Econ Test 2

In order to calculate marginal cost, the change in ______________ is divided by the amount of change in quantity. a. either total cost or variable cost b. increasing marginal returns c. either total cost or average cost d. decreasing marginal returns

a. either total cost or variable cost

Why would a typical U.S. business fail to take the social costs of pollution into consideration during the development of their operating strategies? a. government regulated the limits for how much pollutant can be emitted b. the range of flexible, market-oriented pollution control policies are flawed c. it isn't required to pay any of the cost of cleaning up its pollution d. it is following the principle of voluntary exchange of benefits

c. it isn't required to pay any of the cost of cleaning up its pollution

Which of the following is most likely to be a monopoly? a. local television broadcaster b. local fast-food restaurant c. local electricity distributor d. local bathroom fixtures shop

c. local electricity distributor

______________________ include both the private costs incurred by firms and also costs incurred by third parties outside the production process. a. Private costs b. Social costs c. Market costs d. External costs

b. Social costs

I'MABigCorp. produces and sells kitchen wares. Last year, it produced 7,000 can openers and sold each one for $6. To produce the 7,000 can openers, the company incurred variable costs of $28,000 and a total cost of $45,000. I'MABIGCorp.'s average fixed cost to produce the 7,000 can openers was a. $2.25 b. $1.50 c. $2.43 d. $1.23

c. $2.43

If accounting profits for a firm are 20% of output, and the opportunity cost of financial capital is 8% of output, then what do the firm's economic profits equal? a. 8% of output b. 6% of output c. 12% of output d. 10% of output

c. 12% of output

A firm that holds a monopoly position in the market place is a. monopolistically competitive b. a price taker c. a price maker

c. a price maker

An individual who wants others to pay for public goods, but plans to use those goods for their own purposes, is often referred to as a _____________________. a. tax evader b. excludable c. free rider d. nonexcludable

c. free rider

____________________________ occur when the marginal gain in output diminishes as each additional unit of input is added. a. Diminishing average returns b. Diminishing variable returns c. Diminishing marginal costs d. Diminishing marginal returns

d. Diminishing marginal returns

Some economists argue that if privately owned firms were required to pay the social costs of their pollution, the result would be: a. each would create less pollution b. each would lower production to decrease pollution levels c. the price of goods will rise d. all of the answers

d. all of the answers

A positive externality arises in a situation where a third party, outside the transaction, a. suffers from a market transaction by others. b. fails to allocate resources efficiently. c. pays a pollution tax to balance social costs. d. benefits from a market transaction by others.

d. benefits from a market transaction by others.

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. monopolistic competition b. oligopolistic competition c. natural monopoly d. predatory pricing

d. predatory pricing

Under perfect competition, any profit-maximizing producer faces a marginal revenue equal to its a. variable costs b. total costs c. average costs d. price

d. price

For a positive externality, _____________________ than the social benefits. a. social costs of an action are less b. private benefits of an action are more c. social benefits of an action are more d. private benefits of an action are less

d. private benefits of an action are less

A monopolist is able to maximize its profits by a. setting the price at the level that will maximize its per-unit profit. b. setting output at MR = MC and setting price at the demand curve's highest point. c. producing maximum output where price is equal to its marginal cost. d. producing output where MR = MC and charging a price along the demand curve.

d. producing output where MR = MC and charging a price along the demand curve.

If a graph is used to compare total revenue and total cost of a perfectly competitive firm, then the horizontal axis of the graph will represent the __________ and the vertical axis will represent ________________________________. a. price, measured in dollars; quantity of goods produced b. total costs measured in dollars; quantity of goods produced c. quantity produced; total revenue and total variable costs, measured in dollars. d. quantity produced; both total revenue and total costs, measured in dollars.

d. quantity produced; both total revenue and total costs, measured in dollars.

Fixed costs are important because, at least in the ___________, the firm _______________. a. short run; can alter them b. long run; cannot alter them c. long run; can alter them d. short run; cannot alter them

d. short run; cannot alter them

If a firm's revenues do not cover its average variable costs, then that firm has reached its ________________. a. marginal point b. opportunity margin c. price taking point d. shutdown point

d. shutdown point

In a free market economy, firms operating in a perfectly competitive industry are said to have only one major choice to make. Which of the following correctly sets out that choice? a. what quality to produce b. what quantity of labor is needed c. what price to charge d. what quantity to produce

d. what quantity to produce

In order for a good to be classified as _____________________, when one person uses the good, others are also able to use it. a. unexcludable b. unrivalrous c. nonrivalrous d. nonexcludable

c. nonrivalrous

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 large and its price too high. b. output will be too large and its price too low. c. output will be too small and its price too high. d. output will be too small and its price too low.

c. output will be too small and its price too high.

___________ include all spending on labor, machinery, tools, and supplies purchased from other firms. a. Total costs b. Total revenues c. Total profits d. Total profit margins

a. Total costs

_____________ is calculated by taking the quantity of everything that is sold and multiplying it by the sale price. a. Total revenue b. Total cost c. Total profits d. Average profit margin

a. Total revenue

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. could likely result in a notable loss of sales to competitors b. is a sure sign the firm is raising the given price in the market c. will cause the firm to recover some of its opportunity costs

a. could likely result in a notable loss of sales to competitors

Economic profit can be derived from calculating total revenues minus all of the firm's costs, a. including its opportunity costs. b. excluding its marginal revenue. c. excluding its opportunity costs. d. including its marginal revenue.

a. including its opportunity costs.

The economies-of-scale curve is a long-run average cost curve, because a. it allows all factors of production to change. b. only variable costs are allowed to change. c. fixed costs cannot be changed. d. only marginal costs are allowed to change.

a. it allows all factors of production to change.

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. keep the business open in the short-run, but plan to go out of business in the long-run. b. raise her prices above the perfectly competitive level set by the market. 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.

a. keep the business open in the short-run, but plan to go out of business in the long-run.

Deregulation occurs when a government eliminates or scales back rules relating to all but one of the following. Which one is it? a. natural monopoly b. conditions of entry in a certain industry c. prices that can be charged d. quantities that can be produced

a. natural monopoly

When it is costly or impossible to exclude someone who hasn't paid to use a particular good from using it, then that good is classified as being a. nonexcludable b. free rider c. public good

a. nonexcludable

Firms operating in a market situation that creates ______________________, sell their product in a market with other firms who produce identical or extremely similar products. a. perfect competition b. perfect monopoly c. a free-market d. an oligopoly

a. perfect competition

The term _______________ refers to a firm operating in a perfectly competitive market that must take the prevailing market price for its product. a. price taker b. trend setter c. price setter d. business entity

a. price taker

Why would labor be treated as a variable cost? a. producing larger quantities of a good or service generally requires more workers b. labor costs are an input cost that firms are unable to change in the short run c. they are costs incurred in the act of producing that will decrease with quantity produced d. they are made before production starts and vary according to the specific line of business

a. producing larger quantities of a good or service generally requires more workers

The marginal cost curve is generally ______________, because diminishing marginal returns implies that additional units are ________________________. a. upward-sloping; more costly to produce b. downward-sloping; more costly to produce c. upward-sloping; less costly to produce d. downward-sloping; less costly to produce

a. upward-sloping; more costly to produce

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. total cost c. fixed costs d. opportunity costs

a. variable costs

If you are highly asthmatic, then having high levels of industrial air pollutants waft over your house every day a. would be a negative externality. b. is a voluntary exchange. c. would be an external voluntary exchange. d. is positively a voluntary exchange.

a. would be a negative externality.

Which of the following would be classified as a situation where a third-party benefits from a market transaction by others? a. Increased levels of air pollution in neighborhoods near a football stadium. b. City buying 10,000 trees for green space renewal projects. c. Allowing a mining company to use a natural lake to discharge waste. d. Two firms trading pollution credits to avoid cutting their toxic emissions.

b. City buying 10,000 trees for green space renewal projects.

____________ refers to the additional revenue gained from selling one more unit. a. Economic profit b. Marginal revenue c. Accounting profit d. Total revenue

b. Marginal revenue

________________________ arises where many firms are competing in a market to sell similar but differentiated products. a. Perfect competition b. Monopolistic competition c. Oligopolistic competition

b. Monopolistic competition

______________ include all of the costs of production that increase with the quantity produced. a. Average variable costs b. Variable costs c. Average costs d. Fixed costs

b. Variable costs

When the quantity of environmental protection is low so that pollution is extensive, then there are usually __________________ to reduce pollution and the __________________. a. a few inexpensive and easy ways; average benefit is slightly higher b. a lot of cheap and easy ways; marginal benefits of doing so are quite high c. only a few expensive and innovative methods; average benefits are higher d. a lot of expensive and innovative methods; marginal benefits are quite high

b. a lot of cheap and easy ways; marginal benefits of doing so are quite high

The marginal revenue curve for a monopolist _________ the market demand curve. a. always is the same b. always lies beneath c. always runs parallel d. always rises above

b. always lies beneath

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. variable b. average c. marginal d. fixed

b. average

In order to determine ____________, the firm's total costs must be divided by the quantity of its output. a. variable cost b. average cost c. fixed costs d. diminishing marginal returns

b. average cost

Which of the following would be classified as a positive externality? a. reselling outdated textbooks to under-funded public schools b. converting a derelict empty lot to a public vegetable garden c. removing government education subsidies for public schools d. a surcharge for ambulance service is shifted to property taxes

b. converting a derelict empty lot to a public vegetable garden

Market failure describes a situation in which the market itself ______________________ in a way that balances social costs and benefits. a. incurs the costs outside the production process b. fails to allocate resources efficiently c. avoids externalities d. remains outside the transaction

b. fails to allocate resources efficiently

Why are some producers forced to sell their products at the prevailing market price? a. they can increase output without affecting quality b. high degree of similarity to competitor's products and small part of market c. price takers find market analysis is too costly

b. high degree of similarity to competitor's products and small part of market

In the ______________, the perfectly competitive firm will react to losses by ______________________. a. long run; increase capital inputs b. long run; exit market c. short run; exit market d. short run; increase production

b. long run; exit market

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. purchaser's opportunity cost b. price of competing products c. size of competing products d. geographic origin of products

b. price of competing products

When a firm invests in new technology, the _____________________ that the firm receives are _____________________. a. social benefits; about one-third of the overall private benefits b. private benefits; only a portion of the overall social benefits c. social benefits; only a portion of the overall private benefits d. private benefits; about three-quarters of the economic benefits

b. private benefits; only a portion of the overall social benefits

There is a skating rink in your city that is open to anybody to use at any time. They even provide skates for people who don't own any. This is an example of a good that is a. nonrivalrous and nonexcludable b. rivalrous and nonexcludable c. rivalrous and excludable d. nonrivalrous and excludable

b. rivalrous and nonexcludable

Whatever the firm's quantity of production, _____________ must exceed total costs if it is to earn a profit. a. average costs b. total revenue c. variable costs d. marginal costs

b. total revenue

______________________ describes a situation where a third party, outside the transaction, suffers from a market transaction by others. a. A spillover b. Positive externality c. Negative externality d. A market failure

c. Negative externality

Which one of the following is the most accurate description of a monopolist? a. a firm that is very large relative to all its competitors within a narrow product class b. a sole producer of a narrowly defined product class, such as brown, Grade A eggs produced in Eagle County, Colorado 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

c. a sole producer of a product for which good substitutes are lacking in a market with high barriers to entry

What happens in a perfectly competitive industry when economic profit is greater than zero? a. new firms may enter the industry b. there may be pressure on the market price to fall c. all of these d. existing firms may expand their operations

c. all of these

The _____________________ curve will always lie below the curve for average cost because average cost includes _____________ in the numerator of the calculation. a. marginal cost; total costs b. average variable cost; total costs c. average variable cost; fixed costs d. marginal cost; fixed costs

c. average variable cost; fixed costs

When __________________ exist, doubling of all inputs will result in more than doubling output, which means __________________________________________. a. low labor inputs; larger scale of production leads to higher costs. b. labor inputs; economies-of-scale curve is U-shaped. c. economies of scale; a larger factory can produce at a lower average cost than a smaller company. d. economies of scale; a smaller factory can produce at a lower average cost than a larger company.

c. economies of scale; a larger factory can produce at a lower average cost than a smaller company.

The term "constant returns to scale" describes a situation where a. the quantity of output rises and the average cost of production falls. b. expanding all inputs changes the average cost of production. c. expanding all inputs does not change the average cost of production. d. a larger-scale firm can produce at a lower cost than a smaller-scale firm.

c. expanding all inputs does not change the average cost of production.

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. variable costs; do not change b. fixed costs; are consistently changing c. fixed costs; do not change d. variable costs; are constantly changing

c. fixed costs; do not change

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. acquire rights for its investors to produce and sell their products c. raise prices, cut production, and realize positive economic profits. d. have legal protection to prevent copying its methods of production for commercial use.

c. raise prices, cut production, and realize positive economic profits.

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

c. short run; losses are smallest

Which of the following should typically be ignored because spending has already been made and cannot be changed? a. variable costs b. average marginal costs c. sunk costs d. marginal costs

c. sunk costs

A perfectly competitive industry is a. very common b. a realistic assumption c. very rare d. not even close to possible

c. very rare

In economics, a firm that faces no competitors is referred to as _________________. a. a perfect competitor b. an oligopolizor c. an oligopoly d. a monopoly

d. a monopoly

An _________________ is calculated by subtracting the firm's costs from its total revenues, _______________________. a. accounting profit; including opportunity cost b. economic profit; excluding opportunity cost c. opportunity cost; including economic profit d. accounting profit; excluding opportunity cost

d. accounting profit; excluding opportunity cost

The slope of the demand curve for a monopoly firm is a. upward sloping b. horizontal, parallel to the x-axis c. vertical, parallel to the y-axis d. downward sloping

d. downward sloping

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. diseconomies of scale d. economies of scale

d. economies of scale

If a competitive firm experiences a shift in costs of production that decreases marginal costs at all levels of output, a. the firm's demand curve will also shift to the left. b. producing less at any market price will off-set marginal cost. c. the firm's marginal cost curve will shift to the left. d. expanding output levels at any given price will be profitable.

d. expanding output levels at any given price will be profitable.

The term _____________ is used to describe the additional cost of producing one more unit. a. variable cost b. average cost c. fixed cost d. marginal cost

d. marginal cost

A public good is a good that is _____________________, and thus is difficult for market producers to sell to individual consumers. a. excludable or rivalrous b. unexcludable or unrivaled c. excludable and rivalrous d. nonexcludable and nonrivalrous

d. nonexcludable and nonrivalrous

Government _____________ regulations specify that inventors will maintain exclusive legal rights to their respective inventions for _______________. a. copyright; a limited time b. trademark; an unlimited time c. trade secret; an unlimited time d. patent; a limited time

d. patent; a limited time

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. accountant's fees for preparing tax returns b. costs of purchasing art work to sell in the gallery c. wages paid to three part-time employees d. physical space for the gallery

d. physical space for the gallery