Exam 1 - Economics

Which of the following statements is correct?

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

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.

A fixed cost is:

any cost which a firm would incur even if output was zero

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 because:

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

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 of 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 its total fixed costs

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 that 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.

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.

The law of supply indicates that:

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

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 consumed

Which of the following is correct as it relates to cost curves?

Marginal cost intersects average total cost at the latter's minimum point.

Which of the following conditions is true for a purely competitive firm in long-run equilibrium?

P = MC = minimum ATC.

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

P > ATC

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

direct, inverse

Price discrimination refers to:

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

Which of the following best expresses the law of 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.

Which of the following definitions is correct?

Economic profit = accounting profit - implicit costs

Which of the following is not a precondition for price discrimination?

The commodity involved must be a durable good.

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.

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 point additional units of a product will yield less and less extra satisfaction to a consumer.

The price elasticity of demand coefficient indicates

buyer responsiveness to price changes

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 costs

Which of the following is not a basic characteristic of pure competition?

considerable nonprice competition

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

consumers are largely unresponsive to a per unit price change.

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