Question

Q-1

# of workers   Output (flags(

0 0

1         50

2       110

3 180

4 260

5            350

The table shows the number of flags that can be made per month depending on the number of workers at Acme Flag Company. Does the Acme Flag Company experience the law of diminishing returns in the table above?

	a.	No, because marginal product is increasing as more workers are added.
	b.	Yes, because marginal product is decreasing as more workers are added.
	c.	Yes, because total product is increasing as more workers are added.
	d.	Yes, because total product is decreasing as more workers are added

Q-2

The major characteristic of a monopoly is

	a.	the degree of control over price it can exercise.
	b.	the ability to produce numerous products.
	c.	its price elasticity of demand.
	d.	its source of revenue

Q-3

Ceteris paribus, the demand curve faced by a firm that is a monopoly will be ______the demand curve faced by a firm in perfect competition.

	a.	less steep than
	b.	more steep than
	c.	the same steepness as
	d.	the opposite of

Q-4

As output increases, marginal cost

	a.	continually increases.
	b.	continually decreases.
	c.	increases, reaches a maximum and then declines.
	d.	decreases, reaches a minimum and then rises.

Q-5

   # of workers   Output (flags)

      0    0

1     50

2 110

  3    180

4 260

3    350

The table shows the number of flags that can be made per month depending on the number of workers at Acme Flag Company. The price that Acme can charge for flags is $20. What is the average product of the 4th worker?

	a.	65 flags.
	b.	80 flags.
	c.	260 flags.
	d.	$1600

Q-7

Long-run competitive equilibrium implies that

	a.	all firms in the industry are earning economic profits.
	b.	all firms in an industry are producing output at the point where marginal profit equals marginal cost.
	c.	there is no incentive for firms to enter or leave an industry.
	d.	the accounting profits of all firms in a competitive industry are zero.

Q-9

Which of the following statement is true?

	a.	Diminishing returns occur when a firm can change the amount of all the factors of production it uses.
	b.	if Helena finds that the marginal benefit of eating an ice cream cone is equal to the marginal cost of eating an ice cream cone, then Helena would be better off to eat one more ice cream cone.
	c.	the production possibilities curve is positively sloped.
	d.	none of the above are true statements

Q-11

A price ceiling _______ output and ________ price in a monopoly market.

	a.	increase; increase.
	b.	decrease; increase.
	c.	decrease; decrease.
	d.	increase; decrease

Q-13

Economic theory suggests that a monopoly is the best form of business organization when

	a.	a natural monopoly exists.
	b.	the average cost curve is downward sloping over the relevant range of output levels.
	c.	a single firm is able to produce output at a lower average cost than would occur if there were two or more firms in the industry.
	d.	all of the above.

Q-15

If a local movie theater is a monopolist, price discrimination means that;

	a.	economic profits earned by the theater will redistribute income from consumers to resource owners.
	b.	the theater can charge different prices for its product in different markets.
	c.	the theater's price/output decision results in an unequal distribution of income.
	d.	the theater can charge a higher price than a competitive firm.

Q-16

Monopolies generally offer consumers ___ and ____ than competitive firms.

	a.	lower output; lower prices.
	b.	lower output; higher prices.
	c.	higher output; lower prices.
	d.	higher output; higher prices

Q-16

f output changes in fixed proportion to a change in all of a firm's productive resources, the firm has

	a.	constant marginal returns.
	b.	constant returns to scale.
	c.	decreasing marginal returns.
	d.	decreasing returns to scale.

Q-17

Profits for the profit maximizing monopolist will equal

	a.	marginal cost times output.
	b.	price minus average total cost, times output.
	c.	zero economic profit most of the time.
	d.	price minus marginal cost, times output.

Q-18

Unlike a firm in perfect competition, a monopolist may be able to

	a.	block the entry of new firms into the industry.
	b.	continue to an economic profits in the long run.
	c.	earn economic profits in the short rum
	d.	both (a) and (b).

20

he point of diminishing returns occur at the point where

	a.	the slope of the total product curve is zero.
	b.	the slope of the total product curve is negative.
	c.	the slope of the total product curve is positive.
	d.	the slope of the total product curve begins decreasing.

Answer 1

Q-1 Does the Acme Flag Company experience the law of diminishing returns in the table above?
Answer : (a)  No, because marginal product is increasing as more workers are added
Explanation : Marginal product increases from 50 to 60 to 70 to 80 and upto 90, as each unit of labor is added simultaneously.

Q-2 The major characteristic of a monopoly is
Answer : (a) the degree of control over price it can exercise
Explanation : A monopolist has an absolute market power, which implies that it controls the market forces of supply and demand and hence, it can easily manipulate prices to increase profitability.

Q-3 Ceteris paribus, the demand curve faced by a firm that is a monopoly will be _more steep than_the demand curve faced by a firm in perfect competition
Answer : (b) more steep than
Explanation : The demand curve in a monopoly is downward sloping , while a demand curve for a perfect competition is a horizontal line parallel to the x-axis. Hence, the absolute value of slope is higher for the monopolistic demand curve. Hence, it is steeper.

Q-4 As output increases, marginal cost
Answer : (d) decreases, reaches a minimum and then rises
Explanation : In, the short run, the MC curve follows the law of diminishing returns, hence, the decrease upto a minimum and then , in the long run it rises as economies of scale are reached.

Q-5 The price that Acme can charge for flags is $20. What is the average product of the 4th worker?
Answer : (a) 65 flags
Explanation : Average product = Total product(flags)/ Total quantity of labor(4) = 260/4 = 65 flags.