surplus due to output being at an inefficient level.
(C) It is the total loss in both consumer and producer surplus in an inefficient market.
(D) It is the loss in consumer surplus due to a price ceiling or floor in the market.
answer
(C) It is the total loss in both consumer and producer surplus in an inefficient market.
question
One important difference between curves and isoquants is that:
(A) Indifference curves are convex while isoquants are concave to the origin.
(B) Indifference curves can never intersect while isoquants can intersect.
(C) Output shown on isoquants is measurable while happiness shown on indifference curves is not.
(D) Indifference curves are likely to be positively sloped while isoquants are mostly negatively sloped.
(A) Indifference curves are convex while isoquants are concave to the origin.
(B) Indifference curves can never intersect while isoquants can intersect.
(C) Output shown on isoquants is measurable while happiness shown on indifference curves is not.
(D) Indifference curves are likely to be positively sloped while isoquants are mostly negatively sloped.
answer
(C) Output shown on isoquants is measurable while happiness shown on indifference curves is not.
question
When the total product curve with only one variable input is increasing at a decreasing rate:
(A) Marginal product curve is negative and decreasing.
(B) Marginal product is positive but declining.
(C) The slope of the marginal product curve is zero.
(D) Marginal product is positive and increasing.
(A) Marginal product curve is negative and decreasing.
(B) Marginal product is positive but declining.
(C) The slope of the marginal product curve is zero.
(D) Marginal product is positive and increasing.
answer
(B) Marginal product is positive but declining.
question
If a firm doubles its usage of all inputs, and output more than doubles, there is:
(A) Increasing returns to scale.
(B) Decreasing returns to scale.
(C) Constant returns to scale.
(D) Increasing marginal returns to a fixed factor of production.
(A) Increasing returns to scale.
(B) Decreasing returns to scale.
(C) Constant returns to scale.
(D) Increasing marginal returns to a fixed factor of production.
answer
(A) Increasing returns to scale.
question
In the long run, firms in a competitive industry earn only a normal rate of return because :
(A) Decreasing returns to scale causes per-unit costs to rise.
(B) Input prices will rise in the long run and eliminate above-average profits.
(C) Entry of new firms will eliminate above-average profits.
(D) Of increasing returns to scale.
(A) Decreasing returns to scale causes per-unit costs to rise.
(B) Input prices will rise in the long run and eliminate above-average profits.
(C) Entry of new firms will eliminate above-average profits.
(D) Of increasing returns to scale.
answer
(C) Entry of new firms will eliminate above-average profits.
question
Most of an excise tax will be paid by consumers when:
(A) Demand is perfectly elastic.
(B) Demand is somewhat elastic.
(C) Demand is unitary elastic.
(D) Demand is inelastic.
(A) Demand is perfectly elastic.
(B) Demand is somewhat elastic.
(C) Demand is unitary elastic.
(D) Demand is inelastic.
answer
(D) Demand is inelastic.
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