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( A )
1. When a firm is making a profit-maximizing production decision, which of the following principles of economics is likely to be most important to the firm's
decision?
A.
The cost of something is what you give up to get it.
B.
A country's standard of living depends on its ability to produce goods and services.
C.
Prices rise when the government prints too much money.
D.
Governments can sometimes improve market outcomes.
2. A firm's opportunity costs of production are equal to its
A.
explicit costs only.
B.
implicit costs only.
C.
explicit costs + implicit costs.
D.
explicit costs + implicit costs + total revenue.
3. Economic profit is equal to total revenue minus the
A.
explicit cost of producing goods and services.
B.
opportunity cost of producing goods and services.
C.
accounting cost of producing goods and services.
D.
implicit cost of producing goods and services.
4. Accounting profit is equal to
A.
total revenue minus the explicit cost of producing goods and services.
B.
marginal revenue minus marginal cost.
C.
total revenue minus the opportunity cost of producing goods and services.
D.
average revenue minus the average cost of producing the last unit of a good or service.
5. The marginal product of labor is equal to the
A.
incremental cost associated with a one unit increase in labor.
B.
incremental profit associated with a one unit increase in labor.
C.
increase in labor necessary to generate a one unit increase in output.
D.
increase in output obtained from a one unit increase in labor.
6. If the total cost curve gets steeper as output increases, the firm is experiencing
A.
diminishing marginal product.
B.
economies of scale.
C.
diseconomies of scale.
D.
increasing marginal product.
7. In the long run, a firm that produces and sells textbooks gets to choose
A.
how many workers to hire.
B.
the size of its factories.
C.
which short-run average-total-cost curve to use.
D.
All of the above are correct.
8. When comparing short-run average total cost with long-run average total cost at a given level of output,
A.
short-run average total cost is typically above long-run average total cost.
B.
short-run average total cost is typically the same as long-run average total cost.
C.
short-run average total cost is typically below long-run average total cost.
D.
the relationship between short-run and long-run average total cost follows no clear pattern.
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9. Economies of scale arise when
A.
an economy is self-sufficient in production.
B.
individuals in a society are self-sufficient.
C.
fixed costs are large relative to variable costs.
D.
workers are not able to specialize in a particular task.
10. At low levels of production, the firm
A.
benefits from increased size because it can take advantage of greater specialization.
B.
has the potential for economies of scale.
C.
is unlikely to experiences acute problems with coordination.
D.
All of the above are correct.
11. When a firm’s long­run average total costs do not vary as output increases, the firm exhibits
A.
constant returns to scale.
B.
economies of scale.
C.
diseconomies of scale.
D.
an efficient use of resources.
12. In the long run, when marginal cost is above average total cost, the average total cost curve exhibits
A.
economies of scale.
B.
diseconomies of scale.
C.
constant returns to scale.
D.
efficient scale.
13. In a competitive market, the actions of any single buyer or seller will
A.
discourage entry by competitors.
B.
influence the profits of other firms in the market.
C.
have a negligible impact on the market price.
D.
None of the above is correct.
14. In a perfectly competitive market,
A.
no one seller can influence the price of the product.
B.
price exceeds marginal revenue for each unit sold.
C.
average revenue exceeds marginal revenue for each unit sold.
D.
All of the above are correct.
15. For a firm operating in a competitive industry, which of the following statements is not correct?
A.
Total revenue is constant.
B.
Price equals marginal revenue.
C.
Price equals average revenue.
D.
Marginal revenue is constant.
16. At the profit-maximizing level of output,
A.
marginal revenue equals average total cost.
B.
marginal revenue equals average variable cost.
C.
marginal revenue equals marginal cost.
D.
average revenue equals average total cost.
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17. When profit-maximizing firms in competitive markets are earning profits,
A.
new firms will enter the market.
B.
market demand must exceed market supply at the market equilibrium price.
C.
market supply must exceed market demand at the market equilibrium price.
D.
the most inefficient firms will be encouraged to leave the market.
18. When marginal revenue equals marginal cost, the firm
A.
should increase the level of production to maximize its profit.
B.
may be minimizing its losses rather than maximizing its profit.
C.
must be generating positive economic profits.
D.
must be generating positive accounting profits.
19. A profit-maximizing firm in a competitive market will always make marginal adjustments to production as long as
A.
average revenue is greater than average total cost.
B.
average revenue is equal to marginal cost.
C.
marginal cost is greater than average total cost.
D.
price is above or below marginal cost.
20. When a profit-maximizing competitive firm finds itself minimizing losses because it is unable to earn a positive profit, this task is accomplished by producing
the quantity at which price is equal to
A. sunk cost.
B. average fixed cost.
C. average variable cost.
D. marginal cost.
21. The term shutdown
A. refers to a short-run decision that a firm might make, whereas the term exit refers to a long-run decision that a firm might make.
B. refers to a long-run decision that a firm might make, whereas the term exit refers to a short-run decision that a firm might make.
C. and the term exit both refer to short-run decisions that a firm might make.
D. and the term exit both refer to long-run decisions that a firm might make.
22. In the long run, a firm will exit a competitive industry if
A. average total cost exceeds the price.
B. the price exceeds average total cost.
C. total revenue exceeds total cost.
D. Both a and b are correct.
23. When new firms enter a perfectly competitive market,
A.
economic profits of existing firms will continue to be zero.
B.
entering firms will earn zero economic profit upon entry into the market.
C.
existing firms may see their costs rise if more firms compete for limited resources.
D.
prices will rise as existing firms raise prices to keep new firms out of the market.
24. A competitive market is in long-run equilibrium. If demand increases, we can be certain that price will
A.
rise in the short run. Some firms will enter the industry. Price will then rise to reach the new long-run equilibrium.
B.
rise in the short run. Some firms will enter the industry. Price will then fall to reach the new long-run equilibrium.
C.
fall in the short run. All, some, or no firms will shut down, and some of them will exit the industry. Price will then rise to reach the new long-run
equilibrium.
D.
not rise in the short run because firms will enter to maintain the price.
25. The long-run supply curve for a competitive industry
A.
may be horizontal if entry into the industry lowers average total cost.
B.
may be upward-sloping if higher-cost firms enter the industry.
C.
will be horizontal if there is free entry into the industry.
D.
will be upward-sloping if there are barriers to entry into the industry.
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26. Refer to Figure 1. If this firm profit-maximizes, how much output will it produce?
A. 30
B. 40
C. 50
Figure 1
D. 60
27. Refer to Figure 1. If this firm profit-maximizes, what price will it charge?
A. 35
B. 30
C. 25
D. 20
28. Refer to Figure 1. If this firm profit-maximizes, how much profit or loss will it earn?
A. profit of $1500
B. profit of $1200
C. profit of $1000
D. profit of $500
29. Refer to Figure 1. What, if any, long run adjustment will occur in a monopolistically competitive
market?
A.
Firms are price takers and will enter, price will decrease, and profits will equal zero
B.
Firms are not a price takers. But they will enter, price will decrease, and profits will equal zero
C.
No any change
D.
Firms still earn economic profits in the long run
30. A monopolistically competitive market is like both a competitive market and a monopoly in that firms in all three market structures
A.
can earn economic profits in the short run.
B.
can earn economic profits in the long run.
C.
charge a price above marginal cost.
D.
All of the above are correct.
31. In the short run, a firm operating in a monopolistically competitive market can earn
A.
positive economic profits.
B.
economic losses.
C.
zero economic profits.
D.
All of the above are possible.
32. Which of the following conditions is characteristic of a monopolistically competitive firm in short-run equilibrium?
A. P > AR
B. MR > MC
C. P > MC
D. All of the above are correct.
33. For a profit-maximizing monopolistically competitive firm, price exceeds marginal cost in
A. the short run but not in the long run.
B. the long run but not in the short run.
C. both the short run and the long run.
D. neither the short run nor the long run.
There are just two producers of a certain product. Each is considering offering promotional discounts.
Does not offer
discount
Firm
B
Table 1
Firm A
Offers discount
Does not offer
discount
Firm A profit = $90,000
Firm B profit = $90,000
Firm A profit = $120,000
Firm B profit = $70,000
Offers discount
Firm A profit = $70,000
Firm B profit = $120,000
Firm A profit = $80,000
Firm B profit = $80,000
34. Refer to Table 1. The dominant strategy
A. for both firms is to offer the discount.
B. for both firms is to not offer the discount.
C. for firm A is to offer the discount. The dominant strategy for firm B is to not offer the discount.
D. for firm A is to not offer the discount. The dominant strategy for firm B is to offer the discount.
35. Refer to Table 1. At the Nash equilibrium, how much profit will Firm A earn?
A. $120,000
B. $90,000
C. $80,000
D. $70,000
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36. Which of the following is correct? When oligopolies collude
A.
they make higher profits and consumers of the product are better off.
B.
they make higher profits but consumers of the product are worse off.
C.
they make lower profits and consumers of the product are better off.
D.
they make lower profits and consumers of the product are worse off.
37. From society’s standpoint, cooperation among oligopolists is
A.
desirable, because it leads to less conflict among firms and a wider variety of products for consumers.
B.
desirable, because it leads to an outcome closer to the competitive outcome than what would be observed in the absence of cooperation.
C.
undesirable, because it leads to output levels that are too low and prices that are too high.
D.
undesirable, because it leads to output levels that are too high and prices that are too high.
38. Refer to Table 2. Suppose we observe that the price of a gallon of
gasoline in Driveaway is $2. Given this observation, which of the
following scenarios is most likely?
A.
There is one seller of gasoline in Driveaway.
B.
There are two sellers of gasoline in Driveaway.
C.
There are a few sellers of gasoline in Driveaway, but the number
of sellers exceeds two.
D.
Table 2
The table shows the town of Driveaway’s demand schedule for gasoline.
Assume the town’s gasoline seller(s) incurs a cost of $2 for each gallon sold,
with no fixed cost.
Quantity (in
gallons)
Price
Total Revenue
0
$8
$0
50
7
350
100
6
600
150
5
750
200
4
800
250
3
750
300
2
600
350
1
350
400
0
0
There are many sellers of gasoline in Driveaway.
39. Refer to Table 2. Suppose we observe that the price of a gallon of gasoline in Driveaway is $5; we observe as well that a particular seller’s profit is
$150. Given this observation, which of the following scenarios is most likely?
A. The market for gasoline in Driveaway is a monopoly.
B. There are two identical sellers of gasoline in Driveaway, and the sellers collude.
C. There are two identical sellers of gasoline in Driveaway, and the sellers do not collude.
D. There are three identical sellers of gasoline in Driveaway, and the sellers collude.
40.
As the number of firms in an oligopoly market
A. decreases, the price charged by firms likely decreases.
B. decreases, the market approaches the competitive market outcome.
C. increases, the market approaches the competitive market outcome.
D. increases, the market approaches the monopoly outcome.
41. The prisoners’ dilemma game
A. provides insight into why cooperation is individually rational.
B. provides insight into why cooperation is difficult.
C. is a game in which neither player has a dominant strategy.
D. is a game in which exactly one of the two players has a dominant strategy.
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42. Refer to Table 3. The dominant strategy For Firm A is to produce
Table 3
This table shows a game played between two firms, Firm A and Firm B.
In this game each firm must decide how much output (Q) to produce: 10
units or 12 units. The profit for each firm is given in the table as (Profit for
Firm A, Profit for Firm B).
A. 10 units and the dominant strategy for Firm B is to produce 10 units.
B. 10 units and the dominant strategy for Firm B is to produce 12 units.
C. 12 units and the dominant strategy for Firm B is to produce 10 units.
D. 12 units and the dominant strategy for Firm B is to produce 12 units.
Firm B
Firm A
Q=10
Q=12
Q=10
(48, 48)
(20, 60)
Q=12
(60, 20)
(38, 38)
43. Which of the following is not a reason for the existence of a monopoly?
A. patents
B. marginal-cost pricing
C. economies of scale
D. trademarks
44. When a firm has a natural monopoly, the firm's
A. marginal cost always exceeds its average total cost.
B. total cost curve is horizontal.
C. average total cost curve is downward sloping.
D. marginal cost curve must lie above the firm’s average total cost curve.
45. Refer to Table 4. The maximum profit this monopolist can earn is
A. $5.
B. $15.
C. $16.
D. $28.
Table 4
Consider the following demand and cost information for a monopoly.
Quantity
0
1
2
3
4
46. Refer to Table 5. The monopolist has total fixed costs of $60 and has a
constant marginal cost of $15. What is the profit-maximizing level of
production?
A.
2 units
B.
3 units
C.
4 units
D.
5 units
Price
$30
$25
$20
$15
$10
Total Cost
$3
$7
$12
$18
$25
Table 5
A monopolist faces the following demand curve:
Price
$51
$47
$42
$36
$29
$21
$12
Quantity
1
2
3
4
5
6
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47. Which of the following statements is not correct?
A.
The competitive firm produces where P = MC.
B.
The monopolist produces where P = MC.
C.
The competitive firm produces where MR = MC.
D.
The monopolist produces where MR = MC.
48. A reduction in a monopolist's fixed costs would
A.
decrease the profit-maximizing price and increase the profit-maximizing quantity produced.
B.
increase the profit-maximizing price and decrease the profit-maximizing quantity produced.
C.
not effect the profit-maximizing price or quantity.
D.
possibly increase, decrease or not effect profit-maximizing price and quantity, depending on the elasticity of demand.
49. A monopoly's marginal cost will
A. be less than its average fixed cost.
B. be less than the price per unit of its product.
C. exceed its marginal revenue.
D. equal its average total cost.
50. After the patent runs out on a brand name drug, generic drugs enter the market. What happens next in the market?
A. Price increases, and total surplus decreases.
B. Price decreases, and total surplus decreases.
C. Price decreases, and total surplus increases.
D. Price increases, and total surplus increases.
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