ECON MCQ 3

A perfectly competitive firm should shut down in the short run if price falls below the minimum of A) average variable costs. B) marginal revenue. C) average total cost. D) fixed costs. E) marginal cost.

A) average variable costs.

The primary goal of a business firm is to A) increase its production. B) promote workforce job satisfaction. C) promote fairness. D) make a quality product. E) maximise profit.

E) maximise profit.

A firm's marginal revenue is A) the change in total revenue that results from employing one more worker. B) the change in total revenue that results from an increase in the demand for the good or service. C) the change in total revenue minus the change in total cost. D) total revenue minus total cost. E) the change in total revenue that results from a one-unit increase in the quantity sold.

E) the change in total revenue that results from a one-unit increase in the quantity sold.

A monopoly produces a product ________ and there ________ barriers to entry into the market. A) identical to its many competitors; are B) with no close substitutes; are C) slightly different from those of its many competitors; are D) identical to its many competitors; are no E) with no close substitutes; are no

E) with no close substitutes; are no

The tool that economists use to analyse the mutual interdependence of oligopolies is A) the efficient scale. B) game theory. C) the HHI. D) economies of scale. E) the four-firm concentration ratio.

B) game theory.

Which of the following is found ONLY in oligopoly? A) One firm's actions affect another firm's profit. B) Sellers face a downward-sloping demand curve for their product. C) The firm's demand curve is horizontal. D) Entry into the industry is blocked. E) Producers who sell identical products.

A) One firm's actions affect another firm's profit.

A two-firm oligopoly is called a A) duopoly. B) cartel. C) monopolistic oligopoly. D) double monopoly. E) dual-market.

A) duopoly.

In the short run, a firm cannot change the amount of capital it uses. Therefore the cost of capital is a A) fixed cost. B) short-run cost. C) variable cost. D) marginal cost. E) productivity cost.

A) fixed cost.

When an economist uses the term 'cost' referring to a firm, the economist refers to the A) opportunity cost of producing a good or service, which includes both implicit and explicit cost. B) price of the good to the consumer. C) implicit cost of producing a good or service, but not the explicit cost of producing a good or service. D) explicit cost of producing a good or service, but not the implicit cost of producing a good or service. E) cost that can be actually verified and measured.

A) opportunity cost of producing a good or service, which includes both implicit and explicit cost.

Average product is equal to__________; and average cost is equal to____________. A) total product ÷ quantity of labour; total cost ÷ quantity of labour B) output ÷ quantity of labour; total cost ÷ output C) marginal product × quantity of labour; total cost × quantity of labour D) marginal product + total product; marginal cost + total cost E) total product ÷ marginal product; total cost ÷ marginal cost

A) total product ÷ quantity of labour; total cost ÷ quantity of labour

Firms in monopolistic competition have demand curves that are A) U-shaped. B) downward sloping. C) upward sloping. D) horizontal. E) vertical.

B) downward sloping.

Perfect competition is characterised by all of the following EXCEPT A) a large number of buyers and sellers. B) firms can set their own prices. C) no restrictions on entry into or exit from the industry. D) buyers and sellers are well informed about prices. E) firms produce an identical product.

B) firms can set their own prices.

For a single-price monopoly, price is A) equal to marginal revenue. B) greater than marginal revenue. C) less than marginal revenue because the firm cannot increase its total revenue when the demand curve is downward sloping. D) equal to zero because the firm is not a price taker. E) less than marginal revenue because the firm must lower its price in order to sell another unit of output.

B) greater than marginal revenue.

A market with a large number of sellers A) can only be a monopolistically competitive market. B) might be a monopolistically competitive or a perfectly competitive market. C) can only be a perfectly competitive market. D) might be a perfectly competitive, monopolistically competitive, oligopoly or monopoly market. E) might be an oligopoly or a perfectly competitive market.

B) might be a monopolistically competitive or a perfectly competitive market.

The major difference between monopolistic competition and monopoly is A) how the quantity of output is determined. B) only a monopoly can make an economic profit in the long run. C) only a firm in monopolistic competition can make an economic profit in the short run. D) monopoly is a price setter, and a firm in monopolistic competition is a price taker. E) only firms in monopolistic competition are protected by barriers to entry

B) only a monopoly can make an economic profit in the long run.

The law of decreasing returns states that as a firm uses more of a A) variable input, output will begin to fall immediately. B) variable input, with a given quantity of fixed inputs, the revenues eventually decrease. C) variable input, with a given quantity of fixed inputs, the marginal product of the variable input eventually decreases. D) fixed input and a variable input, the marginal product of the fixed input and the marginal product of the variable input both decrease. E) fixed input, with a given quantity of variable inputs, the marginal product of the fixed input eventually decreases.

B) variable input, with a given quantity of fixed inputs, the revenues eventually decrease.

What does monopolistic competition have in common with perfect competition? A) A standardised product. B) Barriers to exit but no barriers to entry. C) A large number of firms and freedom of entry and exit. D) Product differentiation. E) The ability to make an economic profit in the long run.

C) A large number of firms and freedom of entry and exit.

Which of the following is correct? A) The long run does not exist for some firms. B) The short run is the same for all firms. C) The long run is the time frame in which the quantities of all resources can be varied. D) The short run for a firm can be longer than the long run for the same firm. E) The long run is the time frame in which all resources are fixed.

C) The long run is the time frame in which the quantities of all resources can be varied.

A barrier to entry is A) a factor that increases competition because firms must continue to operate in the market in which they were founded. B) the same as rent seeking. C) anything that protects a firm from the arrival of new competitors. D) illegal in most markets. E) the economic term for diseconomies of scale.

C) anything that protects a firm from the arrival of new competitors.

A differentiated product has A) many different complements. B) many perfect substitutes. C) close but not perfect substitutes. D) no close substitutes. E) no substitutes of any kind.

C) close but not perfect substitutes.

The market demand curve in a perfectly competitive market is ________ and the demand curve for a perfectly competitive firm's output is ________. A) horizontal; downward sloping B) downward sloping; upward sloping C) downward sloping; horizontal D) downward sloping; downward sloping E) horizontal; horizontal

C) downward sloping; horizontal

In monopolistic competition, profit is maximised by producing so that marginal revenue A) equals price. B) equals average total cost but not marginal cost. C) equals marginal cost and which are less than price. D) is negative. E) equals marginal cost and equals price.

C) equals marginal cost and which are less than price.

A perfectly competitive firm will maximise profit when the quantity produced is such that the A) price exceeds the firm's marginal cost by as much as possible. B) firm's marginal revenue is equal to the price. C) firm's marginal revenue is equal to its marginal cost. D) firm's marginal revenue exceeds its marginal cost by the maximum amount possible. E) firm's total revenue is equal to total cost.

C) firm's marginal revenue is equal to its marginal cost.

A single-price monopoly A) must practise price discrimination. B) can lower its price for only a few select consumers if it wants to increase its sales. C) must lower the price for all customers if it wants to increase its sales. D) is able to raise its price as high as it wants and consumers must still buy from it because it is a monopoly. E) will always make economic profit in the short run because of barriers to entry

C) must lower the price for all customers if it wants to increase its sales.

A normal profit is defined as A) the same thing as accounting profit. B) the economic profit minus the implicit costs. C) the return to entrepreneurship. D) total revenue minus implicit costs. E) total revenue minus explicit costs.

C) the return to entrepreneurship.

The marginal product of labour is the change in_______;__________and the marginal cost is the change in. A) average product from employing one more worker; average cost from employing one more worker B) total revenue from employing one more worker; total cost from employing one more worker C) total output from employing one more unit of capital; total cost from employing one more unit of capital D) total cost from employing one more worker; total cost from producing one more unit of output E) total output from employing one more worker; total cost from producing one more unit of output

C) total output from employing one more unit of capital; total cost from employing one more unit of capital

For a monopoly, the marginal revenue curve is A) horizontal and the same as the demand curve. B) horizontal and below the demand curve. C) down-sloping and the same as the demand curve. D) down-sloping and below the demand curve. E) horizontal and above the demand curve.

D) down-sloping and below the demand curve.

A Nash equilibrium i. is named after the Nobel prize-winning economist, John Nash. ii. occurs when each player chooses the best strategy given the strategy of the other player. iii. must give the best possible outcome for both players. A) i only B) ii only C) iii only D) i and ii E) ii and iii

D) i and ii

A perfectly competitive firm's decision on shut-down _______; whereas its decision on exit _______. A) occurs in long run; occurs in short run B) determines the level of price; determines the level of output C) determines the level of output; determines the level of price D) occurs in short run; occurs in long run E) none of above is correct.

D) occurs in short run; occurs in long run

A monopolist maximises its profit when A) the total revenue is maximised. B) the price is the highest. C) the total cost is minimised. D) the marginal revenue is equal to the marginal cost. E) the quantity sold is equal to the price.

D) the marginal revenue is equal to the marginal cost.

The total product curve shows the relationship between total product (output) and____________; and the total cost curve shows the relationship between total cost and______________. A) the quantity of labour; the quantity of labour B) the quantity of output; the quantity of labour C) the quantity of all inputs; the level of output D) the quantity of labour; the level of output E) the quantity of labour; the quantity of all inputs

D) the quantity of labour; the level of output

For a perfectly competitive firm, the market price of a good is A) a given which the firm cannot change. B) determined by the firm in order to maximise its profit. C) equal to the firm's marginal revenue. D) Answers A and B are correct. E) Answers A and C are correct

E) Answers A and C are correct

A cartel is A) a market structure with a small number of large firms. B) a market with only two firms. C) a market structure with a large number of small firms. D) another name for an oligopoly. E) a group of firms acting together to raise prices, decrease output, and increase economic profit.

E) a group of firms acting together to raise prices, decrease output, and increase economic profit.

A monopolist can make an economic profit in the long run because of A) the fact that the firm produces where MR = MC. B) the relatively elastic demand for its product. C) the relatively inelastic demand for its product. D) the firm's price setting behaviour. E) barriers to entry.

E) barriers to entry.

The demand curve for a monopoly is A) vertical because the demand is perfectly inelastic. B) horizontal because the demand is perfectly elastic. C) upward sloping. D) undefined because it is the only supplier in the market. E) downward sloping

E) downward sloping

When a firm's long-run average total cost falls as its output increases, the firm is experiencing A) constant returns to scale. B) diseconomies of scale. C) decreasing cost of marginal returns. D) decreasing marginal returns. E) economies of scale.

E) economies of scale.

In the long run, a firm in a perfectly competitive market will A) remove all competitors and become a monopolistically competitive firm. B) make zero normal profit but its owners will make an economic profit. C) incur an economic normal loss but not earn a positive economic profit. D) remove all competitors and become a monopoly. E) make zero economic profit, so that its owners earn a normal profit.

E) make zero economic profit, so that its owners earn a normal profit

A monopolist is A) able to ignore the demand for its product when setting its price. B) a firm with no marginal revenue curve. C) a price taker. D) able to earn only a normal profit in the long run. E) able to set the price for its product.

a

For a monopoly, marginal revenue A) is equal to the change in total revenue brought about by a one-unit increase in quantity sold. B) is equal to the price taken from the competitive market. C) increases as the output level increases. D) is equal to the amount people buy at a given price. E) is equal to the price multiplied by the quantity sold.

a

In the short run, a firm in a perfectly competitive market A) makes either positive, negative or zero economic profit depending on the level of market price. B) always makes zero economic profit, so that its owners earn a normal profit. C) remove all competitors and become a monopolistically competitive firm. D) makes positive or zero profit, but never negative profit because firms can freely exit. E) makes only positive profit by charging a high price to consumers.

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