question
Cash expenditures a firm makes to pay for resources are called:
Implicit costs
Explicit costs
Normal profit
Opportunity costs
Implicit costs
Explicit costs
Normal profit
Opportunity costs
answer
Explicit costs
question
Which would be an implicit cost for a firm? The cost:
Of worker wages and salaries for the firm
Paid for leasing a building for the firm
Paid for production supplies for the firm
Of wages foregone by the owner of the firm
Of worker wages and salaries for the firm
Paid for leasing a building for the firm
Paid for production supplies for the firm
Of wages foregone by the owner of the firm
answer
Of wages foregone by the owner of the firm
question
An industry is expected to expand if firms in the industry are earning positive:
Normal profits
Economic profits
Accounting profits
Total revenues
Normal profits
Economic profits
Accounting profits
Total revenues
answer
Economic profits
question
Suppose that a firm produces 200,000 units a year and sells them all for $10 each. The explicit costs of production are $1,500,000 and the implicit costs of production are $300,000. The firm earns an accounting profit of:
$500,000 and an economic profit of $200,000
$400,000 and an economic profit of $200,000
$300,000 and an economic profit of $400,000
$200,000 and an economic profit of $500,000
$500,000 and an economic profit of $200,000
$400,000 and an economic profit of $200,000
$300,000 and an economic profit of $400,000
$200,000 and an economic profit of $500,000
answer
$500,000 and an economic profit of $200,000
question
The main difference between the short run and the long run is that:
Firms earn zero profits in the long run
The long run always refers to a time period of one year or longer
In the short run, some inputs are fixed and some are variable
In the long run, all inputs are fixed
Firms earn zero profits in the long run
The long run always refers to a time period of one year or longer
In the short run, some inputs are fixed and some are variable
In the long run, all inputs are fixed
answer
In the short run, some inputs are fixed and some are variable
question
The long run is a period of time, or a time-frame, in which:
All resources are fixed
The level of output is fixed
The amount of all resources can be varied
The capacity of the production plant is fixed
All resources are fixed
The level of output is fixed
The amount of all resources can be varied
The capacity of the production plant is fixed
answer
The amount of all resources can be varied
question
Marginal product of labor refers to the:
Last unit of output produced by labor at the end of each period
Increase in output resulting from employing one more unit of labor
Total output divided by the number of labor employed
Smallest unit of the output produced by labor
Last unit of output produced by labor at the end of each period
Increase in output resulting from employing one more unit of labor
Total output divided by the number of labor employed
Smallest unit of the output produced by labor
answer
Increase in output resulting from employing one more unit of labor
question
According to the law of diminishing marginal returns:
Output will fall and then rise as additional units of input are employed
Employing additional inputs will diminish total output
The additional output generated by additional units of an input will diminish
The additional inputs necessary to produce an additional unit of output will diminish
Output will fall and then rise as additional units of input are employed
Employing additional inputs will diminish total output
The additional output generated by additional units of an input will diminish
The additional inputs necessary to produce an additional unit of output will diminish
answer
The additional output generated by additional units of an input will diminish
question
The question is based on the following table that provides information on the production of a product that requires one variable input.
Picture
Refer to the above table. Diminishing marginal returns sets in with the addition of the:
First unit of input
Second unit of input
Third unit of input
Fourth unit of input
Picture
Refer to the above table. Diminishing marginal returns sets in with the addition of the:
First unit of input
Second unit of input
Third unit of input
Fourth unit of input
answer
Third unit of input
question
Variable costs are:
Sunk costs
Costs that change every day
Costs that change with the level of production
The change in total cost due to the production of an additional unit of output
Sunk costs
Costs that change every day
Costs that change with the level of production
The change in total cost due to the production of an additional unit of output
answer
Costs that change with the level of production
question
Fixed costs are those costs which are:
Zero if the firm produces no output in the short run
Unchanging through time
Independent of the rate of output
Implicit to a competitive firm
Zero if the firm produces no output in the short run
Unchanging through time
Independent of the rate of output
Implicit to a competitive firm
answer
Independent of the rate of output
question
Fixed costs of production in the short run:
Cannot be reduced by producing less output
Are a function of the level of variable costs
Are low in proportion to variable costs in the short run
Increase as the firm produces more output
Cannot be reduced by producing less output
Are a function of the level of variable costs
Are low in proportion to variable costs in the short run
Increase as the firm produces more output
answer
Cannot be reduced by producing less output
question
Picture
Refer to the above table. The total fixed cost of production is:
$10
$20
$98
$0
Refer to the above table. The total fixed cost of production is:
$10
$20
$98
$0
answer
$10
question
Picture
Refer to the above table. The total variable cost of producing 5 units is:
$10
$14.60
$63
$73
Refer to the above table. The total variable cost of producing 5 units is:
$10
$14.60
$63
$73
answer
$63
question
Picture
Refer to the above table. The average variable cost of producing 3 units of output is:
$9.33
$10
$12.67
$38
Refer to the above table. The average variable cost of producing 3 units of output is:
$9.33
$10
$12.67
$38
answer
$9.33
question
Picture
Refer to the above table. The marginal cost of producing the sixth unit of output is:
$10
$16.33
$25
$98
Refer to the above table. The marginal cost of producing the sixth unit of output is:
$10
$16.33
$25
$98
answer
$16.33
question
The phrase "don't cry over spilt milk" could be rephrased in economic terms by saying:
"Sunk costs are irrelevant to a decision."
"Real resources have opportunity costs."
"There are economies and diseconomies of scale."
"The law of diminishing returns applies to everything."
"Sunk costs are irrelevant to a decision."
"Real resources have opportunity costs."
"There are economies and diseconomies of scale."
"The law of diminishing returns applies to everything."
answer
"Sunk costs are irrelevant to a decision."
question
A firm encountering economies of scale over some range of output will have a:
Rising long-run average cost curve
Falling long-run average cost curve
Constant long-run average cost curve
Rising, then falling, then rising long-run average cost curve
Rising long-run average cost curve
Falling long-run average cost curve
Constant long-run average cost curve
Rising, then falling, then rising long-run average cost curve
answer
Falling long-run average cost curve
question
Which would contribute most to a firm experiencing "economies of scale"?
Rising long-run average costs
The law of diminishing marginal returns
Specialization of production within a firm
Deterioration of information and control within a firm
Rising long-run average costs
The law of diminishing marginal returns
Specialization of production within a firm
Deterioration of information and control within a firm
answer
Specialization of production within a firm
question
Diseconomies of scale occur mainly because:
-Of the law of diminishing returns
-Firms in an industry must be relatively large in order to use the most efficient production techniques
-Of the inherent difficulties involved in managing and coordinating a large business enterprise
-The short-run average total cost curve rises when marginal product is greater than average total cost
-Of the law of diminishing returns
-Firms in an industry must be relatively large in order to use the most efficient production techniques
-Of the inherent difficulties involved in managing and coordinating a large business enterprise
-The short-run average total cost curve rises when marginal product is greater than average total cost
answer
Of the inherent difficulties involved in managing and coordinating a large business enterprise
question
In which market model would there be a unique product for which there are no close substitutes?
Monopolistic competition
Pure competition
Pure monopoly
Oligopoly
Monopolistic competition
Pure competition
Pure monopoly
Oligopoly
answer
Pure monopoly
question
In which market model are the conditions of entry into the market easiest?
Pure competition
Pure monopoly
Monopolistic competition
Oligopoly
Pure competition
Pure monopoly
Monopolistic competition
Oligopoly
answer
Pure competition
question
Which idea is inconsistent with pure competition?
Price-taking behavior
Product differentiation
Freedom of entry or exit for firms
A large number of buyers and sellers
Price-taking behavior
Product differentiation
Freedom of entry or exit for firms
A large number of buyers and sellers
answer
Product differentiation
question
Price is taken to be a "given" by an individual firm selling in a purely competitive market because:
-The firm's demand curve is downward-sloping
-There are no good substitutes for the firm's product
-Each seller supplies a negligible fraction of total market
-Product differentiation is reinforced by extensive advertising
-The firm's demand curve is downward-sloping
-There are no good substitutes for the firm's product
-Each seller supplies a negligible fraction of total market
-Product differentiation is reinforced by extensive advertising
answer
Each seller supplies a negligible fraction of total market
question
A purely competitive firm does not try to sell more of its product by lowering its price below the market price because:
Its competitors would not permit it
It can sell all it wants to at the market price
This would be considered unethical price chiseling
Its demand curve is inelastic, so total revenue will decline
Its competitors would not permit it
It can sell all it wants to at the market price
This would be considered unethical price chiseling
Its demand curve is inelastic, so total revenue will decline
answer
It can sell all it wants to at the market price
question
A profit-maximizing firm in the short run will expand output:
Until marginal cost begins to rise
Until total revenue equals total cost
Until marginal cost equals average variable cost
As long as marginal revenue is greater than marginal cost
Until marginal cost begins to rise
Until total revenue equals total cost
Until marginal cost equals average variable cost
As long as marginal revenue is greater than marginal cost
answer
As long as marginal revenue is greater than marginal cost
question
Which of the following is true for a purely competitive firm in short-run equilibrium?
The firm is making only normal profits
The firm's marginal cost is greater than its marginal revenue
The firm's marginal revenue is equal to its marginal cost
A decrease in output would lead to a rise in profits
The firm is making only normal profits
The firm's marginal cost is greater than its marginal revenue
The firm's marginal revenue is equal to its marginal cost
A decrease in output would lead to a rise in profits
answer
The firm's marginal revenue is equal to its marginal cost
question
Picture
Refer to the above graph. The firm will earn maximum total profits if it produces and sells quantity:
0A
0B
0C
0K
Refer to the above graph. The firm will earn maximum total profits if it produces and sells quantity:
0A
0B
0C
0K
answer
0C
question
A firm should continue to operate even at a loss in the short run if:
Its output is above the break-even point
Its revenues are less than its fixed costs
It can cover its variable costs and some of its fixed costs
It has some fixed costs that cannot be brought down to zero
Its output is above the break-even point
Its revenues are less than its fixed costs
It can cover its variable costs and some of its fixed costs
It has some fixed costs that cannot be brought down to zero
answer
It can cover its variable costs and some of its fixed costs
question
The short-run supply curve for a competitive firm is the:
Entire MC curve
Segment of the MC curve lying below the AVC curve
Segment of the MC curve lying above the AVC curve
Segment of the AVC curve lying to the right of the MC curv
Entire MC curve
Segment of the MC curve lying below the AVC curve
Segment of the MC curve lying above the AVC curve
Segment of the AVC curve lying to the right of the MC curv
answer
Segment of the MC curve lying above the AVC curve
question
Picture
Refer to the above graph. Which point is the break-even point for the firm?
A
B
C
D
Refer to the above graph. Which point is the break-even point for the firm?
A
B
C
D
answer
C (where MC=ATC)
question
In pure competition, if the market price of the product is initially higher than the minimum average cost of the firms, then:
Some firms will exit the industry and the industry supply will decrease
Other firms will enter the industry and the industry supply will increase
Some firms will exit the industry and the industry supply will increase
Other firms will enter the industry and the industry supply will decrease
Some firms will exit the industry and the industry supply will decrease
Other firms will enter the industry and the industry supply will increase
Some firms will exit the industry and the industry supply will increase
Other firms will enter the industry and the industry supply will decrease
answer
Some firms will exit the industry and the industry supply will increase
question
Assume that the market for soybeans is purely competitive. Currently, firms growing soybeans are experiencing economic profits. In the long run, we can expect:
New firms to enter causing the market price of soybeans to fall
New firms to enter causing the market price of soybeans to rise
Some firms to exit causing the market price of soybeans to fall
Some firms to exit causing the market price of soybeans to rise
New firms to enter causing the market price of soybeans to fall
New firms to enter causing the market price of soybeans to rise
Some firms to exit causing the market price of soybeans to fall
Some firms to exit causing the market price of soybeans to rise
answer
New firms to enter causing the market price of soybeans to fall
question
Which of the following is a barrier to entry?
Patents and licenses
Buyers' incomes
Close substitutes
Diminishing marginal returns
Patents and licenses
Buyers' incomes
Close substitutes
Diminishing marginal returns
answer
Patents and licenses
question
Natural monopolies result from:
Patents and copyrights
Pricing strategies
Extensive economies of scale in production
Control over an essential natural resource
Patents and copyrights
Pricing strategies
Extensive economies of scale in production
Control over an essential natural resource
answer
Extensive economies of scale in production
question
At the profit-maximizing level of output for a monopolist:
Price is greater than marginal cost
Price is greater than average revenue
Average total cost equals marginal cost
Total revenue is greater than total cost
Price is greater than marginal cost
Price is greater than average revenue
Average total cost equals marginal cost
Total revenue is greater than total cost
answer
Price is greater than marginal cost
question
Many people believe that monopolies charge any price they want to without affecting sales. Instead, the output level for a profit-maximizing monopoly is determined by:
Marginal cost = average revenue
Marginal revenue = average cost
Average total cost = average revenue
Marginal cost = marginal revenue
Marginal cost = average revenue
Marginal revenue = average cost
Average total cost = average revenue
Marginal cost = marginal revenue
answer
Marginal cost = marginal revenue
question
Picture
Refer to the above graph for a profit-maximizing monopolist. The firm will set its price at:
0J
0G
0K
0H
Refer to the above graph for a profit-maximizing monopolist. The firm will set its price at:
0J
0G
0K
0H
answer
0J
question
Picture
Refer to the above graph for a profit-maximizing monopolist. The firm will produce the quantity:
0V
0Y
0T
0X
Refer to the above graph for a profit-maximizing monopolist. The firm will produce the quantity:
0V
0Y
0T
0X
answer
0V
question
A monopoly results in productive inefficiency because at the profit-maximizing output level:
MR is not zero
ATC is not at its minimum level
MC is not at its minimum level
P > AVC
MR is not zero
ATC is not at its minimum level
MC is not at its minimum level
P > AVC
answer
ATC is not at its minimum level
question
Under monopolistic competition, entry to the industry is:
-completely free of barriers.
-more difficult than under pure competition but not nearly as difficult as under pure monopoly.
-more difficult than under pure monopoly.
-blocked.
-completely free of barriers.
-more difficult than under pure competition but not nearly as difficult as under pure monopoly.
-more difficult than under pure monopoly.
-blocked.
answer
more difficult than under pure competition but not nearly as difficult as under pure monopoly.
question
Nonprice competition refers to:
-competition between products of different industries, for example, competition between aluminum and steel in the manufacture of automobile parts.
-price increases by a firm that are ignored by its rivals.
-advertising, product promotion, and changes in the real or perceived characteristics of a product.
-reductions in production costs that are not reflected in price reductions.
-competition between products of different industries, for example, competition between aluminum and steel in the manufacture of automobile parts.
-price increases by a firm that are ignored by its rivals.
-advertising, product promotion, and changes in the real or perceived characteristics of a product.
-reductions in production costs that are not reflected in price reductions.
answer
advertising, product promotion, and changes in the real or perceived characteristics of a product.
question
The restaurant, legal assistance, and clothing industries are each illustrations of:
countervailing power.
homogeneous oligopoly.
monopolistic competition.
pure monopoly.
countervailing power.
homogeneous oligopoly.
monopolistic competition.
pure monopoly.
answer
monopolistic competition.
question
A monopolistically competitive industry combines elements of both competition and monopoly. It is correct to say that the competitive element results from:
-a relatively large number of firms and the monopolistic element from product differentiation.
-product differentiation and the monopolistic element from high entry barriers.
-a perfectly elastic demand curve and the monopolistic element from low entry barriers.
-a highly inelastic demand curve and the monopolistic element from advertising and product promotion.
-a relatively large number of firms and the monopolistic element from product differentiation.
-product differentiation and the monopolistic element from high entry barriers.
-a perfectly elastic demand curve and the monopolistic element from low entry barriers.
-a highly inelastic demand curve and the monopolistic element from advertising and product promotion.
answer
a relatively large number of firms and the monopolistic element from product differentiation.
question
Monopolistically competitive firms:
0realize normal profits in the short run but losses in the long run.
-incur persistent losses in both the short run and long run.
-may realize either profits or losses in the short run but realize normal profits in the long run.
-persistently realize economic profits in both the short run and long run.
0realize normal profits in the short run but losses in the long run.
-incur persistent losses in both the short run and long run.
-may realize either profits or losses in the short run but realize normal profits in the long run.
-persistently realize economic profits in both the short run and long run.
answer
may realize either profits or losses in the short run but realize normal profits in the long run.
question
The monopolistically competitive seller maximizes profit by producing at the point where:
total revenue is at a maximum.
average costs are at a minimum.
marginal revenue equals marginal cost.
price equals marginal revenue.
total revenue is at a maximum.
average costs are at a minimum.
marginal revenue equals marginal cost.
price equals marginal revenue.
answer
marginal revenue equals marginal cost.
question
In the long run, economic theory predicts that a monopolistically competitive firm will:
earn an economic profit.
realize all economies of scale.
equate price and marginal cost.
have excess production capacity.
earn an economic profit.
realize all economies of scale.
equate price and marginal cost.
have excess production capacity.
answer
have excess production capacity.
question
Picture
Refer to the diagram for a monopolistically competitive firm in short-run equilibrium. This firm's profit-maximizing price will be:
$10.
$13.
$16.
$19.
Refer to the diagram for a monopolistically competitive firm in short-run equilibrium. This firm's profit-maximizing price will be:
$10.
$13.
$16.
$19.
answer
$16
question
Picture
Refer to the diagrams, which pertain to monopolistically competitive firms. Long-run equilibrium is shown by:
diagram a only.
diagram b only.
diagram c only.
both diagrams b and c.
Refer to the diagrams, which pertain to monopolistically competitive firms. Long-run equilibrium is shown by:
diagram a only.
diagram b only.
diagram c only.
both diagrams b and c.
answer
diagram a only.
question
Other things equal, if more firms enter a monopolistically competitive industry:
the demand curves facing existing firms would shift to the right.
the demand curves facing existing firms would shift to the left.
the demand curves facing existing firms would become less elastic.
losses would necessarily occur.
the demand curves facing existing firms would shift to the right.
the demand curves facing existing firms would shift to the left.
the demand curves facing existing firms would become less elastic.
losses would necessarily occur.
answer
the demand curves facing existing firms would shift to the left.
question
The term oligopoly indicates:
a one-firm industry.
many producers of a differentiated product.
a few firms producing either a differentiated or a homogeneous product.
an industry whose four-firm concentration ratio is low.
a one-firm industry.
many producers of a differentiated product.
a few firms producing either a differentiated or a homogeneous product.
an industry whose four-firm concentration ratio is low.
answer
a few firms producing either a differentiated or a homogeneous product.
question
Oligopolistic industries are characterized by:
a few dominant firms and substantial entry barriers.
a few dominant firms and no barriers to entry.
a large number of firms and low entry barriers.
a few dominant firms and low entry barriers.
a few dominant firms and substantial entry barriers.
a few dominant firms and no barriers to entry.
a large number of firms and low entry barriers.
a few dominant firms and low entry barriers.
answer
a few dominant firms and substantial entry barriers.
question
The mutual interdependence that characterizes oligopoly arises because:
the products of various firms are homogeneous.
the products of various firms are differentiated.
each firm in an oligopoly depends on its own pricing strategy and that of its rivals.
the demand curves of firms are kinked at the prevailing price.
the products of various firms are homogeneous.
the products of various firms are differentiated.
each firm in an oligopoly depends on its own pricing strategy and that of its rivals.
the demand curves of firms are kinked at the prevailing price.
answer
each firm in an oligopoly depends on its own pricing strategy and that of its rivals.
question
Mutual interdependence means that each oligopolistic firm:
faces a perfectly elastic demand for its product.
must consider the reactions of its rivals when it determines its price policy.
produces a product identical to those of its rivals.
produces a product similar but not identical to the products of its rivals.
faces a perfectly elastic demand for its product.
must consider the reactions of its rivals when it determines its price policy.
produces a product identical to those of its rivals.
produces a product similar but not identical to the products of its rivals.
answer
must consider the reactions of its rivals when it determines its price policy.
question
Game theory:
is the analysis of how people (or firms) behave in strategic situations.
is best suited for analyzing purely competitive markets.
reveals that mergers between rival firms are self-defeating.
reveals that price-fixing among firms reduces profits.
is the analysis of how people (or firms) behave in strategic situations.
is best suited for analyzing purely competitive markets.
reveals that mergers between rival firms are self-defeating.
reveals that price-fixing among firms reduces profits.
answer
is the analysis of how people (or firms) behave in strategic situations.
question
Picture
Refer to the diagram where the numerical data show profits in millions of dollars. Beta's profits are shown in the northeast corner and Alpha's profits in the southwest corner of each cell. If both firms follow a high-price policy:
Alpha will realize a $10 million profit and Beta a $30 million profit.
each will realize a $20 million profit.
Beta will realize a $10 million profit and Alpha a $30 million profit.
each will realize a $15 million profit.
Refer to the diagram where the numerical data show profits in millions of dollars. Beta's profits are shown in the northeast corner and Alpha's profits in the southwest corner of each cell. If both firms follow a high-price policy:
Alpha will realize a $10 million profit and Beta a $30 million profit.
each will realize a $20 million profit.
Beta will realize a $10 million profit and Alpha a $30 million profit.
each will realize a $15 million profit.
answer
each will realize a $20 million profit.
question
Picture
Refer to the diagram where the numerical data show profits in millions of dollars. Beta's profits are shown in the northeast corner and Alpha's profits in the southwest corner of each cell. If Beta commits to a high-price policy, Alpha will gain the largest profit by:
also adopting a high-price policy.
adopting a low-price policy.
adopting a low-price policy, but only if Beta agrees to do the same.
engaging in nonprice competition only.
Refer to the diagram where the numerical data show profits in millions of dollars. Beta's profits are shown in the northeast corner and Alpha's profits in the southwest corner of each cell. If Beta commits to a high-price policy, Alpha will gain the largest profit by:
also adopting a high-price policy.
adopting a low-price policy.
adopting a low-price policy, but only if Beta agrees to do the same.
engaging in nonprice competition only.
answer
adopting a low-price policy.
question
Picture
Refer to the diagram where the numerical data show profits in millions of dollars. Beta's profits are shown in the northeast corner and Alpha's profits in the southwest corner of each cell. With independent pricing, the outcome of this duopoly game will gravitate to cell:
A.
B.
C.
D.
Refer to the diagram where the numerical data show profits in millions of dollars. Beta's profits are shown in the northeast corner and Alpha's profits in the southwest corner of each cell. With independent pricing, the outcome of this duopoly game will gravitate to cell:
A.
B.
C.
D.
answer
D
question
Picture
Refer to the diagram where the numerical data show profits in millions of dollars. Beta's profits are shown in the northeast corner and Alpha's profits in the southwest corner of each cell. If Alpha and Beta engage in collusion, the outcome of the game will be at cell:
A.
B.
C.
D.
Refer to the diagram where the numerical data show profits in millions of dollars. Beta's profits are shown in the northeast corner and Alpha's profits in the southwest corner of each cell. If Alpha and Beta engage in collusion, the outcome of the game will be at cell:
A.
B.
C.
D.
answer
A
question
The kinked-demand curve of an oligopolist is based on the assumption that:
competitors will follow a price cut but ignore a price increase.
competitors will match both price cuts and price increases.
competitors will ignore a price cut but follow a price increase.
there is no product differentiation.
competitors will follow a price cut but ignore a price increase.
competitors will match both price cuts and price increases.
competitors will ignore a price cut but follow a price increase.
there is no product differentiation.
answer
competitors will follow a price cut but ignore a price increase.
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