Econ Exam 2
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1. In economics, a firm that faces no competitors is referred to as _________________. A. an oligopoly B. a monopoly C. a perfect competitor D. an oligopolizor
A
10. The term "constant returns to scale" describes a situation where A. expanding all inputs does not change the average cost of production. B. a larger-scale firm can produce at a lower cost than a smaller-scale firm. C. expanding all inputs changes the average cost of production. D. the quantity of output rises and the average cost of production falls
A
12. _____________ is calculated by taking the quantity of everything that is sold and multiplying it by the sale price. A. Total revenue B. Total profits C. Average profit margin D. Total cost
A
13. Marcella operates a small, but very successful art gallery. All but one of the following can be classified as a variable cost arising from the physical inputs Marcella requires to operate her business. Which is it? A. physical space for the gallery B. costs of purchasing art work to sell in the gallery C. wages paid to three part-time employees D. accountant's fees for preparing tax returns
A
14. If a paper mill shuts down its operations for three months so that it produces nothing, its __________________ will be reduced to zero? A. variable costs B. fixed costs C. opportunity costs D. total cost
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15. I'MaPizzaCo. produces and sells specialty pizzas. Last year, it produced 8,000 mushroom, sausage and spinach pizzas and sold each one for $8. To produce these 8,000 specialty pizzas, the company incurred variable costs of $24,000 and a total cost of $40,000. I'MaPizzaCo's average fixed cost to produce 8,000 specialty pizzas was
C
9. The term __________________ describes a situation where the quantity of output rises, but the average cost of production falls. A. diminishing marginal returns B. marginal cost output C. economies of scale D. diseconomies of scale
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16. The marginal cost curve is generally ______________, because diminishing marginal returns implies that additional units are ________________________. A. downward-sloping; more costly to produce B. upward-sloping; more costly to produce C. downward-sloping; less costly to produce D. upward-sloping; less costly to produce
B
17. Which of the following should typically be ignored because spending has already been made and cannot be changed? A. variable costs B. sunk costs C. marginal costs D. average marginal costs
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18. When __________________ exist, doubling of all inputs will result in more than doubling output, which means __________________________________________. A. economies of scale; a larger factory can produce at a lower average cost than a smaller company. B. economies of scale; a smaller factory can produce at a lower average cost than a larger company. C. low labor inputs; larger scale of production leads to higher costs. D. labor inputs; economies-of-scale curve is U-shaped.
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19. The economies-of-scale curve is a long-run average cost curve, because A. it allows all factors of production to change. B. fixed costs cannot be changed. C. only variable costs are allowed to change. D. only marginal costs are allowed to change
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2. ________________________ arises where many firms are competing in a market to sell similar but differentiated products. A. Oligopolistic competition B. Perfect competition C. Monopolistic competition D. Monogopolised competition
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20. Accounting profit is ________. A. revenue minus explicit costs B. revenue minus implicit costs C. revenue plus explicit costs D. revenue plus implicit costs
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21. Lebron James giving up his salary playing professional basketball to open up a taco stand is an example of an ________. A. explicit cost B. implicit cost C. explicit revenue D. implicit revenue
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22. The cost of purchasing an oven for a pizza shop is an example of a ________. A. fixed cost B. variable cost C. revenue-maximizing cost D. cost-push inflation cost
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23. Pita Pan produces delicious pita sandwiches. Last month, it produced 1000 sandwiches and sold each one for $5. To produce these 1000 sandwiches, the company incurred variable costs of $2000 and a fixed cost of $1000. Pita Pan's total revenue was _________. A. $3 B. $5000 C. one million dollars D. $3000
B
24. Brewed Awakening is a coffee shop selling extra-caffeinated coffee. Last month, it produced 10,000 cups of coffee and sold each one for $6. To produce these 10,000 cups of coffee, the company incurred variable costs of $40,000 and a fixed cost of $10,000. The owner of Brewed Awakening also is an expert at knitting blankets and could have made $20,000 last month selling blankets. Brewed Awakening's accounting profits are _________. A. positive $60,000 B. positive $10,000 C. negative $10,000 D. $0
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24. Brewed Awakening is a coffee shop selling extra-caffeinated coffee. Last month, it produced 10,000 cups of coffee and sold each one for $6. To produce these 10,000 cups of coffee, the company incurred variable costs of $40,000 and a fixed cost of $10,000. The owner of Brewed Awakening also is an expert at knitting blankets and could have made $20,000 last month selling blankets. Brewed Awakening's accounting profits are _________. A. positive $60,000 B. positive $10,000 C. negative $10,000 D. $0
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26. The term __________ refers to a firm operating in a perfectly competitive market that must take the prevailing market price for its product. A. price setter B. business entity C. price taker D. trend setter
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27. ___________ refers to the additional revenue gained from selling one more unit. A. Marginal revenue B. Total revenue C. Economic profit D. Accounting profit
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28. An ______________________ is calculated by subtracting the firm's costs from its total revenues, ______________________. A. accounting profit; excluding opportunity cost B. accounting profit; including opportunity cost C. economic profit; excluding opportunity cost D. opportunity cost; including economic profit
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29. Economic profit can be derived from calculating total revenues minus all of the firm's costs, ______________. A. excluding its opportunity costs. B. including its opportunity costs. C. including its marginal revenue. D. excluding its marginal revenue.
A
3. A firm's ___________ consist of expenditures that must be made before production starts that typically, over the short run, _______________ regardless of the level of production. A. fixed costs; do not change, B. variable costs; are constantly changing, C. fixed costs; are consistently changing, D. variable costs; do not change,
C
30. It is said that in a perfectly competitive market, raising the price of a firm's product from the prevailing market price of $179.00 to $199.00, ___________________. A. will likely cause the firm to reach its shutdown point immediately B. will cause the firm to recover some of its opportunity costs C. could likely result in a notable loss of sales to competitors D. is a sure sign the firm is raising the given price in the market
A
31. If a perfectly competitive firm is a price taker, then A. pressure from competing firms will force acceptance of the prevailing market price. B. it must be a relatively small player compared to its competitors in the overall market. C. it can increase or decrease its output without affecting overall quantity supplied in the market. D. quality differences will be very perceptible and will play a major role in purchasers' decisions.
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32. If the quality differences of similar products are mostly imperceptible to the average consumer's eyes, which of the following will most likely play a major role in influencing the decisions of purchasers? A. price of competing products B. size of competing products C. purchaser's opportunity cost D. geographic origin of products
D
33. In the _________, the perfectly competitive firm will react to profits by ________________. A. short run; increasing quality of products B. long run; tailoring their quality controls C. short run; reducing its labor inputs D. long run; increasing its production
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40. For a perfectly competitive firm, the marginal cost curve is identical to the firm's _________. A. demand curve B. supply curve C. average total cost curve D. average variable cost curve
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42. If the price that a firm charges is higher than its _________ cost of production for that quantity produced, then the firm will earn profits. A. marginal B. variable C. average D. fixed
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43. Kate's 24-Hour Breakfast Diner menu offers one item, a $5.00 breakfast special. Kate's costs for servers, cooks, electricity, food, etc. average out to $3.95 per meal. Her costs for rent, insurance cleaning supplies and business license average out to $1.25 per meal. Since the market is highly competitive, Kate should ________________________________. A. raise her prices above the perfectly competitive level set by the market. B. keep the business open in the short-run, but plan to go out of business in the long-run. C. keep the business open in the short-run, and plan to expand the business in the long-run. D. lay-off her staff, break her lease, and close the business down immediately.
C
5. ____________________________ occur when the marginal gain in output diminishes as each additional unit of input is added. A. Diminishing variable returns B. Diminishing average returns C. Diminishing marginal returns D. Diminishing marginal costs
C
51. The largest cattle rancher in a given region will be unable to have a __________ when sufficient numbers of smaller cattle ranchers provide sources of competition. A. oligopoly B. patent C. monopoly D. monopolistic competition
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52. Government __________ regulations specify that inventors will maintain exclusive legal rights to their respective inventions for __________. A. patent; a limited time B. trademark; an unlimited time C. copyright; a limited time D. trade secret; an unlimited time
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53. The form of legal protection intended to prevent reproduction of original works is referred to as __________ law. A. patent B. trademark C. copyright D. trade secret
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54. In the business world, a ___________ is recognized as a legally acceptable way for any business to keep knowledge of its particular methods of production from being known by competing firms. A. patent B. monopoly C. trade secret D. trademark
D
55. Intellectual property law is a body of law that includes _________________. A. the right of inventors to produce their inventions B. the right of inventors to sell their inventions C. trademark, patent and trade secret legislation D. copyright legislation, as well as all of the above
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56. The use of sharp, temporary price cuts as a form of ______________ would enable traditional US automakers to discourage new competition from smaller electric car manufacturers. A. natural monopoly B. monopolistic competition C. predatory pricing D. oligopolistic competition
A
58. A firm that holds a monopoly position in the market place is ______________. A. a price maker B. a price taker C. monopolistically competitive D. subject to infinite market forces
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59. If the North American newsprint paper market has barriers to entry, then ____________. A. abnormally high profits will attract the entry of new firms. B. the entry of new firms will eventually cause price to decline. C. surviving firms earn only a normal level of profit in the long run. D. entry will be blocked even if firms are earning high profits.
D
6. In order to determine ____________, the firm's total costs must be divided by the quantity of its output. A. diminishing marginal returns B. fixed costs C. variable cost D. average cost
B
60. A monopolist is able to maximize its profits by ______________. A. setting the price at the level that will maximize its per-unit profit. B. producing output where MR = MC and charging a price along the demand curve. C. setting output at MR = MC and setting price at the demand curve's highest point. D. producing maximum output where price is equal to its marginal cost.
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61. Which one of the following is the most accurate description of a monopolist? A. a sole producer of a narrowly defined product class, such as brown, Grade A eggs produced in Eagle County, Colorado B. a firm that is very large relative to all its competitors within a narrow product class C. a sole producer of a product for which good substitutes are lacking in a market with high barriers to entry D. a large, multinational firm that produces a single product in a narrow product class
D
62. When a natural monopoly exists in a given industry, the per-unit costs of production will be _________________. A. lowest when there are a large number of producers in the industry B. lower for the smaller firms than for larger firms C. minimized at the output that maximizes the industry's profitability D. lowest when a single firm generates the entire output of the industry
A
63. Following the assumption that firms maximize profits, how will the price and output policy of an unregulated monopolist compare with ideal market efficiency? A. output will be too small and its price too high. B. output will be too large and its price too high. C. output will be too small and its price too low. D. output will be too large and its price too low.
D
64. If monopolists are able to produce fewer goods and sell them at a higher price than they could under perfect competition, the result will be ________________. A. elimination of barriers to entry B. irregularly high unsustainable profits C. government deregulation D. abnormally high sustained profits
B
65. In the event that Only1Corp. obtains control of all the natural gas producers in the US, it would most likely _____________________. A. have a patent giving it exclusive legal rights to make, use, and sell for a limited time B. raise prices, cut production, and realize positive economic profits C. have legal protection to prevent copying its methods of production for commercial use D. acquire rights for its investors to produce and sell their product
C
7. Shopping malls typically lease retail space to a large number of clothing stores. When this group of retailers competes to sell similar but not identical products, they engage in what economists call ________________. A. a cartel B. collusion C. monopolistic competition D. perfect competition
B
7. Which of the following is most likely to be a monopoly? A. local fast-food restaurant B. local electricity distributor C. local bathroom fixtures shop D. local television broadcaster
C
76. The branch of mathematics that analyzes situations in which players must make decisions and then receive payoffs most often used by economists is _______________. A. oligopoly collusion B. prisoner's dilemma C. game theory D. collusion theory
D
78. If monopolistic competitors must expect a process of entry and exit like perfectly competitive firms, A. they will be unable to earn higher-than-normal profits in the short run. B. they will wish to cooperate to make decisions about what price to charge. C. they will wish to cooperate to make decisions about what quantity to produce. D. they will be unable to earn higher-than-normal profits in the long run.
A
79. Oligopoly firms acting individually may seek to gain profits __________________. A. by expanding levels of output and cutting prices B. by selling products that are distinctive in some way C. by having a mini-monopoly on a particular brand name D. by having a mini-monopoly or through tough competition
D
8. The term _____________ is used to describe the additional cost of producing one more unit. A. average cost B. fixed cost C. variable cost D. marginal cost
D
80. In a monopolistic competitive industry, firms can try to differentiate their products by __________________. A. creating optimal perceptions of the product B. choosing optimal locations from which the product is sold C. enhancing the intangible aspects of the product D. enhancing product's physical aspects and all of the above
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81. If a monopoly or a monopolistic competitor raises their prices, the quantity demanded _______________. A. will expand B. stays the same C. will decline D. will decline in the short run
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82. The perceived demand for a monopolistic competitor _____________. A. is steep B. is flat C. takes competitors into account D. disregards competitors
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83. If a monopoly or a monopolistic competitor raises their prices, then _______________. A. decline in quantity demanded will be larger for the monopoly B. decline in quantity demanded will be larger for the monopolistic competitor C. the quantity demanded for the monopoly product falls to zero D. the quantity demanded for the monopolistic competitor will fall to zero
C
84. The demand curve as perceived by a monopolistic competitor is _____________. A. upward-sloping B. U shaped C. downward-sloping D. flat
B
85. The typical slope of the demand curve as perceived by a monopolistic competitor will _________________. A. be steeper than the demand curve perceived by a monopolist B. reflect that firm's ability raise its price without losing all of its customers C. show less of a decline in demand than would a monopoly that raised its prices D. be reflective of a perfectly competitive firm and all of the above
D
86. Which of the following represents a difference in the process by which a monopolistic competitor and a monopolist make their respective decisions about quantity and price? A. only the monopolist competitor faces a downward-sloping demand curve B. the monopolist's perceived demand curve is market demand C. the monopolist competitor's perceived demand curve is market demand D. a monopolist need not fear entry and also selection b above
A
87. A monopolistically competitive firm may earn abnormally high profits in the ______________________. A. short term, but the process of entry will drive those profits to zero in the long run B. long term, but the process of entry will drive those profits to zero in the short run C. short run, but after entry occurs, the long term perceived demand curve shifts to the right D. long run, but after entry occurs, the short term perceived demand curve shifts to the right
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88. Through the process of exit, monopolistically competitive firms remaining in the market _____________. A. are no longer earning zero economic profits B. will each have ongoing negative earnings C. are no longer earning losses D. have positive earnings
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89. Monopolistic competitors can make a ___________ in the short-run, but in the long run, ____________ will drive these firms toward ______________. A. profit or loss; entry and exit; a zero-profit outcome B. loss; exit; losses on their earnings C. profit or loss; exit; economic profits D. profit; entry; a price that lies at the very bottom of the AC curve
C
90. In monopolistic competition, the end result of entry and exist is that firms end up with a price that lies ____________________. A. on the upward-sloping portion of the average cost curve B. at the very bottom of the AC curve C. on the downward-sloping portion of the average cost curve D. at the very top of the AC curve
B
91. The single most common form of competition in the U.S. is __________________. A. perfect competition among firms with differentiated products B. monopolistic competition among firms with differentiated products C. oligopolistic competition in a certain market with similar products D. perfect competition because it displays product and allocative efficiencies
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92. A ____________ is an oligopoly with only two firms. A. duopoly B. reactor C. monopolistically competitive firm D. rectangle
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93. A cartel is a group of firms that try to act ____________. A. in the public interest B. as if they were a competitive market C. as if they were a monopoly D. to maximize the total surplus in its market
A
94. In cartels __________________. A. the total profits for all members is highest when they cooperate B. the total profits for all members is highest when they compete C. each member takes turns earning the highest profits D. the self-interest of each member will maximize the total profits for all members
C
95. An agreement between cartel members to cooperate usually breaks down because ___________. A. they cannot agree on the price that would maximize total profits B. they cannot agree on the quantity that would maximize total profits C. each firm wants a larger share of the market to capture more profit for itself D. each firm wants to charge a higher price to earn higher profits for itself
B
96. Cartels can reach the outcome that maximizes total profits when ______________. A. each member follows its own self-interest B. the government regulates the cartel C. new firms can easily enter the market D. cartel members cannot communicate with each other
A
If a firm is experiencing _____________________, then as the quantity of output rises, the average cost of production rises. A. decreasing returns to scale B. consent returns to scale C. economies of scale D. increasing returns to scale
B
In order to determine the average variable cost, the firm's variable costs are divided by _______________________. A. its' fixed costs B. the quantity of output C. its' average costs D. diminishing marginal costs
C
In the _________, if profits are not possible, the perfectly competitive firm will seek out the quantity of output where _______________. A. long run; increasing production B. short run; fixed costs can be reduced C. short run; losses are smallest D. long run; fixed costs can be eliminated
B
Once I'MaPharmaCo. has received confirmation of the registration for its latest drug patent application, it will have created a monopoly for that product by restricting ________________. A. demand for the product B. entry into the market C. amount of product advertising D. the number of product compliments
C
Temperatures have persisted below freezing levels in Florida throughout the months of December and January. As a result, demand for electricity sharply increased and the price of electricity rose sharply. The price of coal also rose. In these circumstances, any resulting shifts in the supply curves for coal miners and electricity producers ________________________. A. will determine what price to produce at given the market demand. B. at all levels of output shifts marginal costs to the right. C. can also be interpreted as shifts of their respective marginal cost curves. D. shifts marginal costs to the right enabling both to produce more at any given market price.
B
______________ include all of the costs of production that increase with the quantity produced. A. Fixed costs B. Variable costs C. Average costs D. Average variable costs