Microeconomics Chapter 4-6 Practice Tests
If OPEC is an effective cartel, price changes are dictated by changes in demand output changes are dictated by changes in demand members agree on output quotas all of the above
members agree on output quotas
When a cost varies in the short run as output is changed, the cost is defined as a(an): normal cost accounting cost variable cost economic cost
variable cost
An example of price discrimination is the price charged for: troll dolls college admission textbooks diamonds
college admission
Suppose a publisher faces the following costs of producing 10,000 newspapers each month: $5,500 cost of labor; $2,200 monthly mortgage payment; $250 cost of electricity to run the printing presses; $800 for ink and paper; and $200 in city property taxes (based on the value of the building and land). Its total variable costs are: $8950 $8750 $6550 $6300
$6550
A firm can produce 450 gallons of milk per day with 4 workers and 500 gallons per day with 5 workers. The marginal product of the fifth worker expressed in gallons per worker per day, is: 35 50 70 350
50
All of the following are true concerning production costs EXCEPT: the long run is a period of time when all inputs are variable a fixed input can change over time marginal product refers to a change in total output produced by adding one unit of variable input the short run is a time when all inputs are variable
a fixed input can change over time
A firm has total revenue of $200 million and explicit costs of $190 million. Suppose its owners have invested $100 million in the company at an opportunity cost of 10 percent interest rate per year. The firm's economic profit is: $100 million $400 million $100 million $80 million zero
zero
Barbara owns a small shop where dresses are made. At the end of a given month, she has 250 dresses. Her expenses for the month are $1,000 for rent, $6,000 for wages, $1,500 for fabric and thread, and $500 for electricity. Her total variable costs for the month are: $6,500 $4,000 $7,500 $8,000
$8,000
Suppose a firm sells 70 units when the price is $6, but sells 80 units when the price falls to $4. 1. Calculate the firm's revenue at $6 and at $4 2. Use the total-revenue test to determine whether demand is elastic or inelastic over this range. 3. Verify your previous answer by calculating the elasticity of demand using the midpoint formula. 1) Total Revenue at $6 is: $420 Total Revenue at $4 is: $320 2) inelastic 3) .33 1) Total Revenue at $6 is: $240 Total Revenue at $4 is: $560 2) inelastic 3) 2.5 1) Total Revenue at $6 is: $200 Total Revenue at $4 is: $120 2) elastic 3) 1.8
1) Total Revenue at $6 is: $420 Total Revenue at $4 is: $320 2) inelastic 3) .33
As a fishing firm hires its first, second, and third workers, it could find that marginal product actually rises. The reason for this is: diminishing returns have set in The division of labor creates greater productivity the firm has hired another boat all tasks are shared by all workers
The division of labor creates greater productivity
Which of the following IS an example of a monopolistic competitive firm? a local beauty salon General Motors Microsoft a farmer's market
a local beauty salon
Perfect competition requires all of the following conditions EXCEPT: a small number of sellers freedom to enter or exit the market at will the goods or services sold must be identical to one another complete and equal knowledge of market conditions for sellers
a small number of sellers
A monpolized market is characterized by: a sole seller for a product for which there are few suitable substitutes very strong barriers to entry a single firm facing the market demand curve all of the above
all of the above
Which of the following IS an example of a fixed input? the acreage of a farmer's land machinery the size of a firm's plant all of the above
all of the above
Suppose Ford, GM, and Chrysler make the majority of pic-up trucks sold in the United States. If they all sell for approximately the same price, and Ford offers a $2000 rebate on new truck sales, what can Ford expect to see? an unprecedented increase in truck sales an immediate response by GM and Chrysler a visit from the antitrust authorities of the government a revolution from Ford stockholders
an immediate response by GM and Chrysler
In order to combat the power of monopolies, the government uses: the Armed Services to ensure compliance anti-trust laws market forces the CIA to infiltrate monopoly organizations
anti-trust laws
Economies of scale explain why: marginal cost rises in the short run marginal product rises in the short run average fixed cost declines in the short run average cost declines in the long run
average cost declines in the long run
All of the following are characteristics of a monopoly market EXCEPT: there is a single seller or supplier buyers must be able to enter or exit the market at will sellers have some control over price there exists barriers to entry
buyers must be able to enter or exit the market at will
Variable inputs are defined as any resource that: varies with the size of the firm's plant cannot be changed as output changes can be changed as output changes can be increased or decreased hourly
can be changed as output changes
Which of the following market structures describes an industry in which a group of firms formally agree to control prices and output of a product? monopolistic competition monopoly perfect competition cartel
cartel
Which of the following IS NOT an example of a legal monopoly? copyrights patents cartels trademarks
cartels
All of the following are examples of an elastic good EXCEPT: complementary goods expensive durable good luxuries
complementary goods
Which of the following accounts for only about 10 percent of businesses in the U.S. but earns over 80 percent of the total revenues? conglomerate corporations partnerships sole proprietorships
corporations
If a 10 percent cut in price causes a 15 percent increase in sales, then: total revenue will decrease demand is inelastic demand is elastic demand is unitary elastic
demand is elastic
If a 10 percent cut in price causes a 8 percent increase in sales, then: total revenue will decrease demand is inelastic demand is elastic demand is unitary elastic
demand is inelastic
Firms in a monopolistically competitive industry produce: homogeneous goods and services differentiated products competitive goods only consumption goods only
differentiated products
Suppose an oil cartel has an agreement to restrict members' production in order to maintain a price of $30 per barrel. A single cartel member may want to cheat and exceed its quota so that it can: reduce its costs charge higher prices make demand more inelastic earn a bigger profit
earn a bigger profit
Which barrier to entry results in the creation of a natural monopoly? legal barriers like government franchises economies of scale ownership of a vital resource patents and copyrights
economies of scale
If an electronics store decreased the price of big screen televisions by 20%, and new sales increased 30%, that would mean that the price change for big screen televisions is: elastic unitary elastic inelastic perfectly inelastic
elastic
If the percentage change in the quantity demanded of a good is greater than the percentage change in price, price elasticity of demand is: elastic inelastic perfectly elastic perfectly inelastic
elastic
Total Revenue is: the amount of money a business takes in from selling its product minus the cost of producing the product another name for profit equal to the average cost of producing the product times the number of units produced equal to the price of the product times the quantity sold
equal to the price of the product times the quantity sold
Perfectly competitive markets are characterized by: a small number of very large producers very strong barriers to entry and exit firms selling a homogeneous product all of the above
firms selling a homogeneous product
Demand is elastic when the elasticity of demand is: zero less than zero greater than one less than one
greater than one
Elasticity of demand measures: how much supply will change as price changes how consumers change their purchases in response to a change in income how consumers change their purchases in response to a change in the price of resources to make a product how consumers change their purchases in response to a change in the price of a product
how consumers change their purchases in response to a change in the price of a product
Economies of scale are created by greater efficiency of capital and by: increased specialization of labor longer chains of command in management better wages for labor smaller plant sizes
increased specialization of labor
If New York City expects that an increase in bus fares will raise mass transit revenues, it must think that the demand for bus travel is: elastic unitary elastic inelastic perfectly inelastic
inelastic
If the percentage change in the quantity demanded of a good is less than the percentage change in price, price elasticity of demand is: elastic inelastic perfectly elastic unitary elastic
inelastic
If the price of a gallon of gas continues to increase and consumers continue to buy the same amount, this would suggest that gas is: elastic inelastic unitary elastic perfectly elastic
inelastic
During the short run, a firm has enough time to adjust: its technology its fixed inputs its variable inputs all of its inputs- both fixed and variable
its variable inputs
If pizza used to be produced in a perfectly competitive market, and now the pizza market has become a monopoly, we can expect: less pizza to be sold at a higher price more pizza to be sold at a higher price less pizza to be sold at a lower price more pizza to be sold at a lower price
less pizza to be sold at a higher price
Which of the following IS NOT an advantage to a sole proprietorship business? he owner is the boss and is answerable only to him/herself limited liability all the profits belong to the owner the owner can take pride in his/her work
limited liability
Which of the following IS an implicit cost to going to college? tuition books lost income future income
lost income
Under perfect competition: many firms have little or no influence over price any combination of firms can have influence over price a single firm has influence over price a few firms have influence over price
many firms have little or no influence over price
A market which contains many small firms selling products that are similar but not identical is called: an oligopoly perfect competition monopolistic competition a monopoly
monopolistic competition
Video rental stores in cities are an illustration of: perfect competition monopoly oligopoly monopolistic competition
monopolistic competition
Which two categories constitute imperfect competition? monopolistic competition and pure competition monopolistic competition and oligopolies oligopolies and perfect competition oligopolies and monopolies
monopolistic competition and oligopolies
When Pepsi is considering a price hike, it needs to consider how Coke may react. this situation is called: mutual interdependence price leadership collusion monopolistic competition
mutual interdependence
In which of the following market structures must the price and output decisions of an individual firm include the possible price and output reactions of the firm's rivals? oligopoly monopoly perfect competition cartel
oligopoly
A natural monopoly will exist when: a firm is able to acquire a patent for a new product a product has high import tariffs set on it a firm illegally prohibits new competitors from entering the market one firm can supply the entire market at a lower average cost than two or more separate firms
one firm can supply the entire market at a lower average cost than two or more separate firms
Implicit costs are best thought of as: opportunity costs variable costs marginal costs accounting costs
opportunity costs
Aloca had a monopoly in the U.S. aluminum market from the late nineteenth century until the end of World War II. Which barrier to entry was the source of Alcoa's monopoly power? ownership of a vital resource government franchises and licenses patents and copyrights economies of scale
ownership of a vital resource
A firm that is owned by two or more persons and is characterized by unlimited liability (being liable for all debts) is a: partnership conglomerate corporation sole proprietorship
partnership
An explicit cost is a(n): payment to a non-owner of a firm for their resources opportunity costs of using resources owned by the firm cost which can not change during a period of time cost found only in the long run
payment to a non-owner of a firm for their resources
When a seller charges different prices for the same product to different segments of the population, he/she is engaged in: collusion price leadership price discrimination mutual interdependence
price discrimination
In an oligopoly we would expect: price to be below the competitive price price to be equal to the competitive price price to be above the competitive price price to be unaffected by competition
price to be above the competitive price
In a monopolistic competitive market, the primary goal of advertising is to: illustrate the substitutability of their product expand the elasticity of demand promote product differentiation increase the number of competitors
promote product differentiation
Explicit costs would include: rent the interest loss of the business owner on money withdrawn from his/her saving account and invested in the business the use of tools owned by the business owner and dedicated to the business the opportunity costs of the business owner's time
rent
Price elasticity of demand refers to the: percentage increase in price in response to a percentage increase in quantity demanded percentage decrease in price in response to a percentage increase in income minimum amount that consumers will pay for a percentage change in quantity demanded or supplied responsiveness of quantity demanded to a change in the price of a good
responsiveness of quantity demanded to a change in the price of a good
Firms would like to know the price elasticity of demand for their products because it helps determine the effect of price changes on the firms': total costs competitors' profits quantity supplied revenues
revenues
Which of the following BEST illustrates a perfectly competitive market? soft drinks automobiles electric power soybean farmers
soybean farmers
All of the following are legal monopolies EXCEPT: trademarks stocks and bonds copyrights patents
stocks and bonds
The long run is a period of time: that is too short to change the size of a firm's plant that is long enough to permit changes in all the firm's inputs, both fixed and variable in which production occurs beyond one year in which production occurs beyond five years
that is long enough to permit changes in all the firm's inputs, both fixed and variable
Market power refers to: the physical make-up of the firms within an industry the ability to influence the price of a product a firm's overall capacity to produce the geographical size of the industry's market
the ability to influence the price of a product
Which of the following is the BEST example of an oligopoly? area restaurants the automobile industry agricultural markets free of government support local utilities
the automobile industry
Which of the following IS NOT an explicit cost? salaries sales taxes utilities such as gas and electricity the firm owner's time
the firm owner's time
Which of the following statements BEST describes firms under monopolistic competition? there is little price or quality competition the firms compete, using quality, location, advertising, and price firms do not compete using advertising there is little competition between firms
the firms compete, using quality, location, advertising, and price
Which of the following WOULD BE an implicit cost to the firm? he firm must pay $500 per month in telephone bills the firms's owner has given up earning $75,000 per year at another job in order to run the firm the firm must hire workers at $11 per hour the firm must pay $4,000 per month in interest on money borrowed to build a plant
the firms's owner has given up earning $75,000 per year at another job in order to run the firm
The primary source of diseconomies of scale appears to be: a firm's inability to acquire quality resources too little demand for the firm's product the organizational difficulties of managing an ever larger enterprise consumers who resist dealing with large firms
the organizational difficulties of managing an ever larger enterprise
Although a monopoly can charge any price it wishes, it ends up choosing: the highest price the price that is equal to marginal cost the price that maximizes profit a fair price
the price that maximizes profit
Total fixed costs are costs that are fixed with respect to: the rate of output time technology the minimum wage or price supports
the rate of output
An example of price discrimination is the price charged for: an economics textbook at a campus bookstore gasoline theater tickets that offer lower prices for children a postage stamp
theater tickets that offer lower prices for children
Since the 1980's, Walmart stores have appeared in almost every community in America. Walmart buys their goods in large quantities and therefore at cheaper prices. Walmart also locates its stores where land prices are low, usually outside of the community business district. Many customers shop at Walmart because of low prices and free parking. Local retailers, like the neighborhood drug store, often go out of business because they lose customers. This story demonstrates that: Walmart engages in illegal acts of monopolization Walmart is managed by ruthless business people there are economies of scale in retail sales there are diseconomies of scale in retail sales
there are economies of scale in retail sales
All of the following are characteristics of an oligopoly EXCEPT: there are no close substitutes each firm is trying to hold on to or enlarge their share of the market each firm is aware of the actions and reactions of all its competitors price is determined not by the market but by the actions of a few firms
there are no close substitutes
At a local business, when there is one worker, the units of output is 8. When there is two workers, output is 20. When there is 3 workers, output is 25. When there is four workers, output is 28. When there is five workers, output is 29. Diminishing returns set in when the __________ worker is hired. second third fourth fifth
third
Profit equals: price times quantity total revenue minus average cost price minus average cost total revenue minus (explicit +implicit costs)
total revenue minus (explicit +implicit costs)
Which of the following IS NOT an advantage to a corporation? the business can go on forever a large amount of money can be raised through the sale of stock unlimited liability stockholders can not be sued
unlimited liability
