EXAM TWO - STUDY MODULES (Ch. 21, 22, 23)

A

Payments made for the use of money are known as: A) interest B) profits C) rent

C

Shareholders are: A) less at risk than bondholders B) subject to unlimited risk C) the owners of corporation

A

According to the table, what is the average total cost of producing 550 pizzas: A) $5.00 B) $6.48 C) $2,750.00

C

For market equilibrium to generate the largest possible surplus and thus be efficient, which of the following conditions must be met: A) We need government intervention. B) We must have asymmetric information. C) We must have perfect competition.

B

Interest payments made on a bond are known as: A) retained earnings B) coupon payments C) dividends

B

Markets are said to be efficient if the price of the asset: A) has a high degree of volatility B) reflects all information relevant to the value of that asset C) you can sell the asset for the price you want

B

Minimum efficient scale is the level of output at which: A) decreased output will generate additional economies of scale B) all economies of scale have been exhausted C) increased output will generate additional economies of scale

A

The downward sloping part of the long run average total cost curve is where the firm is achieving: A) economies of scale B) diseconomies of scale C) constant returns to scale

A

When the marginal product of labor is greater than the average product of labor, then the average product of labor must be: A) increasing B) constant C) decreasing

B

Which graph best depicts an industry in which the firm's average costs decrease as the industry expands production: A) Neither graph B) The graph on the left C) The graph on the right

B

According to the data in the table, when the price is $4, the firm would produce: A) Six units of output, where revenue is highest B) Four units of output, although it would suffer a loss from doing so C) Two units of output, although it would suffer a loss from doing so

C

According to the graph, what size bookstore is more likely to experience diseconomies of scale: A) Bookstores that sell approximately 40,000 books per month B) Bookstores that sell approximately 20,000 books per month C) Bookstores that sell more than 80,000 books per month

A

In perfect competition, the marginal revenue is the same as: A) Price B) Price x 50% C) Average cost

B

The previous table shows the marginal benefit that Ted earns from keeping his store open one more hour. Ted has a marginal cost of $90 per hour. How many hours should Ted stay open: A) 23 hours B) 22 hours C) 20 hours D) 21 hours E) 24 hours

A

The real interest rate is: A) The nominal interest rate minus the inflation rate. B) Another term for the rate of inflation. C) The same as the market interest rate.

A

The relationship between the inputs used by the firm and the maximum output it can produce is known as the: A) production function B) output schedule C) manufacturing timetable

B

The relationship between the present value of a given payment in the future and the interest rate is an example of which key principle in economics: A) The marginal principle B) The principle of opportunity cost C) The principle of diminishing returns

B

What is the impact of a decrease in interest rates on present value: A) present value will not change B) present value will rise C) present value will fall

A

What is the name for the additional output that a firm produces as a result of hiring one more worker: A) Marginal product of labor B) The production function C) Average total cost

A

What is the relationship between investment and real interest rates, all other things being equal: A) Lower interest rates stimulate investment. B) Investment is independent of interest rates. C) Higher interest rates stimulate investment.

C

According to the graph, what level of output should be produced to achieve economic efficiency: A) 14,000 cups per month B) 16,000 cups per month C) 15,000 cups per month

C

What is the relationship between real interest rates and investment, other things being equal: A) A positive relationship B) No relationship C) A negative relationship

A

What term do economists use to refer to the minimum amount that investors must earn on the funds they invest in a firm, expressed as a percentage of the amount invested: A) Normal rate of return B) Explicit cost C) Opportunity cost

B

According to the graph, over what range of output do we find constant returns to scale in bookselling: A) Between 40,000 and 80,000 books B) Between 20,000 and 40,000 books C) Between 1,000 and 20,000 books

A

As the market demand shifts to the left, how will the firm's level of output change: A) The firm will decrease its output and suffer losses. B) The firm will increase its output to increase profits. C) The firm will decrease its output and earn higher profit.

A

At which price in this graph is the perfectly competitive firm earning negative economic profit: A) $250 B) $495 C) Both $250 and $495

A

Based on the relationship between average total cost and marginal cost, which of the curves appears to be average total cost: A) Curve 2 B) Neither curve is the average product curve C) Curve 1

A

The short run is a period of time where __________ while the long run is a period of time where __________: A) at least one input is fixed, all inputs are variable B) at least one input is fixed, all inputs are fixed C) all inputs are variable, at least one input is fixed

A

The two primary forms of capital income are: A) interest and profits B) stocks and bonds C) interest and bonds

B

According to the graph, which level of output represents the minimum efficient scale in bookselling: A) 40,000 books B) 20,000 books C) 1,000 books

B

According to the graph, which of the following is more likely to occur when moving from point A to point B: A) Increasing returns B) Diminishing returns C) Division of labor

B

According to the graphs, which of the following is likely to happen in this market in the long run: A) Some firms will probably exit this market B) No other firms will enter this market C) More firms will enter this market

A

In the short-run, the cost that is independent of the amount of output produced is called __________: A) Fixed cost B) Variable cost C) Explicit cost

A

If the number of people in a publishing company does not go up or down with the quantity of books it publishes, then how should we categorize the salaries and benefits paid to these employees: A) As a part of fixed cost B) As a part of variable cost C) As an implicit cost

A

In the short run, the firm should: A) Operate if price > average variable cost. B) Shut down if price < average total cost. C) Shut down if price > average total cost.

B

In this graph, the market is initially in long-run equilibrium at point A. If this is a constant-cost industry, after the decrease in demand, which point is likely to be a short-run equilibrium and which point is likely to be the next long-run equilibrium: A) Point C is a short-run equilibrium and point D is the new long-run equilibrium. B) Point D is a short-run equilibrium and point C is the new long-run equilibrium. C) Point B is a short-run equilibrium and point C is the new long-run equilibrium.

C

A buyer or seller that is unable to affect the market price is called a __________: A) monopolist B) price maker C) price taker

C

A share of common stock is: A) a debt instrument issued by firms B) an option to buy ownership C) a pro rata share of ownership in a firm

C

According to the data in the table, what is the marginal cost of producing the 640th pizza: A) $650.00 B) $4,700.00 C) $43.33

B

According to the data in the table, what level of output maximizes profit: A) 4 units of output B) 8 units of output C) 10 units of output

A

According to the graph the shut-down point corresponds to: A) Point d B) Point b C) Point f

A

According to the graph, if a perfectly competitive firm is producing at point A, which of the following is true: A) The firm earns zero economic profit. B) The firm earns positive economic profit. C) The firm suffers a loss.

B

According to the graph, what is the value of total fixed cost for this perfectly competitive firm: A) $3,400 B) $2,400 C) $5,800

B

According to the graph, when 16,000 cups of tea are produced per month, the marginal benefit of the 16,000th cup of tea is __________, the marginal cost of the 16,000 cup of tea is __________, and output is __________: A) $1.80, $2.20, below the efficient level B) $1.80, $2.20, above the efficient level C) $2.20, $2.20, above the efficient level

B

According to the graph, which change in output represents economies of scale in bookselling: A) from 20,000 to 40,000 books sold per month B) from 1,000 to 20,000 books sold per month C) from 40,000 to 80,000 books sold per month

A

According to the graph, which demand curve is associated with the shutdown point for this perfectly competitive firm: A) Demand curve 2 B) Demand curve 4 C) Demand curve 1

A

According to the graph, which level of output maximizes profit: A) 8 shirts per minute B) 2 shirts per minute C) 5 shirts per minute

B

According to the table of data, when do diminishing returns in the production of pizzas begin: A) When the fourth worker is hired B) When the third worker is hired C) When the fifth worker is hired

B

Accounting profits will always be __________ economic profit: A) equal to B) larger than C) less than

C

An increase in the real interest rate will: A) shift the demand curve for loanable funds to the right B) shift the demand curve for loanable funds to the left C) cause a movement along the demand curve for loanable funds

C

If Microsoft sells a bond with a face value of $10,000 and agrees to pay $800 of interest per year to the bond purchasers, what is the interest rate paid on the bond: A) 9% B) 10% C) 8%

C

If Motorola sells a bond with a face value of $5,000 and an interest rate of 5 percent, what is the coupon payment on the bond: A) $500 B) $5,000 C) $250

A

If the average total cost curve is above the demand curve, then this firm is: A) having economic losses B) breaking even C) earning an economic profit

A

In determining whether or not to borrow funds, firms compare the rate of return they expect to make on an investment with the: A) interest rate they must pay to borrow the necessary funds B) the revenue expected from the investment C) the initial cost of the investment

C

In perfect competition, when a firm is making positive economic profit in the short run, then new firms enter the market causing the market supply curve to __________ and the market price to __________: A) shift rightward, increase B) shift leftward, increase C) shift rightward, decrease

A

In reference to the graph, at what level of output does this perfectly competitive firm maximize profit: A) Q3 B) Q2 C) Q1

B

In the United States, firms organized as __________ account for most of the revenue generated by firms: A) sole proprietorships B) corporations C) partnerships

B

Interest rates: A) allocate financial capital to firms B) allocate financial capital to the less efficient firms C) have no economic function

C

Investors demand shares of stock based on: A) irrational expectations of the future B) emotional attachment C) the expectation of dividends and/or capital gains

B

Long-run equilibrium in perfect competition results in: A) productive efficiency B) both productive and allocative efficiency C) allocative efficiency

A

One of the first steps in deciding whether to complete your education is to: A) evaluate the marginal cost and marginal benefit of that decision. B) evaluate the total amount of your investment up to this point. C) consider only the easiest options at a given point in time.

A

Payments made by a corporation to the shareholders are known as: A) dividends B) coupon payments C) retained earnings

B

The __________ the interest rate, the more investment projects firms can profitably undertake, and the __________ the quantity of loanable funds they will demand: A) higher, greater B) lower, greater C) lower, smaller

C

The perfectly competitive firm represented in the graph on the right is experiencing a __________: A) profit in the long run B) loss in the short run C) profit in the short run

B

What does the shaded area in the graph represent for a perfectly competitive firm that produces at output level Q: A) Positive economic profit B) Negative economic profit C) Total cost of producing Q

A

What is occurring from the origin up until point A in this graph: A) Output increases at an increasing rate. B) Output increases at a decreasing rate. C) Output increases at a constant rate.

A

When a competitive market is in equilibrium, what is the economically efficient level of output: A) The level of output where marginal benefit is equal to marginal cost. B) The level of output where marginal benefit is greater than marginal cost. C) The level of output where marginal benefit is less than marginal cost.

C

When graphing a conventional short-run production function, we place __________ on the horizontal axis and __________ on the vertical axis: A) fixed input, variable input B) output, the variable input C) the variable input, output

C

When is output lower than the efficient level: A) When marginal benefit is equal to marginal cost B) When marginal cost is greater than marginal benefit C) When marginal benefit is greater than marginal cost

B

Which graph is representative of a typical average total cost curve: A) Graph A B) Graph B C) Graph C

B

Which of the following is a characteristic of a perfectly competitive market: A) The products are differentiated. B) There are large numbers of buyers and sellers. C) Firms cannot freely enter or exit the market

C

Which of the following types of firms have limited liability: A) Partnerships B) Sole proprietorships C) Corporations

B

Which of these costs are affected by the level of output produced: A) Fixed costs B) Variable costs C) Sunk costs

A

Your friend asks you to join him in the new Internet business he is setting up as a corporation. If you invest $10,000 in the business, what is the limit to your liability: A) $10,000 B) $1,000,000 C) $100,000

C

__________ is the set of rules, guidelines and regulations that monitor and determine appropriate actions for the firm: A) A corporate agreement B) The bond indenture C) Corporate governance