Reference no: EM13317452

1. The firm maximizes its profit by producing that quantity of output for which

a. marginal revenue equals total revenue

b. marginal revenue exceeds marginal cost by the greatest amount

c. price is the greatest distance above average total cost

d. marginal cost equals marginal revenue

e. marginal cost equals average cost

2. Themarginal rate of substitution assumes that

a. prices remain unchanged

b. income remains unchanged

c. total utility remains unchanged

d. total expenditures remain unchanged.

e. all of the above are assumed

3. In perfect competition

a. firms sell their products at the market price, which they are incapable of influencing

b. firms produce virtually identical products

c. firms can easily enter and leave the industry

d. there are many buyers and sellers

e. all of the above

4. Justina s operates in a perfectly competitive market. Which of the following is its short-run supply curve?

a. the MC curve above its point of intersection with the ATC curve

b. the market supply curve, since Justina s is in a perfectly competitive market

c. the MC curve above its point of intersection with the AVC curve

d. its MC curve

e. none of the above

5. Regardless of market structure, all firms

a. consider the individual actions of rival firms

b. maximize profits by setting average revenue equal to marginal revenue

c. produce standardized products

d. have the ability to set the prices for their products

e. face diminishing marginal returns in the short run

6. Of the following products, which is most standardized?

a. pizza

b. concrete

c. automobiles

d. clothing

e. paintings

7. Which of the following firms is the closest to being a perfectly competitive firm?

a. a hot dog vendor in Chicago

b. Microsoft Corporation

c. KIA Motor Company

d. the campus bookstore

e. a public university

8. Firms are assumed to be price takers in a perfectly competitive market because

a. they are not allowed by law to charge any price other than the market price

b. they must accept any price offered by consumers

c. they earn high enough profits at the market price, so they do not want to hurt consumers by raising their prices

d. each firm is too small to influence the market price

e. there are too few buyers in the market to absorb price changes

9. When firms become so large that they have to add additional layers of management and decision making becomes more cumbersome,

a. economies of scale are said to occur

b. marginal cost begins to fall in the short run

c. marginal cost begins to rise in the short run

d. the long-run average cost curve is flat

e. the long-run average cost curve slopes upward

10. The minimum points of the average variable cost and average total cost curves

occur where

a. the marginal cost curve lies below the average variable cost and average total 

cost curves

b. the marginal cost curve intersects those curves

c. wages are the lowest

d. the slope of total cost is the smallest

e. the elasticity of demand is unitary

11. If marginal cost is less than average total cost then

a. profits are increasing

b. economies of scale are becoming greater

c. average total cost remains constant

d. average total cost is increasing

e. average total cost is decreasing

12. When long-run average cost decreases as output increases, the firm experiences

a. decreasing total cost

b. economies of scale

c. constant returns to scale

d. diseconomies of scale

e. both a and d.

13. A perfectly competitive firm will continue producing in the short run as long as it can cover its

a. Total cost

b. Fixed cost

c. Marginal fixed cost

d. Average total cost..

e. None of the above.

14. The firm is assumed to

a. maximize profit per unit of output

b. maximize total revenue

c. maximize assets

d. produce at the lowest point on its average total cost curve

e. maximize profit

15. Diseconomies of scale

a. are caused by diminishing returns

b. are exacerbated by agglomeration diseconomies

c. only occur in the long run

d. both a. and b..

e. none of the above

16. The demand curve for a firm in perfect competition is

a. downward sloping because of diminishing marginal utility

b. downward sloping, coinciding with the firm's marginal revenue curve

c. horizontal, coinciding with the firm's average revenue

d. both a. and b.

e. none of the above

17. Carla has been working for a law firm and earning an annual salary of $80,000. She decides to open her own practice. Her annual expenses will include $15,000 for office rent, $3,000 for equipment rental, $1,000 for supplies, $1,200 for utilities, and a $35,000 salary for a secretary/book keeper. Carla will cover her start-up expenses by cashing in a $20,000 certificate of deposit on which she was earning annual interest of $1,000. Assuming that there are no additional expenses, Carla s total annual cost of production will equal

a. $55,200

b. $221,400

c. $91,000

d. $136,200

e. None of the above

18. Which of the following factors would be the most useful in determining the structure of a market?

a. the number of firms in the market

b. the price of the product sold in the market

c. the size of the physical structure

d. the geographical dispersion of the market

e. the age of the market

Assume Carrie s utility information appears above. Assume the price of dolls is $5 and the price of pizza is $5. Carrie s income is $25.

Quantity of Marginal Utility Quantity of Marginal Utility

Dolls per Doll Frozen Pizzas per Pizza

1 30 1 18

2 25 2 16

3 20 3 14

4 15 4 12

5 10 5 10

19. To maximize utility, how many dolls should Carrie buy?

a. 1

b. 2

c. 3

d. 4

e. 5

20. When Carrie maximizes utility from purchasing pizza and dolls, her total utility will be

a. 154

b. 123

c. 124

d. 92

e. none of the above

21. The law of diminishing marginal returns states that as additional units of a variable input are added to

a. fixed amounts of other inputs, total output will eventually decline

b. varying amounts of other inputs, total output will eventually decline

c. fixed amounts of other inputs, the resulting increases in total output will eventually become smaller

d. varying amount of other inputs, the resulting increases in total output will eventually become smaller

e. a declining amount of output, technology will eventually deteriorate

22. Steak is a normal good. If the price of steak increases,

a. the income effect on the demand for steak will reinforce the substitution effect

b. the income effect on the supply of steak will, to some extent, offset the

substitution effect

c. the budget line will rotate outward

d. consumers' purchasing power will increase

e. the budget line will shift outward

23. The law of diminishing returns is evidenced by

a. rising average fixed cost.

b. falling average variable cost.

c. rising marginal cost.

d. marginal cost below average total cost.

e. none of the above.

24. Which of the following formulas is not correct?

a. ATC = AVC + (TFC/Q)

b. TVC = TC/Q

c. TC = TFC + TVC

d. AFC = TFC/Q

e. TVC = AVC Q

25. Figure G-7 shows the total cost for six different levels of output at a particular firm. What is the average total cost (ATC) of producing four units of output?

a. $2400

b. $400

c. $800

d. $200

e. none of the above

26. Figure G-7 shows the total cost for six different levels of output at a particular firm. What is the marginal cost (MC) of the last unit of output listed in the table (i.e., the fifth unit of output)?

a. $2,700

b. $540

c. $100

d. $90

e. $500

27. Figure G-7 shows the total cost for six different levels of output at a particular firm. The total fixed cost (TFC) associated with the fifth unit of output (i.e., the last one in the table) is

a. $1,700 c. $1,000 e. $2,700

b. $540 d. $100

28. Which of the following is the best example of a variable cost?

a. property taxes

b. lease payments for equipment rental

c. rent on office space

d. wages for hourly workers

e. interest on outstanding loans

29. The short run for Bill s Beanery is defined as

a. one year

b. one month

c. the period of time during which all inputs are variable

d. the period of time during which at least one input is fixed

e. the time needed for a transaction to occur

30. If MUx/Pxexceeds MUy/Py, then the consumer should

a. consume more of good X and less of good Y

b. consume less of good X and more of good Y

c. consume less of both goods X and Y

d. not change the consumption levels of X and Y

e. consume more of good Z

31. A consumer s budget constraint shows

a. the utility that an individual would receive from consuming various combinations of two goods

b. the combinations of two goods that an individual is able to purchase, given prices and income

c. how income is influenced by prices of goods

d. how changes in income affect utility

e. the relationship between prices and income

32. At 30 units of output, a firm s marginal cost and average variable cost each equal $10. Therefore, assuming normally shaped cost curves, at 31 units of output its marginal cost:

a. is greater than $10 and its average cost is less than $10

b. is less than $10 and its average variable cost is more than $10

c. and its average variable cost are each greater than $10

d. and its average variable cost are each equal to $10

e. none of the above

33. Which of the following is an implicit cost?

a. salaries paid to owners who work for the firm

b. interest on money borrowed to finance equipment purchases

c. cash payments for raw materials

d. wages paid to hourly employees

e. foregone rent on office space owned and used by the firm

34. The term utility in economics refers to the

a. satisfaction received by individuals from consuming goods and services

b. real income available to consumers for purchasing goods and services

c. relationship between the demand for a product and the supply of a product

d. slope of the budget line

e. none of the above

35. The law of diminishing marginal utility

a. is valid only after basic necessities (e.g., food, shelter) have been obtained

b. says that marginal utility eventually decreases as more of a good is consumed

c. implies that spending on a good will decrease as more of that good is consumed

d. says that marginal utility decreases as income increases

e. implies that spending on a good will decrease as income increases

36. If Carl asks for a second helping of pancakes, then his

a. second helping must be free

b. marginal utility of the second helping must be rising

c. price per helping is low

d. marginal utility of the second helping must be positive

e. marginal utility of the second helping must be less than the marginal utility of the first helping

37.Mary wants to get more money from her house cleaning business. Why doesn t Mary try to increase her revenue by lowering her price below the prevailing market price?

a. she can sell as much as she wishes to at the market price

b. she faces a perfectly inelastic demand curve, so a price change will have no impact 

on revenue

c. because her costs will increase

d. if she lowers his price, she will lose all her sales since she faces a horizontal demand curve

e. agreements with other house cleaning companies require her to sell at the market price

38. Indifference curves that are convex from the origin (as they are typically drawn) imply

a. diminishing marginal utility

b. diminishing marginal rate of productivity

c. that as we move down an indifference curve, the marginal rate of substitution increases

d. a. and b.

e. none of the above.

39. A natural monopoly is

a. a monopoly which involves exploitation of a natural resource, such as oil or gas.

b. a monopoly composed of several producers all exclusively exploiting the same technology

c. a monopoly based on natural technological advantages rather than artificial, legal advantages

d. a monopoly average costs are continuously falling over the relevant range of output

e. none of the above.

40. Minimum efficient scale or level of production

a. occurs when the price is just sufficient to cover variable costs.

b. occurs when the level of output is sufficient to reach the low point in the short run average total cost curve

c. Occurs before diminishing marginal productivity sets in..

d. Occurs when average product is maximized

e. None of the above