question
An industry comprised of a very large number of sellers producing a standardized product is known as:
a.) monopolistic competition.
b.) oligopoly.
c.) pure monopoly.
d.) pure competition
a.) monopolistic competition.
b.) oligopoly.
c.) pure monopoly.
d.) pure competition
answer
d) pure competition
question
A purely competitive seller is:
a.) both a "price maker" and a "price taker."
b.) neither a "price maker" nor a "price taker."
c.) a "price taker."
d.) a "price maker."
a.) both a "price maker" and a "price taker."
b.) neither a "price maker" nor a "price taker."
c.) a "price taker."
d.) a "price maker."
answer
c) a "price taker"
question
3. Which of the following is not a basic characteristic of pure competition?
a.) Considerable non-price competition.
b.) No barriers to the entry or exit of firms.
c.) A standardized or homogeneous product.
d.) A large number of buyers and sellers.
a.) Considerable non-price competition.
b.) No barriers to the entry or exit of firms.
c.) A standardized or homogeneous product.
d.) A large number of buyers and sellers.
answer
a) considerable non-price competition
question
4. The demand schedule or curve confronted by the individual, purely competitive firm is:
a) relatively elastic, that is, the elasticity coefficient is greater than unity.
b) perfectly elastic.
c) relatively inelastic, that is, the elasticity coefficient is less than unity.
d) perfectly inelastic.
a) relatively elastic, that is, the elasticity coefficient is greater than unity.
b) perfectly elastic.
c) relatively inelastic, that is, the elasticity coefficient is less than unity.
d) perfectly inelastic.
answer
b) perfectly elastic
question
5. If a firm in a purely competitive industry is confronted with an equilibrium price of $5, its marginal revenue:
a) may be either greater or less than $5.
b) will also be $5.
c) will be less than $5.
d) will be greater than $5.
a) may be either greater or less than $5.
b) will also be $5.
c) will be less than $5.
d) will be greater than $5.
answer
b) will also be $5
question
6. For a purely competitive seller, price equals:
a) average revenue.
b) marginal revenue.
c) total revenue divided by output.
d) all of these.
a) average revenue.
b) marginal revenue.
c) total revenue divided by output.
d) all of these.
answer
d) all
question
7. The marginal revenue curve of a purely competitive firm:
a) lies below the firm's demand curve.
b) is down-sloping because price must be reduced to sell more output.
c) is horizontal at the market price.
d) has all of these characteristics.
a) lies below the firm's demand curve.
b) is down-sloping because price must be reduced to sell more output.
c) is horizontal at the market price.
d) has all of these characteristics.
answer
c) is horizontal at the market price
question
8. The demand curve in a purely competitive industry is ______, while the demand curve to a single firm in that industry is ______.
a) perfectly inelastic; perfectly elastic
b) down-sloping; perfectly elastic
c) down-sloping; perfectly inelastic
d) perfectly elastic; down-sloping
a) perfectly inelastic; perfectly elastic
b) down-sloping; perfectly elastic
c) down-sloping; perfectly inelastic
d) perfectly elastic; down-sloping
answer
b) down-sloping; perfectly elastic
question
9. Marginal revenue is the:
a) change in product price associated with the sale of one more unit of output.
b) change in average revenue associated with the sale of one more unit of output.
c) difference between product price and average total cost.
d) change in total revenue associated with the sale of one more unit of output.
a) change in product price associated with the sale of one more unit of output.
b) change in average revenue associated with the sale of one more unit of output.
c) difference between product price and average total cost.
d) change in total revenue associated with the sale of one more unit of output.
answer
d) change in total revenue associated with the sale of one more unit of output
question
10. A competitive firm will maximize profits at that output at which:
a) total revenue exceeds total cost by the greatest amount.
b) total revenue and total cost are equal.
c) price exceeds average total cost by the largest amount.
d) the difference between marginal revenue and price is at a maximum.
a) total revenue exceeds total cost by the greatest amount.
b) total revenue and total cost are equal.
c) price exceeds average total cost by the largest amount.
d) the difference between marginal revenue and price is at a maximum.
answer
a) total revenue exceeds total cost by the greatest amount
question
11. Curve (4) in the diagram is a purely competitive firm's:
a) total cost curve.
b) total revenue curve.
c) marginal revenue curve.
d) total profit curve.
a) total cost curve.
b) total revenue curve.
c) marginal revenue curve.
d) total profit curve.
answer
a) total cost curve
question
12. Using the graph is question 61, to answer : The firm represented by the diagram would maximize its profit where:
a) curves (2) and (1) intersect.
b) curve (1) touches the horizontal axis for the second time.
c) the vertical distance between curves (3) and (4) is the greatest.
d) curves (3) and (4) intersect.
a) curves (2) and (1) intersect.
b) curve (1) touches the horizontal axis for the second time.
c) the vertical distance between curves (3) and (4) is the greatest.
d) curves (3) and (4) intersect.
answer
c) the vertical distance between curves 3 and 4 is the greatest
question
13. The MR = MC rule can be restated for a purely competitive seller as P = MC because:
a) each additional unit of output adds exactly its price to total revenue.
b) the firm's average revenue curve is down-sloping.
c) the market demand curve is down-sloping.
d) the firm's marginal revenue and total revenue curves will coincide.
a) each additional unit of output adds exactly its price to total revenue.
b) the firm's average revenue curve is down-sloping.
c) the market demand curve is down-sloping.
d) the firm's marginal revenue and total revenue curves will coincide.
answer
a) each additional unit of output adds exactly its price to total revenue
question
14. If a purely competitive firm shuts down in the short run:
a) its loss will be zero.
b) it will realize a loss equal to its total variable costs.
c) it will realize a loss equal to its total fixed costs.
d) it will realize a loss equal to its explicit costs.
a) its loss will be zero.
b) it will realize a loss equal to its total variable costs.
c) it will realize a loss equal to its total fixed costs.
d) it will realize a loss equal to its explicit costs.
answer
c) it will realize a loss equal to its total fixed costs
question
15. If a firm is confronted with economic losses in the short run, it will decide whether or not to produce by comparing:
a) marginal revenue and marginal cost.
b) price and minimum average variable cost.
c) total revenue and total cost.
d) total revenue and total fixed cost.
a) marginal revenue and marginal cost.
b) price and minimum average variable cost.
c) total revenue and total cost.
d) total revenue and total fixed cost.
answer
b) price and minimum average variable cost
question
16. In the short run, a purely competitive seller will shut down if:
a) it cannot produce at an economic profit.
b) price is less than average variable cost at all outputs.
c) price is less than average fixed cost at all outputs.
d) there is no point at which marginal revenue and marginal cost are equal.
a) it cannot produce at an economic profit.
b) price is less than average variable cost at all outputs.
c) price is less than average fixed cost at all outputs.
d) there is no point at which marginal revenue and marginal cost are equal.
answer
b) price is less than average variable cost at all outputs
question
17. Which of the following is correct?
a) Both purely competitive and monopolistic firms are "price takers."
b) Both purely competitive and monopolistic firms are "price makers."
c) A purely competitive firm is a "price taker," while a monopolist is a "price maker."
d) A purely competitive firm is a "price maker," while a monopolist is a "price taker."
a) Both purely competitive and monopolistic firms are "price takers."
b) Both purely competitive and monopolistic firms are "price makers."
c) A purely competitive firm is a "price taker," while a monopolist is a "price maker."
d) A purely competitive firm is a "price maker," while a monopolist is a "price taker."
answer
c) a purely competitive firm is a "price taker" while a monopolist is a "price maker"
question
18. Which of the following is characteristic of a pure monopolist's demand curve?
a) Average revenue is less than price.
b) Its elasticity coefficient is 1 at all levels of output.
c) Price and marginal revenue are equal at all levels of output.
d) It is the same as the market demand curve.
a) Average revenue is less than price.
b) Its elasticity coefficient is 1 at all levels of output.
c) Price and marginal revenue are equal at all levels of output.
d) It is the same as the market demand curve.
answer
d) it is the same as the market demand curve
question
19. Because the monopolist's demand curve is down-sloping:
a) MR will equal price.
b) price must be lowered to sell more output.
c) the elasticity coefficient will increase as price is lowered.
d) its supply curve will also be down-sloping.
a) MR will equal price.
b) price must be lowered to sell more output.
c) the elasticity coefficient will increase as price is lowered.
d) its supply curve will also be down-sloping.
answer
b) price must be lowered to sell more output
question
20. One defining characteristic of pure monopoly is that:
a) The monopolist is a price taker
b) The monopolist uses advertising
c) The monopolist produces a product with no close substitutes
d) There is relatively easy entry into the industry, but exit is difficult
a) The monopolist is a price taker
b) The monopolist uses advertising
c) The monopolist produces a product with no close substitutes
d) There is relatively easy entry into the industry, but exit is difficult
answer
c) the monopolist produces a product with no close substitutes
question
21. Which phrase would be most characteristic of pure monopoly?
a) Close substitutes
b) Efficient advertiser
c) Price taker
d) Sole seller
a) Close substitutes
b) Efficient advertiser
c) Price taker
d) Sole seller
answer
d) sole seller
question
22. Which of the following is a barrier to entry?
a) Patents and licenses
b) Buyers' incomes
c) Close substitutes
d) Diminishing marginal returns
a) Patents and licenses
b) Buyers' incomes
c) Close substitutes
d) Diminishing marginal returns
answer
a) patents and licenses
question
23. The demand curve confronting a non-discriminating pure monopolist is:
a) Horizontal
b) The same as the industry's demand curve
c) More elastic than the demand curve confronting a competitive firm
d) Derived by vertically summing the individual demand curves for the buyers
a) Horizontal
b) The same as the industry's demand curve
c) More elastic than the demand curve confronting a competitive firm
d) Derived by vertically summing the individual demand curves for the buyers
answer
b) the same as the industry's demand curve
question
24. Under pure monopoly, a profit-maximizing firm will produce:
a) In the inelastic range of its demand curve
b) In the elastic range of its demand curve
c) Only where marginal costs are decreasing
d) Only where marginal revenue is increasing
a) In the inelastic range of its demand curve
b) In the elastic range of its demand curve
c) Only where marginal costs are decreasing
d) Only where marginal revenue is increasing
answer
b) in the elastic range of its demand curve
question
25. Economists would describe the U.S. automobile industry as:
a) purely competitive.
b) an oligopoly.
c) monopolistically competitive.
d) a pure monopoly.
a) purely competitive.
b) an oligopoly.
c) monopolistically competitive.
d) a pure monopoly.
answer
b) an oligopoly
question
26. An industry comprised of 40 firms, none of which has more than 3 percent of the total market for a differentiated product, is an example of:
a) monopolistic competition.
b) oligopoly.
c) pure monopoly.
d) pure competition.
a) monopolistic competition.
b) oligopoly.
c) pure monopoly.
d) pure competition.
answer
a) monopolistic competition
question
27. An industry comprised of a small number of firms, each of which considers the potential reactions of its rivals in making price-output decisions, is called:
a) monopolistic competition.
b) oligopoly.
c) pure monopoly.
d) pure competition.
a) monopolistic competition.
b) oligopoly.
c) pure monopoly.
d) pure competition.
answer
b) oligopoly
question
28. Which of the following statements applies to a purely competitive producer?
a) It will not advertise its product.
b) In long-run equilibrium it will earn an economic profit.
c) Its product will have a brand name.
d) Its product is slightly different from those of its competitors.
a) It will not advertise its product.
b) In long-run equilibrium it will earn an economic profit.
c) Its product will have a brand name.
d) Its product is slightly different from those of its competitors.
answer
a) it will not advertise its product
question
29. Monopolistic competition is characterized by a:
a) few dominant firms and low entry barriers.
b) large number of firms and substantial entry barriers.
c) large number of firms and low entry barriers.
d) few dominant firms and substantial entry barriers.
a) few dominant firms and low entry barriers.
b) large number of firms and substantial entry barriers.
c) large number of firms and low entry barriers.
d) few dominant firms and substantial entry barriers.
answer
c) large numbers of firms and low entry barriers
question
30. Under monopolistic competition, entry to the industry is:
a) completely free of barriers.
b) more difficult than under pure competition but not nearly as difficult as under pure monopoly.
c) more difficult than under pure monopoly.
d) blocked.
a) completely free of barriers.
b) more difficult than under pure competition but not nearly as difficult as under pure monopoly.
c) more difficult than under pure monopoly.
d) blocked.
answer
b) more difficult than under pure competition but not nearly as difficult as under pure monopoly
question
31. A monopolistically competitive industry combines elements of both competition and monopoly. It is correct to say that the competitive element results from:
a) a relatively large number of firms and the monopolistic element from product differentiation.
b) product differentiation and the monopolistic element from high entry barriers.
c) a perfectly elastic demand curve and the monopolistic element from low entry barriers.
d) a highly inelastic demand curve and the monopolistic element from advertising and product promotion.
a) a relatively large number of firms and the monopolistic element from product differentiation.
b) product differentiation and the monopolistic element from high entry barriers.
c) a perfectly elastic demand curve and the monopolistic element from low entry barriers.
d) a highly inelastic demand curve and the monopolistic element from advertising and product promotion.
answer
a) a relatively large number of firms and the monopolistic element from product differentiation
question
32. The term oligopoly indicates:
a) a one-firm industry.
b) many producers of a differentiated product.
c) a few firms producing either a differentiated or a homogeneous product.
d) an industry whose four-firm concentration ratio is low.
a) a one-firm industry.
b) many producers of a differentiated product.
c) a few firms producing either a differentiated or a homogeneous product.
d) an industry whose four-firm concentration ratio is low.
answer
c) a few firms producing either a differentiated or a homogeneous product
question
33. In an oligopolistic market:
a) one firm is always dominant.
b) products may be standardized or differentiated.
c) the four largest firms account for 20 percent or less of total sales.
d) the industry is monopolistically competitive.
a) one firm is always dominant.
b) products may be standardized or differentiated.
c) the four largest firms account for 20 percent or less of total sales.
d) the industry is monopolistically competitive.
answer
b) products may be standardized or differentiated
question
34. 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
35. 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.
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.
answer
b) the declining segment of the long-run average total cost curve
question
36. 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 that 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 that 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
37. 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
38. 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
39. 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
40. 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
41. 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 employ
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 employ
answer
b) the firm does not have sufficient time to change the size of its plant
question
42. 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 down sloping.
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 down sloping.
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
43. 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 or marginal 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 or marginal 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
question
44. 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
45. 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 marginal utility
question
46. 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
47. 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
48. 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
49. 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
50. Fixed cost is:
a) the cost of producing one more unit of capital, for example, machinery.
b) any cost that 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 that 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 that does not change when the firm changes its output
question
51. 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
52. 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
53. 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
54. 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
55. 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
56. 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
57. Refer to the data. The marginal cost of producing the sixth unit of output is:
a) $24.
b) $12.
c) $16.
d) $8.
a) $24.
b) $12.
c) $16.
d) $8.
answer
d) $8
question
58. 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
59. In the figure, curves 1, 2, 3, and 4 represent the:
a) ATC, MC, AFC, and AVC curves respectively.
b) MC, AFC, AVC, and ATC curves respectively.
c) MC, ATC, AVC, and AFC curves respectively.
d) ATC, AVC, AFC, and MC curves respectively.
a) ATC, MC, AFC, and AVC curves respectively.
b) MC, AFC, AVC, and ATC curves respectively.
c) MC, ATC, AVC, and AFC curves respectively.
d) ATC, AVC, AFC, and MC curves respectively.
answer
c) MC, ATC, and AFC curves respectively
question
60. There is no relationship between MP and MC.
a) When AP is rising MC is falling, and when AP is falling MC is rising.
b) When MP is rising MC is rising, and when MP is falling MC is falling.
c) When MP is rising MC is falling, and when MP is falling MC is rising.
a) When AP is rising MC is falling, and when AP is falling MC is rising.
b) When MP is rising MC is rising, and when MP is falling MC is falling.
c) When MP is rising MC is falling, and when MP is falling MC is rising.
answer
c) when MP is rising MC is falling, and when MP is falling MC is rising
question
61. 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
62. Refer to the short-run production and cost data. In Figure A curve (1) is:
a) total product and curve (2) is average product.
b) total product and curve (2) is marginal product.
c) average product and curve (2) is marginal product.
d) marginal product and curve (2) is average product
a) total product and curve (2) is average product.
b) total product and curve (2) is marginal product.
c) average product and curve (2) is marginal product.
d) marginal product and curve (2) is average product
answer
c) average product and curve 2 is marginal product
question
63. 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
64. 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
65. 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
66. 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
67. 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
68. The Sunshine Corporation finds that its costs are $40 when it produces no output. Its total variable costs (TVC) change with output as shown in the accompanying table. Use this information to answer the following question.
Refer to the information. The total cost of producing 3 units of output is:
a) $65.
b) $105.
c) $145.
d) $185.
Refer to the information. The total cost of producing 3 units of output is:
a) $65.
b) $105.
c) $145.
d) $185.
answer
b)$105
question
Which of the following is characteristic of a purely competitive sellers demand curve?
answer
price and marginal revenue are equal at all levels of output
question
Refer to the diagram for a purely competitive producer. If product price is P3:
answer
economic profits will be zero
question
A purely competitive firm should produce in the short run if its total revenue is sufficient to cover its:
answer
total variable costs
question
A firm finds that at its MR=MC output as TC=$1,000, TVC= $800, TFC=$200, and total revenue is $900, this firm should
answer
produce because the resulting loss is less than its TFC
question
Refer to the short-run data. Which of the following is correct?
answer
Any level of output between 100 and 440 units will yield an economic profit
question
In the short-run a purely competitive firm that seeks to maximize profit will produce
answer
where total revenue exceeds total costs by the maximum amount
question
If a monopolist were to produce in the inelastic segment of its demand curve:
answer
the firm would not be maximizing profits
question
The MR = MC rule
answer
applies both to pure monopoly and pure competition
question
Refer to the diagrams. Firm A is a
answer
pure competitor and Firm B is a pure monopoly
question
Refer to the data. The marginal revenue obtained from selling the third unit of output is
answer
$2
question
Which of the following is a characteristic of pure monopoly?
answer
barriers to entry
question
A natural monopoly occurs when
answer
long-run average costs decline continuously through the range of demand
question
Refer to the two diagrams for individual firms. In Figure 2 the firm's demand and marginal revenue curves are represented by
answer
lines B and C respectively
question
Pure monopoly refers to
answer
a single firm producing a product for which there are no close substitutes
question
Refer to the diagram for a pure monopolist. Monopoly output will be
answer
f
question
Monopolistic competition means
answer
many firms producing differentiated products
question
If the number of firms in a monopolistically competitive industry increases and the degree of product differentiation diminishes
answer
the industry would more closely approximate pure competition
question
A monopolistically competitive firm's marginal revenue curve
answer
is downsloping and lies below the demand curve
question
A monopolistically competitive firm has a
answer
highly elastic demand curve
question
Oligopoly is more difficult to analyze than other market models because
answer
of mutual interdependence and the fact that oligopoly outcomes are less certain than in other market models
question
Nonprice competition refers to
answer
advertising, product promotion, and changes in the real or perceived characteristics of a product
question
The automobile, household appliance, and automobile tire industries are all illustrations of
answer
differentiated oligopoly
question
Oligopolistic industries are characterized by
answer
a few dominant firms and substantial entry barriers
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