Economics 5

11. A natural monopoly occurs when: A) long-run average costs decline continuously through the range of demand. B) a firm owns or controls some resource essential to production. C) long-run average costs rise continuously as output is increased. D) economies of scale are obtained at relatively low levels of output.

A

114. If the four-firm concentration ratio for industry X is 80: A) the four largest firms account for 80 percent of total sales. B) each of the four largest firms accounts for 20 percent of total sales. C) the four largest firms account for 20 percent of total sales. D) the industry is monopolistically competitive.

A

12. Large minimum efficient scale of plant combined with limited market demand may lead to: A) natural monopoly. B) patent monopoly C) government franchise monopoly. D) shared monopoly.

A

13. Which of the following is not characteristic of pure competition? A) price strategies by firms C) no barriers to entry B) a standardized product D) a larger number of sellers

A

14. Which of the following is not a basic characteristic of pure competition? A) considerable nonprice competition C) a standardized or homogeneous product B) no barriers to the entry or exodus of firms D) a large number of buyers and sellers

A

16. Which of the following is characteristic of a purely competitive seller's demand curve? A) Price and marginal revenue are equal at all levels of output. B) Average revenue is less than price. C) Its elasticity coefficient is 1 at all levels of output. D) It is the same as the market demand curve.

A

168. An increasing-cost industry is the result of: A) higher resource prices which occur as the industry expands. B) a change in the industry's minimum efficient scale. C) X-inefficiency. D) the law of diminishing returns.

A

33. 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

37. The theory of consumer behavior assumes that : A) consumers behave rationally, maximizing their satisfactions. B) consumers have unlimited money incomes. C) consumers do not know how much marginal utility they obtain from succesive units of various products. D) marginal utility is constant.

A

76. In introducing the opportunity cost of time into the theory of consumer behavior we find that, all else equal: A) one should consume less of time-intensive goods. B) one should consume more of time-intensive goods. C) the consumer's equilibrium position is not altered. D) the marginal utility derived from each product must be multiplied by consumption time in determining equilibrium.

A

Units Total Marginal consumed utility utility 0 0 1 W 20 2 35 X 3 Y 10 4 40 Z 15. Refer to the above data. The value for X is: A) 15. B) 5. C) 55. D) 10.

A

Units Total Marginal consumed utility utility 0 0 1 W 20 2 35 X 3 Y 10 4 40 Z 17. Refer to the above data. The value for Z is: A) -5. B) + 5. C) -10. D) zero.

A

65. Diminishing marginal utility explains why: A) the income effect exceeds the substitution effect. B) the substitution effect exceeds the income effect. C) supply curves are upsloping. D) demand curves are downsloping.

D

Average Product is inverse of

Average Variable Costs (AVC)

100. Which of the following curves is not U-shaped? A) MC B) AFC C) AVC D) ATC

B

106. 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

129. If the four-firm concentration ratio in an oligopolistic industry is 100 percent and each firm has an equal percentage of sales, the Herfindahl Index is: A) 10,000. B) 2,500. C) 3,750. D) 1,000.

B

135. 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

21. The law of diminishing marginal utility states that: A) total utility is maximized when consumers obtain the same amount of utility per unit of each product consumed. B) beyond some point additional units of a product will yield less and less extra satisfaction to a consumer. C) price must be lowered to induce firms to supply more of a product. D) it will take larger and larger amounts of resources beyond some point to produce successive units of a product.

B

43. 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

60. The theory of consumer behavior assumes that consumers attempt to maximize: A) the difference between total and marginal utility. B) total utility. C) average utility. D) marginal utility.

B

72. When average fixed costs are falling: A) average total cost must be falling. B) average variable cost may be either rising or falling. C) marginal cost must be falling. D) average variable costs must be rising.

B

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 87.50 122. Refer to the above data. The average total cost of five units of output is: A) $69. B) $78. C) $3. D) $10.

B

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 87.50 124. Refer to the above data. If the firm closed down and produced zero units of output, its total cost would be: A) zero. B) $50. C) $150. D) $100.

B

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 87.50 126. Refer to the above data. The marginal cost curve would intersect the average variable cost curve at about: A) 2 units of output. B) 4 units of output. C) 6 units of output. D) 7 units of output.

B

Units Total Marginal consumed utility utility 0 0 1 W 20 2 35 X 3 Y 10 4 40 Z 16. Refer to the above data. The value for W is: A) 15. B) 20. C) 25. D) 30.

B

TFC = 10 Output ATC 1 $40 2 27 3 29 4 31 5 38 148. Refer to the above data. The average variable cost of 4 units of output is: A) $33.50. B) $28.50. C) $19.00. D) $21.00.

B ((ATC@4 * 4) - TFC) / 4

107. If a profitable firm's fixed costs somehow were zero: A) MC and ATC would be equal at all levels of output. B) AFC would become negative as output increases. C) AVC and ATC would coincide. D) ATC would be zero at all output levels.

C

116. As a general rule, oligopoly exists when the four-firm concentration ratio: A) exceeds the Herfindahl index. C) is 40 percent or more. B) is less than the Herfindahl index. D) is 15 percent or more.

C

117. 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. C) firm's total cost is $270. B) firm's ATC is $57. D) firm's total cost is $30.

C

122. Concentration ratios: A) may overstate the degree of competition because they ignore imported products. B) may overstate the degree of competition because interindustry competition is ignored. C) may understate the degree of competition because they ignore imported products. D) provide detailed insights as to the price and output behavior of firms which comprise the various industries.

C

13. 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

132. 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. C) TFC and TC are positive, but TVC is zero. B) TFC is positive, but TVC and TC are zero. D) TFC, TVC, and TC will all be positive.

C

133. 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

35. 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 (property), 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

41. 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. C) the law of diminishing returns. B) X-inefficiency. D) the law of diminishing marginal utility.

C

44. 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

75. Some modern theories of consumer behavior have: A) emphasized that consumption is basically an instantaneous act. B) contended that in the MUx /Px = MUy /Py equation MU is understated for time-intensive goods. C) introduced the opportunity cost of time as a component of product price. D) argued that inflationary expectations negate the theory of consumer behavior.

C

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

C

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 87.50 123. Refer to the above data. The total cost of four units of output is: A) $260. B) $77.50. C) $310. D) $215.

C

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 87.50 125. Refer to the above data. The marginal cost of the fifth unit of output is: A) $3. B) $62. C) $80. D) $78.

C

In the above figure, curves 1, 2, 3, and 4 represent the: A) ATC, MC, AFC, and AVC curves respectively. C) MC, ATC, AVC, and AFC curves respectively. B) AFC, MC, AVC, and ATC curves respectively. D) ATC, AVC, AFC, and MC curves respectively. (I can't import the pic)

C

TFC = 10 Output ATC 1 $40 2 27 3 29 4 31 5 38 149. Refer to the above data. The marginal cost of the fourth unit of output is: A) $2. B) $12. C) $37. D) $16.

C

Units Total Marginal consumed utility utility 0 0 1 W 20 2 35 X 3 Y 10 4 40 Z 18. The above data illustrate the: A) law of comparative advantage. C) law of diminishing marginal utility. B) utility-maximizing rule. D) law of increasing opportunity costs.

C

TFC = 10 Output ATC 1 $40 2 27 3 29 4 31 5 38 147. Refer to the above data. The total cost of producing 4 units of output is: A) $31. B) $87. C) $124. D) $108.

C ATC@4 * 4

10. 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

115. An industry having a four-firm concentration ratio of 85 percent: A) approximates pure competition. C) is a pure monopoly. B) is monopolistically competitive. D) is an oligopoly.

D

118. The relationship between marginal cost and average fixed cost is such that: A) declines in MC cause AFC to decline as output increases. B) increases in MC cause AFC to increase as output increases. C) MC intersects AFC at that output where AFC is at a minimum. D) MC may either rise or fall as AFC declines.

D

128. The Herfindahl Index: A) measures the prices charged by oligopolistic manufacturers. B) is another name for the four-firm concentration ratio. C) tells us whether oligopolistic firms are engaging in collusion. D) gives much greater weight to larger firms than to smaller firms in an industry.

D

136. Suppose that firms in an industry miraculously split up such that there were 100 firms, each with a one percent market share. The four-firm concentration ratio and the Herfindahl Index respectively would be: A) 100 percent and 10,000. B) 4 percent and 4. C) 100 percent and 16. D) 4 percent and 16.

D

139. Which of the following is not a possible source of natural monopoly? A) large-scale network effects. C) greater use of specialized inputs. B) simultaneous consumption. D) rent-seeking behavior.

D

88. (Consider This) Newspapers dispensing devices seemingly "trust" people to take only a single paper but the devices actually rely on the law of: A) supply. B) increasing opportunity costs. C) demand. D) diminishing marginal utility.

D

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 87.50 121. Refer to the above data. Total fixed cost is: A) $6.25. B) $100.00. C) $150.00. D) $50.00.

D

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 87.50 127. Refer to the above data. If the firm decided to increase its output from 6 to 7 units, its total costs would rise by: A) $87.14. B) $80.00. C) $6.67. D) $120.00.

D

TFC = 10 Output ATC 1 $40 2 27 3 29 4 31 5 38 150. Refer to the above data. The profit-maximizing level of output for this firm: A) is 3. B) is 4. C) is 5. D) cannot be determined from the information given.

D

Units Total Marginal consumed utility utility 0 0 1 W 20 2 35 X 3 Y 10 4 40 Z 14. Refer to the above data. The value for Y is: A) 25. B) 30. C) 40. D) 45.

D

Marginal Product is inverse of

Marginal Cost (MC)