Micro Test II

True/False: After an increase in demand in a constant-cost industry, firms will find themselves with higher average costs.

False

True/False: A normal good is defined as a product for which quantity demanded increases as price decreases.

False; A normal good is defined as a product for which DEMAND increases as INCOME INCREASES.

True/False: All other things constant, higher implicit costs result in lower accounting profit.

False; All other things constant, higher implicit costs result in lower ECONOMIC profit.

True/False: An individual seller or buyer can influence the market price under conditions of pure competition.

False; An individual seller or buyer CANNOT influence the market price under conditions of pure competition.

True/False: As consumers have a longer time period to respond, the demand for a product typically becomes more inelastic.

False; As consumers have a longer time period to respond, the demand for a product typically becomes more ELASTIC.

True/False: Because it is small relative to the market, a perfectly competitive firm faces an inelastic demand curve for its output.

False; Because it is small relative to the market, a perfectly competitive firm faces an ELASTIC demand curve for its output.

True/False: Implicit costs involve a direct cash payment for the use of a resource.

False; EXPLICIT costs involve a direct cash payment for the use of a resource.

True/False: IF a firm experiencing "economies of scale" decreases its output, its long-run average cost will decrease.

False; If a firm experiencing "economies of scale" decreases its output, its long-run average cost will INCREASE.

True/False: If demand is elastic, a fallen price leads to a fall in total revenue.

False; If demand is INELASTIC, a fall in price leads to a fall in total revenue.

True/False: If marginal cost is less than marginal revenue, an expansion of output will decrease profit.

False; If marginal cost is less than marginal revenue, an expansion of output will INCREASE profit.

True/False: Implicit costs are recognized by accountants as part of the real cost of production.

False; Implicit costs are NOT recognized by accountants as part of the real cost of production.

True/False: In perfect competition, each firm;s output is a large fraction of total market supply.

False; In perfect competition, each firm's output is a SMALL fraction of total market supply.

True/False: In the long run in perfect competition, no firm can earn a normal profit.

False; In the long run in perfect competition, SURVIVING FIRMS can earn a normal profit.

True/False: In the short run, all costs are fixed.

False; In the short run, size is fixed, but not labor.

True/False: Marginal revenue and marginal cost will always be equal.

False; Marginal revenue and marginal cost MAY be equal where they have the same slope.

True/False: Perfect competition is characterized by a large number of differentiated products.

False; Perfect competition is characterized by a large number of STANDARDIZED products.

True/False: Perfectly competitive firms are sometimes called price makers because they have significant control over product price.

False; Perfectly competitive firms are sometimes called price TAKERS because they have NO control over product price.

True/False: Profits are maximized where average cost and average revenue are equal.

False; Profits are maximized where MARGINAL cost and MARGINAL revenue are equal.

True/False: The availability of substitutes makes the demand for a good less elastic.

False; The availability of substitutes makes the demand for a good MORE elastic.

True/False: The law of diminishing marginal productivity is applicable only to the use of labor as a factor of production.

False; The law of diminishing marginal productivity is applicable to all factors of production.

True/False: The short-run price in pure competition is generally considered a stable price because all firms can, at least, break even.

False; The short-run price in pure competition is generally considered AN UNSTABLE price.

True/False: When marginal revenue equals marginal cost, the firm just "breaks even."

False; When TOTAL revenue equals TOTAL cost, the firm just "breaks even."

True/False: A firm with positive accounting profit may be suffering an economic loss.

True

True/False: A market is said to be allocatively efficient when the marginal cost of producing each good equals the marginal benefit that consumers derive from that good.

True

True/False: A necessary condition associated with the law of diminishing marginal productivity is that only one factor should be varied.

True

True/False: A perfectly elastic demand curve is represented graphically by a straight horizontal line.

True

True/False: AN industry consists of all firms that supply output to a particular market.

True

True/False: An equilibrium price results in the "clearing of the market"

True

True/False: Average product can be defined as the output per unit of input.

True

True/False: Average variable cost will drop, reach a minimum, and begin to rise with increasing output.

True

True/False: Demand is elastic if consumers are more responsive to price changes than they are under conditions of unitary demand.

True

True/False: Elasticity of supply refers to the relation between a given change in price and the resulting change in the quantity of a commodity or service that will be offered for sale.

True

True/False: Fixed costs are those that remain constant in total over a given range of output.

True

True/False: If a $1 increase in price leads to a $1 decrease in total revenue, then demand must be elastic.

True

True/False: If a firm is experiencing diseconomies of scale, its long-run marginal cost curve is upward sloping.

True

True/False: If a perfectly competitive firm raises its price, its sales decrease to zero.

True

True/False: If a perfectly competitive firm shuts down in the short run, its variable cost equals zero.

True

True/False: If all my savings are invested in my consulting company, an increase in interest rates increases implicit costs.

True

True/False: If the seller increases the price of his product and total revenue decreases, the demand is said to be elastic.

True

True/False: If, as a result of change in demand in a perfectly competitive increasing-cost industry, price and quantity rise, demand must have risen.

True

True/False: Implicit costs are considered as economic costs.

True

True/False: In the long run, all inputs are variable.

True

True/False: In the long run, all of a firm's inputs are variable.

True

True/False: Income elasticity is generally low for basic necessities.

True

True/False: Inelastic demand means that the percentage change in price is greater than the percentage change in quantity demand.

True

True/False: Marginal cost is the increase in total cost resulting from the production of one more unit of output.

True

True/False: Marginal revenue is the change in total revenue from selling one more unit of output.

True

True/False: One of the disadvantages of pure competition is the possible waste associated with the duplication of plant and equipment.

True

True/False: Opportunity cost is measured by the value of a given commodity in its next best alternative use.

True

True/False: Profit maximization for a firm depends upon demand conditions, as well as upon productivity and costs.

True

True/False: Profits are dynamic in pure competition in so far as they are constantly changing in amount and among firms.

True

True/False: Since all costs are variable in the long run period, the firm must cover all costs to stay in business.

True

True/False: The demand for a particular brand of automobile is likely to be more inelastic than the demand for automobiles in general.

True

True/False: The demand for firewood is likely to be more elastic in the summer than in the winter.

True

True/False: The greater the availability of close substitutes for a product, the greater the price elasticity of demand for that product.

True

True/False: The larger the proportion of the consumer's budget that is spent on a product, the more elastic that consumer's demand for the product will be.

True

True/False: The marginal cost curve should cross the AVC and the ATC curves at their lowest points.

True

True/False: The marginal curve intersects the average variable cost curve at its minimum.

True

True/False: Total revenue is the same for every price-quantity combination along a unit elastic demand curve.

True

True/False: Under conditions of pure competition, price eventually will equal cost at the lowest point of the long-run ATC curve at the optimum scale of operation.

True

True/False: Under pure competition, average revenue and marginal revenue will always be equal.

True

True/False: When a firm has reached the optimum scale of operation, no further cost advantages arise from the greater size.

True

True/False: Pure profits tend to be a temporary phenomenon under conditions of pure competition.

true

For a perfectly competitive firm, price is identical to marginal revenue at every quantity.

True