Economics Test 2

The long-run supply curve in a constant-cost industry would be: -Vertical -Upsloping -Horizontal -Downsloping

-Horizontal

Cash expenditures a firm makes to pay for resources are called: -Implicit costs -Explicit costs -Normal profit -Opportunity costs

- Explicit costs

Implicit costs are: -Equal to total fixed costs -"payments" for self-employed resources -Always greater in the short run than in the long run -Comprised entirely of variable costs

-"payments" for self-employed resources

The supply of product X is elastic if the price of X rises by: -10 percent and quantity supplied remains the same. -7 percent and quantity supplied rises by 5 percent. -8 percent and quantity supplied rises by 8 percent. -5 percent and quantity supplied rises by 7 percent.

-5 percent and quantity supplied rises by 7 percent.

In a typical graph for a purely competitive firm, the intersection of the total cost and total revenue curves would be: -A break-even point -A point where MR = MC -A point of maximum economic profit -A point of minimum economic loss

-A break-even point

Demand is said to be inelastic when: -A reduction in price results in a decrease in total revenue -A reduction in price results in an increase in total revenue -An increase in price results in a reduction in total revenue -The elasticity coefficient exceeds one

-A reduction in price results in a decrease in total revenue

In the short run, output: -May be altered by varying the size of plant and equipment which now exist in the industry -Is absolutely fixed -Can vary as the result of changing the size of existing plants and by new firms entering or leaving the industry -Can vary as the result of using a fixed amount of plant and equipment more or less intensively

-Can vary as the result of using a fixed amount of plant and equipment more or less intensively

The long-run equilibrium of a purely competitive industry ensures: -Consumer and producer surplus is minimized. -Only producer surplus is maximized. -Only consumer surplus is maximized. -Consumer and producer surplus is maximized.

-Consumer and producer surplus is maximized.

If a monopolist produces 100 units of output at a market price of $5 per unit with marginal revenue per unit equaling $4, we would expect that if the monopolist's good was provided under pure competition, quantity would be: -Higher than 100 units, price greater than $5, and MR = price -Lower than 100 units, price lower than $5, and MR = price -Higher than 100 units, price lower than $5, and MR = price -Lower than 100 units, price greater than $5, and MR = price

-Higher than 100 units, price lower than $5, and MR = price

The main difference between the short run and the long run is that: -In the short run, one or more inputs is fixed -Firms earn zero profits in the long run -The long run always refers to a time period of one year or longer -In the long run, only one variable can be fixed

-In the short run, one or more inputs is fixed

An economy is producing at the least-cost rate of production when: -Marginal cost is greater than average total cost -Price and marginal revenue are equal -Marginal revenue is greater than price -Price and the minimum average total cost are equal

-Price and the minimum average total cost are equal

A remote island nation is discovered, and on this island the cross elasticity of demand for coconut milk and fruit punch is 1.0. This indicates that these two goods are: -Normal -Complements -Substitutes -Inferior

-Substitutes

If oligopolistic firms facing similar cost and demand conditions successfully collude, price and output results in this industry will be most accurately predicted by which of the following models? -The pure monopoly model -The price-leadership model of oligopoly -The monopolistic competition model -The kinked demand curve model of oligopoly

-The pure monopoly model

In the standard model of pure competition, a profit-maximizing entrepreneur will shut down in the short run if: -Total revenue is less than total variable costs -Marginal cost is greater than average revenue -Average cost is greater than average revenue -Average fixed cost is greater than average revenue

-Total revenue is less than total variable costs

Which of the following is not a barrier to entry? -economies of scale -X-inefficiency -ownership of essential resources -Patents

-X-inefficiency

The term oligopoly indicates: -a few firms producing either a differentiated or a homogeneous product. -a one-firm industry. -an industry whose four-firm concentration ratio is low. -many producers of a differentiated product.

-a few firms producing either a differentiated or a homogeneous product.

In the short-run, a profit-maximizing monopolistically competitive firm sets it price: -below marginal cost. -above marginal cost. -equal to marginal revenue. -equal to marginal cost.

-above marginal cost.

Nonprice competition refers to: -reductions in production costs that are not reflected in price reductions. -advertising, product promotion, and changes in the real or perceived characteristics of a product. -competition between products of different industries, for example, competition between aluminum and steel in the manufacture of automobile parts. -price increases by a firm that are ignored by its rivals.

-advertising, product promotion, and changes in the real or perceived characteristics of a product.

For a purely competitive seller, price equals: -total revenue divided by output. -marginal revenue. -average revenue. -all of these.

-all of these.

The main determinant of elasticity of supply is the: -amount of time the producer has to adjust inputs in response to a price change. -urgency of consumer wants for the product. -number of close substitutes for the product available to consumers. -number of uses for the product.

-amount of time the producer has to adjust inputs in response to a price change.

When the percentage change in price is greater than the resulting percentage change in quantity demanded: -a decrease in price will increase total revenue. -demand may be either elastic or inelastic. -an increase in price will increase total revenue. -demand is elastic.

-an increase in price will increase total revenue.

A constant-cost industry is one in which: -the demand curve and therefore the unit price and quantity sold seldom change. -if 100 units can be produced for $100, then 150 can be produced for $150, 200 for $200, and so forth. -a higher price per unit will not result in an increased output. -the total cost of producing 200 or 300 units is no greater than the cost of producing 100 units.

-if 100 units can be produced for $100, then 150 can be produced for $150, 200 for $200, and so forth.

A pure monopolist should never produce in the: -segment of its demand curve where the price elasticity coefficient is greater than one. -inelastic segment of its demand curve because it can always increase total revenue by more than it increases total cost by reducing price. -inelastic segment of its demand curve because it can increase total revenue and reduce total cost by increasing price. -elastic segment of its demand curve because it can increase total revenue and reduce total cost by lowering price.

-inelastic segment of its demand curve because it can increase total revenue and reduce total cost by increasing price.

Game theory: -is best suited for analyzing purely competitive markets. -is the analysis of how people (or firms) behave in strategic situations. -reveals that price-fixing among firms reduces profits. -reveals that mergers between rival firms are self-defeating.

-is the analysis of how people (or firms) behave in strategic situations.

When diseconomies of scale occur: -the long-run average total cost curve rises. -average fixed costs will rise. -the long-run average total cost curve falls. -marginal cost intersects average total cost.

-the long-run average total cost curve rises.

Cross elasticity of demand measures how sensitive purchases of a specific product are to changes in: -the price of some other product. -the general price level. -income. -the price of that same product.

-the price of some other product.

In the long run, new firms will enter a monopolistically competitive industry: -until minimum average total cost is achieved. -provided economies of scale are being realized. -until economic profits are zero. -even though losses are incurred in the short run.

-until economic profits are zero.

A purely competitive firm's short-run supply curve is: -upsloping only when the industry has constant costs. -upsloping and equal to the portion of the marginal cost curve that lies above the average total cost curve. -perfectly elastic at the minimum average total cost. -upsloping and equal to the portion of the marginal cost curve that lies above the average variable cost curve.

-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: -that output where economic profits are zero. -at any point where the total revenue and total cost curves intersect. -where total revenue exceeds total cost by the maximum amount. -where the demand and the ATC curves intersect.

-where total revenue exceeds total cost by the maximum amount.

Economies and diseconomies of scale explain: -the profit-maximizing level of production. -the distinction between fixed and variable costs. -why the firm's short-run marginal cost curve cuts the short-run average variable cost curve at its minimum point. -why the firm's long-run average total cost curve is U-shaped.

-why the firm's long-run average total cost curve is U-shaped.

If you know that when a firm produces 10 units of output, total costs are $1,030 and average fixed costs are $10, then total fixed costs are: -$100 -$5 -$1,040 -$1,020

-$100

Block's sells 500 bottles of perfume a month when the price is $7. A huge increase in resource costs causes price to rise to $9 and Block's only manages to sell 460 bottles of perfume. The price elasticity of demand is: -.33 and inelastic -3.0 and elastic -.33 and elastic -3.0 and inelastic

-.33 and inelastic

X-inefficiency is said to occur when a firm's: -Marginal costs of producing any output are greater than the minimum possible total costs -Short-run costs of producing any output are greater than the long-run costs -Total costs of producing any output are greater than the minimum possible average costs -Average costs of producing any output are greater than the minimum possible average costs

-Average costs of producing any output are greater than the minimum possible average costs

Productive efficiency refers to: -Setting TR = TC -Cost minimization, where P = minimum ATC -Maximizing profits by producing where MR = MC -Production, where P = MC

-Cost minimization, where P = minimum ATC

Resource costs increase in a purely competitive industry. This change will result in a(n): -Decrease in average variable cost for a firm in the industry -Decrease in the short-run supply curve for a firm in the industry -Decrease in the marginal cost curve for a firm in the industry -Increase in average fixed cost for a firm in the industry

-Decrease in the short-run supply curve for a firm in the industry

When a firm doubles its inputs and finds that its output has more than doubled, this is known as: -Diseconomies of scale -Constant returns to scale -A violation of the law of diminishing returns -Economies of scale

-Economies of scale

Which of the following statements is true? -Games with a known ending date undermine reciprocity strategies. -Collusive agreements will always break down in repeated games. -Dominant strategies do not exist in repeated games. -Nash equilibriums exist only in games with dominant strategies.

-Games with a known ending date undermine reciprocity strategies.

The wage rate increases in a purely competitive industry. This change will result in a(n): -Increase in short-run supply curve for a firm in the industry -Increase in the marginal cost curve for a firm in the industry -Decrease in average variable cost for a firm in the industry -Decrease in average total cost for a firm in the industry

-Increase in the marginal cost curve for a firm in the industry

A monopolistically competitive firm in the short run is producing where price is $3.00 and marginal cost is $1.50. To maximize profits: -The firm should increase output and decrease price -The firm should decrease output and increase price -The firm should continue to produce this quantity -It is unclear what the firm should do without knowing marginal revenue

-It is unclear what the firm should do without knowing marginal revenue

In a duopoly, if one firm increases its price, then the other firm can: -Increase its price and thus increase its market share -Keep its price constant and thus increase its market share -Keep its price constant and thus decrease its market share -Decrease its price and thus decrease its market share

-Keep its price constant and thus increase its market share

Many people believe that monopolies charge any price they want to without affecting sales. Instead, the output level for a profit-maximizing monopoly is determined by: -Average total cost = demand -Marginal revenue = demand -Marginal cost = marginal revenue -Marginal cost = demand

-Marginal cost = marginal revenue

Allocative inefficiency due to unregulated monopoly is characterized by the condition: -P = MR -P = MC -P > MC -P > AVC

-P > MC

When a purely competitive industry is in long-run equilibrium, which statement is true? -Average total cost is less than marginal cost -Marginal cost is at its maximum level -Price and average total cost are equal -Marginal revenue is greater than price

-Price and average total cost are equal

A perfectly inelastic demand schedule: -rises upward and to the right, but has a constant slope. -cannot be shown on a two-dimensional graph. -can be represented by a line parallel to the vertical axis. -can be represented by a line parallel to the horizontal axis.

-can be represented by a line parallel to the vertical axis.

The kinked-demand curve of an oligopolist is based on the assumption that: -there is no product differentiation. -competitors will match both price cuts and price increases. -competitors will ignore a price cut but follow a price increase. -competitors will follow a price cut but ignore a price increase.

-competitors will follow a price cut but ignore a price increase.

Creative destruction -does all of the above. -stimulates growth. -forces firms to be innovative. -contributes to the production of new goods.

-does all of the above.

Price elasticity of supply is: -greater in the long run than in the short run. -independent of time. -greater in the short run than in the long run. -positive in the short run but negative in the long run.

-greater in the long run than in the short run.

For a purely competitive firm total revenue: -is price times quantity sold. -has all of these characteristics. -increases by a constant absolute amount as output expands. -graphs as a straight upsloping line from the origin.

-has all of these characteristics.

In the short run the individual competitive firm's supply curve is that segment of the: -marginal revenue curve lying below the demand curve. -marginal cost curve lying above the average variable cost curve. -average variable cost curve lying below the marginal cost curve. -marginal cost curve lying between the average total cost and average variable cost curves.

-marginal cost curve lying above the average variable cost curve.

Costs to an economist: -may or may not involve monetary outlays. -never reflect monetary outlays. -always reflect monetary outlays. -consist only of explicit costs.

-may or may not involve monetary outlays.

If a purely competitive firm is producing at the MR = MC output level and earning an economic profit, then: -new firms will enter this market. -the selling price for this firm is above the market equilibrium price. -there must be price fixing by the industry's firms. -some existing firms in this market will leave.

-new firms will enter this market.

In the short-run purely competitive firms earn ________ in equilibrium while in the long-run firms earn ________ in equilibrium, respectively. -normal profits; economic profits -profits or losses; profits or losses -profits; normal profit

-normal profits; economic profits

When a purely competitive firm is in long-run equilibrium: -price equals marginal cost. -total revenue exceeds total cost. -minimum average total cost is less than the product price. -marginal revenue exceeds marginal cost.

-price equals marginal cost.

In which of the following instances will total revenue decline? -price rises and supply is elastic -price rises and demand is elastic -price rises and demand is inelastic -price falls and demand is elastic

-price rises and demand is elastic

Other things equal, a price discriminating monopolist will: -produce a larger output than a nondiscriminating monopolist. -realize a smaller economic profit than a nondiscriminating monopolist. -produce a smaller output than a nondiscriminating monopolist. -produce the same output as a nondiscriminating monopolist.

-produce a larger output than a nondiscriminating monopolist.

Which of the following is most likely to be a fixed cost? -shipping charges -wages for unskilled labor -property insurance premiums -expenditures for raw materials

-property insurance premiums

Price discrimination refers to: -selling a given product for different prices at two different points in time. -the selling of a given product at different prices that do not reflect cost differences. -the difference between the prices a purely competitive seller and a purely monopolistic seller would charge. -any price above that which is equal to a minimum average total cost.

-the selling of a given product at different prices that do not reflect cost differences.

A firm reaches a break-even point (normal profit position) where: -marginal cost intersects the average variable cost curve. -total revenue equals total variable cost. -marginal revenue cuts the horizontal axis. -total revenue and total cost are equal.

-total revenue and total cost are equal.

Suppose that a monopolist calculates that at present output and sales levels, marginal revenue is $1.00 and marginal cost is $2.00. He or she could maximize profits or minimize losses by: -Decreasing output and leaving price unchanged -Increasing price and decreasing output -Decreasing price and increasing output -Decreasing price and leaving output unchanged

Increasing price and decreasing output

In moving down the elastic segment of the monopolist's demand curve, total revenue is: -Decreasing, and marginal revenue is positive -Decreasing, and marginal revenue is negative -Increasing, and marginal revenue is positive -Increasing, and marginal revenue is negative

Increasing, and marginal revenue is positive