eco2

33. Over the range of positive, but diminishing, marginal returns for an input, the total product curve: A. Falls B. Rises at a constant rate C. Rises at a decreasing rate D. Rises at an increasing rate

C

35. Refer to the above graph showing the marginal product (MPL) and the average product of labor (APL). At which quantity of labor employed does diminishing marginal returns set in? A. A B. B C. C D. D

C

36. Refer to the above graph of cost curves. Total fixed cost at output level Q2 is measured by: A. 0B B. AC C. CD D. DE

C

37. The reason the marginal cost curve eventually increases as output increases for the typical firm is because of: A. Diseconomies of scale B. Diminishing marginal utility C. Diminishing marginal returns D. Increasing opportunity cost

C

40. The fixed cost of the firm is $500. The firm's total variable cost is indicated in the table. Refer to the above table and information. The average total cost of the firm when 3 units of output are being produced is: A. $350 B. $400 C. $500 D. $700

C

43. Suppose that TC = $550, TVC = $500, and MC = $100. If the firm produces 10 units of output, then: A. AVC > MC B. AFC = AVC C. MC > AVC D. AVC = MC

C

45. If a more efficient technology was discovered by a firm, there would be: A. An upward shift in the AVC curve B. An upward shift in the AFC curve C. A downward shift in the AFC curve D. A downward shift in the MC curve

C

46. If long-run average total cost decreases as output increases, this is due to: A. Declining average fixed costs B. The law of diminishing returns C. Economies of scale D. Externalities

C

48. Diseconomies of scale occur mainly because: A. Of the law of diminishing returns B. Firms in an industry must be relatively large in order to use the most efficient production techniques C. Of the inherent difficulties involved in managing and coordinating a large business enterprise D. The short-run average total cost curve rises when marginal product is greater than average total cost

C

52. Price is taken to be a "given" by an individual firm selling in a purely competitive market because: A. The firm's demand curve is downward-sloping B. There are no good substitutes for the firm's product C. Each seller supplies a negligible fraction of total market D. Product differentiation is reinforced by extensive advertising

C

53. A purely competitive firm can be identified by the fact that: A. There are other firms in the industry producing similar products B. It is making only normal profits in the short run C. Its average revenue equals its marginal revenue D. It experiences diminishing marginal returns

C

59. Answer the question based on the table below. At what quantity would a purely competitive firm cover all of its costs and earn only normal profits? A. Q = 5 B. Q = 10 C. Q = 15 D. Q = 20

C

62. Let us suppose Harry's, a local supplier of chili and pizza, has the following revenue and cost structure: A. Harry's should stay open in the long run B. Harry's should shut down in the short run C. Harry's should stay open in the short run D. Harry's should shut down in the short run but reopen in the long run

C

63. Refer to the above graph. Which of the output levels is the profit-maximizing output level for this firm? A. Q1 B. Q2 C. Q3 D. Q4

C

66. Which of the following is true for a purely competitive firm in short-run equilibrium? A. The firm is making only normal profits B. The firm's marginal cost is greater than its marginal revenue C. The firm's marginal revenue is equal to its marginal cost D. A decrease in output would lead to a rise in profits

C

69. Consider the purely competitive firm pictured above. The firm is earning: A. Normal profits, since its price is above AVC B. Economic profits, since its price is above AVC C. Normal profits, since its price just covers ATC D. Losses, since it is operating at the shutdown point

C

70. A purely competitive firm will be willing to produce even at a loss in the short run, as long as: A. The loss is smaller than its total variable costs B. The loss is smaller than its marginal costs C. The loss is smaller than its total fixed costs D. Price exceeds marginal costs

C

74. Refer to the above graph. At what price will the firm make just a normal profit? A. $2 B. $5 C. $7 D. $10

C

76. If a purely competitive firm is facing a situation where the price of its product is lower than the average cost, then all of the following applies, except: A. The firm is suffering losses, and if things are not expected to improve, the firm will leave the industry B. The firm may be earning some accounting profits, but less than what it could earn elsewhere C. Other firms will want to enter the industry because of the positive economic profits D. The firm may earn economic profits in the long run if it expands its plant in order to exploit economies of scale.

C

80. Assume the market for ball bearings is purely competitive. Currently, each of the firms in this market is earning negative economic profits. In the long run, we can expect the market: A. Supply to increase and firms' profits to decrease B. Demand to increase and firms' profits to increase C. Supply to decrease and firms' profits to increase D. Demand to decrease and firms' profits to decrease

C

99. A patent gives a firm the power to charge a price that: A. Is below equilibrium B. Is higher than marginal cost C. Increases the consumer surplus D. Results in overproduction of a product

D

1. The price elasticity of demand coefficient measures: A. buyer responsiveness to price changes. B. the extent to which a demand curve shifts as incomes change. C. the slope of the demand curve. D. how far business executives can stretch their fixed costs.

A

11. Suppose that the total revenue curve is derived from a particular linear demand curve. That demand curve must be: A. inelastic for price declines that increase quantity demanded from 6 units to 7 units. B. elastic for price declines that increase quantity demanded from 6 units to 7 units. C. inelastic for price increases that reduce quantity demanded from 4 units to 3 units. D.

A

38. When marginal cost is increasing: A. Total cost must be increasing B. Average total cost must be increasing C. Average total cost must be decreasing D. Average fixed cost might be increasing or decreasing

A

4. The price elasticity of demand of a straight-line demand curve is: A. elastic in high-price ranges and inelastic in low-price ranges. B. elastic but does not change at various points on the curve. C. inelastic but does not change at various points on the curve. D. 1 at all points on the curve.

A

44. If the price of a fixed factor of production increases by 50 percent, what effect would this have on the marginal-cost schedule facing a firm? A. None, because fixed costs do not affect marginal cost B. Marginal cost would increase by 50 percent C. Marginal cost would increase by less than 50 percent D. Marginal cost would increase by more than 50 percent

A

49. If the minimum efficient scale (MES) in an industry is 20 percent of the total consumption of a product, how many MES plants could be supported profitably in that industry? A. 5 B. 10 C. 20 D. 100

A

55. In pure competition, each extra unit of output that a firm sells will yield a marginal revenue that is: A. Equal to the price B. Less than the price C. Greater than the price D. Equal to the average cost

A

61. Use the table below to answer the question for a purely competitive firm. Refer to the above table. The market price of the product in the short run is: A. $40 B. $80 C. $120 D. $160

A

64. Use the table below to answer the question for a purely competitive firm. Refer to the above table. The marginal revenue from the third unit of output is: A. $40 B. $50 C. $120 D. $160

A

77. Assume that the market for soybeans is purely competitive. Currently, firms growing soybeans are experiencing economic profits. In the long run, we can expect: A. New firms to enter causing the market price of soybeans to fall B. New firms to enter causing the market price of soybeans to rise C. Some firms to exit causing the market price of soybeans to fall D. Some firms to exit causing the market price of soybeans to rise

A

78. Which of the following is true of normal profits? A. They are necessary to keep a firm in the industry in the long run B. They are zero under pure competition in the long run C. They are excluded from a firm's costs of production D. They are what attract other firms to enter an industry

A

81. The long-run supply curve under pure competition will be: A. Downward-sloping in a decreasing-cost industry and upward-sloping in an increasing-cost industry B. Horizontal in a constant-cost industry and downward-sloping in an increasing-cost industry C. Vertical in a constant-cost industry and upward-sloping in a decreasing-cost industry D. Upward-sloping in an increasing-cost industry and vertical in a constant-cost industry

A

84. If the long-run supply curve is upward-sloping, it indicates that resource prices fall when: A. Production in the industry decreases in the long run B. Production in the industry increases in the long run C. New firms enter the industry D. Short-run profits in the industry are positive

A

85. Assume a purely competitive decreasing-cost industry is initially in long-run equilibrium, but then there is a decrease in consumer demand. After all economic adjustments to this new situation have taken place, product price will be: A. Higher, but total output will be lower B. Lower, and total output will be lower C. Higher, and total output will be higher D. Lower, but total output will be higher

A

89. Productive efficiency refers to: A. Cost minimization, where P = minimum ATC B. Production at a level where P = MC C. Maximizing profits by producing where MR = MC D. Setting TR = TC

A

C 60. Refer to the above graph for a purely competitive firm in the short run. What minimum output level should the firm produce just for it to break even? A. A B. B C. C D. Greater than C

A

26. Harvey quit his job at State University where he earned $45,000 a year. He figures his entrepreneurial talent or foregone entrepreneurial income to be $5,000 a year. To start the business, he cashed in $100,000 in bonds that earned 10 percent interest annually to buy a software company, Extreme Gaming. In the first year, the firm sold 11,000 units of software at $75 for each unit. Of the $75 per unit, $55 goes for the costs of production, packaging, marketing, employee wages and benefits, and rent on a building. Refer to the above information. The economic profits of Harvey's firm in the first year were: A. $155,000 B. $160,000 C. $220,000 D. $280,000

A/B

8. A demand curve that is parallel to the horizontal axis is: A. perfectly inelastic. B. perfectly elastic. C. relatively inelastic. D. relatively elastic.

B

10. The state legislature has cut Gigantic State University's appropriations. GSU's Board of Regents decides to increase tuition and fees to compensate for the loss of revenue. The board is assuming that the: A. demand for education at GSU is elastic. B. demand for education at GSU is inelastic. C. coefficient of price elasticity of demand for education at GSU is unity. D. coefficient of price elasticity of demand for education at GSU is greater than unity.

B

15. The elasticity of demand for a product is likely to be greater: A. if the product is a necessity, rather than a luxury good. B. the greater the amount of time over which buyers adjust to a price change. C. the smaller the proportion of one's income spent on the product. D. the smaller the number of substitute products available.

B

16. Which of the following generalizations is not correct? A. The larger an item is in one's budget, the greater the price elasticity of demand. B. The price elasticity of demand is greater for necessities than it is for luxuries. C. The larger the number of close substitutes available, the greater will be the price elasticity of demand for a particular product. D. The price elasticity of demand is greater the longer the time period under consideration.

B

18. The elasticity of supply of product X is unitary if the price of X rises by: A. 5 percent and quantity supplied rises by 7 percent. B. 8 percent and quantity supplied rises by 8 percent. C. 10 percent and quantity supplied stays the same. D. 7 percent and quantity supplied rises by 5 percent.

B

2. The basic formula for the price elasticity of demand coefficient is: A. absolute decline in quantity demanded/absolute increase in price. B. percentage change in quantity demanded/percentage change in price. C. absolute decline in price/absolute increase in quantity demanded. D. percentage change in price/percentage change in quantity demanded.

B

20. The main determinant of elasticity of supply is the: A. number of close substitutes for the product available to consumers. B. amount of time the producer has to adjust inputs in response to a price change. C. urgency of consumer wants for the product. D. number of uses for the product.

B

23. The larger the positive cross elasticity coefficient of demand between products X and Y, the: A. stronger their complementariness. B. greater their substitutability. C. smaller the price elasticity of demand for both products. D. the less sensitive purchases of each are to increases in income.

B

29. Marginal product of labor refers to the: A. Last unit of output produced by labor at the end of each period B. Increase in output resulting from employing one more unit of labor C. Total output divided by the number of labor employed D. Smallest unit of the output produced by labor

B

30. The law of diminishing returns in a manufacturing plant of a fixed capacity implies that, eventually, employing one: A. More worker will increase the average amount of output per worker B. More worker will decrease the average amount of output per worker C. Less worker will decrease the average amount of output per worker D. Less worker will not affect the average amount of output per worker

B

31. When a bakery manager reports that at her bakery, productivity of her 15 workers last month was 1,800 loaves per worker, she is referring to the: A. Total product of labor B. Average product of labor C. Marginal product of labor D. Total product of capital

B

34. At what point does marginal product equal average product? A. Where average product is equal to its minimum value B. Where average product is equal to its maximum value C. Where marginal product is equal to its minimum value D. Where marginal product is equal to its maximum value

B

41. If the short-run average variable cost of production for a firm is decreasing, then it follows that: A. Average variable cost must be above average fixed cost B. Marginal cost must be below average variable cost C. Average fixed cost must be constant D. Marginal cost must be decreasing

B

42. The following cost data are for a firm in the short run: What is the firm's average variable cost at an output of 5 units? A. $30 B. $60 C. $120 D. $140

B

47. If all resources used in the production of a product are increased by 10 percent and output increases by less than 5 percent, then the firm is experiencing: A. Economies of scale B. Diseconomies of scale C. Constant returns to scale D. Decreasing average total costs

B

50. The mass affordability of the iPhone is the results of the following, except: A. Mass production and spreading of fixed costs B. The law of diminishing returns in manufacturing C. Economies of scale and large volumes D. Mass sales and distribution cost-savings

B

6. Suppose we find that the price elasticity of demand for a product is 3.5 when its price is increased by 2 percent. We can conclude that quantity demanded: A. increased by 7 percent. B. decreased by 7 percent. C. decreased by 9 percent. D. decreased by 1.75 percent.

B

67. Given the diagram above, which level of output should the entrepreneur choose? A. Either X1 or X3 since the profit level will be the same B. X3 since any increase in output will reduce profits C. X1 since any decrease in output will reduce profits D. X2 since at this level the difference between MR and MC is maximized

B

72. Refer to the above graph. This pure competitive firm will not produce unless price is at least: A. $2 B. $5 C. $7 D. $10

B

75. Technological advance improves productivity in a purely competitive industry. This change will result in a shift: A. Down of the individual firm's MC curve, causing the market supply curve to shift to the left B. Down of the individual firm's MC curve, causing the market supply curve to shift to the right C. Up of the individual firm's MC curve, causing the market supply curve to shift to the left D. Up of the individual firm's MC curve, causing the market supply curve to shift to the right

B

79. All of the following statements are true about pure competition in the long run, except: A. Entry and exit of firms will push economic profits of firms in the industry towards zero B. Entry and exit of firms will shift the demand curve facing the representative firm in the industry C. The long-run adjustment in pure competition happens through shifts in the industry supply curve D. The long-run adjustment in pure competition happens through shifts in the industry demand curve

B

82. The long-run market supply curve would be downward-sloping if the representative firms': A. Demand curves shift up as the industry expands B. ATC curves shift down as the industry expands C. Supply curves shift left as the industry expands D. Demand curves shift down as the industry expands

B

83. When a purely competitive industry is in long-run equilibrium, which statement is true? A. Average total cost is less than marginal cost B. Price and average total cost are equal C. Marginal cost is at its maximum level D. Marginal revenue is greater than price

B

94. The difference between the actual (= market) price that a producer receives and the minimum acceptable price a producer is willing to accept is: A. The consumer surplus B. The producer surplus C. Allocative efficiency D. Productive efficiency

B

97. Creative destruction is most often associated with: A. International trade B. Technological advance C. Government spending D. Private consumption

B

100. The plusses and minuses of the patent system include the following, except: A. It could give inventors an incentive to bear the research and development costs of new products B. It could allow stodgy old firms to survive longer than they should against innovative rivals C. It would prevent the existence of "patent trolls" or firms whose main purpose is to sue companies D. It may hinder creative destruction especially in complex products that encompass several patents

C

13. The total revenue test for elasticity: A. is equally applicable to both demand and supply. B. does not apply to demand because price and quantity are inversely related. C. does not apply to supply because price and total revenue always move together. D. applies to the short-run supply curve but not to the long-run supply curve.

C

19. The diagram concerns supply adjustments to an increase in demand (D1 to D2) in the immediate market period, the short run, and the long run. Supply curves S1, S2, and S3 apply to the: A. immediate market period, long run, and short run respectively. B. immediate market period, short run, and long run respectively. C. long run, short run, and immediate market period respectively. D. short run, long run, and immediate market period respectively.

C

21. The formula for cross elasticity of demand is percentage change in: A. quantity demanded of X/percentage change in price of X. B. quantity demanded of X/percentage change in income. C. quantity demanded of X/percentage change in price of Y. D. price of X/percentage change in quantity demanded of Y.

C

22. We would expect the cross elasticity of demand between Pepsi and Coke to be: A. positive, indicating normal goods. B. positive, indicating inferior goods. C. positive, indicating substitute goods. D. negative, indicating substitute goods.

C

25. If the income elasticity of demand for lard is -3.00, this means that: A. lard is a substitute for butter. B. lard is a normal good C. lard is an inferior good. D. more lard will be purchased when its price falls.

C

3. If the price elasticity of demand for a product is 2.5, then a price cut from $2.00 to $1.80 will: A. increase the quantity demanded by about 2.5 percent. B. decrease the quantity demanded by about 2.5 percent. C. increase the quantity demanded by about 25 percent. D. increase the quantity demanded by about 250 percent.

C

32. Refer to the above table. The total variable cost of producing 5 units is: A. $10 B. $14.60 C. $63 D. $73

C

87. The industry represented by the graph above must be one where: A. Resource prices rise when the industry contracts B. Resource prices fall when the industry expands C. Resource prices fall when the industry contracts D. Resource prices are unaffected by the industry's expansion

C

88. An industry is producing at the least-cost rate of production when: A. Marginal cost is greater than average total cost B. Marginal revenue is greater than price C. Price and the minimum average cost are equal D. Price and marginal revenue are equal

C

90. Allocative efficiency occurs when the: A. Minimum of average total cost equals average revenue B. Minimum of average total cost equals marginal revenue C. Marginal cost equals the marginal benefit to society D. Marginal revenue equals marginal benefit to society

C

92. When a purely competitive firm is in long-run equilibrium, it is said to achieve allocative efficiency because: A. Total revenue is at a maximum B. Marginal cost equals marginal revenue C. Average cost equals marginal cost D. Average cost is at a minimum

C

93. The difference between the maximum price a consumer is willing to pay for a product and the actual (= market) price the consumer pays is: A. Allocative efficiency B. Productive efficiency C. The consumer surplus D. The producer surplus

C

98. A patent is the legal right granted to a firm that allows it to: A. Make copies of other firm's products B. Be the sole buyer of a particular product or resource C. Sell its new product exclusively for a set number of years D. Private consumption

C

elastic for price increases that reduce quantity demanded from 8 units to 7 units. 12. Suppose the total revenue curve is derived from a particular linear demand curve. That demand curve must be: A. inelastic for price declines that increase quantity demanded from 2 units to 3 units. B. elastic for price declines that increase quantity demanded from 5 units to 6 units. C. unit elastic for price increases that reduce quantity demanded from 5 units to 4 units. D. inelastic for price increases that reduce quantity demanded from 4 units to 3 units.

C

51. Which is a feature of a purely competitive market? A. Price differences between firms producing the same product B. Significant barriers to entry into the industry C. The industry's demand curve is perfectly elastic D. Products are standardized or homogeneous

C&D

14. Refer to the diagram. If price falls from $10 to $2, total revenue: A. rises from A + B to A + B + D + C and demand is elastic. B. falls from A + D to B + C and demand is inelastic. C. rises from C + D to B + A and demand is elastic. D. falls from A + B to B + C and demand is inelastic.

D

17. Suppose the supply of product X is perfectly inelastic. If there is an increase in the demand for this product, equilibrium price: A. will decrease but equilibrium quantity will increase. B. and quantity will both decrease. C. will increase, but equilibrium quantity will decline. D. will increase, but equilibrium quantity will be unchanged.

D

24 We would expect the cross elasticity of demand between dress shirts and ties to be: A. positive, indicating normal goods. B. positive, indicating complementary goods. C. negative, indicating substitute goods. D. negative, indicating complementary goods.

D

27. If a firm's revenues just cover all its opportunity costs, then: A. Normal profit is zero B. Economic profit is zero C. Total revenues equal its explicit costs D. Total revenues equal its implicit costs

D

28. Suppose a firm sells its product at a price lower than the opportunity cost of the inputs used to produce it. Which of the following statements is definitely true? A. The firm will earn positive accounting and economic profits B. The firm will face accounting and economic losses C. The firm will face an accounting loss, but earn positive economic profits D. The firm may earn positive accounting profits, but will face economic losses

D

39. The range over which average variable cost is increasing is the same as the range over which: A. Marginal cost is decreasing B. Average fixed cost is increasing C. Average product is increasing D. Average product is decreasing

D

5. Which of the following is not characteristic of the demand for a commodity that is elastic? A. The relative change in quantity demanded is greater than the relative change in price. B. Buyers are relatively sensitive to price changes. C. Total revenue declines if price is increased. D. The elasticity coefficient is less than one.

D

54. The demand curve faced by a purely competitive firm: A. Has unitary elasticity B. Yields constant total revenues even when price changes C. Is identical to the market demand curve D. Is the same as its marginal revenue curve

D

56. In a graph for a firm in pure competition with the quantity of output measured on the horizontal axis, the total revenue curve is: A. Downward-sloping B. Horizontal C. Vertical D. Upward-sloping

D

57. In the standard model of pure competition, a profit-maximizing firm will shut down in the short run if price is below: A. Marginal cost B. Average cost C. Average fixed cost D. Average variable cost

D

58. In the standard model of pure competition, a profit-maximizing firm will shut down in the short run if: A. Marginal cost is greater than average revenue B. Average cost is greater than average revenue C. Average fixed cost is greater than average revenue D. Total revenue is less than total variable cost

D

65. As president and owner of the Sour Grapes Lemonade Company, you know that you face: To maximize your financial well-being, you should: A. Continue to operate in the short run because rent is less than sales B. Shut down because variable costs exceed fixed costs C. Shut down because the company is losing money D. Continue operating in the short run

D

68. Refer to the above graph. At the profit-maximizing level of output, the firm earns profits given by the area: A. 0AHE B. ACFH C. BCFG D. ABGH

D

7. If the price of hand calculators falls from $10 to $9 and, as a result, the quantity demanded increases from 100 to 125, then: A. demand is elastic. B. demand is inelastic. C. demand is of unit elasticity. D. not enough information is given to make a statement about elasticity.

D

71. Refer to the above graph. It shows short-run cost curves for a competitive firm. At what minimum price would the firm be willing to produce some output in the short run? A. P1 B. P2 C. P3 D. P4

D

73. Refer to the above graph. At what price will the firm make an economic profit? A. $2 B. $5 C. $7 D. $10

D

86. One explanation for the existence of an increasing-cost industry is: A. Increasing marginal returns to labor occur B. Firms produce beyond the point of minimum long-run average total costs C. Perfectly elastic long-run supply schedules are observed in the industry D. As the industry expands, prices are bid up for some factors of production

D

9. In which of the following instances will total revenue decline? A. Price rises and supply is elastic. B. Price falls and demand is elastic. C. Price rises and demand is inelastic. D. Price rises and demand is elastic.

D

91. Pure competition produces a socially optimal allocation of resources in the long run because: A. Marginal cost equals marginal revenue B. Marginal cost equals average total cost C. Marginal revenue equals price D. Marginal cost equals price

D

95. Competitive firms will always try to earn more than a normal profit by doing the following, except: A. Adopting better production technology B. Improving their business organization and operation C. Developing new products D. Raising the prices of their existing products

D

96. Refer to the graph above representing the purely competitive market for a product. When the market is at equilibrium, the deadweight loss would be: A. Area a B. Area b C. Area d D. Zero

D