ECO 202 module 1 quiz

Which of the following conditions is true for a purely competitive firm in long run equilibrium? a. P>MC=minimum ATC b. P=MC=minimum ATC c. P>MC>minimum ATC d. P<MC<minimum ATC

P=MC=minimum ATC

In the short run a purely competitive firm will always make an economic profit if:

P>ATC

Which of the following best expresses the law diminishing marginal returns?

as successive amounts of one resource (labor) are added to fixed amounts of other resources (property), beyond some point the resulting extra output will decline

A fixed cost is

associated with any productive resource whose price is fixed

Marginal cost is the

change in total cost that results from producing one more unit of output

The demand curve in a purely competitive industry is ___, while the demand curve to a single firm in that industry is ___

downsloping, perfectly elastic

The MR-MC rule can be restated for a purely competitive seller as P=MC

each additional unit of output adds exactly its price to total revenue

Which of the following definitions is correct? accounting profit+economic profit=normal profit economic profit-accounting profit= explicit costs economic profit=accounting profit-implicit costs economic profit-implicit costs=accounting profits

economic profit=accounting profit-implicit costs

To the economist total cost includes:

explicit and implicit costs, including a normal profit

To economists the main difference between the short run and the long run is that:

in the long run all resources are variable, while in the short run at least one resource is fixed

A fall in the price of milk, used in the production of ice cream will:

increase the supply the ice cream, causing the supply curve of ice cream to shift to the right

If a purely competitive firm shuts down in the short run:

it will realize a loss equal to it's total fixed cost

Which of the following is correct as it relates to cost curves? 1. average variable cost intersects marginal cost at the latter's minimum point 2. marginal cost intersects average total at the latter's minimum point 3. average fixed cost intersects marginal cost at the latter's minimum point. 4. marginal cost intersects average fixed cost at the latter's minimum point.

marginal cost intersects average total cost at the latter's minimum point

The above diagram implies that whenever a firm's demand curve is downsloping:

marginal revenue is less than price

If a monopolist were to produce in the inelastic segment of its demand curve:

marginal revenue would be negative

To maximize utility a consumer should allocate money income so that the:

marginal utility obtained from the last dollar spent on each product is the same.

Suppose the MUx/Px exceeds MUy/Py, to maximize utility the consumer who is spending all her money income should buy:

more of X and less of Y

A decrease in quantity demand (as distinct from a decrease in demand) is depicted by a:

move from point y to point x

The basic formula for the price elasticity of demand coefficient is ;

percentage change in quantity demanded/percentage change in price

Marginal Utility can be:

positive, negative or zero

Which of the following is characteristic of a purely competitive seller's demand curve?

price and marginal revenue are equal at all levels of output

The law of supply indicates that: a. producers will offer more of a product at high prices than they will at low prices.

producers will offer more of a product at high prices than they will at low prices.

If the supply and demand curves for a product both decrease, then equilibrium:

quantity must decline, but equilibrium price may either rise, fall or remain unchanged

A market for a product is in equilibrium when:

quantity supplied equals quantity demanded

Utility refers to the:

satisfaction that a consumer derives from a good or service

A decrease in demand is depicted by a:

shift from D2 to D1

The larger the coefficient of price elasticity of demand for a product, the:

smaller the resulting price change for an increase in supply

Total utility may be determined by:

summing the marginal utilities of each unit

If the price of X and Y are $2 and $4 per unit, respectively, and this consumer has $10 income to spend, to maximize total utility this consumer should buy:

1 units of X and 2 units of Y

The dilemma of regulation refers to the idea that:

the regulated price which achieves allocative efficiency is also likely to result in losses

Price discrimination refers to:

the selling of a given product difference prices that do not reflect cost differences

What do economies of scale, the ownership of essential raw materials, and patents have in common?

they are all barriers to entry

A pure monopolist is

a one-firm industry

Which of the following statements is correct?

a product may yield utility, but not be functionally useful.

If average income increases, all else equal, then there will be:

a shift of the demand curve

The law of diminishing marginal utility states that:

beyond some additional units of a product will yield less and less extra satisfaction to a consumer

Refer to the above diagram. By producing output level Q:

both productive and allocative efficiency area achieved

The price of elasticity of demand coefficient indicates:

buyer responsiveness to price change

Suppose you find that the price of your product is less than minimum AVC. You should:

close down because, by producing your losses will exceed your total fixed costos

Which of the following is not a basic characteristic of pure competition? 1. considerable non-price competition 2. no barriers to the entry or exodus of firms 3. a standardized or homogeneous product 4. a large number of buyers and sellers

considerable non price competition

The demand for a product is inelastic with respect to price if:

consumers are largely unresponsive to a per unit price change

The relationship between quantity supplied and price is ___ and the relationship between quantity demanded and price is ___.

direct, inverse

Which of the following is not a precondition for price discrimination? 1. the commodity involved must be a durable good 2. the good or service cannot be resold by original buyers 3. the seller must be able to segment the market, that is, to distinguish buyers with difference elasticities of demand. 4. the seller must possess some degree of monopoly power

the commodity involved must be a durable good

If a regulatory commission imposes upon a nondiscriminating natural monopoly a price that is equal to marginal cost and below average total cost at the resulting output, then:

the firm must be subsidized or it will go bankrupt

A purely competitive firm's short-run supply curve is:

upsloping and equal to the portion of the marginal cost curve that lies above the average variable cost curve

In the short run a purely competitive firm that seeks to maximize profit will produce:

where total revenue exceeds total cost by the maximum amount