ECON chpt 3 practice test, Microeconomics Production and Cost, Chpt 4, ECON 101 Test 2, ECON chpt 3 practice test, ECON 202 CH. 9, Econ Q 6/7, MicroEconomics, MICRO ALL CHAPTERS

The price elasticity of demand for widgets is 0.80. Assuming no change in the demand curve for widgets, a 16% increase in sales implies a

20% reduction in price

In the short run it is impossible for an expansion of output to increase:

B) average fixed cost.

Other things equal, if the wage rates paid to a firm's labor inputs were to rise, we would expect the: A. AFC, AVC, ATC, and MC curves all to rise. B. AVC, ATC, and MC curves all to rise. C. AFC and ATC curves to fall. D. MP curve to fall.

B. AVC, ATC, and MC curves all to rise.

The main determinant of elasticity of supply is the:

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

an increase in price will increase total revenue

The short run is characterized by

at least one fixed resource

The basic difference between the short run and the long run is that

at least one resource is fixed in the short run, while all resources are variable in the long run

Which of the following is the best example of oligopoly?

automobile manufacturing

If a technological advance increases a firm's labor productivity, we would expect its:

average total cost curve to fall

For most producing firms

average total costs decline as output is carried to a certain level, and then begin to rise

When average fixed costs are falling

average variable cost may be either rising or falling

A perfectly elastic demand curve implies that the firm

can sell as much output as it chooses at the existing price

In competitive markets, excess production or excess demand will

cause changes in the quantities demanded and supplied that tend to eliminate the excess production or excess demand

In competitive markets, a surplus or shortage will

cause changes in the quantities demanded and supplied that tend to eliminate the surplus or shortage

Marginal cost is:

change in TFC over change in Q

Marginal cost is the

change in total cost that results from producing one more unit of output

Economic cost can best be defined as...

compensations that must be received by resource owners to insure their continued supply

A leftward shift in the supply curve of product X will increase equilibrium price to a greater extent the: A) more elastic the supply curve. C) more elastic the demand for the product. B) larger the elasticity of demand coefficient. D) more inelastic the demand for the product.

d

For a linear demand curve: A) elasticity is constant along the curve. C) demand is elastic at low prices. B) elasticity is unity at every point on the curve. D) demand is elastic at high prices.

d

Average fixed cost

declines continually as output increases

Which of the following is most likely to be a variable cost?

fuel and power payments

In the short run a purely competitive seller will shut down if product price

is less the AVC

Refer to the above information and assume the stadium capacity is 5,000. The supply of seats for the game:

is perfectly inelastic.

The minimum efficient scale of a firm:

is the smallest level of output at which long-run average total cost is minimized.

In the short run, a monopolist's economic profits:

may be positive or negative depending on market demand and cost.

In the short run a monopolistically competitive firm's economic profit:

may be positive, zero, or negative.

Marginal product

may initially increase, then diminish, and ultimately become negative

Costs to an economist

may or may not involve monetary outlays

The restaurant, legal assistance, and clothing industries are each illustrations of:

monopolistic competition.

Which of the following is a unique feature of oligopoly?

mutual interdependence

A negative income elasticity of demand indicated that the product

is an inferior good

An industry having a four-firm concentration ratio of 85 percent

is an oligopoly.

The long-run average total cost curve:

is based on the assumption that all resources are variable.

The vertical distance between the total cost and the total variable cost curves differs by an amount which:

is constant as output changes.

Marginal revenue for a purely competitive firm

is equal to price

Implicit costs are...

nonexpenditure costs

Implicit costs are:

nonexpenditure costs

Concentration ratios measure the:

percentage of total sales accounted for by the four largest firms in the industry.

A demand curve which is parallel to the horizontal axis is

perfectly elastic

The demand schedule or curve confronted by the individual purely competitive firmis

perfectly elastic

Diseconomics of scale

pertain to the long run

Diseconomies of scale:

pertain to the long run.

Assume that a 4 percent increase in income in the economy produces an 8 percent increase in the quantity demanded of good X. The coefficient of income elasticity of demand is:

positive and therefore X is a normal good.

Homogeneous oligopoly exists where a small number of firms are:

producing virtually identical products.

If a 10% increase in the price of one good, A, results in an increase of 5% in the QD of another good, B, then it can be concluded that the two goods are

substitute goods

The cross elasticity of demand for product X with respect to the price of product Y is 2. It can be inferred that X and Y are

substitute products

There is excess production of tomatoes in the market. This implies that

the current price is above the equilibrium level

If a price reduction reduces a firm's total revenue:

the demand for the product is inelastic in this price range

Suppose that a business incurred implicit costs of $500,000 and explicit costs of $5 million in a specific year. If the firm sold 100,000 units of its output at $50 per unit, its accounting

profits were zero and its economic losses were $500,000

Which of the following is most likely to be a fixed cost?

property insurance premiums

An increase in the demand for MP3 music indicates that more is

purchased even if prices of MP3 music stay the same

There is an excess demand in a market for a product when

quantity demanded is greater than quantity supplied

There is an excess supply in a market for a product when

quantity demanded is less than quantity supplied

A constant cost industry is one in which

resource prices remain unchanged as output is increased

If marginal cost is:

rising, then average total cost could be either falling or rising

Refer to the above information and assume the stadium capacity is 5,000. If the Mudhens' management wanted a full house for the game, it would

set ticket prices at $5

Marginal product is

the increase in total output attributable to the employment of one more worker

If a variable input is added to some fixed input beyond some point the resulting extra output will decline. This statement describes

the law of diminishing returns

If a variable input is added to some fixed input, beyond some point the resulting extra output will decline. This statement describes

the law of diminishing returns

Cross elasticity of demand measures how sensitive purchases of a specific product are to changes in:

the price of some other product.

A 3% increase in the price of tea causes a 6% increase in the demand for coffee. The cross elasticity of demand for coffee with respect to the price of tea is

+2.0

The cross elasticity of demand between two goods is reported to be +0.2. This implies that:

2 goods are substitues

Which of the following is a short-run adjustment?

A local bakery hires two additional bakers.

Suppose the price of local cable TV services increased from $16.20 to $19.80 and as a result the number of cable subscribers decreased from 224,000 to 176,000. Along this portion of the demand curve, price elasticity of demand is

1.2

The supply of product X is perfectly inelastic if the price of X rises by

10% and the quantity supplied stays the same

The supply of product X is elastic if the price of X rises by

5% and the quantity supplied rises by 7%

The supply of product X is inelastic (but not perfectly inelastic) if the price of X rises b

7 percent and quantity supplied rises by 5 percent

The supply of product X is inelastic if the price of X rises by

7% and QS rises by 5%

The supply of product X is inelastic (but not perfectly inelastic) if the price of X rises by

7% and the quantity supplied rises by 5%

The elasticity of supply of product X is unitary if the price of X rises by:

8 percent and quantity supplied rises by 8 percent.

The elasticity of supply of product X is unitary if the price of X rises by

8% and the QS rises by 8%

The elasticity of supply of product X is unitary if the price of X rises by

8% and the quantity supplied rises by 8%

Other things equal, if the fixed costs of a firm were to increase by $100,000 per year, which of the following would happen?

Average fixed costs and average total costs would rise

The price elasticity of demand of a straight-line demand curve is: A. elastic in high-price ranges and inelastic on low-price ranges. B. elastic, but does not change at various points on the curve. C. inelastic, but does not change at various points on the curve. D. 1 at all points on the curve.

A

A supply curve that is parallel to the horizontal axis suggests that

A change in demand will change the equilibrium quantity but not the price

A supply curve that is vertical straight line indicates that

A change in price will have no effect on the quantity supplied

Which of the following is a short run adjustment?

A local bakery hires two additional bakers

If a firm increases all of its inputs by 10 percent and its output increases by 10 percent, then: A. it is encountering diseconomies of scale. B. it is encountering economies of scale. C. it is encountering constant returns to scale. D. the marginal products of all inputs are falling.

C. it is encountering constant returns to scale.

If a firm decides to produce no output in the short run, its costs will be: A. its marginal costs. B. its variable costs. C. its fixed costs. D. zero.

C. its fixed costs.

Which of the following is correct? A. When total product is rising, both average product and marginal product must also be rising. B. When marginal product is falling, total product must be falling. C. When marginal product is falling, average product must also be falling. D. Marginal product rises faster than average product and also falls faster than average product.

D. Marginal product rises faster than average product and also falls faster than average product.

If the demand for farm products is price inelastic, a good harvest will cause farm revenues to

Decrease

The price elasticity of demand for beef is about .60. Other things equal, this means that a 20% increase in the price of beef will cause the quantity of beef demanded to

Decrease by approximately 12%

Economic profits are calculated by subtracting

Explicit and implicit costs from total revenue

T/F: If the MC of producing the 10th unit of output is $3, and if the ATC of producing the 10th unit of output is $2, then at ten unit of output, ATC is falling

F

a firm will shit down in SR if rev is not sufficient to cover its fixed costs of production

F

Which of the following is most likely to be a variable cost?

Fuel and power payments

Pure monopoly means:

a single firm producing a product for which there are no close substitutes.

A perfectly inelastic demand curve

Graphs as a line parallel to the vertical axis

Which of the following is correct

If demand is elastic, a decrease in price will increase total revenue

For an increase in demand the price effect is smallest and the quantity effect is largest

In the long run

The price of product X is reduced from $100 to $90 and, as a result, the quantity demanded increases from 50 to 60 units. Therefore demand for X in this price range

Is elastic

The demand for autos is likely to be

Less price elastic than the demand for Honda Accords

Which of the following is an example of a price ceiling?

Limits on interest rates charged by credit card companies

If a technological advance reduces the amount of variable resources needed to produce any level of output, then the:

MC curve will shift downward.

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

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

The price elasticity of demand is generally

Negative, but the minus sign is ignored

The law of diminishing returns results in

a total product curve that eventually increases at a decreasing rate.

The basic formula for the price elasticity of demand coefficient is

Percent change in quantity demanded/percentage change in price

A firm can sell as much as it wants at a constant price. Demand is thus

Perfectly elastic

If quantity demanded is completely unresponsive to price changes, demand is

Perfectly inelastic

In which of the following instances will total revenue decline

Price rises and demand is elastic

In which of the following cases will total revenue increase

Price rises and demand is inelastic

If price and total revenue vary in opposite directions, demand is

Relatively elastic

Which of the following is not characteristic of the demand for a commodity that is elastic?

The elasticity coefficient is less than one

The long run is characterized by

The ability of the firm to change its plant size

The elasticity of demand for a product is likely to be greater

The greater the amount of time over which buyers adjust to a price change

The Illonois Central Railroad once asked the Illinois Commerce Commission for permission to increase its commuter rates by 20%. The railroad argued that declining revenues made this rate increase essential. Opponents of the rate increase contended that the railroad's revenues would fall because of the rate hike. It can be concluded that

The railroad felt that the demand for passenger service was inelastic and opponents of the rate increase felt it was elastic

The concept of price elasticity of demand measures

The sensitivity of consumer purchases to price changes

It takes a considerable amount of time to increase the production of pork. This implies that

The short-run supply curve for pork is less elastic than the long-run supply curve for pork

In the short run which of the following statements is correct?

Total cost will exceed variable cost

Which of the following is incorrect?

Total fixed cost equals total variable cost in the long run.

In the long run

all costs are variable costs

A firm's total variable cost will depend on:

all of the above

Suppose the price elasticity coefficients of demand are 1.43,.67,1.11, and .29 for products W,X,Y, and Z respectively. A 1% decrease in price will increase total revenure in the case(s) of

W and Y

Which of the following is correct?

When AP is rising, AVC is falling.

The price elasticity of demand for beef is about 0.60. Other things equal, this means that a 20 percent increase in the price of beef will cause the quantity of beef demanded to: A) increase by approximately 12 percent. C) decrease by approximately 32 percent. B) decrease by approximately 12 percent. D) decrease by approximately 26 percent.

b

If you operated a small bakery, which of the following would be a variable cost in the short run?

baking supplies (flour, salt, etc.)

Under pure competition i the long run

both allocative efficiency and productive efficiency are achieved.

In comparing the changes in TC and TVC associated with an additional unit of output, we find that:

both are equal to MC.

Suppose Aiyanna's Pizzeria currently faces a linear demand curve and is charging a very high price per pizza and doing very little business. Aiyanna now decides to lower pizza prices by 5 percent per week for an indefinite period of time. We can expect that each successive week:

demand will become less price elastic

Suppose that in each of four successive years producers sell more of their product and at lower prices. This could be explained

in terms of a stable demand curve and increasing supply

Suppose that in each of four successive years producers sell more of their product and at higher prices. This could be explained

in terms of a stable supply curve and increasing demand

If a firm increases all of its inputs by 10 percent and its output increases by 10 percent, then:

it is encountering constant returns to scale

If a firm increases all of its inputs by 10 percent and its output increases by 15 percent, then:

it is encountering economies of scale

If a purely competitive firm shuts down in the short run

it will realize a loss equal to it total fixed costs.

If a firm decides to produce no output in the short run, its cost will be

its fixed cost

If a firm decides to produce no output in the short run, its costs will be

its fixed costs.

A purely competitive firm's short-run supply curve

its marginal cost curve above average variable cost.

The short-run average total cost curve is U-shaped because:

of increasing and diminishing returns

Diseconomies of scale arise primarily because:

of the difficulties involved in managing and coordinating a large business enterprise.

The Clayton Act of 1914:

outlawed price discrimination, tying contracts, intercorporate stockholding, and interlocking directorates that lessen competition.

Which is most likely to be observed in a community where legal ceilings are imposed on residential rents?

people moving into the community will have difficulty locating residential space to rent

Total cost minus total variable cost equals

total fixed cost

Which of the following represents a long-run adjustment?

unable to meet foreign competition, a U.S. watch manufacturer sells one of its branch plants

A natural monopoly exists when:

unit costs are minimized by having one firm produce an industry's entire output.

For which product is the income elasticity of demand most likely to be negative?

used clothing

Suppose that a business incurred implicit costs of $200,000 and explicit costs of $1 million in a specific year. If the firm sold 4,000 units of its output at $300 per unit, its accounting profits were

$200,000 and its economic profits were zero

Suppose that as the price of Y falls from $2 to $1.90 the quantity of Y demanded increases from from 110 to 118. Then the price elasticity of demand is

$1.37

If a firm's demand for labor is elastic, a union-negotiated wage increase will: A) necessarily be inflationary. C) cause the firm's total payroll to decline. B) cause the firm's total payroll to increase. D) cause a shortage of labor.

C

If the price elasticity of demand for a product is 2.5, then a price cut from $2.00 to $1.80 will: A. increase the quantity demanded by about 2.5 percent. B. decrease the quantity demanded by about 2.5 percent. C. increase the quantity demanded by about 25 percent. D. increase the quantity demanded by about 250 percent.

C

after all LR adjustments have been completed, a firm in a competitive industry will produce that level of output where AVC is at a minimum

F: where ATC is at a minimum

Total fixed cost (TFC): A. falls as the firm expands output from zero, but eventually rises. B. falls continuously as total output expands. C. varies directly with total output. D. does not change as total output increases or decreases.

D. does not change as total output increases or decreases.

Economic profits are calculated by subtracting: A. explicit costs from total revenue. B. implicit costs from total revenue. C. implicit costs from normal profits. D. explicit and implicit costs from total revenue.

D. explicit and implicit costs from total revenue.

The function of investigating instances of fraudulent advertising has been assigned to the:

Federal Trade Commission

Price elasticity of demand is generally

Greater in the long run than in the short run

If a demand for a product is elastic, the value of the price elasticity coefficient is

Greater than one

Refer to the diagram. In this competitive market, combined consumer and producer surplus is maximized at:

H

Which of the following is correct?

If demand is elastic, a decrease in price will increase total revenue.

Which of the following is correct?

If the demand for a product is inelastic, a change in price will cause total revenue to change in the same direction

if production is occurring where MC > P, the purely competitive firm will fail to maximize profit and resources will be over allocated to the product

T

Average fixed cost is:

TFC over Q

Total cost is:

TFC + TVC

Average total cost is:

TFC + TVC over Q

Assume a firm closes down in the short run and produces no output. Under these conditions:

TFC and TC are positive, but TVC is zero.

As a firm produces successive units of output in the short run we would expect:

TVC to increase initially by declining amounts, but eventually increase by increasing amounts

In the short run:

TVC will increase for a time at a diminishing rate, but then beyond some point will increase at an increasing rate

We would expect

The demand for Coca-Cola to be more price elastic than the demand for soft drinks in general

Suppose that the price of peanuts falls from $3 to $2 per bushel and that, as a result, the total revenue received by peanut farmers changes from $16 to $14 billion. Thus

The demand for peanuts is inelastic

Which of the following is not correct?

Where total product is at a maximum, average product is also at a maximum.

Suppose the supply of product X is perfectly inelastic. If there is an increase in the demand for this product, equilibrium price

Will increase but equilibrium quantity will be unchanged

Amanda buys a ruby for $330 for which she was willing to pay $340. The minimum acceptable price to the seller, Tony, was $140. Amanda experiences:

a consumer surplus of $10 and Tony experiences a producer surplus of $190.

Which of the following will cause a decrease in market equilibrium price and a decrease in equilibrium quantity?

a decrease in demand

The term oligopoly indicates:

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

Diseconomies of scale means that:

a firm's long-run average total cost curve is rising

An explicit cost is

a money payment made for resources not owned by the firm itself

A pure monopolist is:

a one-firm industry

The cross elasticity of demand between Quaker State motor oil and Texaco motor oil is likely to be

a positive number

When a firm does more of something, it gets better at it. This learning-by-doing is:

a source of economies of scale.

Which of the following industries most closely approximates pure competition?

agriculture

Suppose that, when producing 10 units of output, a firm's AVC is $22, its AFC is $5, and its MC is $30

firm's total cost is $270.

A government will create a surplus in a market when it sets a price ___________

floor above the equilibrium price

Most demand curves are relatively elastic in the upper-left portion because the original price

from which the percentage price change is calculated is large and the original quantity from which the percentage change in quantity is calculated is small

Most demand curves are relatively elastic in the upper-left portion because the original price:

from which the percentage price change is calculated is large and the original quantity from which the percentage change in quantity is calculated is small

Suppose that a 2% increase in income in the economy decreases the quantity of gadgets demanded by 1% at every possible price. This implies that

income elasticity is negative and gadgets are an inferior good

Assume there is an increase in the demand for hand calculators. The subsequent:

increase in price will be greater the greater the inelasticity of supply.

A headline reads "Lumber Prices Up Sharply." Lumber is used in home building. In a competitive market, this situation would lead to an

increase in the price of new homes and decrease in quantity

An increase in demand for oil along with a simultaneous increase in supply of oil will

increase quantity, but whether it increases price depends on how much each curve shifts

The demand for a luxury good whose purchase would exhaust a big portion of one's income is

relatively price elastic

The coefficient of price elasticity is 0.2. Demand is thus

relatively inelastic

The demand for a necessity whose cost is a small component of one's total income is:

relatively inelastic

The demand schedules for such products as eggs, bread, and electricity tend to be

relatively price inelastic

To the economist total cost includes

explicit and implicit costs, including a normal profit

If average total cost is declining, then

marginal cost must be less than average total cost

Other things equal, if the prices of a firm's variable inputs were to fall

marginal cost, average variable cost, and average total cost would all fall

If in the short run a firm's total product is increasing, then its

marginal product could be either increasing or decreasing

The first, second, and third workers employed by a firm add 24, 18, and 9 units to total product respectively. Therefore, the

marginal product of the third worker is 9

The law of diminishing returns describes the

relationship between resource inputs and product outputs in the short run

The price elasticity of demand of a straight-line demand curve is

Elastic in high-price ranges and inelastic in low-price ranges

for a firm operating in a perfectly competitive industry, TR, MR, and avg rev are all =

F

the supply curve of a firm in a competitive market is the ATC curve above the minimum of marginal cost

F

diseconomies of scale often arise bc higher production levels allow specialization among workers

F: false for econ of scale too

Assume that in the short run a firm is producing 100 units of output, has average total costs of $200, and average variable costs of $150. The firm's total fixed costs are

$5,000

Refer to the above information and assume the stadium capacity is 5,000. If the Mudhens' management charges

...

Refer to the diagram. Between the prices of $10 and $8, the price elasticity of demand is

.9

Suppose the price elasticity of demand for bread is .20. If the price of break falls by 10%, the quantity demanded will increase by

2% and total expenditures on bread will fall

The price elasticity of demand for widgets is 0.80. Assuming no change in the demand curve for widgets, a 16 percent increase in sales implies a:

20 percent reduction in orice

The demand for a product is inelastic with respect to price if: A. consumers are largely unresponsive to a per unit price change. B. the elasticity coefficient is greater than 1. C. a drop in price is accompanied by a decrease in the quantity demanded. D. a drop in price is accompanied by an increase in the quantity demanded.

A

The price elasticity of demand coefficient measures: A. buyer responsiveness to price changes. B. the extent to which a demand curve shifts as incomes change. C. the slope of the demand curve. D. how far business executives can stretch their fixed costs. The price elasticity of demand coefficient measures: A. buyer responsiveness to price changes. B. the extent to which a demand curve shifts as incomes change. C. the slope of the demand curve. D. how far business executives can stretch their fixed costs.

A

Which of the following is correct?

A purely competitive firm is a "price taker," while a monopolist is a "price maker."

The following is cost information for the Creamy Crisp Donut Company: Entrepreneur's potential earnings as a salaried worker = $50,000 Annual lease on building = $22,000 Annual revenue from operations = $380,000 Payments to workers = $120,000 Utilities (electricity, water, disposal) costs = $8,000 Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000 Entrepreneur's forgone interest on personal funds used to finance the business = $6,000 Refer to the above data. Creamy Crisp's implicit costs, including a normal profit, are: A. $136,000. B. $150,000. C. $94,000. D. $156,000.

A. $136,000.

The following is cost information for the Creamy Crisp Donut Company: Entrepreneur's potential earnings as a salaried worker = $50,000 Annual lease on building = $22,000 Annual revenue from operations = $380,000 Payments to workers = $120,000 Utilities (electricity, water, disposal) costs = $8,000 Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000 Entrepreneur's forgone interest on personal funds used to finance the business = $6,000 Refer to the above data. Creamy Crisp's total economic costs are: A. $286,000. B. $150,000. C. $94,000. D. $156,000.

A. $286,000.

Assume that in the short run a firm is producing 100 units of output, has average total costs of $200, and average variable costs of $150. The firm's total fixed costs are: A. $5,000. B. $500. C. $0.50. D. $50.

A. $5,000.

Which of the following is a short-run adjustment? A. A local bakery hires two additional bakers. B. Six new firms enter the plastics industry. C. The number of farms in the United States declines by 5 percent. D. BMW constructs a new assembly plant in South Carolina.

A. A local bakery hires two additional bakers.

Which of the following statements concerning the relationships between total product (TP), average product (AP), and marginal product (MP) is not correct? A. AP continues to rise so long as TP is rising. B. AP reaches a maximum before TP reaches a maximum. C. TP reaches a maximum when the MP of the variable input becomes zero. D. MP cuts AP at the maximum AP.

A. AP continues to rise so long as TP is rising.

If a firm wanted to know how much it would save by producing one less unit of output, it would look to: A. MC. B. ATC. C. AVC. D. AFC.

A. MC.

In the short run: A. TVC will increase for a time at a diminishing rate, but then beyond some point will increase at an increasing rate. B. TVC will increase for a time at an increasing rate, but then beyond some point will increase at a diminishing rate. C. TVC will increase by the same absolute amount for each additional unit of output produced. D. one cannot generalize concerning the behavior of TVC as output increases.

A. TVC will increase for a time at a diminishing rate, but then beyond some point will increase at an increasing rate.

In the long run: A. all costs are variable costs. B. all costs are fixed costs. C. variable costs equal fixed costs. D. fixed costs are greater than variable costs.

A. all costs are variable costs.

Because of higher gasoline prices, firms using gasoline intensively in the production or distribution of their goods have experienced: A. an upward shift in their MC, AVC, and ATC curves. B. an upward shift in their AFC, AVC, and ATC curves. C. a downward shift in their MC, AFC, and AVC curves. D. greater economies of scale.

A. an upward shift in their MC, AVC, and ATC curves.

The law of diminishing returns indicates that: A. as extra units of a variable resource are added to a fixed resource, marginal product will decline beyond some point. B. because of economies and diseconomies of scale a competitive firm's long-run average total cost curve will be U-shaped. C. the demand for goods produced by purely competitive industries is downsloping. D. beyond some point the extra utility derived from additional units of a product will yield the consumer smaller and smaller extra amounts of satisfaction.

A. as extra units of a variable resource are added to a fixed resource, marginal product will decline beyond some point.

Marginal cost: A. equals both average variable cost and average total cost at their respective minimums. B. is the difference between total cost and total variable cost. C. rises for a time, but then begins to decline when diminishing returns set in. D. declines continuously as output increases.

A. equals both average variable cost and average total cost at their respective minimums.

To the economist, total cost includes: A. explicit and implicit costs, including a normal profit. B. neither implicit nor explicit costs. C. implicit, but not explicit, costs. D. explicit, but not implicit, costs.

A. explicit and implicit costs, including a normal profit.

Which of the following is most likely to be an implicit cost for Company X? A. forgone rent from the building owned and used by Company X B. rental payments on IBM equipment C. payments for raw materials purchased from Company Y D. transportation costs paid to a nearby trucking firm

A. forgone rent from the building owned and used by Company X

Which of the following is most likely to be a variable cost? A. fuel and power payments B. interest on business loans C. rental payments on IBM equipment D. real estate taxes

A. fuel and power payments

What do wages paid to blue-collar workers, interest paid on a bank loan, forgone interest, and the purchase of component parts have in common?

All are opportunity costs

The ABC Corporation decreases all of its inputs by 12 percent and finds that its output falls by only 8 percent. This means that initially it was producing: A. in the range of diseconomies of scale. B. in the range of economies of scale. C. where AP is less than MP. D. at the point of minimum efficient scale.

A. in the range of diseconomies of scale.

The first, second, and third workers employed by a firm add 24, 18, and 9 units to total product respectively. Therefore, we can conclude that: A. marginal product of the third worker is 9. B. the third worker has to work with poorer quality tools and raw materials. C. firm will not want to hire more than three workers. D. first worker puts forth more effort than the second and third workers.

A. marginal product of the third worker is 9.

When total product is increasing at an increasing rate, marginal product is: A. positive and increasing. B. positive and decreasing. C. constant. D. negative.

A. positive and increasing.

Marginal product is: A. the increase in total output attributable to the employment of one more worker. B. the increase in total revenue attributable to the employment of one more worker. C. the increase in total cost attributable to the employment of one more worker. D. total product divided by the number of workers employed.

A. the increase in total output attributable to the employment of one more worker.

The formula for cross elasticity of demand is percentage change in

QD of x / percentage change in price of Y

Because the marginal product of a variable resource at first increases and then decreases as the output of the firm is increased: A. total cost at first increases at a decreasing rate and then increases at an increasing rate. B. total variable cost at first increases at an increasing rate and then increases at a decreasing rate. C. average total cost at first increases and then diminishes. D. average fixed cost will rise beyond the point of diminishing returns.

A. total cost at first increases at a decreasing rate and then increases at an increasing rate.

Accounting profits equal total revenue minus: A. total explicit costs. B. total implicit costs. C. total economic costs. D. economic profits.

A. total explicit costs.

A natural monopoly exists when: A. unit costs are minimized by having one firm produce an industry's entire output. B. several formerly competing producers merge to become the only firm in an industry. C. short-run average total cost curves are tangent to long-run average total cost curves. D. minimum efficient scale is attained at a small level of output.

A. unit costs are minimized by having one firm produce an industry's entire output.

The vertical distance between a firm's ATC and AVC curves represents:

AFC, which decreases as output increases.

Which of the following statements concerning the relationships between total product (TP), average product (AP), and marginal product (MP) is not correct?

AP continues to rise so long as TP is rising

If a profitable firm's fixed costs somehow were zero:

AVC and ATC would coincide

Other things equal, if the wage rates paid to a firm's labor inputs were to rise, we would expect the:

AVC, ATC, and MC curves all to rise.

Answer the next question(s) on the basis of the following demand schedule:Refer to the above data. Which of the following is correct?

Although the slope of the demand curve is constant, price elasticity declines as we move from high to low price ranges.

The main determinant of elasticity of supply is the

Amount of time the producer has to adjust inputs in response to a price change

Which of the following best expresses the law of diminishing 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

If the demand for product X is inelastic, a 4 percent increase in the price of X will: A. decrease the quantity of X demanded by more than 4 percent. B. decrease the quantity of X demanded by less than 4 percent. C. increase the quantity of X demanded by more than 4 percent. D. increase the quantity of X demanded by less than 4 percent.

B

The basic formula for the price elasticity of demand coefficient is: A. absolute decline in quantity demanded/absolute increase in price. B. percentage change in quantity demanded/percentage change in price. C. absolute decline in price/absolute increase in quantity demanded. D. percentage change in price/percentage change in quantity demanded.

B

The following is cost information for the Creamy Crisp Donut Company: Entrepreneur's potential earnings as a salaried worker = $50,000 Annual lease on building = $22,000 Annual revenue from operations = $380,000 Payments to workers = $120,000 Utilities (electricity, water, disposal) costs = $8,000 Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000 Entrepreneur's forgone interest on personal funds used to finance the business = $6,000 Refer to the above data. Creamy Crisp's explicit costs are: A. $286,000. B. $150,000. C. $94,000. D. $156,000.

B. $150,000.

Suppose that a business incurred implicit costs of $200,000 and explicit costs of $1 million in a specific year. If the firm sold 4,000 units of its output at $300 per unit, its accounting profits were: A. $100,000 and its economic profits were zero. B. $200,000 and its economic profits were zero. C. $100,000 and its economic profits were $100,000. D. zero and its economic loss was $200,000.

B. $200,000 and its economic profits were zero.

The following is cost information for the Creamy Crisp Donut Company: Entrepreneur's potential earnings as a salaried worker = $50,000 Annual lease on building = $22,000 Annual revenue from operations = $380,000 Payments to workers = $120,000 Utilities (electricity, water, disposal) costs = $8,000 Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000 Entrepreneur's forgone interest on personal funds used to finance the business = $6,000 Refer to the above data. Creamy Crisp's total revenues exceed its total costs, including a normal profit, by: A. $150,000. B. $94,000. C. $80,000. D. $230,000.

B. $94,000.

The vertical distance between a firm's ATC and AVC curves represents: A. AFC, which increases as output increases. B. AFC, which decreases as output increases. C. marginal costs, which decrease as output decreases. D. marginal costs, which increase as output increases.

B. AFC, which decreases as output increases.

What do wages paid to factory workers, interest paid on a bank loan, forgone interest, and the purchase of component parts have in common? A. None are either implicit or explicit costs. B. All are opportunity costs. C. All are implicit costs. D. All are explicit costs.

B. All are opportunity costs.

If a technological advance reduces the amount of variable resources needed to produce any level of output, then the: A. AVC curve will shift upward. B. MC curve will shift downward. C. ATC curve will shift upward. D. AFC curve will shift downward.

B. MC curve will shift downward.

Which of the following holds true?

When AP is rising AVC is falling, and when AP is falling AVC is rising

Which of the following is correct as it relates to cost curves? A. Average variable cost intersects marginal cost at the latter's minimum point. B. Marginal cost intersects average total cost at the latter's minimum point. C. Average fixed cost intersects marginal cost at the latter's minimum point. D. Marginal cost intersects average fixed cost at the latter's minimum point.

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

Which of the following is not correct? A. Where marginal product is greater than average product, average product is rising. B. Where total product is at a maximum, average product is also at a maximum. C. Where marginal product is zero, total product is at a maximum. D. Marginal product becomes negative before average product becomes negative.

B. Where total product is at a maximum, average product is also at a maximum.

An explicit cost is: A. omitted when accounting profits are calculated. B. a money payment made for resources not owned by the firm itself. C. an implicit cost to the resource owner who receives that payment. D. always in excess of a resource's opportunity cost.

B. a money payment made for resources not owned by the firm itself.

When a firm does more of something, it gets better at it. This learning-by-doing is: A. a source of diseconomies of scale. B. a source of economies of scale. C. called the principle of natural progression. D. called "spreading the overhead."

B. a source of economies of scale.

The law of diminishing returns results in: A. an eventually rising marginal product curve. B. a total product curve that eventually increases at a decreasing rate. C. an eventually falling marginal cost curve. D. a total product curve that rises indefinitely.

B. a total product curve that eventually increases at a decreasing rate.

Introduction of the Verson Stamping Machine helped firms in the automobile industry: A. eliminate diminishing returns in production. B. achieve greater economies of scale. C. reach their minimum efficient scale at a lower level of production. D. shift their AVC, ATC, and MC curves upward.

B. achieve greater economies of scale.

Fixed cost is: A. the cost of producing one more unit of capital, for example, machinery. B. any cost which does not change when the firm changes its output. C. average cost multiplied by the firm's output. D. usually zero in the short run.

B. any cost which does not change when the firm changes its output.

In the short run the Sure-Screen T-Shirt Company is producing 500 units of output. Its average variable costs are $2.00 and its average fixed costs are $.50. The firm's total costs: A. are $2.50. B. are $1,250. C. are $750. D. are $1,100.

B. are $1,250.

In the short run it is impossible for an expansion of output to increase: A. average total cost. B. average fixed cost. C. marginal cost. D. average variable cost.

B. average fixed cost.

If a technological advance increases a firm's labor productivity, we would expect its: A. average total cost curve to rise. B. average total cost curve to fall. C. total cost curve to rise. D. average total cost curve to be unaffected.

B. average total cost curve to fall.

Marginal cost is the: A. rate of change in total fixed cost that results from producing one more unit of output. B. change in total cost that results from producing one more unit of output. C. change in average variable cost that results from producing one more unit of output. D. change in average total cost that results from producing one more unit of output.

B. change in total cost that results from producing one more unit of output.

If a firm doubles its output in the long run and its unit costs of production decline, we can conclude that: A. technological progress has occurred. B. economies of scale are being realized. C. the firm is encountering diminishing returns. D. diseconomies of scale are being encountered.

B. economies of scale are being realized.

If you owned a small farm, which of the following would most likely be a fixed cost? A. harvest labor B. hail insurance C. fertilizer D. seed

B. hail insurance

To economists, the main difference between the short run and the long run is that: A. the law of diminishing returns applies in the long run, but not in the short run. B. in the long run all resources are variable, while in the short run at least one resource is fixed. C. fixed costs are more important to decision making in the long run than they are in the short run. D. in the short run all resources are fixed, while in the long run all resources are variable.

B. in the long run all resources are variable, while in the short run at least one resource is fixed.

The long-run average total cost curve: A. displays declining unit costs so long as output is increasing. B. indicates the lowest unit costs achievable when a firm has had sufficient time to alter plant size. C. has a shape which is the inverse of the law of diminishing returns. D. can be derived by summing horizontally the average total cost curves of all firms in an industry.

B. indicates the lowest unit costs achievable when a firm has had sufficient time to alter plant size.

The vertical distance between the total cost and the total variable cost curves differs by an amount which: A. initially increases, but then decreases, as output increases. B. is constant as output changes. C. decreases as output increases. D. increases as output increases.

B. is constant as output changes.

If a firm increases all of its inputs by 10 percent and its output increases by 15 percent, then: A. it is encountering diseconomies of scale. B. it is encountering economies of scale. C. the law of diminishing returns is taking hold. D. the firm's long-run ATC curve will be rising.

B. it is encountering economies of scale.

The following is cost information for the Creamy Crisp Donut Company: Entrepreneur's potential earnings as a salaried worker = $50,000 Annual lease on building = $22,000 Annual revenue from operations = $380,000 Payments to workers = $120,000 Utilities (electricity, water, disposal) costs = $8,000 Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000 Entrepreneur's forgone interest on personal funds used to finance the business = $6,000 Refer to the above data. If, other things equal, Creamy Crisp's revenue fell to $286,000: A. its implicit costs, including a normal profit, would exceed its explicit costs. B. it would earn a normal profit but not an economic profit. C. it would suffer an economic loss. D. its accounting profit would fall to zero.

B. it would earn a normal profit but not an economic profit.

The short-run average total cost curve is U-shaped because: A. average fixed costs decline continuously as output increases. B. of increasing and diminishing returns. C. of economies and diseconomies of scale. D. minimum efficient scale is encountered.

B. of increasing and diminishing returns.

Diseconomies of scale arise primarily because: A. the short-run average total cost curve rises when marginal product is increasing. B. of the difficulties involved in managing and coordinating a large business enterprise. C. firms must be large both absolutely and relative to the market to employ the most efficient productive techniques available. D. beyond some point marginal product declines as additional units of a variable resource (labor) are added to a fixed resource (capital).

B. of the difficulties involved in managing and coordinating a large business enterprise.

When total product is increasing at a decreasing rate, marginal product is: A. positive and increasing. B. positive and decreasing. C. constant. D. negative.

B. positive and decreasing.

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

B. property insurance premiums

Production costs to an economist: A. consist only of explicit costs. B. reflect opportunity costs. C. never reflect monetary outlays. D. always reflect monetary outlays.

B. reflect opportunity costs.

If the total variable cost of 9 units of output is $90 and the total variable cost of 10 units of output is $120, then: A. the average variable cost of 10 units is $10. B. the average variable cost of 9 units is $10. C. the marginal cost of the tenth unit is $90. D. the firm is operating in the range of increasing marginal returns.

B. the average variable cost of 9 units is $10.

In comparing the changes in TVC and TC associated with an additional unit of output, we find that: A. no generalization about the changes in TC and TVC can be made. B. the changes in TC and TVC are equal. C. the change in TC is greater than the change in TVC. D. the change in TVC is greater than the change in TC.

B. the changes in TC and TVC are equal.

Economies of scale are indicated by: A. the rising segment of the average variable cost curve. B. the declining segment of the long-run average total cost curve. C. the difference between total revenue and total cost. D. a rising marginal cost curve.

B. the declining segment of the long-run average total cost curve.

The basic characteristic of the short run is that: A. barriers to entry prevent new firms from entering the industry. B. the firm does not have sufficient time to change the size of its plant. C. the firm does not have sufficient time to cut its rate of output to zero. D. a firm does not have sufficient time to change the amounts of any of the resources it employs.

B. the firm does not have sufficient time to change the size of its plant.

Daily newspapers have been rising in price in recent years because: A. wages in the newspaper industry have risen dramatically. B. the overhead costs have recently been spread over a shrinking number of buyers. C. capital has replaced virtually all labor used to produce a newspaper. D. long-standing government subsidizes have been removed in most major cities.

B. the overhead costs have recently been spread over a shrinking number of buyers.

Which of the following represents a long-run adjustment? A. a farmer uses an extra dose of fertilizer on his corn crop B. unable to meet foreign competition, a U.S. watch manufacturer sells one of its branch plants C. a steel manufacturer cuts back on its purchases of coke and iron ore D. a supermarket hires four additional clerks

B. unable to meet foreign competition, a U.S. watch manufacturer sells one of its branch plants

The amount of calendar time associated with the long run: A. is less than that associated with the immediate market period. B. varies from industry to industry. C. is the same for all firms. D. is, by definition, any length of time greater than one year.

B. varies from industry to industry.

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

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

If you operated a small bakery, which of the following would be a variable cost in the short run?

Baking supplies (flour, salt, etc.)

The price elasticity of demand coefficient measures

Buyers responsiveness to price changes

Suppose Aiyanna's pizzeria currently faces a linear demand curve and is charging a very high price per pizza and doing very little business. Aiyanna now decides to lower pizza prices by 5 percent per week for an indefinite period of time. We can expect that each successive week: A. demand will become more price elastic. B. price elasticity of demand will not change as price is lowered. C. demand will become less price elastic. D. the elasticity of supply will increase.

C

The elasticity of demand: A. is infinitely large for a perfectly inelastic demand curve. B. tends to be inelastic in high-price ranges and elastic in low-price ranges. C. tends to be elastic in high-price ranges and inelastic in low-price ranges. D. is the same at each price-quantity combination on a stable demand curve.

C

The following is cost information for the Creamy Crisp Donut Company: Entrepreneur's potential earnings as a salaried worker = $50,000 Annual lease on building = $22,000 Annual revenue from operations = $380,000 Payments to workers = $120,000 Utilities (electricity, water, disposal) costs = $8,000 Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000 Entrepreneur's forgone interest on personal funds used to finance the business = $6,000 Refer to the above data. Creamy Crisp's accounting profit is: A. $150,000. B. $380,000. C. $230,000. D. $294,000.

C. $230,000.

Which of the following best expresses the law of diminishing returns? A. Because large-scale production allows the realization of economies of scale, the real costs of production vary directly with the level of output. B. Population growth automatically adjusts to that level at which the average product per worker will be at a maximum. C. As successive amounts of one resource (labor) are added to fixed amounts of other resources (capital), beyond some point the resulting extra output will decline. D. Proportionate increases in the inputs of all resources will result in a less-than-proportionate increase in total output.

C. As successive amounts of one resource (labor) are added to fixed amounts of other resources (capital), beyond some point the resulting extra output will decline.

Other things equal, if the fixed costs of a firm were to increase by $100,000 per year, which of the following would happen? A. Marginal costs and average variable costs would both rise. B. Average fixed costs and average variable costs would rise. C. Average fixed costs and average total costs would rise. D. Average fixed costs would rise, but marginal costs would fall.

C. Average fixed costs and average total costs would rise.

Which of the following definitions is correct? A. Accounting profit + economic profit = normal profit. B. Economic profit - accounting profit = explicit costs. C. Economic profit = accounting profit - implicit costs. D. Economic profit - implicit costs = accounting profits.

C. Economic profit = accounting profit - implicit costs.

The total output of a firm will be at a maximum where: A. MP is at a maximum. B. AP is at a minimum. C. MP is zero. D. AP is at a maximum.

C. MP is zero.

Assume a firm closes down in the short run and produces no output. Under these conditions: A. TVC is positive, but TFC and TC are zero. B. TFC is positive, but TVC and TC are zero. C. TFC and TC are positive, but TVC is zero. D. TFC, TVC, and TC will all be positive.

C. TFC and TC are positive, but TVC is zero.

In the short run, which of the following statements is correct? A. The marginal cost curve intersects the average variable and average fixed cost curves at their minimum points. B. Average variable cost declines continuously as total output is expanded. C. Total cost will exceed variable cost. D. If the inputs of all resources are increased by equal amounts, total output will expand by diminishing amounts.

C. Total cost will exceed variable cost.

Which of the following holds true? A. There is no relationship between AP and AVC. B. When MP is rising AVC is falling, and when MP is falling AVC is rising. C. When AP is rising AVC is falling, and when AP is falling AVC is rising. D. When AP is rising AVC is rising, and when AP is falling AVC is falling.

C. When AP is rising AVC is falling, and when AP is falling AVC is rising.

Suppose a firm is in a range of production where it is experiencing economies of scale. Knowing this, we can predict that: A. the long-run average total cost curve is upsloping. B. a 10 percent increase in all inputs will increase output by less than 10 percent. C. a 10 percent increase in all inputs will increase output by more than 10 percent. D. the firm is encountering problems of managerial bureaucracy because of its size.

C. a 10 percent increase in all inputs will increase output by more than 10 percent.

The basic difference between the short run and the long run is that: A. all costs are fixed in the short run, but all costs are variable in the long run. B. the law of diminishing returns applies in the long run, but not in the short run. C. at least one resource is fixed in the short run, while all resources are variable in the long run. D. economies of scale may be present in the short run, but not in the long run.

C. at least one resource is fixed in the short run, while all resources are variable in the long run.

For most producing firms: A. marginal cost rises as output is carried to a certain level, and then begins to decline. B. total costs rise as output is carried to a certain level, and then begin to decline. C. average total costs decline as output is carried to a certain level, and then begin to rise. D. average total costs rise as output is carried to a certain level, and then begin to decline.

C. average total costs decline as output is carried to a certain level, and then begin to rise.

If an industry's long-run average total cost curve has an extended range of constant returns to scale, this implies that: A. technology precludes both economies and diseconomies of scale. B. the industry will be a natural monopoly. C. both relatively small and relatively large firms can be viable in the industry. D. the industry will be comprised of a very large number of small firms.

C. both relatively small and relatively large firms can be viable in the industry.

In which of the following industries are economies of scale exhausted at relatively low levels of output? A. aircraft production B. automobile manufacturing C. concrete mixing D. newspaper printing

C. concrete mixing

Suppose that, when producing 10 units of output, a firm's AVC is $22, its AFC is $5, and its MC is $30. This: A. firm's ATC is $35. B. firm's ATC is $57. C. firm's total cost is $270. D. firm's total cost is $30.

C. firm's total cost is $270.

The short run is characterized by: A. plenty of time for firms to either enter or leave the industry. B. increasing, but not diminishing returns. C. fixed plant capacity. D. zero fixed costs.

C. fixed plant capacity.

As output increases, total variable cost: A. increases more rapidly than does total cost. B. increases continuously at a decreasing rate. C. increases at a decreasing rate and then at an increasing rate. D. increases at a constant rate.

C. increases at a decreasing rate and then at an increasing rate.

The following is cost information for the Creamy Crisp Donut Company: Entrepreneur's potential earnings as a salaried worker = $50,000 Annual lease on building = $22,000 Annual revenue from operations = $380,000 Payments to workers = $120,000 Utilities (electricity, water, disposal) costs = $8,000 Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000 Entrepreneur's forgone interest on personal funds used to finance the business = $6,000 Refer to the above data. Creamy Crisp: A. has lower implicit costs, including a normal profit, than its explicit costs. B. is earning a normal profit but not an economic profit. C. is earning an economic profit. D. is suffering an economic loss, when implicit costs are considered.

C. is earning an economic profit.

Other things equal, if the prices of a firm's variable inputs were to fall: A. one could not predict how unit costs of production would be affected. B. marginal cost, average variable cost, and average fixed cost would all fall. C. marginal cost, average variable cost, and average total cost would all fall. D. average variable cost would fall, but marginal cost would be unchanged.

C. marginal cost, average variable cost, and average total cost would all fall.

If in the short run a firm's total product is increasing, then its: A. marginal product must also be increasing. B. marginal product must be decreasing. C. marginal product could be either increasing or decreasing. D. average product must also be increasing.

C. marginal product could be either increasing or decreasing.

Marginal product: A. diminishes at all levels of production. B. may initially increase, then diminish, but never become negative. C. may initially increase, then diminish, and ultimately become negative. D. is always less than average product.

C. may initially increase, then diminish, and ultimately become negative.

Economic cost can best be defined as: A. any contractual obligation that results in a flow of money expenditures from an enterprise to resource suppliers. B. any contractual obligation to labor or material suppliers. C. payments that must be received by resource owners to insure the resources' continued supply. D. all costs exclusive of payments to fixed factors of production.

C. payments that must be received by resource owners to insure the resources' continued supply.

The law of diminishing returns describes the: A. relationship between total costs and total revenues. B. profit-maximizing position of a firm. C. relationship between resource inputs and product outputs in the short run. D. relationship between resource inputs and product outputs in the long run.

C. relationship between resource inputs and product outputs in the short run.

If marginal cost is: A. falling, then average total cost must also be falling. B. rising, then average total cost must also be rising. C. rising, then average total cost could be either falling or rising. D. falling, then average total cost could be either falling or rising.

C. rising, then average total cost could be either falling or rising.

If a variable input is added to some fixed input, beyond some point the resulting extra output will decline. This statement describes: A. economies and diseconomies of scale. B. X-inefficiency. C. the law of diminishing returns. D. the law of diminishing marginal utility.

C. the law of diminishing returns.

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

C. the long-run average total cost curve rises.

Which of the following definitions is correct?

Economic profit = accounting profit - implicit costs

Normal profit is: A. determined by subtracting implicit costs from total revenue. B. determined by subtracting explicit costs from total revenue. C. the return to the entrepreneur when economic profits are zero. D. the average profitability of an industry over the preceding 10 years.

C. the return to the entrepreneur when economic profits are zero.

Fixed costs are associated with: A. highly adjustable inputs such as labor. B. both the short run and the long run. C. the short run only. D. the long run only.

C. the short run only.

Which of the following constitutes an implicit cost to the Johnston Manufacturing Company? A. payments of wages to its office workers B. rent paid for the use of equipment owned by the Schultz Machinery Company C. use of savings to pay operating expenses instead of generating interest income D. economic profits resulting from current production

C. use of savings to pay operating expenses instead of generating interest income

A perfectly inelastic demand schedule

Can be represented by a line parallel to the vertical axis

If a firm's demand for labor is elastic, a union-negotiated wage increase will

Cause the firm's total payroll to decline

In which of the following instances will total revenue decline? A) price rises and supply is elastic C) price rises and demand is inelastic B) price falls and demand is elastic D) price rises and demand is elastic

D

The price elasticity of demand for widgets is 0.80. Assuming no change in the demand curve for widgets, a 16 percent increase in sales implies a: A) 1 percent reduction in price. C) 40 percent reduction in price. B) 12 percent reduction in price. D) 20 percent reduction in price.

D

Which of the following is not characteristic of the demand for a commodity that is elastic? A. The relative change in quantity demanded is greater than the relative change in price. B. Buyers are relatively sensitive to price changes. C. Total revenue declines if price is increased. D. The elasticity coefficient is less than one.

D

The following is cost information for the Creamy Crisp Donut Company: Entrepreneur's potential earnings as a salaried worker = $50,000 Annual lease on building = $22,000 Annual revenue from operations = $380,000 Payments to workers = $120,000 Utilities (electricity, water, disposal) costs = $8,000 Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000 Entrepreneur's forgone interest on personal funds used to finance the business = $6,000 Refer to the above data. Creamy Crisp's economic profit is: A. $150,000. B. $80,000. C. $230,000. D. $94,000.

D. $94,000.

Which of the following statements is correct? A. Average total cost is the difference between average variable cost and average fixed cost. B. Marginal cost measures the cost per unit of output associated with any level of production. C. When marginal product rises, marginal cost must also rise. D. Marginal cost is the price or cost of an extra variable input (for example, an additional worker or machine) divided by its marginal product.

D. Marginal cost is the price or cost of an extra variable input (for example, an additional worker or machine) divided by its marginal product.

Which of the following is correct? A. There is no relationship between MP and MC. B. When AP is rising MC is falling, and when AP is falling MC is rising. C. When MP is rising MC is rising, and when MP is falling MC is falling. D. When MP is rising MC is falling, and when MP is falling MC is rising.

D. When MP is rising MC is falling, and when MP is falling MC is rising.

If you operated a small bakery, which of the following would be a variable cost in the short run? A. baking ovens B. interest on business loans C. annual lease payment for use of the building D. baking supplies (flour, salt, etc.)

D. baking supplies (flour, salt, etc.)

In comparing the changes in TC and TVC associated with an additional unit of output, we find that: A. the change in TVC is equal to MC, while the change in TC is equal to TFC. B. the change in TC exceeds the change in TVC. C. the change in TVC exceeds the change in TC. D. both are equal to MC.

D. both are equal to MC.

Average fixed cost: A. equals marginal cost when average total cost is at its minimum. B. may be found for any output by adding average variable cost and average total cost. C. graphs as a U-shaped curve. D. declines continually as output increases.

D. declines continually as output increases.

Which of the following types of firms are least likely to have their MC, AVC, and ATC curves affected by fluctuations in gasoline prices? A. firms like UPS that use a fleet of gasoline-powered vehicles. B. taxi cab and limousine companies. C. companies that operate bus tours to popular vacation destinations. D. firms like iTunes that distribute their products over the Internet.

D. firms like iTunes that distribute their products over the Internet.

Accounting profits are typically: A. greater than economic profits because the former do not take explicit costs into account. B. equal to economic profits because accounting costs include all opportunity costs. C. smaller than economic profits because the former do not take implicit costs into account. D. greater than economic profits because the former do not take implicit costs into account.

D. greater than economic profits because the former do not take implicit costs into account.

Which of the following is not a source of economies of scale? A. learning-by-doing. B. labor specialization. C. use of larger machines. D. inelastic resource supply curves.

D. inelastic resource supply curves.

The minimum efficient scale of a firm: A. is realized somewhere in the range of diseconomies of scale. B. occurs where marginal product becomes zero. C. is in the middle of the range of constant returns to scale. D. is the smallest level of output at which long-run average total cost is minimized.

D. is the smallest level of output at which long-run average total cost is minimized.

Suppose that a business incurred implicit costs of $500,000 and explicit costs of $5 million in a specific year. If the firm sold 100,000 units of its output at $50 per unit, its accounting: A. profits were $100,000 and its economic profits were zero. B. losses were $500,000 and its economic losses were zero. C. profits were $500,000 and its economic profits were $1 million. D. profits were zero and its economic losses were $500,000.

D. profits were zero and its economic losses were $500,000.

The long run is characterized by: A. the relevance of the law of diminishing returns. B. at least one fixed input. C. insufficient time for firms to enter or leave the industry. D. the ability of the firm to change its plant size.

D. the ability of the firm to change its plant size.

Implicit and explicit costs are different in that: A. explicit costs are opportunity costs; implicit costs are not. B. implicit costs are opportunity costs; explicit costs are not. C. the latter refer to non-expenditure costs and the former to monetary payments. D. the former refer to non-expenditure costs and the latter to monetary payments.

D. the former refer to non-expenditure costs and the latter to monetary payments.

Average fixed costs can be determined graphically by: A. summing the marginal costs of any number of units of output and dividing the sum by that output. B. the vertical distance between TC and TVC. C. the vertical distance between AVC and MC. D. the vertical distance between ATC and AVC.

D. the vertical distance between ATC and AVC.

If the demand for product X is inelastic, a 4 percent increase in the price of X will

Decrease the quantity of X demanded by less than 4%

The state legislature has cut Gigantic State University's appropriations. GSU's Board of Regents decides to increase tuition fees to compensate for the loss of revenue. The board is assuming that the

Demand for education at GSU is inelastic

If the price of hand calculators falls from $10 to $9 and, as a result, the quantity demanded increases from 100 to 125, then

Demand is elastic

For a linear demand curve

Demand is elastic at high prices

Suppose Aiyanna's Pizzeria currently faces a linear demand curve and is charging a very high price per pizza and doing very little business. Aiyanna now decides to lower pizza prices by 5% per week for an indefinite period of time. We can expect that each successive week

Demand will become less price elastic

Which of the following constitutes an implicit cost to the Johnston Manufacturing Company?

Depreciation charges on company owned equipment

The total-revenue test for elasticity

Does not apply to supply because price and quantity are directly related

Which of the following is likely to have the most elastic demand?

Dole brand bananas

The more time consumers have to adjust to a change in price:

If the demand for farm products is price inelastic, a good harvest will cause farm revenues to:

Which of the following statements is no correct

In the range of prices in which demand is elastic, total revenue will diminish as price decreases

If the demand for bacon is relatively elastic, a 10% delcine in price of bacon will

Increase the amount demanded by more than 10%

If the price elasticity of demand for a product is 2.5, then a price cut from $2.00 to $1.80 will

Increase the quantity demanded by about 25 percent

If the price elasticity of demand for a product is unity, a decrease in price will

Increase the quantity demanded, but total revenue will be unchanged

If the University Chamber Music Society decides to raise ticket prices to provide more funds to finance concerts, the Society is assuming that the demand for tickets is

Inelastic

Suppose that the price of product X rises by 20% and the quantity supplied of X increases by 15%. The coefficient of price elasticity of supply for good X is

Less than 1 and therefore supply is inelastic

The relationship between marginal cost and average fixed cost is such that:

MC may either rise or fall as AFC declines.

The total output of a firm will be at a maximum where

MP is zero

Which of the following statements is correct?

Marginal cost is the price or cost of an extra variable input (for example, an additional worker) divided by its marginal product.

Which of the following is correct?

Marginal product rises faster than average product and also falls faster than average product.

Supply curves tend to be

More elastic in the long run because there is time for firms to enter or leave the industry

A leftward shift in the supply curve of product X will increase equilibrium price to a greater extent the

More inelastic the demand for the product

Suppose the price of a product rises and the total revenue of sellers increases

No conclusion can be reached with respect to the elasticity of supply

The supply of known Monet painting is

Perfectly inelastic

Which of the following is most likely to be a fixed cost?

Property insurance premiums

Use the following cost information for the Creamy Crisp Donut Company to answer questions 16-23: Entrepreneur's potential earnings as a salaried worker = $50,000 Annual lease on building = $22,000 Annual revenue from operations = $380,000 Payments to workers = $120,000 Utilities (electricity, water, disposal) costs = $8,000 Entrepreneur's potential economic profit from the next best entrepreneurial activity = $80,000 Entrepreneur's forgone interest on personal funds used to finance the business = $6,000

Refer to the above data. Creamy Crisp's explicit costs are $150,000 Refer to the above data. Creamy Crisp's implicit costs, including a normal profit are: $136,000 Refer to the above data. Creamy Crisp's total economic costs (explicit + implicit costs, including a normal profit) are $286,000 Refer to the above data. Creamy Crisp's accounting profit is $230,000 Refer to the above data. Creamy Crisp's economic profit is $94,000 Refer to the above data. Creamy Crisp's total revenues exceed its total costs, including a normal profit, by $94,000 Refer to the above data. Creamy Crisp is earning an economic profit Refer to the above data. If, other things equal, Creamy Crisp's revenue fell to $286,000 it would earn a normal profit but not an economic profit

Answer the next question(s) on the basis of the following output data for a firm. Assume that the amounts of all nonlabor resources are fixed. Number Units of of workers output 0 0 1 40 2 90 3 126 4 150 5 165 6 180

Refer to the above data. Diminishing marginal returns become evident with the addition of the third worker Refer to the above data. The marginal product of the sixth worker is 15 units of output Refer to the above data. Average product is at a maximum when two workers are hired

Use the following data to answer the next question(s). The letters A, B, and C designate three successively larger plant sizes. Output ATC-A ATC-B ATC-C 10 6 13 44 20 5 9 35 30 4 6 27 40 5 4 20 50 7 3 14 60 10 4 11 70 14 5 8 80 19 7 6 90 25 10 5 100 32 16 7

Refer to the above data. In the long run the firm should use plant size "A" for: 10 to 30 units of output. Refer to the above data. In the long run the firm should use plant size "C" for: all units of output greater than 80. Refer to the above data. Economies of scale are realized over the ___ to ___ levels of output; diseconomies of scale exist over the ___ to ___ levels of output. 10, 50; 60, 100 Refer to the above data. At what level of output is minimum efficient scale realized? 50

Answer the next question(s) on the basis of the following cost data: Total Output cost 0 $24 1 33 2 41 3 48 4 54 5 61 6 69

Refer to the above data. The total variable cost of producing 5 units is: $37 Refer to the above data. The average total cost of producing 3 units of output is: $16 Refer to the above data. The average fixed cost of producing 3 units of output is: $8 Refer to the above data. The marginal cost of producing the sixth unit of output is: $8 Refer to the above data. The profit-maximizing output for this firm: cannot be determined from the information given.

Average Average fixed variable Output cost cost 1 $50.00 $100.00 2 25.00 80.00 3 16.67 66.67 4 12.50 65.00 5 10.00 68.00 6 8.37 73.33 7 7.14 80.00 8 6.25 87.50

Refer to the above data. Total fixed cost is $50.00. Refer to the above data. The average total cost of five units of output is: $78 Refer to the above data. The total cost of four units of output is: $310 Refer to the above data. If the firm closed down and produced zero units of output, its total cost would be: $50 Refer to the above data. The marginal cost of the fifth unit of output is: $80 Refer to the above data. The marginal cost curve would intersect the average variable cost curve at about: 4 units of output Refer to the above data. If the firm decided to increase its output from 6 to 7 units, its total costs would rise by: $120.00

The Sunshine Corporation finds that its costs are $40 when it produces no output. Its total variable costs (TVC) change with output as shown in the accompanying table. Use this information to answer the following question(s). Output TVC 1 30 2 50 3 65 4 85 5 110

Refer to the above information. The total cost of producing 3 units of output is: $105. Refer to the above information. The average total cost of 3 units of output is: $35 Refer to the above information. The average fixed cost of 3 units of output is: $13.33 Refer to the above information. The marginal cost of the third unit of output is: $15 Refer to the above information. This firm: may be either realizing a profit or a loss.

Other things the same, if a price change causes total revenue to change in the opposite direction, demand is

Relatively elastic

Gigantic State University raises tuition for the purpose of increasing its revenue so that more faculty can be hired. GSU is assuming that the demand for education at GSU is

Relatively inelastic

The demand for a luxury good whose purchase would exhaust a big portion of one's income is

Relatively price elastic

The demand for a necessity whose cost is a small portion of one's total income is

Relatively price inelastic

The demand schedules for such products as eggs, bread, and electricity tend to be

Relatively price inelastic

The price elasticity of supply measures how

Responsive the quantity supplied of X is to changes in the price of X

Firms operating in perfectly competitive markets produce an output level where p=MC

T

The cost of producing an additional unit of a good could b the same as the avg cost of a good

T

if an increase in demand for a particular product leads to a lower LR equilibrium price, firms in the market are apart of a decreasing cost indusrty

T

A manufacturer of frozen pizzas found that total revenue decreased when price was lowered from $5 to $4. It was also found that total revenue decreased when price was raised from $5 to $6. Thus

The demand for pizza is elastic above $5 and inelastic below $5

If a firm finds that it can sell $13,000 worth of product when its price is $5 per unit and $11,000 worth of it when its price is $6, then

The demand for the product is elastic in the $6-$5 price range

The more time consumers have to adjust to a change in price

The greater will be the price elasticity of demand

The narrower the definition of a product

The larger the number of substitutes and the greater the price elasticity of demand

An increase in demand will increase equilibrium price to a greater extent

The less elastic the supply curve

If a firm can sell 3,000 units of product A at $10 per unit and 5,000 at $8, then

The price elasticity of demand is 2.25

Which of the following generalizations is NOT correct

The price elasticity of demand is greater for necessities than it is for luxuries

Which of the following gave the Federal Trade Commission responsibility to protect the public against false and misleading advertising?

Wheeler-Lea Act of 1938

If the price of hand calculators falls from $10 to $9 and, as a result, the quantity demanded increases from 100 to 125, then: a. demand is elastic. b. demand is inelastic. c. demand is of unit elasticity. d. not enough information is given to make a statement about elasticity.

a

In which price range of the accompanying demand schedule is demand elastic? A) $4-$3 B) $3-$2 C) $2-$1 D) below $1

a

Suppose the price elasticity coefficients of demand are 1.43, 0.67, 1.11, and 0.29 for products W, X, Y, and Z respectively. A 1 percent decrease in price will increase total revenue in the case(s) of: A) W and Y. B) Y and Z. C) X and Z. D) Z and W.

a

The price elasticity of demand is: A. negative, but the minus sign is ignored. B. positive, but the plus sign is ignored. C. positive for normal goods and negative for inferior goods. D. positive because price and quantity demanded are inversely related.

a

A purely competitve seller is

a "price taker"

Suppose a firm is in a range of production where it is experiencing economies of scale. Knowing this, we can predict that:

a 10 percent increase in all inputs will increase output by more than 10 percent

Suppose the income elasticity of demand for toys is +2.00. This means that:

a 10 percent increase in income will increase the purchase of toys by 20 percent.

suppose a firm is in a range of production where it is experiencing economies of scale. Knowing this, we can predict that

a 10% increase in all inputs will increase outputs by more than 10%

Which of the following will cause a decrease in market equilibrium price and an increase in equilibrium quantity?

an increase in supply

OPEC provides an example of:

an international cartel.

A fixed cost is:

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

Fixed cost is

any cost which does not change when the firm changes its output

Fixed cost is:

any cost which does not change when the firm changes its output

If the income elasticity of demand for lard is -3.00, this means that:

ard is an inferior good.

In the short run the Sure-Screen T-Shirt Company is producing 500 units of output. Its average variable costs are $2.00 and its average fixed costs are $.50. The firm's total costs:

are $1250

The law of diminishing returns indicates that

as extra units of a variable resource are added to a fixed resource, marginal product will decline beyond some point

A perfectly inelastic demand curve: d. has a price elasticity coefficient greater than unity. a. has a price elasticity coefficient of unity throughout. b. graphs as a line parallel to the vertical axis. c. graphs as a line parallel to the horizontal axis.

b

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

b

If a demand for a product is elastic, the value of the price elasticity coefficient is: A) zero. B) greater than one. C) equal to one. D) less than one.

b

If the demand for bacon is relatively elastic, a 10 percent decline in the price of bacon will: A. decrease the amount demanded by more than 10 percent. B. increase the amount demanded by more than 10 percent. C. decrease the amount demanded by less than 10 percent. D. increase the amount demanded by less than 10 percent.

b

Moving upward on a downward-sloping straight-line demand curve, we find that price elasticity: A) is constant. C) decreases continuously. B) increases continuously. D) may either increase or decrease.

b

Suppose the price of local cable TV service increased from $16.20 to $19.80 and as a result the number of cable subscribers decreased from 224,000 to 176,000. Along this portion of the demand curve, price elasticity of demand is: A. 0.8. B) 1.2. C) 1.6. D) 8.0

b

Suppose we find that the price elasticity of demand for a product is 3.5 when its price is increased by 2 percent. We can conclude that quantity demanded: A) increased by 7 percent. C) decreased by 9 percent. B) decreased by 7 percent. D) decreased by 12 percent.

b

Which of the following statements is not correct? A. If the relative change in price is greater than the relative change in the quantity demanded associated with it, demand is inelastic. B. In the range of prices in which demand is elastic, total revenue will diminish as price decreases. C. Total revenue will not change if price varies within a range where the elasticity coefficient is unity. D. Demand tends to be elastic at high prices and inelastic at low prices.

b

If an industry's long-run average total cost curve has an extended range of constant returns to scale, this implies that:

both relatively small and relatively large firms can be viable in the industry

A market for a product reaches equilibrium when

buyers intend to buy a quantity equal to the quantity that sellers intend to sell

If a firm can sell 3,000 units of product A at $10 per unit and 5,000 at $8, then: A) the price elasticity of demand is 0.44. C) the price elasticity of demand is 2.25. B) A is a complementary good. D) A is an inferior good.

c

If the price elasticity of demand for gasoline is 0.20: A the demand for gasoline is linear. B. a rise in the price of gasoline will reduce total revenue. C. a 10 percent rise in the price of gasoline will decrease the amount purchased by 2 percent. D. a 10 percent fall in the price of gasoline will increase the amount purchased by 20 percent.

c

Suppose that as the price of Y falls from $2.00 to $1.90 the quantity of Y demanded increases from 110 to 118. Then the price elasticity of demand is: A) 4.00. B) 2.09. C) 1.37. D) 3.94.

c

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

c

The cross elasticity of demand for product X with respect to the price of product Y is -1.2. It can be inferred that X and Y are

complementary products

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

consumers are largely unresponsive to a per unit price change

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

consumers are largely unresponsive to a per unit price change

When economists say that demand for a product has decreased, they mean that

consumers are now willing and able to buy less of this product at each possible price

Most demand curves are relatively elastic in the upper-left portion because the original price: A .and quantity from which the percentage changes in price and quantity are calculated are both large. B. and quantity from which the percentage changes in price and quantity are calculated are both small. C. from which the percentage price change is calculated is small and the original quantity from which the percentage change in quantity is calculated is large. D. from which the percentage price change is calculated is large and the original quantity from which the percentage change in quantity is calculated is small.

d

The concept of price elasticity of demand measures: A. the slope of the demand curve. B. the number of buyers in a market. C. the extent to which the demand curve shifts as the result of a price decline. D. the sensitivity of consumer purchases to price changes.

d

The larger the coefficient of price elasticity of demand for a product, the: A. larger the resulting price change for an increase in supply. B. more rapid the rate at which the marginal utility of that product diminishes. C. less competitive will be the industry supplying that product. D. smaller the resulting price change for an increase in supply.

d

The price of product X is reduced from $100 to $90 and, as a result, the quantity demanded increases from 50 to 60 units. Therefore demand for X in this price range: A) has declined. B) is of unit elasticity. C) is inelastic. D) is elastic.

d

A newspaper reports that the average price of new homes in a certain city had decreased, and the number of new homes sold had also decreased. This situation is probably caused by

declining incomes of people in that city

A large increase in the supply of HD-TV sets occurs simultaneously with a smaller decrease in its demand. As a result the equilibrium price will

decrease and the equilibrium quantity will increase

An increase in the demand for corn is more than offset by an increase in its supply. As a result the equilibrium price will

decrease and the equilibrium quantity will increase

A firm produces and sells two goods, A and B. Good A is known to have many close substitutes; good B makes up a significant portion of most families' budgets. A price increase for each good would most likely cause total revenues from good A to

decrease and total revenues from good B to decrease

A television station reports that the price of coffee has increased but the quantity traded in the market has decreased. This situation would be caused by a

decrease in supply

A decrease in demand and an increase in supply will

decrease price and affect the equilibrium quantity in an indeterminate way

Suppose we find that the price elasticity of demand for a product is 3.5 when its price is increased by 2%. We can conclude that the quantity demanded

decreased by 7%

The basic issue in the DuPont cellophane case was:

defining the relevant market.

If the price of hand calculators falls from $10 to $9 and, as a result, the quantity demanded increases from 100 to 125, then

demand is elastic

A tax on buyers will cause the ________ schedule to shift to the ________

demand, left

Which of the following constitutes an implicit cost to the Johnston Manufacturing Company?

depreciation charges on company-owned equipment

Which of the following is most likely to be an implicit cost for Company X?

depreciation charges on company-owned equipment

The automobile, household appliance, and automobile tire industries are all illustrations of:

differentiated oligopoly.

Total fixed cost (TFC):

does not change as total output increases or decreases.

when a firm doubles its inputs and finds that its output has more than doubled, this is known as

economies of scale

If a firm doubles its output in the long run and its unit costs of production decline, we can conclude that:

economies of scale are being realized

Total revenue falls as the price of a good is raised, if the demand for the good is

elastic

Suppose that the above total revenue curve is derived from a particular linear demand curve. That demand curve must be

elastic for price increases that reduce quantity demanded from 4 units to 3 units.

Marginal cost

equals both average variable cost and average total cost at their respective minimums

If the supply of product X is perfectly elastic, an increase in the demand for it will increase

equilibrium quantity but equilibrium price will be unchanged

Economic profits are calculated by subtracting

explicit and implicit costs from total revenue

Price elasticity of demand is generally

greater in the long run than in the short run

Accounting profits are typically

greater than economic profits because the former do not take implicit costs into account

The larger the positive cross elasticity coefficient of demand between products X and Y, the:

greater their substitutability.

If you owned a small farm, which of the following would be a fixed cost?

hail insurance

an increasing cost industry is a result of:

higher resource prices which occur as the industry expands

The copper, aluminum, cement, and industrial alcohol industries are examples of:

homogeneous oligopoly.

The relationship between the marginal cost and the average total cost schedule is such that

if MC is declining, ATC must also be declining.

To economists, the main difference between "the short run" and "the long run" are that

in the long run all resources are variable, while in the short run at least one resource is fixed

To an economist 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.

The ABC Corporation decreases all of its inputs by 12 percent and finds that its output falls by only 8 percent. This means that initially it was producing:

in the range of diseconomies of scale

Most goods can be classified as normal goods rather than inferior goods. The definition of a normal good suggests that the

income elasticity for the good is greater than 0

If the price elasticity of demand for a product is 2.5, then a price cut from $2.00 to $1.80 will:

increase the quantity demanded by about 25 percent.

Suppose legalizationand subsequent regulationof heroin and cocaine reduces their prices by 50%. Estimates suggest the total quantity of heroin and cocaine demanded would rise by 83% and 42%, respectively. Consequently, legalization would:

increase total expenditures on heroine and decrease total expenditures on cocaine

If in the short run the demand for mass transit is inelastic and in the long run the demand is elastic, then a price

increase will increase total revenue in the short run but decrease total revenue in the long run

A tax on buyers will ________ the price paid by the consumer and ________ the price received by the seller

increase, decrease

A tax on buyers will cause the equilibrium price paid by the consumer to _________ and the equilibrium quantity to ________

increase, decrease

A tax on suppliers will cause the equilibrium price paid by consumer to _________ and the equilibrium quantity to _________

increase, decrease

What is the most likely effect of the development of DVDs, rental movies, and online movie streaming on the movie theater industry?

increased price elasticity of demand for movie theater tickets

As output increases, total variable cost:

increases at a decreasing rate and then at an increasing rate

If a 10% increase in the price of one good results in NO change in the QD of another good then it can be concluded that the two goods are

independent goods

The long-run average total cost curve:

indicates the lowest unit costs achievable when a firm has had sufficient time to alter plant size

When the price of a product is increased by 15%, the quantity demanded decreases 10%. We can therefore conclude that the demand for this product is

inelastic

Suppose that the above total revenue curve is derived from a particular linear demand curve. That demand curve must be:

inelastic for price declines that increase quantity demanded from 6 units to 7 units.

Which of the following is not a source of economies of scale?

inelastic resource supply curves.

Refer to the above information. Over the 5 price range, demand is

inelsatic

Under monopolistic competition entry to the industry is:

more difficult than under pure competition but not nearly as difficult as under pure monopoly.

The demand for autos is likely to be:

less elastic than the demand for Honda Accords.

Suppose the price of product X rises by 20% and the quantity supplied of X increases by 15%. The price elasticity of supply for good X is

less than 1 and therefore supply is inelastic

Over the 8 price range, the elasticity coefficient of supply is:

less than 1.

Assume that the price of product Y decreases by 5% and the quantity supplied decreases by 2%. The coefficient of price elasticity of supply for good Y is

less than one and therefore supply is inelastic

The supply of cars will be more elastic the

longer the time interval considered

The Sherman Act was designed to:

make monopoly and acts that restrain trade illegal.

Monopolistic competition means:

many firms producing differentiated products.

There is some evidence to suggest that X-inefficiency is:

more likely to occur in monopolistic firms than in competitive firms

An increase in the price of digital cameras will result in a

movement up and to the left along the demand curve for digital cameras

The total revenue received by sellers of a good is computed by

multiplying the price times the quantity sold

Suppose that a 20 percent increase in the price of normal good Y causes a 10 percent decline in the quantity demanded of normal good X. The coefficient of cross elasticity of demand is:

negative and therefore these goods are complements

We would expect the cross elasticity of demand between dress shirts and ties to be

negative, indicating complementary goods.

We would expect the cross elasticity of demand between Pepsi and Coke to be

positive, indicating substitute goods.

In which of the following instances will total revenue decline?

price rises and demand is elastic

In an oligopolistic market:

products may be standardized or differentiated.

Picture a competitive market with the usual upward sloping supply curve and downward sloping demand curve. If the current price is creating shortage, then market forces will cause the price to adjust and

quantity supplied will increase

The larger the coefficient of price elasticity of demand for a product, the

smaller the resulting price change for an increase in supply

An increase in the supply for MP3 music indicates that more will be

sold even if prices of MP3 music stayed the same

What combination of changes would most likely decrease the equilibrium price?

supply increases and demand decreases

Economists distinguish among the immediate market period, the short run, and the long run by noting that

supply is most elastic in the long run and least elastic in the immediate market period

A tax on suppliers will cause the ______ schedule to shift to the ______

supply, left

If the government removes a tax on suppliers, then this will cause the _____ schedule to shift to the _____

supply, right

Compared to coffee, we would expect the cross elasticity of demand for

tea to be positive, but negative for cream

The long run is characterized by

the ability of the firm to change its plant size

If the total variable cost of 9 units of output is $90 and the total variable cost of 10 units of output is $120, then:

the average variable cost of 9 units is $10.

In comparing the changes in TVC and TC associated with an additional unit of output, we find that:

the changes in TC and TVC are equal

There is an excess demand in a market for a product when

the current price is lower than the equilibrium price

Economies of scale are indicated by:

the declining segment of the long-run average total cost curve.

We would expect

the demand for Coca-Cola to be more price elastic than the demand for soft drinks in general

Suppose that when your income increases from $28,000 to $30,000 per year, your purchases of X increase from 4 to 5 units because of that income increase. Thus:

the demand for X is elastic with respect to income.

Suppose that the price of peanuts falls from $3 to $2 per bushel and that, as a result, the total revenue received by peanut farmers changes from $16 to $14 billion. Thus:

the demand for peanuts is inelastic.

The basic characteristic of the short run is that

the firm does not have sufficient time to change the size of its plant

The basic characteristics of the short run is that

the firm does not have sufficient time to change the size of its plant

Implicit and explicit costs are different in that

the former refer to non-expenditure costs and the latter to out-of-pocket costs.

Implicit and explicit costs are different in that

the former refer to nonexpenditure costs and the latter to out-of-pocket costs

If the four-firm concentration ratio for industry X is 80:

the four largest firms account for 80 percent of total sales

The elasticity of demand for a product is likely to be greater

the greater the amount of time over which buyers adjust to a price change

The elasticity of demand for a product is likely to be greater:

the greater the amount of time over which buyers adjust to a price change

when economies of scale occur:

the long run ATC curve falls

When diseconomies of scale occur:

the long-run average total cost curve rises

Which of the following generalizations is NOT correct?

the price elasticity of demand is greater for necessities than it is for luxuries

If the price ceiling is set below the equilibrium price in a market then

the quantity demanded will exceed the quantity supplied

If a price ceiling is set above the equilibrium price in a market then

the quantity supplied will equal the quantity demanded (equilibrium)

If a price floor is set above the equilibrium price in a market then

the quantity supplied will exceed the quantity demanded

Normal profit is

the return to the entrepreneur when economic profits are zero

Fixed costs are associated with

the short run only

Fixed costs are associated with:

the short run only.

It takes a considerable amount of time to increase the production of pork. This implies

the short-run supply curve for pork is less elastic than the long-run supply curve for pork

The price of old baseball cards rises rapidly with increases in demand because:

the supply of old baseball cards is inelastic.

Which of the following factors will make the demand for a product relatively elastic?

the time interval considered is long

Average fixed costs can be determined graphically by:

the vertical distance between ATC and AVC.

Refer to the above information and assume the stadium capacity is 5,000. If the Mudhens' management charges $7 per ticket:

there will be 1,000 empty seats.

Economists use the term imperfect competition to describe

those markets which are not purely competitive

Because the marginal product of a variable resource at first increases and then decreases as the output of the firm is increased:

total cost at first increases at a decreasing rate and then increases at an increasing rate

Total cost minus total variable cost equals:

total fixed cost

Firms seek to mazimize

total profit

Refer to the diagram. Suppose total revenue at price P3 is the same as at price P2. Then, over the price range from P2 to P3, demand is:

unit elastic

Suppose that the above total revenue curve is derived from a particular linear demand curve. That demand curve must be:

unit elastic for price increases that reduce quantity demanded from 5 units to 4 units.

The maker of a particular breakfast cereal found that increasing the price from $3.00 to $3.25 per box had no impact on total revenue, but increasing the price further to $3.50 reduced total revenue by 2%. Thus, the demand for the cereal is:

unit elastic over the range $3.00 to $3.25 and elastic over the range $3.25 to $3.50

The amount of calendar time associated with the long run

varies from industry to industry

diseconomies of scale occur when

when the long run ATC curve rises

economies and diseconomies of scale explain

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

A government-set price floor on a product

will attract more resources towards the production of the product