EC Module 3

Which of the following factors would NOT cause a supply curve to shift to the right?

Demand increases for the product.

Given that most people generally prefer to wear a bicycle helmet when riding, an increase in the price of bicycle helmets would tend to,

reduce demand for bicycles

When the current price is higher than the equilibrium price,

sellers want to produce and sell more than buyers want to produce.

If firms in a competitive industry begin to earn profit in the short run, new firms will enter. This will shift the industry

supply curve to the right, meaning market price will fall.

Economies of scope exist when

changing the mix of products produced reduces average cost

NMC is a monopoly in the market. Suppose it can sell 4 units of its output at $5.00 per unit and 5 unites of its output at $4.90 per unit. NMC will produce and sell the fifth unit if its marginal cost is

$4.50 or less

Which of the following will definitely result if there is both a leftward shift in demand and a leftward shift in supply?

A decrease in equilibrium quantity.

Which of the following combinations would definitely result in an increase in the equilibrium price in a market?

A leftward shift in supply and a rightward shift in demand.

Higher consumer incomes increase the demand for a particular good. How is this effect generally shown?

A rightward shift of the demand curve

Suppose workers prefer a certain amount of autonomy and flexibility in their job responsibilities. Job A and B are identical in all respects except Job A offers some autonomy and flexibility. Which of the following combinations of annual salaries would you predict?

A: $40,000 B: $50,000

You have recently been hired to advise the owners of KIL, which operates in a perfectly competitive industry. KIL is currently producing at a point where market price equals its marginal cost; KIL's total revenue is less than its total cost but exceeds its total variable cost. What advice should you provide KIL's owners?

Continue production in the short run to minimize losses, but exit the industry in the long run.

Recently, you observed both an increase in the price and quantity of wheat. These two outcomes could be the result of which of the following?

Demand curve for wheat shifting rightward.

Which of the following characteristics is most consistent with a perfectly competitive market?

Firms are able to enter and exit the market freely.

Which of the following types of firm is most likely to be a monopoly?

Local electricity provider

The law of diminishing marginal returns refers to the general tendency for _____ to eventually diminsh.

Marginal productivity

Merrimack Industries sells its output in a perfectly competitive market. Which of the following statements is true about Merrimack?

Merrimack will earn zero economic profits in the long-run equilibrium.

Which of the following statements is true regarding the difference between monopoly prices and quantities compared to perfectly competitive prices and quantities?

Monopoly prices are higher than prices in perfect competition but quantities are lower than in perfect competition.

Jet fuel prices have recently increased. This will most likely lead to which of the following changes?

Supply of airplane trips to decrease.

A government agency releases a report warning consumers about the negative health effects of eating beef. Which of the following changes in the beef market is most likely to occur following the release?

The demand curve will shift to the left, and price of beef will fall.

Which helps explain why marginal cost eventually increases as output increases?

The law of diminishing returns

Learning curves describe a relationship between

average variable cost and the cumulative number of units produced.

Increasing complexity of management and challenges of coordination as firms produce more of the same product can be a source of

diseconomies of scale

Increasing complexity of management and challenges of coordination as firms produce a wider variety of products can be a source of

diseconomies of scope

If a firm doubles its inputs and output more than doubles, its production process exhibits

economies of scale

A new roasting innovation reduces the cost of producing coffee. As a result, the quantity of coffee ________ and the price of coffee _______.

increases, falls

Charlton Computer Company has a monopoly over the production of a specialized processor. It will be profitable for Charlton to increase production of its specialized processors as long as marginal cost

is less than marginal revenue.

Pat is the owner of United Local Supply, which makes zero economic profit. Pat is

making a return equal to his/her opportunity cost.

If economies of scope exist across two products, we would expect that firms will likely

produce and sell both products

Diseconomies of scale imply that

the firm should consider a reduction in production.

Constant returns to scale means that as all inputs are increased,

total output increases in the same proportion as do the inputs.