Microeconomics Test 2

If the percentage change in the quantity supplied of a good is less than the percentage change in price of the good, the good is said to have a(n): A) inelastic supply. B) unit elastic supply. C) elastic supply. D) perfectly elastic supply.

inelastic supply

Price in a perfectly competitive market: A) is affected by government policies. B) is determined by the dominant seller. C) is affected by the combined decision of all sellers and buyers. D) is determined by buyers alone.

is affected by the combined decision of all sellers and buyers.

Marginal revenue: A) is the change in total revenue associated with producing one more unit of output. B) is the product of the price of a good and its quantity sold minus the cost of production. C) is always greater than the total revenue. D) is always equal to the price of the good.

is the change in total revenue associated with producing one more unit of output

As the amount of inventories maintained by a firm increases:

its elasticity of supply increases

A firm sells 20 units of a good at a price of $5 per unit. If the average cost of production of the good equals $3 per unit, the firm's revenue is:

$100

A firm with a fixed cost of $300 every month and variable cost of $200 every month decides to shut down. In such a situation it would lose:

$300 every month

Suppose a market has only one seller and only one buyer of a good in the market. The buyer is willing to pay $50 for the good and the seller is willing to accept $15. The market price of the good is determined at $30. If they trade, the social surplus will be ________

$35

If a seller enjoys a producer surplus of $30 when he sells a good for $79, his reservation value for the good is ________

$49

A firm has an average total cost of $50. If it sells 20 units of its product at $80 each, what is its profit?

$600

If a buyer enjoys a consumer surplus of $25 when he purchases a good for $50, his willingness to pay for the good is ________

$75

A firm producing 10 units of output incurs a total cost of $800. When it produces 11 units, the total cost increases to $890. What is the marginal cost of producing the eleventh unit?

$90

When the price of a good increases by 300%, the quantity supplied of the good increases from 200 units to 900 units. The price elasticity of supply (use the midpoint method to compute percentage change) of the good is: A) 0.42. B) 1.5. C) 0.33. D) 1.67.

0.42

The total cost of a firm is $50, the average variable cost is $2, and the average fixed cost is $3. How may units of the output does the firm produce?

10 units

A firm produced 376 units with 10 workers. When the eleventh worker was hired, the output increased to 398 units. The marginal product of the eleventh worker is:

22 Units

A firm produces 200 units of a good when it employs 7 workers. The marginal product of the eighth worker is 46 units. If the eighth worker is hired, the firm's total product will increase to:

246 units

A firm earns $600 of total revenue from selling its product at $200 per unit. If the per-unit cost of producing the good is $150, the firm sells ________ units(s) of the good

3

If the price elasticity of supply of a good is 2, a 2% increase in the price of the good, will change the quantity supplied by: A) 0.5%. B) 1%. C) 2%. D) 4%.

4%.

Which of the following statements is true? A) When a nation has an absolute advantage over other nations in producing all the goods and services, it cannot gain from trade. B) Absolute advantage relates to production per units of inputs and comparative advantage involves the opportunity cost of producing different goods. C) When a nation has an absolute disadvantage over other nations in producing a good, it cannot gain from trade. D) Absolute advantage involves the opportunity cost of producing different goods and comparative advantage relates to production per units of inputs.

Absolute advantage relates to production per units of inputs and comparative advantage involves the opportunity cost of producing different goods.

Which of the following best describes a good with perfectly elastic supply? A) An increase in the price of the good leads to an increase in the seller's revenue. B) An increase in the price of the good decreases the quantity supplied of the good by more than the price change. C) An increase in the price of the good will induce the firm to supply its maximum possible quantity of the good. D) An increase in the price of the good increases the quantity supplied of the good exactly by the amount of the price change.

An increase in the price of the good will induce the firm to supply its maximum possible

________ occur when the average total cost falls as the quantity produced increases. A) Increasing marginal returns B) Decreasing marginal returns C) Economies of scale D) Diseconomies of scale

Economies of scale

Which of the following statements is true? A) In the long run, a firm cannot vary any of its inputs. B) In the long run, a firm can vary all its inputs. C) In the short run, a firm cannot vary any of its inputs. D) In the short run, a firm can vary all its inputs.

In the long run, a firm can vary all its inputs

Which of the following is an example of specialization? A) The output of workers in a chocolate factory doubled when a new manager was appointed. B) The cost of production of a light bulb making factory decreased as its capacity increased. C) Instead of a worker making an entire shoe, the total productivity increased when different workers were allotted different jobs in the production process. D) Import of better technology and machinery from developed countries greatly increased the number of laser printers that a company was manufacturing.

Instead of a worker making an entire shoe, the total productivity increased when different workers were allotted different jobs in the production process.

Which of the following examples best describes the concept of free entry? A) Jack has an old cell phone that he wants to sell. He opens an account on eBay and auctions it off. B) Purecircuit Corp. wants to expand its production, so it doubles its annual recruitment. C) To increase its market share, System Corp. decides to charge a price lower than the market price. D) The government enters the market to correct any shortage or surplus in the market for gasoline.

Jack has an old cell phone that he wants to sell. He opens an account on eBay and auctions it

Which of the following inputs can be most readily changed in the short run? A) Machinery B) Land owned C) Office Space D) Labor employed

Labor employed

Which of the following relationships correctly identifies the profit maximization condition of a firm in a perfectly competitive market? A) Marginal cost < Price = Marginal revenue B) Marginal cost > Price = Marginal revenue C) Marginal cost = Price = Marginal revenue D) Marginal cost = Price < Marginal revenue

Marginal cost = Price = Marginal revenue

$100 is to be divided among two individuals Mary and Jenna. Which of the following allocations is Pareto efficient? A) Mary receives $45, and Jenna receives $45. B) Mary receives $20, and Jenna receives $75. C) Mary receives $1, and Jenna receives $99. D) Mary receives $90, and Jenna receives $9.

Mary receives $1, and Jenna receives $99

Which of the following statements is true of the short run? A) Only some of a firm's input can be varied. B) All firms earn zero economic profits. C) All factors of production can be changed. D) All the factors of production are fixed.

Only some of a firm's input can be varied

Which of the following is true about price elasticity of supply? A) Price elasticity of supply = Percentage change in quantity supplied / Absolute change in price B) Price elasticity of supply = Percentage change in quantity supplied / Percentage change in price C) Price elasticity of supply = Percentage change in quantity supplied × Absolute change in price D) Price elasticity of supply = Percentage change in quantity supplied × Percentage change in price

Price elasticity of supply = Percentage change in quantity supplied / Percentage change in price

Which of the following statements is true? A) In the short run, a firm can vary all its inputs. B) In the long run, a firm cannot vary any of its inputs. C) Short-run cost curves lie above long-run cost curves. D) Short-run cost curves lie below long-run cost curves.

Short-run cost curves lie above long-run cost curves

Which of the following refers to diminishing marginal returns? A) The revenue of a cell phone manufacturer decreased when it increased its product price. B) The additional output produced in a firm decreased as more workers were hired. C) The profits of an entrepreneur increased substantially after he fired a few of his employees. D) The total output of a firm decreased as more workers were hired.

The additional output produced in a firm decreased as more workers were hired.

Which of the following situations depicts diseconomies of scale? A) The average total cost of a firm increases from $50 to $55 when it increases its production from 10 units to 20 units. B) The average total cost of a firm decreases from $50 to $40 when it increases its production from 10 units to 20 units. C) The average total cost of a firm remains at $50 when it increases its production from 10 units to 20 units. D) The average total cost of a firm remains at $50 when it decreases its production from 20 units to 10 units.

The average total cost of a firm increases from $50 to $55 when it increases its production from 10 units to 20 units.

Which of the following is an example of a variable cost?

The cost of electricity used in the office

Which of the following is NOT an element of a seller's decision-making process in a perfectly competitive market? A) The relationship between the inputs and outputs B) The cost of the inputs C) The price of the output D) The demand curve of consumers

The demand curve of consumers

Firm A and Firm B produce the same good but with different inputs. If the inputs used by firm A are more easily available than the inputs used by firm B, then which of the following statements is true? A) The elasticity of supply of firm A and firm B will be equal. B) The elasticity of supply of firm A will be higher than the elasticity of supply of firm B. C) The elasticity of supply of firm A will be lower than the elasticity of supply of firm B. D) The elasticity of supply of firm A and firm B cannot be compared without information on price change.

The elasticity of supply of firm A will be higher than the elasticity of supply of firm B

Which of the following statements is true of a perfectly competitive market? A) At equilibrium, it is possible to make someone better off without making someone else worse off. B) The equilibrium price in a competitive market efficiently allocates scarce resources to participants. C) The equilibrium price is determined by a few large firms in the market. D) The sum of consumer surplus and producer surplus is not maximized at the equilibrium.

The equilibrium price in a competitive market efficiently allocates scarce resources to participants

A firm uses workers, land, and machinery for its production process. Which of the following statements is then true? A) The only way the firm can change its output level in the long run is by changing the number of workers. B) The only way the firm can change its output level in the long run is by changing the amount of land it owns. C) The only way the firm can change its output level in the long run is by changing the amount of machinery. D) The firm can change its output level in the long run by changing any or all of its three inputs.

The firm can change its output level in the long run by changing any or all of its three inputs.

Which of the following statements is true of the gains to trade? A) The gains to trade expand as trading partners' production possibilities curves become more alike. B) The gains to trade shrink as trading partners' production possibilities curves become more alike. C) The trading nations can enjoy gains to trade even when none of these countries has a comparative advantage in the production of any good. D) The gains to trade are equal for all trading partners.

The gains to trade shrink as trading partners' production possibilities curves become more alike

Which of the following statements is true about the marginal product of labor? A) The marginal product initially decreases with the first few workers and then increases. B) The marginal product initially increases with the first few workers and then decreases. C) The marginal product decreases as more workers are hired. D) The marginal product increases as more workers are hired.

The marginal product initially increases with the first few workers and then decreases.

Which of the following statements is true of the marginal product of an input? A) The marginal product of an input is given by the ratio of the firm's total output to the units of the input used. B) The marginal product of an input increases as more and more inputs are used. C) The marginal product of an input can take negative values. D) The marginal product of the first unit of a variable input is zero.

The marginal product of an input can take negative values.

Which of the following statements about the short run and long run is true? A) The number of firms in the industry is fixed in the short run, but in the long run the number can change. B) Free entry and exit of firms is possible in the short run, but entry and exit of firms is restricted in the long run. C) The short-run average cost curves lies below the long-run average cost curves. D) A firm can vary all of its factors of production in both the short run and the long run.

The number of firms in the industry is fixed in the short run, but in the long run the number can change.

A firm producing calculators and cell phones purchases new machinery that increases the productivity of producing calculators. Assuming that the number of calculators produced is measured on the horizontal axis and the number of cell phones produced is measured on the vertical axis, how will the introduction of the new machinery change the firm's production possibilities curve? A) The production possibilities curve will shift to the left. B) The production possibilities curve will shift rightward. C) The production possibilities curve will pivot rightward about the vertical axis. D) The production possibilities curve will pivot rightward about the horizontal axis.

The production possibilities curve will pivot rightward about the horizontal axis

The social surplus in a market is $50. If another economic agent enters the market such that the marginal cost he incurs is $10 and the marginal benefit he receives from the trade is $5, then which of the following statements is true? A) The social surplus will remain the same. B) The social surplus will increase by $5. C) The social surplus will decrease by $5. D) The social surplus will increase by $10.

The social surplus will decrease by $5.

Two countries, A and B, produce Good X. Which of the following statements is true of the trading price of Good X? A) The trading price of Good X is less than the opportunity cost of producing the good in the two nations. B) The trading price of Good X is greater than the opportunity cost of producing the good in the two nations. C) The trading price of Good X lies between the opportunity costs of producing the good in the two nations. D) The trading price of Good X is always equal to the opportunity cost of producing the good in Country A.

The trading price of Good X lies between the opportunity costs of producing the good in the two nations.

Which of the following statements is true of the long run? A) There are no fixed inputs in the long run. B) Capital cannot be changed in the long run. C) Labor cannot be changed in the long run. D) A firm cannot alter its level of output in the long run.

There are no fixed inputs in the long run

Which of the following statements is true of a perfectly competitive market? A) Sellers in the market produce differentiated goods. B) There is free entry and exit in the market. C) There are only a few buyers and sellers in the market. D) Sellers and buyers both set prices to compete in the market.

There is free entry and exit in the market.

Which of the following statements identifies the difference between variable costs and fixed costs? A) Variable costs are the costs incurred on variable factors of production, whereas fixed costs are the costs incurred on all factors of production. B) Variable costs of a firm are zero after it shut downs, whereas it continues to incur the fixed costs of production in the short run. C) Variable costs exist even when the production is zero, whereas fixed costs exist only when there is some positive production. D) Variable costs are incurred only in the long run, whereas a firm incurs some fixed costs in both the short run and the long run.

Variable costs of a firm are zero after it shut downs, whereas it continues to incur the fixed costs of production in the short run

Which of the following statements is true? A) When two firms have exactly the same opportunity cost of producing two goods, each firm will always have a comparative advantage in the production of both the goods. B) When two firms have different opportunity costs of producing the same two goods, each firm will always have a comparative advantage in the production of one of the goods. C) The firm that has a lower opportunity cost of producing a good is said to have a comparative disadvantage in the production of that good. D) The firm that faces a lower opportunity cost in producing a good is said to have an absolute disadvantage in the production of that good.

When two firms have different opportunity costs of producing the same two goods, each firm will always have a comparative advantage in the production of one of the goods.

Exit of a firm refers to: A) a short-run decision by a firm to not produce anything. B) a long-run decision by a firm to leave the market. C) a refusal to work organized by a group of employees at the firm. D) an exclusion of employees of a firm from their place of work until certain terms are agreed upon by them.

a long-run decision by a firm to leave the market

Entry of new firms into an existing market causes:

a rightward shift of the market supply curve

In the long run: A) all factors of production are fixed. B) only some inputs of a firm can be changed. C) all firms earn positive economic profits. D) all factors of production can be changed.

all factors of production can be changed

Sellers in a perfectly competitive market: A) are price takers. B) sell differentiated goods and services. C) are not allowed to exit the market. D) are small in number.

are price takers

A firm should shut down in the short run if the price is less than the:

average variable cost

The marginal cost curve intersects: A) the total cost curve at its minimum. B) the average fixed cost curve at its maximum. C) the average fixed cost curve at its minimum. D) both the average variable cost curve and the average total cost curve at their minimum.

both the average variable cost curve and the average total cost curve at their minimum

When the marginal cost curve lies above the average cost curve, ________

both the marginal cost curve and the average cost curve slope upward

If a firm is a price taker, it A) can affect the market price of goods by changing its supply. B) can sell as much of any good as it wants at the prevailing market price. C) consults the government before fixing the price of its goods and services. D) is not free to enter a new market or exit from an existing market.

can sell as much of any good as it wants at the prevailing market price.

Specialization is the result of: A) hiring experienced workers. B) paying higher wages to workers that motivates them to work hard. C) division of labor where workers develop a certain skill set. D) increased demand for a firm's commodity.

division of labor where workers develop a certain skill set.

Free entry is said to exist in an industry when:

entry is unfettered by any special legal or technical barriers

A good with a perfectly inelastic supply has a price elasticity of supply A) equal to zero. B) between zero and one. C) equal to one. D) greater than one.

equal to zero

When price is less than the firms' minimum average total cost, ________. A) new firms will enter the market B) existing firms will leave the market C) prices are likely to fall further D) firms' profits are likely to be maximum

existing firms will leave the market

A business entity that produces goods or services is referred to as a(n):

firm

In the long run, under perfect competition: A) firms earn positive economic profit because of economies of scale. B) firms earn positive accounting profit because of government regulations. C) firms earn zero economic profit because of free entry and exit of firms. D) firms earn negative economic profit because of free entry and exit of firms.

firms earn zero economic profit because of free entry and exit of firms

In the short run, when a firm is about to begin production it pays only: A) variable costs. B) opportunity costs. C) sunk costs. D) fixed costs.

fixed costs

A good is said to have an elastic supply if its price elasticity of supply is: A) equal to zero. B) between zero and one. C) equal to one. D) greater than one.

greater than one

In a perfectly competitive market, because an individual seller tends to sell only an insignificant fraction of the total amount of the good produced: A) he can independently determine the market price. B) he can charge prices above the equilibrium price. C) his individual choices do not affect market price. D) he always earns positive profit.

his individual choices do not affect market price.

The long-run supply curve for a firm in a perfectly competitive industry is: A) negatively sloped. B) positively sloped. C) vertical. D) horizontal.

horizontal

The long-run average cost curve connects the lower part of the short-run cost curves because: A) prices of inputs are less when acquired for a longer time period. B) in the long run, firms have more flexibility to change input combinations. C) specialization of inputs increases productivity only in the long run. D) the firms earn positive profits in the long run.

in the long run, firms have more flexibility to change input combinations.

If the marginal cost of a perfectly competitive firm producing a good is $50 and the market price of the good is $100, the firm should:

increase its output

When the marginal product ________, the marginal cost ________. A) increases; remains the same B) remains the same; increases C) increases; increases D) increases; decreases

increases; decreases

A firm will maximize profit at the level of output where: A) its marginal revenue equals total cost. B) its marginal revenue equals marginal cost. C) its total cost equals total revenue. D) its average revenue equals average cost.

its marginal revenue equals marginal cost

In a competitive market, there are a ________ number of buyers and a ________ number of sellers.

large; large

The change in the total output of a firm associated with using one more unit of an input is referred to as the: A) marginal product of the input. B) total product. C) average product of the input. D) variable product of the input

marginal product of the input

The primary goal of a seller is to A) maximize sales. B) maximize profits C) minimize costs. D) minimize consumer surplus.

maximize profits

Profits of sellers represent their A) revenue. B) net benefits. C) sales. D) inventory.

net benefits.

A supply curve shows the relationship between: A) output and the total cost of production. B) output and prices. C) output and consumer income. D) output and revenue.

output and prices

If the quantity supplied falls to zero with a small decrease in the price of a good, the supply of the good is said to be

perfectly elastic

In a perfectly competitive market: A) price is greater than marginal revenue to sellers. B) price is equal to marginal revenue to sellers. C) price is greater than marginal cost to sellers. D) price is equal to marginal cost to sellers.

price is equal to marginal revenue to sellers

In the long run, a firm should exit when: A) price is less than average total cost. B) price is equal to average total cost. C) price is equal to marginal cost. D) price is more than marginal cost.

price is less than average total cost

Specialization occurs when each individual, firm, or country: A) produces only a few specific goods and relies on trade for the other goods and services it needs. B) is self-sufficient and produces all the goods and services it needs, without relying on imports. C) produces only those goods for which it has a higher opportunity cost of producing than the opportunity cost in other nations. D) produces only those goods which are in demand in the global market and allow for high rates of profitability.

produces only a few specific goods and relies on trade for the other goods and services it needs

The process by which inputs are transformed to outputs is referred to as:

production

The entry and exit of firms in a perfectly competitive market is mostly dependent on: A) the number of firms in the market. B) government regulations. C) profitability. D) the number of consumers in the market.

profitability

A short-run decision by a firm to not produce anything during a specific period is referred to as a(n):

shutdown

Increases in the marginal product of labor can be attributed to: A) specialization of workers. B) depreciation of capital. C) diminishing returns to workers. D) congestion and thus better use of work space.

specialization of workers.

The Law of Diminishing Marginal Returns states that: A) successive increases in inputs eventually lead to less additional output. B) successive increases in product prices lead to a fall in revenue. C) the demand for a good decreases as the price of the good increases. D) the net benefits of a perfectly competitive firm decrease as more firms enter the market.

successive increases in inputs eventually lead to less additional output.

Total cost of production refers to the: A) sum of variable costs and fixed costs. B) product of variable costs and fixed costs. C) difference between variable costs and fixed costs. D) ratio of variable costs to fixed costs.

sum of variable costs and fixed costs

When the marginal cost curve lies below the average cost curve, ________

the average cost curve slopes downward

The equilibrium price of a good sold in a competitive market is $10. If an individual firm decides to sell its product at a price higher than $10, ________

the firm will lose all its consumers

In a perfectly competitive market: A) the long-run market price is equal to the average fixed cost of the industry. B) the long-run market price is less than the minimum average cost of the industry. C) the long-run market price is more than the minimum average cost of the industry because of free entry and exit of firms. D) the long-run market price is equal to the minimum average cost of the industry because of free entry and exit of firms.

the long-run market price is equal to the minimum average cost of the industry because of free entry and exit of firms

If new firms are expected to enter an existing market, ________

the market price is likely to fall

The long-run supply curve of a firm is:

the portion of its marginal cost curve that lies above its average total cost curve

Total revenue earned from the sale of a good is: A) the price at which the good is sold. B) the difference between price and cost of production of the good. C) the product of price and quantity of the good sold in the market. D) the product of cost of production and quantity of the good sold in the market

the product of price and quantity of the good sold in the market

After the demand curve shifts to D2, if the price is held below the new equilibrium, then: A) the quantity demanded will equal the quantity supplied. B) the quantity demanded will be greater than the quantity supplied. C) the quantity demanded will be less than the quantity supplied. D) there will be zero deadweight loss.

the quantity demanded will be greater than the quantity supplied

A production function establishes the relationship between: A) the market price of a good and the sales revenue generated. B) the quantity of output produced and the firm's profit. C) the quantity of inputs used and the quantity of output produced. D) the market price of a good and the quantity of output supplied.

the quantity of inputs used and the quantity of output produced.

In a perfectly competitive market: A) the sellers produce identical goods. B) there are restrictions on the entry of new firms. C) each seller charges a different price for its product. D) bargaining over prices is a common phenomenon.

the sellers produce identical goods.

Marginal cost is the change in the: A) total cost associated with producing one more unit of output. B) average total cost associated with producing one more unit of output C) average variable cost associated with producing one more unit of output. D) opportunity cost associated with producing one more unit of output.

total cost associated with producing one more unit of output.

Profits equal: A) total revenue minus variable costs. B) revenue minus fixed costs. C) total revenue minus total costs. D) total revenue.

total revenue minus total costs

In a perfectly competitive market, the price in the long run: A) will always be more than the minimum average total cost of the industry. B) will always be less than the minimum average total cost of the industry. C) will always equal the minimum average total cost of the industry. D) will always equal the average fixed cost of the industry.

will always equal the minimum average total cost of the industry

In a perfectly competitive market, all firms in the long run earn: A) positive economic profit. B) positive accounting profit. C) zero economic profit. D) zero accounting profit.

zero economic profit