ECO2023 TEST 2

Perfect competition and monopolistic competition are best distinguished by: A) The degree of product differentiation. B) The long-run economic profits that are expected. C) The number of firms in the market. D) The ease of entry and exit.

A) The degree of product differentiation.

A consumer maximized his or her satisfaction from a given amount of income when A) Mua=MUb=...+MUn B) Pa=Pb C) Pa-MUa=Pa-MUb D) Mua/Pa=MUb/Pb=...MUn/Pn E) Pa+MUa=Pb+MUb=...Pn+MUn

Mua/Pa=MUb/Pb=...MUn/Pn

Economic costs and economic profits are: A) Usually greater and smaller, respectively, than their accounting counterparts. B) Usually smaller and greater, respectively, than their accounting counterparts. C) Usually both smaller than their accounting counterparts. D) Usually both larger than their accounting counterparts.

Usually greater and smaller, respectively, than their accounting counterparts.

Which of the following is a characteristic of a perfectly competitive market? A) Zero economic profit in the long run. B) Homogeneous products. C) Perfect information. D) All of the above.

all of the above

The law of diminishing returns states that beyond some point, ceteris paribus: A) The returns on stocks and bonds diminish with higher security prices. B) The addition to total utility diminishes as more units of a good are consumed. C) The marginal physical product of a factor of production diminishes as more of that factor is used. D) The output of any good increases as more of a variable input is used.

The Marginal physical product of a factor of production diminishes as more of that factor is used.

The best measure of the economic cost of doing your homework is: A) The best opportunity you give up when you do your homework. B) The amount you would have to pay to get someone else to do it. C) The accounting cost plus the explicit cost of doing the homework. D) The tuition paid for your schooling.

The best opportunity you give up when you do your homework.

Marginal utility for a good is computed as: A) Total utility divided by quantity. B) Quantity divided by total utility. C) The change in quantity divided by total utility. D) The change in total utility divided by the change in quantity.

The change in total utility divided by the change in quantity.

(GRAPH) Which of the following elasticities can be computed using the data in Table 5.4 above? A). The price elasticity of demand. B). The income elasticity of demand. C). The cross-price elasticity of demand. D). The quantity elasticity of demand.

The cross-price elasticity of demand.

When a purely competitive firm advertises, it is attempting to increase: A) The demand and decrease the price elasticity of demand for its product. B) The demand and increase the price elasticity of demand for its product. C) Long-run profits. D) Market demand.

The demand and decrease the price elasticity of demand for its product.

If more firms enter a perfectly competitive market, we would expect: A) The demand curves facing existing firms to shift to the left and become more price inelastic. B) The demand curves facing existing firms to shift to the left and no change in price elasticity. C) The demand curves facing existing firms to shift to the left and become more price elastic. D) The demand curves facing existing firms to be perfectly price elastic.

The demand curves facing existing firms to shift to the left and become more price elastic.

Firms in a perfectly competitive market will: A) Produce efficiently. B) Make economic profits in the long run. C) Use the profit-maximizing rule MC = MR. D) All of the above.

Use the profit maximization rule MC=MR

the production function: A) Represents maximum technical efficiency. B) Represents the most output attainable from any combinations of factor inputs. C) Describes the capacity of a single firm. D) All of the above.

all of the above

Knowing a product's price elasticity allows economists to: A). predict the amount by which quantity demanded will drop in response to a price increase B). predict how changes in consumers' income will affect sales. C). predict the amount by which quantity supplied will drop in response to a price increase. D). respond quickly to tariff changes

predict the amount by which quantity demanded will drop in response to a price increase

If the price of "X" increases and you buy less "Y," then A. "X" and "Y" are complements, and the price of "Y" will increase. B "X" and "Y" are complements, and the price of "Y" will decrease. C. "X" and "Y" are substitutes, and the price of "Y" will increase. D. "X" and "Y" are substitutes, and the price of "Y" will decrease. When the price of "X" goes up (such as cars) and you buy less "Y" (such as gasoline), that means these goods are complements

"X" and "Y" are complements, and the price of "Y" will decrease.

Profit is: A) TR - FC. B) Q x (P - AVC). C) (P x Q) - TC. D) All of the above.

(P x Q) - TC

(GRAPH) The marginal physical product of the third unit of labor in Figure 6.1 above is: a. 40.0 units per day. b. 12.0 units per day. c. 13.3 units per day. d. 4.0 units per day.

40.0 units per day.

Walmart is thinking about offering a 25% discount on a brand of shoes. If the elasticity of demand is two, then the discount would increase sales by: A). 2%. B). 200%. C). 50%. D). 25%.

50%

A movement along a given demand curve between two prices refers to: A) The price elasticity of demand. B) A change in demand. C) A change in quantity demanded. D) The law of diminishing marginal utility.

A change in quantity demanded.

If marginal cost (MC) is less than average total cost (ATC), then: A). ATC is at its minimum. B). ATC is increasing. C). ATC is decreasing. D). AFC is increasing.

ATC is decreasing.

If economic profits are earned in a competitive market, then in the long run: A) Additional firms will enter the market. B) The market supply curve will shift to the right. C) Equilibrium price will fall as more firms enter. D) All of the above.

Additional firms will enter the market.

The entry of firms into a market: A) Reduces the equilibrium price. B) Reduces the profits of existing firms in the market. C) Shifts the market supply curve to the right. D) All of the above.

All of the above

Which of the following is least likely to occur during the long run in a perfectly competitive market experiencing economic profits? A) A rightward shift in the market supply curve. B) An increase in the market quantity demanded. C) An increase in the marginal revenue. D) A decline in the ATC and MC curves.

An increase in the marginal revenue.

Explicit costs: A) Include only payments to entrepreneurship. B) Are the sum of actual monetary payments made for resources used to produce a good. C) Include the market value of all resources used to produce a good. D) Are the total opportunity costs of resources used to produce a good.

Are the sum of actual monetary payments made for resources used to produce a good.

The price elasticity of demand is calculated using percentage changes in order to: A) Avoid mistaking elasticity with slope. B) Make elasticity a percentage figure. C) Avoid problems associated with units of measurement. D) Find a constant elasticity along each demand curve.

Avoid problems associated with units of measurement.

(GRAPH) In the graph above, consumer surplus is shown by area: A). ABD. B). ACD. C) DEF. D). BCD.

BCD

The market demand curve in a perfectly competitive market is downward sloping: A) Because of the law of diminishing returns. B) Because the firms have market power. C) Because of the law of demand. D) All of the above.

Because of the law of demand.

Which of the following is equivalent to ATC? A) FC + VC. B) (FC + VC) / Q. C) Change in total cost divided by change in output. D) None of the above.

C) Change in total cost divided by change in output.

If a perfectly competitive firm can sell 400 computers at $800 each, in order to sell one more computer, the firm: A). Must lower its price. B). . Must raise its price. C). Can sell the 41st computer at $800. D). Cannot sell an additional computer at any price because the market is at equilibrium.

Can sell the 41st computer at $800.

Larry owns his own auto repair shop, and employs three mechanics. His total parts and sales volume this year was $322,400. Because he is well known for his repair expertise, he is also paid $5,200 per year by a local radio station to answer auto repair questions on "Ask the Mechanic." His explicit costs for payroll, parts and taxes, mortgage and utilities are $290,160. Larry left a job as an accountant making $40,000 a year to own his own business. Larry's economic profit is: A). $32,240. B). $37,440. C). $327,600. D). Larry is actually experiencing an economic loss of $2,560.

D). Larry is actually experiencing an economic loss of $2,560.

(GRAPH) (Figure in figure above: Determining Short-Run Supply Curves) Which segment represents the short-run supply curve? A) DE B) CE C) BE D) AE

DE

In making a production decision, an entrepreneur: A) Decides whether to enter or exit the market. B) Decides what level of output will maximize profits. C) Determines plant and equipment. D) Can change both fixed and variable inputs.

Decides what level of output will maximize profits.

Rising marginal costs result from: A) Rising prices of fixed inputs. B) Rising prices of variable inputs. C) Falling marginal physical product. D) All of the above.

Falling marginal physical product.

The only costs which do not change when output changes in the short run are: A) Average variable costs. B) Fixed costs. C) Average fixed costs. D) Variable costs.

Fixed costs

Greater labor productivity means A) Lower output per labor hour. B) Higher labor cost per unit of output. C) Lower output per worker. D) Higher output per worker.

Higher output per worker.

The change in total revenue that results from a 1-unit increase in the quantity sold is: A) Marginal cost. B) Total revenue. C) Marginal profit. D) Marginal revenue.

Marginal revenue.

The exit of firms from a market, ceteris paribus: A) Shifts the market supply curve to the right. B) Reduces the economic losses of remaining firms in a market. C) Increases the equilibrium output in the market. D) All of the above.

Increases the equilibrium output in the market.

A production function: A) Shows the cost of producing any level of output. B) Is a technological relationship between factors of production and output. C) Expresses the least-cost method of producing a given level of output. D) Expresses our ability to produce various combinations of goods, using all of our resources.

Is a technological relationship between factors of production and output.

If a firm can change market prices by altering its output, then: A) It has market power. B) It is a price taker. C) It faces a horizontal demand curve. D) It is a competitive firm.

It has market power

Investment decisions are made on the basis of the relationship of price to: A) Short-run average total cost. B) Long-run fixed cost. C) Short-run marginal cost. D) Long-run average total cost.

Long-run average total cost.

Perfect competition is a market structure in which: A) Many interdependent firms sell a homogeneous product. B) A few firms produce a particular type of product. C) Many firms produce a particular type of product, but each maintains some independent control over its own price. D) A few firms produce all of the market supply of a good

Many interdependent firms sell a homogeneous product.

The change in total output associated with one additional unit of input is: A) The opportunity cost of the output. B) The average productivity. C) The marginal physical product. D) The marginal cost.

Marginal physical product

In which of the following cases would a firm exit from a market? A) P > short-run ATC. B) P > long-run ATC. C) P < short-run ATC. D) P < long-run ATC.

P < long-run ATC.

A firm should shut down production when: A) P < minimum AVC. B) P > minimum AVC. C) P = minimum ATC. D) P = MC.

P < minimum AVC

A perfectly competitive firm should expand output when: A) P > ATC. B) P < ATC. C) P < MC. D) P > MC.

P > MC

Economic profit equals zero where: A) P = minimum ATC. B) P = AVC. C) P = AFC. D) P = minimum ATC x Q.

P= minimum ATC

In which of the following cases would a firm enter a market? A) P > short-run ATC. B) P > long-run ATC. C) P < short-run ATC. D) P < long-run ATC.

P>long-run ATC.

To maximize profits, a competitive firm will seek to expand output until: A) Total revenue equals total cost. B) Price equals marginal cost. C) The elasticity of demand equals 1. D) All of the above.

Price equals marginal cost.

Decisions which treat at least one factor of production as fixed are referred to as: A) Long-run decisions. B) Short-run decisions. C) Efficiency decisions. D) Investment decisions.

Short-run decisions.

Suppose a hurricane hits Florida, causing widespread damage to houses and businesses. The governor of Florida places price ceilings on all building materials to keep the prices reasonable. Which of the following is the most likely result? A). A faster recovery from the storm. B). More people will be able to purchase building materials. C). Shortages of building materials and a slower recovery from the storm. D). The supply of building materials to Florida will increase.

Shortages of building materials and a slower recovery from the storm

(GRAPH) Refer to Figure 5.3 above. With no budget constraint, a rational consumer will consume _________ apples. a. Zero. b. One. c. Six. d. An infinite number of.

Six

The additional pleasure or satisfaction from a good declines as more of it is consumed in a given period. This is the definition of: A) The law of demand. B) The law of diminishing marginal utility. C) The law of diminishing total utility. D) The total revenue rule.

The law of diminishing marginal utility.

The slope of the production function with respect to an input is: A) The marginal physical product of the input. B) The average product of the input. C) The unit cost of the input. D) The input price.

The marginal physical product of the input.

An essential characteristic of a perfectly competitive firm is that: A) It is a price maker. B) It is a price taker. C) The market-demand curve is perfectly elastic. D) Each firm's demand curve is perfectly inelastic.

The market-demand curve is perfectly elastic.

(GRAPH) Refer to Figure 8.8 above for a perfectly competitive firm. If this firm produces the level of output corresponding to point C in the short run, it will earn: a. Zero profit. b. The maximum profit possible. c. A profit, although not the maximum profit possible. d. A loss.

The maximum profit possible.

The law of demand implies that, ceteris paribus: A) The quantity demanded increases at lower prices. B) A consumer will purchase more of a good at higher prices than at lower prices. C) Price and quantity supplied are directly related. D) The responsiveness of consumer demand to a change in the price of a good is measured by the price elasticity of demand.

The quantity demanded increases at lower prices.

A demand curve is described as perfectly inelastic if: A) The same quantity is purchased regardless of price. B) The same price is charged regardless of quantity sold. C) Only quantity demanded can change. D) It is horizontal.

The same quantity is purchased regardless of price.

The market value of all resources used in producing a good or service is expressed by: A) Implicit costs. B) Total costs. C) Fixed costs. D) Variable costs.

Total Cost

.Total utility will be maximized: A) When price is less than marginal utility. B) When price is equal to marginal utility. C) When marginal utility is zero. D) When marginal utility is maximized.

When marginal utility is zero.

In a perfectly competitive market economy, business failures can benefit society by causing: A) A reallocation of resources to better uses. B) An increase in market power for the remaining firms. C) A decline in market prices as remaining firms attempt to increase sales and stay in business. D) An increase in the number of jobs for bankruptcy lawyers and accountants.

a reallocation of resources to better uses

In the long run, A) all of a firm's resources are variable B) new technology cannot be introduced C) at least one of the firm's resources is fixed D) most of the firm's resources cannot be varied E) none of the firm's resources is variable

all of a firm's resources are variable

The equilibrium price in a competitive market: A) Ensures that anyone who can afford the good can get it. B) Equates the demand for goods with the supply of goods. C) Remains unchanged as long as supply and demand do not change. D) All of the above.

all of the above

Which of the following influences the price elasticity of demand? A) Availability of substitutes. B) Price relative to budget. C) Length of time. D) All of the above.

all of the above

(GRAPH) Bill can consume 10 Chinese buffets or go bowling five times this month (or specific other combinations). This above graph represents Bill's: A). utility curve. B). demand curve. C). production possibility frontier. D). budget line.

budget line

marginal cost is equal to A) Total cost x output. B) Change in total cost x change in total output. C) Change in total cost x change in input. D) Total cost x input cost.

change in total cost x change in total output

The marginal utility of additional units consumed of any good A) remains the same B) is always negative C) is always positive D) decreases E) Not enough information to determine

decreases

When total utility is a maximum, marginal utility is: A) increasing B) at a minimum C) equals to zero D) decreasing E) at a maximum

equals to zero

With greater consumption, total utility always: A) Falls. B) Increases as long as marginal utility is positive. C) Increases only if marginal utility increases. D) Increases.

increases as long as marginal utility is positive

The change in total cost that results from a 1-unit increase in production is: A) Marginal profit. B) Total revenue. C) Marginal cost. D) Marginal revenue.

marginal cost

The amount of satisfaction obtained from consumption of an additional unit of a good or service is: A) Never negative. B) Total utility. C) A function of supply. D) Marginal utility.

marginal utility

Which market structure is characterized by many firms producing close substitutes which are not differentiated in the eyes of the consumer? A) Perfect competition. B) Monopolistic competition. C) Oligopoly. D) Monopoly.

monopolistic competition

President Bush once claimed, "I wouldn't eat broccoli if you paid me". We can assume that for him the marginal utility of broccoli is A) positive B) positive, but decreasing C) zero D) negative E) constant, but positive

negative

Carla buys one soft drink a day regardless of the price. Which of the following is correct with respect of Carla? A) price elasticity of demand for soft drinks is 0 B) price elasticity of demand for soft drinks is 1 C) cross-price elasticity of demand for soft drinks is 1 D) total expenditure will decrease if the price of soft drinks increases E) there will be an increase in total revenue if the price of soft drinks decreases

price elasticity of demand for soft drinks is 0

Economists assume the principal motivation of producers is: A) Psychological gratification. B) Social status. C) Profit. D) Their preference for being "their own person."

profit

Labor, land, and capital used in production are A) resources B) outputs C) productivity D) technological progress E) innovations

resources

If the equilibrium price in a perfectly competitive market for strawberries is $1.50 per pound, then an individual firm in this market could: A) Not sell additional strawberries unless the firm lowers its price. B) Not sell additional strawberries at any price because the market is at equilibrium. C) Sell an additional pound at $1.50. D) Only sell more by increasing its advertising budget.

sell an additional pound at $1.50

Other things being equal, as more firms enter a market, the market supply curve: A) Becomes more inelastic. B) Shifts to the left. C) Shifts to the right. D) Intersects the demand curve at a higher price.

shifts to the right

Assume MUx=30 utils,MUy15, Px=$2, and Py=$0.50. This consumer A) should buy less of X and less of Y B) is in equilibrium C) should buy more of X and less of Y D) should buy less of X and more of Y E) should buy more of X and more of Y

should buy less of X and more of Y

Which of the following determinants of demand is most directly an indication of a consumer's utility for a good? A) Income. B) Tastes. C) Expectations of future prices. D) Other goods (availability and prices).

tastes

The total revenue effect of a movement along a demand curve can best be predicted using: A) The law of diminishing marginal utility. B) The price elasticity of demand. C) The utility-maximizing rule. D) The law of demand.

the price of elasticity of demand

If marginal utility is negative: A) Total utility increases with additional consumption of a good. B) Total utility decreases with additional consumption of a good. C) The good or service being consumed is an inferior good. D) Total utility is at a minimum.

total utility decreases with additional consumption of a good