question
Accounting costs are often unsatisfactory from the economist's point of view because
a. they fail to allow for depreciation, the wearing out of capital assets during a period.
b. they often exclude the opportunity costs of the firm's equity capital and the owner's time.
c. accountants attempt to minimize costs in order to make profits look good.
d. accounting procedures are designed to overstate costs in order to minimize business tax liability.
a. they fail to allow for depreciation, the wearing out of capital assets during a period.
b. they often exclude the opportunity costs of the firm's equity capital and the owner's time.
c. accountants attempt to minimize costs in order to make profits look good.
d. accounting procedures are designed to overstate costs in order to minimize business tax liability.
answer
b. they often exclude the opportunity costs of the firm's equity capital and the owner's time.
question
Wheterm-0n an economist says a firm is earning zero economic profit, this implies that the firm
a. will be forced out of business in the near future unless market conditions change.
b. is earning a zero rate of return on its assets.
c. is earning as high a rate of return now as could be earned in other industries.
d. has an accounting profit of zero.
a. will be forced out of business in the near future unless market conditions change.
b. is earning a zero rate of return on its assets.
c. is earning as high a rate of return now as could be earned in other industries.
d. has an accounting profit of zero.
answer
c. is earning as high a rate of return now as could be earned in other industries.
question
Which of the following "costs" could a firm that wants to remain in business avoid if it halted current production?
a. fixed costs
b. variable costs
c. sunk costs
d. all explicit costs
a. fixed costs
b. variable costs
c. sunk costs
d. all explicit costs
answer
b. variable costs
question
The marginal cost of a good is
a. lower for competitive firms than for monopolists.
b. the cost of an additional unit.
c. equal to fixed cost at high output levels.
d. equal to variable cost when the firm is maximizing profit.
a. lower for competitive firms than for monopolists.
b. the cost of an additional unit.
c. equal to fixed cost at high output levels.
d. equal to variable cost when the firm is maximizing profit.
answer
b. the cost of an additional unit.
question
In the short run, the firm's average fixed costs
a. always increase as output increases.
b. always decline as output increases.
c. equal zero.
d. remain constant as output expands.
a. always increase as output increases.
b. always decline as output increases.
c. equal zero.
d. remain constant as output expands.
answer
b. always decline as output increases.
question
In the short run, a firm will eventually experience rising per-unit costs because of
a. economies of scale.
b. diseconomies of scale.
c. the law of supply.
d. the law of diminishing returns.
a. economies of scale.
b. diseconomies of scale.
c. the law of supply.
d. the law of diminishing returns.
answer
d. the law of diminishing returns.
question
n the short run, if average variable cost equals $50, average fixed cost equals $75, and output equals 100, the total cost must be
a. $25.
b. $12,500.
c. $15,000.
d. $7,500.
a. $25.
b. $12,500.
c. $15,000.
d. $7,500.
answer
b. $12,500.
question
In the long run, firms in many industries often experience falling average total costs as the amount of output increases as a result of
a. gains through trade.
b. increasing marginal returns.
c. economies of scale.
d. lower fixed costs.
a. gains through trade.
b. increasing marginal returns.
c. economies of scale.
d. lower fixed costs.
answer
c. economies of scale.
question
If you paid $100 for a truckload of cabbage on Monday, how much should you be willing to sell it for on Friday, the day before it spoils?
a. $100
b. $100 plus normal accounting profit
c. $50 because it has lost value since Monday
d. whatever you can get for it
a. $100
b. $100 plus normal accounting profit
c. $50 because it has lost value since Monday
d. whatever you can get for it
answer
d. whatever you can get for it
question
The U.S. Postal Service has a monopoly on the delivery of first-class mail due to
a. economies of scale.
b. a lack of initiative on the part of competing firms.
c. legal barriers limiting entry.
d. control over an essential resource.
a. economies of scale.
b. a lack of initiative on the part of competing firms.
c. legal barriers limiting entry.
d. control over an essential resource.
answer
c. legal barriers limiting entry.
question
A firm that is a "pure monopoly" is
a. a seller of a highly advertised and differentiated product in a market with low barriers to entry in the long run.
b. the only seller of a good for which there are no good substitutes in a market with high barriers to entry.
c. the only buyer of a unique raw material.
d. the producer of a product subsidized by the government.
a. a seller of a highly advertised and differentiated product in a market with low barriers to entry in the long run.
b. the only seller of a good for which there are no good substitutes in a market with high barriers to entry.
c. the only buyer of a unique raw material.
d. the producer of a product subsidized by the government.
answer
b. the only seller of a good for which there are no good substitutes in a market with high barriers to entry.
question
A profit-maximizing monopolist will continue expanding output as long as
a. marginal revenue exceeds marginal cost.
b. marginal revenue is positive.
c. the cost of producing an additional unit exceeds the marginal revenue derived from the unit.
d. economic profit is more than zero.
a. marginal revenue exceeds marginal cost.
b. marginal revenue is positive.
c. the cost of producing an additional unit exceeds the marginal revenue derived from the unit.
d. economic profit is more than zero.
answer
a. marginal revenue exceeds marginal cost.
question
"Monopolists do not worry about efficient production and cost saving since they can just pass along any increase in costs to their consumers." Which of the following is true about this?
a. The statement is false; price increases will mean fewer sales, and lower costs will mean higher profits (or smaller losses).
b. The statement is true, and this is the primary reason why economists believe that monopolies result in economic inefficiency.
c. This statement is false because the monopolist is a price taker.
d. Monopolists will worry about keeping costs down only if they are motivated by social considerations rather than profit.
a. The statement is false; price increases will mean fewer sales, and lower costs will mean higher profits (or smaller losses).
b. The statement is true, and this is the primary reason why economists believe that monopolies result in economic inefficiency.
c. This statement is false because the monopolist is a price taker.
d. Monopolists will worry about keeping costs down only if they are motivated by social considerations rather than profit.
answer
a. The statement is false; price increases will mean fewer sales, and lower costs will mean higher profits (or smaller losses).
question
The loss of gains from trades in a monopolized industry that are the result of the monopoly producing less than the quantity that would be produced in a competitive industry is known as:
a. dead weight loss
b. price discrimination
c. rent seeking
d. price searching
a. dead weight loss
b. price discrimination
c. rent seeking
d. price searching
answer
a. dead weight loss
question
Because monopolists are protected by high barriers to entry, they
a. may be able to earn long-run economic profits.
b. will not minimize the per-unit cost of producing their output.
c. will price their product at the highest possible price.
d. seek economic profit; however, they are not able to earn it in the long run.
a. may be able to earn long-run economic profits.
b. will not minimize the per-unit cost of producing their output.
c. will price their product at the highest possible price.
d. seek economic profit; however, they are not able to earn it in the long run.
answer
a. may be able to earn long-run economic profits.
question
If a firm in a competitive price-searcher market (any market aside from perfect competition) raises its price, it will
a. lose all of its sales.
b. increase its sales.
c. lose only some of its sales.
d. have to go out of business.
a. lose all of its sales.
b. increase its sales.
c. lose only some of its sales.
d. have to go out of business.
answer
c. lose only some of its sales.
question
Which of the following would be most likely if firms in a perfectly competitive market were earning economic profit?
a. Production inefficiencies would persist until the profit was eliminated.
b. Firms would decrease their rate of output in the short run, causing a decline in profitability in the market.
c. New firms would enter the market, which tends to cause the firms to earn normal returns.
d. All firms in the market would continue to produce at their current levels and continue to charge the same price.
a. Production inefficiencies would persist until the profit was eliminated.
b. Firms would decrease their rate of output in the short run, causing a decline in profitability in the market.
c. New firms would enter the market, which tends to cause the firms to earn normal returns.
d. All firms in the market would continue to produce at their current levels and continue to charge the same price.
answer
c. New firms would enter the market, which tends to cause the firms to earn normal returns.
question
When a firm is a price searcher (all firms outside of perfectly competitive markets), its marginal revenue is
a. equal to price because the firm's demand curve is perfectly elastic.
b. equal to price if, and only if, the firm is maximizing profits.
c. less than price when the firm is maximizing profits.
d. equal to average total cost at the long-run equilibrium output rate.
a. equal to price because the firm's demand curve is perfectly elastic.
b. equal to price if, and only if, the firm is maximizing profits.
c. less than price when the firm is maximizing profits.
d. equal to average total cost at the long-run equilibrium output rate.
answer
c. less than price when the firm is maximizing profits.
question
In a market that is contestable, but has only a few sellers, the
a. threat of new entrants will prevent prices from rising above the competitive level.
b. producers will be able to charge prices that are high enough to produce long-run economic profits.
c. producers will not face new competition because the barriers to entry are high.
d. market will never be expected to come close to the competitive result.
a. threat of new entrants will prevent prices from rising above the competitive level.
b. producers will be able to charge prices that are high enough to produce long-run economic profits.
c. producers will not face new competition because the barriers to entry are high.
d. market will never be expected to come close to the competitive result.
answer
a. threat of new entrants will prevent prices from rising above the competitive level.
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