Micro Test 2 part #2

If a firm can change market prices by altering its output, then: A) It has market power. B) It is a price taker. C) It faces a horizontal demand curve. D) It is a competitive firm.

A) It has market power.

A firm should shut down production when: A) P < minimum AVC. B) P > minimum AVC. C) P = minimum ATC. D) P=MC.

A) P < minimum AVC.

Economic profit equals zero where: A) P = minimum ATC. B) P=AVC. C) P=AFC. D) P = minimum ATC x Q.

A) P = minimum ATC.

Which market structure is characterized by many firms producing close substitutes which are not differentiated in the eyes of the consumer? A) Perfect competition. B) Monopolistic competition. C) Oligopoly. D) Monopoly.

A) Perfect competition.

Marginal utility for a good is computed as: A) Total utility divided by quantity. B) Quantity divided by total utility. C) The change in quantity divided by total utility. D) The change in total utility divided by the change in quantity.

D) The change in total utility divided by the change in quantity.

If marginal utility is negative: A) Total utility increases with additional consumption of a good. B) Total utility decreases with additional consumption of a good. C) The good or service being consumed is an inferior good. D) Total utility is at a minimum.

B) Total utility decreases with additional consumption of a good.

Other things being equal, as more firms enter a market, the market supply curve: A) Becomes more inelastic. B) Shifts to the left. C) Shifts to the right. D) Intersects the demand curve at a higher price.

C) Shifts to the right.

If economic profits are earned in a competitive market, then in the long run: A) Additional firms will enter the market. B) The market supply curve will shift to the right. C) Equilibrium price will fall as more firms enter. D) All of the above.

D) All of the above.

The entry of firms into a market: A) Reduces the equilibrium price. B) Reduces the profits of existing firms in the market. C) Shifts the market supply curve to the right. D) All of the above.

D) All of the above.

The equilibrium price in a competitive market: A) Ensures that anyone who can afford the good can get it. B) Equates the demand for goods with the supply of goods. C) Remains unchanged as long as supply and demand do not change. D) All of the above.

D) All of the above.

The production function: A) Represents maximum technical efficiency. B) Represents the most output attainable from any combinations of factor inputs. C) Describes the capacity of a single firm. D) All of the above.

D) All of the above.

Which of the following influences the price elasticity of demand? A) Availability of substitutes. B) Price relative to budget. C) Length of time. D) All of the above.

D) All of the above.

Which of the following is a characteristic of a perfectly competitive market? A) Zero economic profit in the long run. B) Homogeneous products. C) Perfect information. D) All of the above.

D) All of the above.

Investment decisions are made on the basis of the relationship of price to: A) Short-run average total cost. B) Long-run fixed cost. C) Short-run marginal cost. D) Long-run average total cost.

D) Long-run average total cost.

When a purely competitive firm advertises, it is attempting to increase: A) The demand and decrease the price elasticity of demand for its product. B) The demand and increase the price elasticity of demand for its product. C) Long-run profits. D) Market demand.

D) Market demand.

A consumer maximized his or her satisfaction from a given amount of income when A) Mua=MUb=...+MUn B) Pa=Pb C) Pa-MUa=Pa-MUb D) Mua/Pa=MUb/Pb=...MUn/Pn E) Pa+MUa=Pb+MUb=...Pn+MUn

D) Mua/Pa=MUb/Pb=...MUn/Pn

In which of the following cases would a firm exit from a market? A) P > short-run ATC. B) P > long-run ATC. C) P < short-run ATC. Figure 5.3 D) P < long-run ATC.

D) P < long-run ATC.

The price elasticity of demand is calculated using percentage changes in order to: A) Avoid mistaking elasticity with slope. B) Make elasticity a percentage figure. C) Avoid problems associated with units of measurement. D) Find a constant elasticity along each demand curve.

A) Avoid mistaking elasticity with slope.

Economic costs and economic profits are: A) Usually greater and smaller, respectively, than their accounting counterparts. B) Usually smaller and greater, respectively, than their accounting counterparts. C) Usually both smaller than their accounting counterparts. D) Usually both larger than their accounting counterparts.

A) Usually greater and smaller, respectively, than their accounting counterparts.

Knowing a product's price elasticity allows economists to: A). predict the amount by which quantity demanded will drop in response to a price increase B). predict how changes in consumers' income will affect sales. C). predict the amount by which quantity supplied will drop in response to a price increase. D). respond quickly to tariff changes .

A). predict the amount by which quantity demanded will drop in response to a price increase

Which of the following is equivalent to ATC? A) FC+VC. B) (FC + VC) / Q. C) Change in total cost divided by change in output. D) None of the above.

B) (FC + VC) / Q.

(Figure in figure above: Determining Short-Run Supply Curves) Which segment represents the short-run supply curve? A) DE B) CE C) BE D) AE

B) CE

In making a production decision, an entrepreneur: A) Decides whether to enter or exit the market. B) Decides what level of output will maximize profits. C) Determines plant and equipment. D) Can change both fixed and variable inputs.

B) Decides what level of output will maximize profits.

With greater consumption, total utility always: A) Falls. B) Increases as long as marginal utility is positive. C) Increases only if marginal utility increases. D) Increases.

B) Increases as long as marginal utility is positive.

A production function: A) Shows the cost of producing any level of output. B) Is a technological relationship between factors of production and output. C) Expresses the least-cost method of producing a given level of output. D) Expresses our ability to produce various combinations of goods, using all of our resources.

B) Is a technological relationship between factors of production and output.

In which of the following cases would a firm enter a market? A) P > short-run ATC. B) P > long-run ATC. C) P < short-run ATC. D) P < long-run ATC.

B) P > long-run ATC.

The exit of firms from a market, ceteris paribus: A) Shifts the market supply curve to the right. B) Reduces the economic losses of remaining firms in a market. C) Increases the equilibrium output in the market. D) All of the above.

B) Reduces the economic losses of remaining firms in a market.

Which of the following is least likely to occur during the long run in a perfectly competitive market experiencing economic profits? A) A rightward shift in the market supply curve. B) An increase in the market quantity demanded. C) An increase in the marginal revenue. D) A decline in the ATC and MC curves.

C) An increase in the marginal revenue.

Rising marginal costs result from: A) Rising prices of fixed inputs. B) Rising prices of variable inputs. C) Falling marginal physical product. D) All of the above.

C) Falling marginal physical product.

Monopolistic competition is a market structure in which: A) Many interdependent firms sell a homogeneous product. B) A few firms produce a particular type of product. C) Many firms produce a particular type of product, but each maintains some independent control over its own price. D) A few firms produce all of the market supply of a good.

C) Many firms produce a particular type of product, but each maintains some independent control over its own price.

If more firms enter a monopolistically competitive market, we would expect: A) The demand curves facing existing firms to shift to the left and become more price inelastic. B) The demand curves facing existing firms to shift to the left and no change in price elasticity. C) The demand curves facing existing firms to shift to the left and become more price elastic. D) The demand curves facing existing firms to shift to the right and no change in price elasticity.

C) The demand curves facing existing firms to shift to the left and become more price elastic.

The law of diminishing returns states that beyond some point, ceteris paribus: A) The returns on stocks and bonds diminish with higher security prices. B) The addition to total utility diminishes as more units of a good are consumed. C) The marginal physical product of a factor of production diminishes as more of that factor is used. D) The output of any good increases as more of a variable input is used.

C) The marginal physical product of a factor of production diminishes as more of that factor is used.

Firms in a perfectly competitive market will: A) Produce efficiently. B) Make economic profits in the long run. C) Use the profit-maximizing rule MC = MR. D) All of the above.

C) Use the profit-maximizing rule MC = MR.

Total utility will be maximized: A) When price is less than marginal utility. B) When price is equal to marginal utility. C) When marginal utility is zero. D) When marginal utility is maximized.

C) When marginal utility is zero.

If marginal cost (MC) is less than average total cost (ATC), then: A). ATC is at its minimum. B). ATC is increasing. C). ATC is decreasing. D). AFC is increasing.

C). ATC is decreasing.

If a perfectly competitive firm can sell 400 computers at $800 each, in order to sell one more computer, the firm: 81. A). Must lower its price B). Must raise its price. C). Can sell the 41st computer at $800. D).Cannot sell an additional computer at any price because the market is at equilibrium.

C). Can sell the 41st computer at $800.

Suppose a hurricane hits Florida, causing widespread damage to houses and businesses. The governor of Florida places price ceilings on all building materials to keep the prices reasonable. Which of the following is the most likely result? A). A faster recovery from the storm. B). More people will be able to purchase building materials. C). Shortages of building materials and a slower recovery from the storm. D). The supply of building materials to Florida will increase.

C). Shortages of building materials and a slower recovery from the storm.

Larry owns his own auto repair shop, and employs three mechanics. His total parts and sales volume this year was $322,400. Because he is well known for his repair expertise, he is also paid $5,200 per year by a local radio station to answer auto repair questions on "Ask the Mechanic." His explicit costs for payroll, parts and taxes, mortgage and utilities are $290,160. Larry left a job as an accountant making $40,000 a year to own his own business. Larry's economic profit is: A). $32,240. B). $37,440. C). $327,600. D). Larry is actually experiencing an economic loss of $2,560.

D). Larry is actually experiencing an economic loss of $2,560.

Bill can consume 10 Chinese buffets or go bowling five times this month (or specific other combinations). This above graph represents Bill's: A). utility curve. B). demand curve. C). production possibility frontier. D). budget line.

D). budget line.

Assume MUx=30 utils,MUy15, Px=$2, and Py=$0.50. This consumer A)should buy less of X and less of Y B) is in equilibrium C) should buy more of X and less of Y D)should buy less of X and more of Y E)should buy more of X and more of Y

D)should buy less of X and more of Y

Refer to Figure 8.8 above for a perfectly competitive firm. If this firm produces the level of output corresponding to point C in the short run, it will earn: a. Zero profit. b. The maximum profit possible. c. A profit, although not the maximum profit possible. d. A loss.

b. The maximum profit possible.