Question

1.In the long run, a firm in a perfectly competitive industry will supply output only if its total revenue covers

Select one:

accounting costs

opportunity costs

2.The defining characteristic that makes a good a public good is that

Select one:

it is provided by government

it is rival in consumption

it is non-excludable

all of the answers are correct

3.

If the marginal rate of substitution (MRS) of an indifference curve increases the indifference curve will

Select one:

become flatter

become steeper

shift inward

shift outward

4.

Compared to a monopolistic competitor, a monopolist faces

Select one:

a more elastic demand curve

a more inelastic demand curve

a more elastic demand curve at higher prices and a more inelastic demand curve at lower prices

a demand curve with zero price elasticity

5.

When there is an increase in the monopolist’s fixed costs in the short run

Select one:

the average variable cost curve shits upwards

the marginal cost curve shits upwards

the average (total) cost curve shifts upwards

the monopolist decreases output

6.

The Orbiter bus (fare paying public transport managed by the council) in Christchurch is

Select one:

non-excludable and rival

excludable and rival

excludable and sometimes rival

non-excludable and sometimes rival

7.

Using the following functions:

              Qd = 15 – 2P

              Qs = 3P - 6

if a tax of 20 cents is imposed on the market, the Qs + Tax function would become

Select one:

3P - 6.20

3P - 5.40

3P - 6.60

3P - 26

8.

A cooperative equilibrium results when firms

Select one:

choose the best strategy regardless of what other players do

choose the strategy that maximizes the total game payoff

choose the strategy that minimizes the payoff to other players

choose a strategy by random chance

9.

The price that a perfectly competitive firm receives for its output

Select one:

is determined by the interaction of the firm and all of the consumers who buy from the firm

is determined by the interaction of all sellers and all buyers in the firm's market

will not change in response to changes in market demand and supply because the firm is a price taker

will be lowered by the firm in order to sell more output

10.

A supply curve usually has a negative x-axis intercept because

Select one:

price elasticity of supply is usually negative

the supply curve is upward sloping

the firm will not supply goods for free

all of the answers given are correct

Answer 1

Question 1

In the long run, a firm in a perfectly competitive industry will supply output only if its total revenue covers both accounting cost and opportunity cost. This is because a perfectly competitive firm, in the long run, earns zero economic profit.

Economic profit = Total revenue - (Accounting cost + opportunity cost)

Thus the firm's total revenue should cover both the accounting cost and opportunity cost to earn zero economic profit.

Question 2

Option C is correct - It is non-excludable

Public goods are goods that are non-excludable and non-rivalry in nature. Non-excludablility means that we cannot prevent anyone from using it and non-rivalry means that the consumption of it by one person does not makes its availability less for anyone else.

Question 3

Option D is correct - Shift outward

The marginal rate of substitution is the slope of the indifference curve. It tells us the rate at which a consumer substitutes one good over another. Thus if it increases, it will make the indifference curve concave to the origin and it will shift outward.

Question 4

Option B is correct - a more inelastic demand curve

Compared to monopolistic competition, a monopoly has greater market power and control over prices and thus its demand curve is more inelastic as compared to monopolistic competition.