Questions
1. Resources, as defined broadly by economists, are
A. land and labor.
B. land, labor, and workers.
C. land, workers, and firms.
D. capital, land, and natural resources.
E. land, labor, and capital.
2. The transformation of resources into economic goods and services is called
A. technical efficiency.
B. resourcing.
C. production.
D. increasing returns.
E. output.
3. In economic theory, economists use the circular flow diagram to describe
A. consumers who lack any preference.
B. an indifference curve.
C. the relationship between output and resources.
D. the household sector.
E. the business sector.
4. Marginal physical product is
A. always increasing.
B. the maximum output that can be produced from different quantities of a variable resource.
C. the maximum output that can be produced from different quantities of a fixed resource.
D. the additional output produced from one more unit of a variable resource, holding other inputs constant.
E. None of the above.
5. Which of the following statements best represents the definition of marginal physical product?
A. The additional quantity that is produced when one additional unit of a resource is used in combination with the same quantities of all other resources
B. The total quantity that is produced when one additional unit of a resource is used in combination with the same quantities of all other resources
C. The total quantity that is produced when all additional units of a resource are used in combination with the same quantities of all other resources
D. The total amount produced in a specified time period
E. The additional quantity that is produced when all combinations of a resource are tried as an experiment
6. Every firm (and every individual and nation as well) is faced with the law of diminishing marginal returns. The law is a physical property rather than an economic one, but it is important to economics because
A. it defines the relationship between costs and output in the long run.
B. it defines the relationship between costs and output in the short run.
C. it defines the relationship between average costs and output in the long run.
D. it defines the relationship between marginal costs and output in the long run.
E. it defines the relationship between total revenue and output in the long run.
7. For any firm, it is always true that
A. as output rises, average fixed costs decline because the total fixed cost is divided by a larger and larger number of units produced.
B. as output rises, average fixed costs rise equally because of more intense resource utilization.
C. as output rises, average fixed costs quickly drop to zero.
D. as output rises, average fixed costs become a vertical line.
E. as output rises, average fixed costs decline and ultimately become negative.
8. Average fixed cost
A. is constant as output rises.
B. decreases as output rises.
C. increases with rising output and then declines.
D. intersects with average variable cost at the lowest average variable cost.
E. equals marginal cost at the lowest point of marginal cost.
9. Overhead costs are
A. identical to fixed costs.
B. the costs of variable inputs.
C. those costs that are not directly attributable to the production process.
D. the costs of labor inputs in the short run but not in the long run.
E. the costs associated with getting in over your head.
10. The sum of the prices that firms must pay for resources used in production times the quantity of resources used, for each quantity of output produced, is known as the firm's
A. total resource schedule.
B. total physical product schedule.
C. average physical product schedule
D. total cost schedule.
E. average total cost schedule.
Part 2
1. A firm's decision to supply a good or service
A. depends on total cost only.
B. depends on total revenue only.
C. depends on past profit of other firms in the industry.
D. depends on expected profit.
E. cannot be studied with the tools of economics.
2. The addition to a business firm's total receipts (revenue) that comes from selling one more unit of output is
A. total costs.
B. normal profit.
C. marginal costs.
D. marginal revenue.
E. total revenue.
3. To produce where marginal cost is equal to marginal revenue is called
A. the marginal-revenue rule.
B. the marginal-cost rule.
C. the profit-maximizing rule
D. breaking the rules.
E. being forced out of business.
4. The additional cost a firm acquires from selling an extra unit of output is
A. total cost.
B. marginal cost.
C. average cost.
D. fixed cost.
E. variable cost.
5. In general, the two extreme cases of market structure models are represented by
A. monopolistic competition and oligopoly.
B. oligopoly and monopoly.
C. oligopoly and perfect competition.
D. perfect competition and monopoly.
E. perfect monopoly and oligopolistic competition.
6. Firms operating in a perfectly competitive market are price takers because
A. they have a lot of market power.
B. they are unable to set a price that differs from the market price without losing profit.
C. they choose to set a price that differs from the market price but do not lose profit.
D. they choose to set a price that differs from the market price in order to gain market share.
E. in a perfectly competitive market, price is dictated through various government agencies.
7.If an industry has no barriers to entry, no product promotion strategy, a standardized product type, and a very large number of firms operating within it, the industry can be said to have
A. a monopoly market structure.
B. perfect competition.
C. differentiated market.
D. monopolistic competition.
E. an oligopoly market structure.
8. Monopoly is a market structure
A. in which there is just one firm and entry by other firms is not possible.
B. in which consumers have many places to buy the good.
C. in which there are a large number of close substitutes for the good.
D. that is characterized by ease of entry.
E. that is characterized by large expenditures on advertising.
9. A(n) __________ may offer products that are either differentiated or nondifferentiated.
A. monopolistically competitive firm
B. price taker
C. oligopolistic firm
D. perfectly competitive firm
E. monopoly
10. Regardless of market structure, firms maximize profits where
A. P=MR
B. P=MC
C. MR=MC
D. MC=AC
E. TR=TC
Part 3
1. The model of perfect competition best applies to markets with
A. a few firms selling identical products.
B. a few firms selling differentiated products.
C. many firms selling identical products.
D. many firms selling identical products.
E. significant barriers to entry and exit.
2. Since computer chip manufacturers, agriculture, and scrap metal processors are all industries that closely resemble perfect competition, the producers within each of these industries are considered to be
A. price takers.
B. price makers.
C. price searchers.
D. price maximizers.
E. price minimizers.
3. If a perfectly competitive firm lowers its price,
A. it will be able to gain more customers.
B. its profit will increase because demand is elastic.
C. it will lose all of its customers.
D. its total revenue will decrease since it can already sell as much as it produces at a higher price.
E. All of the above.
4. The demand curve of an individual firm in a perfectly competitive market structure is always
A. perfectly inelastic.
B. elastic.
C. unit elastic.
D. perfectly elastic.
E. inelastic.
5. In the short run, a perfectly competitive firm maximizes profit where
A. marginal revenue equals marginal cost.
B. price equals marginal cost.
C. the short-run average-total-cost curve reaches a minimum.
D. price equals marginal revenue
E. Both a. and b.
6. Economic profits are earned
A. when price is less than average fixed cost.
B. when price exceeds average total cost.
C. by perfectly competitive firms in the long run.
D. when marginal revenue equals marginal cost.
E. when price equals average variable cost.
7.In order to continue producing in the short run, a firm must earn sufficient revenue to pay
A. at least some of its variable costs.
B. all of its variable costs.
C. all of its fixed costs.
D. its total costs.
E. the owner a reasonable profit.
8. In the long run in a perfectly competitive market,
A. all firms can vary all of their resources.
B. firms will shut down permanently if TR is less than TC.
C. the number of firms can vary.
D. entry and exit of firms can occur.
E. All of the above.
9. If economic profits exist in a perfectly competitive market, then
A. firms will enter the market in the short run.
B. firms will enter the market in the long run.
C. firms will exit the market in the short run.
D. firms will exit the market in the long run.
E. there will be no change in the number of firms in the market.
10. "Commoditization" occurs when
A. firms spend too much on advertising expenditures.
B. firms devote more resources to differentiating their products from rivals.
C. the exit of firms increases.
D. as time goes on, a firm's product begins to have more and more substitutes and the product becomes increasingly standardized.
E. the firm becomes a commodity.
Part 4
1. Which of the following is an example of a monopoly?
A. Postal services in most nations are run by the government.
B. Cable television service in most areas is provided by a single company.
C. In most nations, money is printed by the central bank.
D. Electricity is delivered to your house by a single utility company.
E. All of the above
2. The reason that economies of scale can be a barrier to entry is that
A. the smaller the production facility is, the lower the per-unit cost to produce is.
B. the larger the production facility is, the higher the per-unit cost to produce is.
C. the larger the production facility is, the lower the per-unit cost to produce is.
D. small plants are always more efficient than large plants.
E. the lack of exclusive ownership of essential resources.
3. Marginal revenue is equal to
A. average revenue divided by quantity.
B. total revenue divided by quantity.
C. the change in total revenue divided by the change in quantity.
D. the change in average revenue divided by the change in quantity.
E. the demand curve in a monopolistic market.
4. If a monopolist is producing at a level of output at which marginal revenue equals marginal cost,
A. then the monopolist is maximizing profit.
B. then the monopolist is earning positive economic profit.
C. then the monopolist is charging a price equal to marginal cost.
D. All of the above
E. None of the above
5. Suppose that a monopolist produces at a profit-maximizing level of output at which the demand curve is just tangent to the average-total-cost curve. In such a situation,
A. price is equal to marginal cost.
B. the firm is producing at the minimum point of the average-total-cost curve.
C. the firm is earning zero economic profits.
D. the firm is earning positive economic profits.
E. the firm is earning negative economic profits.
6. The market supply in a monopoly is
A. vertical.
B. horizontal.
C. downward sloping.
D. the same as the monopoly firm's supply.
E. None of the above
7. If a monopolist is producing at that output at which price is less than average total cost, then the firm will
A. have to shut down permanently.
B. incur an economic loss.
C. earn both a positive economic profit and a normal profit.
D. earn only a normal profit.
E. earn a positive economic profit.
8. A price discriminating monopolist
A. produces quality products only.
B. does not sell products to minority groups.
C. must have a very large operation.
D. sells the same product in different markets at different prices.
E. would not engage in dumping.
9. The monopoly market structure
A. does not yield efficiency.
B. is efficient in the short run only.
C. is efficient in the long run only.
D. is efficient in both long and short runs.
E. is inefficient because price equals marginal cost in the long run.
10. Which of the following is not characteristic of a monopoly?
A. It is a market structure.
B. A monopolist is the sole supplier of a product.
C. The monopolist's product has no close substitutes.
D. To remain a monopoly, there must be barriers to entry.
E. Monopolists are price takers.