Econ Test 3 T/F

T/F Diminishing marginal productivity implies decreasing total product.

FALSE

T/F Antitrust laws give the Justice Department the authority to challenge potential mergers between companies in an effort to safeguard society from monopoly power.

TRUE

T/F During the life of a drug patent, the monopoly pharmaceutical firm maximizes profit by producing the quantity at which marginal revenue equals marginal cost.

TRUE

T/F Firms in a competitive market are said to be price takers because there are many sellers in the market and the goods offered by the firms are very similar if not identical.

TRUE

T/F Firms operating in perfectly competitive markets try to maximize profits.

TRUE

T/F GDP includes only the value of final goods because the value of intermediate goods is already included in the prices of the final goods.

TRUE

T/F If a firm produces nothing, it still incurs its fixed costs.

TRUE

T/F Macroeconomics is the study of the economy as a whole.

TRUE

T/F The marginal cost curve intersects the average total cost curve at the minimum point of the average total cost curve.

TRUE

T/F The proper level of government intervention is unclear when dealing with a monopoly.

TRUE

T/F Because economists understand what things change GDP, they can predict recessions with a fair amount of accuracy.

FALSE

T/F Economic profit is greater than or equal to accounting profit.

FALSE

T/F Economists and accountants both include forgone income as a cost to a small business owner.

FALSE

T/F Fixed costs are those costs that remain fixed no matter how long the time horizon is.

FALSE

T/F Fluctuations in real GDP are caused only by changes in aggregate demand and not by changes in aggregate supply.

FALSE

T/F If aggregate demand and aggregate supply both shift right, we can be sure that the price level is higher in the short run.

FALSE

T/F If long-run average total cost is rising, then the firm is experiencing economies of scale.

FALSE

T/F If the marginal cost curve is rising, then so is the average total cost curve.

FALSE

T/F In 2007, government purchases was the largest component of U.S. GDP.

FALSE

T/F In the short run, if a firm produces nothing, total costs are zero.

FALSE

T/F In years of economic contraction, firms throughout the economy increase their production of goods and services, employment rises, and jobs are easy to find.

FALSE

T/F Macroeconomic statistics tell us about a particular household, firm, or market.

FALSE

T/F Marginal costs are costs that do not vary with the quantity of output produced.

FALSE

T/F Monopolists can achieve any level of profit they desire because they have unlimited market power.

FALSE

T/F One characteristic of a monopoly market is that the product is virtually identical to products produced by competing firms.

FALSE

T/F Other things the same, technological progress raises the price level.

FALSE

T/F Profit equals marginal revenue minus marginal cost.

FALSE

T/F The marginal cost curve intersects the average total cost curve at the minimum point of the marginal cost curve.

FALSE

T/F The supply curve of a firm in a competitive market is the average variable cost curve above the minimum of marginal cost.

FALSE

T/F The term real GDP refers to a country's actual GDP as opposed to its estimated GDP.

FALSE

T/F The typical total-cost curve is U-shaped.

FALSE

T/F When an individual firm in a competitive market increases its production, it is likely that the market price will fall.

FALSE

T/F A decrease in the price level makes consumers feel wealthier, so they purchase more. This logic helps explain why the aggregate demand curve slopes downward.

TRUE

T/F A firm operating in a perfectly competitive industry will continue to operate in the short run but earn losses if the market price is less than that firm's average total cost but greater than the firm's average variable cost.

TRUE

T/F A firm operating in a perfectly competitive market may earn positive, negative, or zero economic profit in the short run.

TRUE

T/F A firm will shut down in the short run if revenue is not sufficient to cover its variable costs of production.

TRUE

T/F A monopoly creates a deadweight loss to society because it produces less output than the socially efficient level.

TRUE

T/F A natural monopoly has economies of scale for most if not all of its range of output.

TRUE

T/F All firms maximize profits by producing an output level where marginal revenue equals marginal cost; for firms operating in perfectly competitive industries, maximizing profits also means producing an output level where price equals marginal cost.

TRUE

T/F Average variable cost is equal to total variable cost divided by quantity of output.

TRUE

T/F Because of the greater flexibility that firms have in the long run, all short-run cost curves lie on or above the long-run curve.

TRUE

T/F Because the price level does not affect the long-run determinants of real GDP, the long-run aggregate-supply is vertical.

TRUE

T/F Because there are many buyers and sellers in a perfectly competitive market, no one seller can influence the market price.

TRUE

T/F By comparing the marginal revenue and marginal cost from each unit produced, a firm in a competitive market can determine the profit-maximizing level of production.

TRUE

T/F Copyrights and patents are examples of barriers to entry that afford firms monopoly pricing powers.

TRUE

T/F Diminishing marginal product exists when the production function becomes flatter as inputs increase.

TRUE

T/F Firms operating in perfectly competitive markets produce an output level where marginal revenue equals marginal cost.

TRUE

T/F GDP adds together many different kinds of products into a single measure of the value of economic activity by using market prices.

TRUE

T/F GDP is the most closely watched economic statistic because it is thought to be the best single measure of a society's economic well-being.

TRUE

T/F Goods that do not have close substitutes have downward-sloping demand curves.

TRUE

T/F If the value of an economy's imports exceeds the value of that economy's exports, then net exports is a negative number.

TRUE

T/F Implicit costs are costs that do not require an outlay of money by the firm.

TRUE

T/F Increased optimism about the future leads to rising prices and falling unemployment in the short run.

TRUE

T/F Increased uncertainty and pessimism about the future of the economy leads firms to desire less investment spending which shifts the aggregate-demand curve to the left.

TRUE

T/F Like competitive firms, monopolies choose to produce a quantity in which marginal revenue equals marginal cost.

TRUE

T/F Macroeconomic statistics include GDP, the inflation rate, the unemployment rate, retail sales, and the trade deficit.

TRUE

T/F Most macroeconomic variables that measure some type of income, spending, or production fluctuate closely together.

TRUE

T/F Real GDP is a better gauge of economic well-being than is nominal GDP.

TRUE

T/F Suppose a firm is considering producing zero units of output. We call this shutting down in the short run and exiting an industry in the long run.

TRUE

T/F Technological progress shifts the long-run aggregate supply curve to the right.

TRUE

T/F The aggregate-demand curve shows the quantity of domestic goods and services that households, firms, the government, and customers abroad want to buy at each price level.

TRUE

T/F The average total cost curve reflects the shape of both the average fixed cost and average variable cost curves.

TRUE

T/F The cost of producing an additional unit of a good is not the same as the average cost of the good.

TRUE

T/F The difference between economic profit and accounting profit is that economic profit is calculated based on both implicit and explicit costs whereas accounting profit is calculated based on explicit costs only.

TRUE

T/F The downward slope of the aggregate demand curve is based on logic that as the price level rises, consumption, investment, and net exports all fall.

TRUE

T/F The fundamental cause of monopolies is barriers to entry.

TRUE

T/F The goal of macroeconomics is to explain the economic changes that affect many households, firms, and markets simultaneously.

TRUE

T/F The shape of the total cost curve is related to the shape of the production function.

TRUE

T/F The socially efficient quantity is found where the demand curve intersects the marginal cost curve.

TRUE

T/F U.S. GDP excludes the production of most illegal goods.

TRUE

T/F Variable costs usually change as the firm alters the quantity of output produced.

TRUE

T/F When average total cost rises if a producer either increases or decreases production, then the firm is said to be operating at efficient scale.

TRUE

T/F When output rises, unemployment falls.

TRUE

T/F A firm operating in a perfectly competitive industry will continue to operate in the short run but earn losses if the market price is less than that firm's average variable cost.

FALSE

T/F Although economists and accountants treat many costs differently, they both treat the cost of capital the same.

FALSE

T/F Average total cost reveals how much total cost will change as the firm alters its level of production.

FALSE

T/F A monopolist produces where P > MC = MR.

TRUE