Question

1. Demand is inelastic if the price elasticity of demand is numerically (absolute value terms)
   1.   Equal to 1
   2.   Equal to 0
   3.   Less than 1
   4.   all of the above
   5.   none of the above
2. In the long run a company that produces and sells laundry detergent increases all of its inputs by 25% and its output rises from 1,250 units to 2,000 units. For this range of output, the laundry detergent company exhibits
   1. increasing returns to scale.
   2. constant returns to scale.
   3. decreasing returns to scale.
   4. efficient scale
3. If a profit maximizing firm is producing a quantity at which marginal costs is less than average variable cost, it will
   1.       Keep producing in the short run and exit the market in the long run.
   2. Shut down in the short run but return to production in the long run.
   3.       Shut down in the short run but exit the market in the long run.
   4. Keep producing in both the short and long run
4. Competitive and monopolist firms maximize profits where:
   1.      Total cost equals total revenue.
   2. Price equals marginal cost
   3.      The change in profits is positive.
   4. Where marginal revenue is equal to zero.
   5.      Marginal revenue equals marginal cost
   6.       None of the above.
   7. All of the above.

Answer 1

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