ECO 2305 Exam 2 Review TTU

12) A firm's basic goal is best described as

**A) maximizing profit. B) maximizing total revenue. C) minimizing total cost. D) maximizing sales.

16) The CORRECT ranking of the four basic market structures from low (Herfindahl-Hirschaman Index) HHI to high HHI is

**A) perfect competition - monopolistic competition - oligopoly - monopoly. B) perfect competition - oligopoly - monopolistic competition - monopoly. C) monopoly - monopolistic competition - oligopoly - perfect competition. D) monopoly - oligopoly - monopolistic competition - perfect competition.

26) The owners will shut down a perfectly competitive firm if the price of its good falls below its minimum

*A) average variable cost. B) average marginal cost. C) average total cost. D) wage rate.

2) Absent market failure a market demand curve measures

A) the marginal social benefit of an additional unit of the good. B) how much a consumer is willing to pay for an additional unit of the good. C) the marginal social cost of an additional unit of the good. **D) Both answers A and B are correct.

15) Ed is a freelance writer who could work for a newspaper at $25000 a year but instead works for himself for $41000 a year. His only business expenses are $1000 for writing materials and $12000 for rent. Ed's normal profit is $1000. Ed's economic profit from working as a freelance writer is

A) $1000. B) $15000. C) $25000. **D) $2000.

9) ________ is an illegal activity between buyers and sellers sometimes used to evade a price ceiling.

A) Creating a shortage B) Increased search activity C) A price floor **D) A black market

17) Which of the following statements is CORRECT?

A) Long-run decisions are easily reversed. B) In the long run, a firm can change its plant but not the quantity of its labor. C) Short-run decisions are not easily reversed. **D) A firm does not need to take into account its sunk cost when making current decisions.

28) A perfectly competitive firm is definitely making an economic profit when

A) P < ATC. B) MR = MC. C) P = ATC. *D) P > ATC. 6

29) Which of the following is TRUE for a single-price monopolist?

A) P = MR B) P = elasticity of demand C) P < MR *D) P > MR

6) A rent ceiling below the equilibrium rent will create

A) a larger number of apartments rented. B) no change in the number of apartments rented. **C) increased search time and black markets. D) a more efficient allocation of housing.

11) If policy makers believe that the equilibrium wage rate is too low policy makers can raise wages by legislating a minimum wage, that is, a wage

A) ceiling below the equilibrium wage. B) floor below the equilibrium wage. **C) floor above the equilibrium wage. D) ceiling above the equilibrium wage.

22) Which of the following is a defining characteristic of a perfectly competitive market?

A) higher prices being charged for certain name brands B) advertisements by well-known celebrities **C) no restrictions on entry into the industry D) persistent economic profits in the long run

18) A firm has fixed costs

A) in the long run but not in the short run. B) in the short run and in the long run. **C) in the short run but not in the long run. D) neither in the long run nor in the short run.

1) All of the following statements about marginal benefit are correct EXCEPT the marginal benefit of a good

A) is measured as the maximum amount that a person is willing to pay for one more unit of the good. B) is the benefit a person receives from consuming one more unit of the good or service. **C) is equal to zero when resource use is efficient. D) decreases as the quantity consumed of the good increases.

3) If the market for roller blades is at a competitive equilibrium and there are no external costs or benefits, then

A) marginal social benefit is equal to marginal social cost. B) resources are being used efficiently. C) the sum of consumer surplus and producer surplus is maximized. **D) All of the above answers are correct.

27) If there is a permanent decrease in demand in a perfectly competitive market then there is an initial ________ in price and existing firms ________.

A) rise; incur an economic loss *B) fall; incur an economic loss C) fall; make an economic profit D) rise; make an economic profit

23) In perfect competition an individual firm

A) sets the price and determines the quantity it sells in the marketplace. **B) determines the quantity it sells in the marketplace but has no influence over its price. C) sets the price but does not determine the quantity it sells in the marketplace. D) can not affect its price nor determine the quantity it sells in the marketplace.

14) Economic profit is the difference between total revenue and

A) the normal profit. **B) opportunity costs of production. C) the costs of resources bought in markets. D) interest costs of production.

19) Which type of cost is does not change as the quantity of output produced changes?

A) total cost B) average cost C) marginal cost **D) fixed cost

13) Wanda takes $3000 from her savings account that pays 5 percent interest per year and uses the funds to purchase a computer for $3000 for her business. At the end of the year the computer is worth $2000. Wanda pays an implicit rental rate of ________ a year.

A) zero B) $3,150 **C) $1,150 D) $4,000