Question

16. A competitive firm which has zero economic profit will

have a rate of return that is -- that of comparable

firms

a. greater than b. less than

c. equal to d. indeterminate relative to

17. Given his income and the prices of the items, Jakor will

maximize his utility from the consumption of Big Red and

pizza at the point where his

a. budget line and indifference curve intersect

b. highest attainable budget lines intersect

c. highest attainable indifference curves intersect

d. budget line and indifference curve are tangent

18. If we observe a decrease in the equilibrium price of

gasoline then either

a. demand increased. supply decreased or both

b. demand increased, supply increased or both

c. demand decreased, supply increased or both

d. demand decreased, supply decreased or both

19. Under which situation will consumers receive the optimal

quantity of goods at the lowest possible price?

a. Pure competition c. Oligopoly

b. Monopoly d. Monopolistic competition

20. For all producing firms:

a. ATC rises as output rises then ATC begins to decline

b. ATC declines as output rises then ATC begins to rise

c. total cost rises as output rises then it begins to drop

d. MC rises as output rises then it begins to decline

21. In the long run:

a. fixed costs are zero b. implicit costs are zero

c. marginal costs are zero d. explicit costs are zero

22. Which of the following is most likely to be a fixed cost?

a. expenditures on raw materials

b. wages for unskilled labor

c. property insurance premiums

d. shipping charges

23. Which of the following is most likely to be a variable

cost?

cost?

a. real estate taxes b. rent for IBM equipment

c. interest on bonds d. fuel payments

24. The per unit price every price searching firm charges

a. equals its marginal revenue MR b. is less than its MR

c. is greater than its MR d. none of these

25. Marginal cost is rising sharply but is less than ATC, then

a. ATC is rising b. AVC is rising

c. AFC is rising d. ATC falling

26. In order to maximize profits oligopolies and monopolies

should produce up the point where:

a. marginal revenues equal marginal costs c. MR=ATC

b. marginal revenues equal total costs d. MR=AVC

27. Suppose Ms. Calhoun started a business after quitting a

$20,000 per year job. In year one, her total revenues were

$100,000 and payments to workers and suppliers were $65,000.

So, her total opportunity cost for that year was

a. $65,000 b. $85,000 c. $35,000 d. $15,000

28. Return to question 27. Her accounting profits were

a. $15,000 b. $35,000 c. $20,000 d. $55,000

29. Which of the following industries is the best example of

monopolistic competition?

a. cotton b. Peoples Gas c. steel d. service stations

30. Suppose Harris INC has a monthly fixed cost of $500,000.

How many units must be made just to break even if each

unit is sold for $60 and the AVC is $40?

a. 25,000 b. 12,500 c. 8,333 d. 5 e. Unknowable

31. Return to Question 30 and assume the breakeven output is

really 40,000 units. How many units should be made to get

a 10% profit?

a. 50,000 b. 64,000 c. 25.000 d. 48,000 e. 44,000

32. General Motors, Microsoft are really examples of

a. Monopolies b. oligopolies c. pure competitors d. monopolistic competitors

Answer 1

Ans 16: c. equal to (All firms earn zero economic profit in perfect competition)

Ans 17: d. budget line and indifference curve are tangent (consumer equilibrium condition)

Ans 18: c. demand decreased, supply increased or both (Because of shift, price will decrease)

Ans 19: a. Pure competition (the prices are lower than as compared to other forms of market structure)

Ans 20: b. ATC declines as output rises then ATC begins to rise (U-Shape Curve because of law of variable proportion)

Ans 21: a. fixed costs are zero (All costs are variable in the long run)

Ans 22: c. property insurance premiums (Constant irrespective of output produced)

Ans 23: d. fuel payments (As we produce more, we need more fuel)

Ans 24: a. equals its marginal revenue MR (In perfect competition, Price = Marginal Revenue)

Ans 25: d. ATC falling (MC curve cuts the ATC curve at its minimum point after that ATC begins to rise)

Ans 26: a. marginal revenues equal marginal costs (Profit max condition)

Ans 27: c. $35,000 (Opportunity cost is the cost of next best alternative activity) (Profit = 100,000-65,000)

Ans 28: b. $35,000 (Profit = Total revenue - Total Cost) (Profit = 100,000-65,000)

Ans 29: c. steel

Ans 30 : a. 25,000

For Break Even, Total Revenue = Total Cost

Total Cost = Fixed Cost + Variable Cost

TVC = AVC x Q

TVC = 40q

TC = 500,000 + 40q

Total Revenue = Price x Q = 60q

Equating both,

500,000 + 40q = 60q

Therefore, Q = 25,000 units.

Ans 32: b. oligopolies