Question

1.   Explicit cost equals                                                                                                         

A) Opportunity cost minus sunk cost.

B) Implicit cost minus sunk cost.

C) Economic cost minus opportunity cost.

D) Opportunity cost minus implicit cost.

2. If supply decreases, and at the same time, demand increases, which of the following would also occur?

A) an increase in the equilibrium price

B) a decrease in the equilibrium price of substitutes

C) a decrease in the equilibrium quantity

D) all of the above

3. Which of the following statements about demand elasticity is correct?                           

A) If demand is price-inelastic, an increase in price will reduce total revenue.

B) If demand is price-elastic, an increase in price will increase total revenue.

C) If demand is price-inelastic, an increase in price will increase total revenue.

D) If demand is price-elastic, an increase in price will leave total revenue unchanged.

4. Which of the following correctly characterizes a profit-maximizing monopolist (assuming no price discrimination)?

A) P>MR=MC

B) P>MR>MC

C) P=MR=MC

D) P=MR>MC

5.   Elasticity of demand tends to be greater                                                                         

A) the longer the time period involved.

B) the more complements the good has.

C) the lower the income elasticity of demand.

D) the more widely defined the commodity class.

6. If the energy costs involved in making a product greatly decrease, then we can expect (other things equal)

A) both the equilibrium price and the equilibrium quantity to increase

B) both the equilibrium price and the equilibrium quantity to decrease

C) the equilibrium price to increase and the equilibrium quantity to decrease

D) the equilibrium price to decrease and the equilibrium quantity to increase                      

7.   If a firm doubles its use of all inputs, and output increases by 50 percent, the production function exhibits      

A) increasing returns to scale.

B) decreasing returns to scale.

C) constant returns to scale.

D) increasing marginal returns to a fixed factor of production.

8. Which of the following statements about the relationship between marginal cost and average (total) cost is correct?

A) When MC is falling, AC is falling.

B) AC equals MC at MC's lowest point.

C) When MC exceeds AC, AC must be rising.

D) When AC exceeds MC, MC must be rising.

9. Once diminishing returns have set in, each additional unit of a variable input                  

A) decreases total output.

B) adds less to total output.

C) adds more to total output.

D) does not affect total output.

10. The marginal cost curve intersects the average variable cost curve at 1000 units per day. The rate of output at which average total costs are minimized is

A) 1000 units.

B) more than 1000 units.

C) less than 1000 units.

D) none of the above. More information is needed

11. Increasing returns to scale imply that                                                                 

A) average costs are constant.

B) average costs are falling.

C) average costs are increasing.

D) average costs are negative.

12. Which of the following statements is incorrect?                                                 

A) Average variable cost falls, reaches a minimum and begins to rise.

B) Average total cost falls, reaches a minimum and begins to rise.

C) Average fixed cost falls, reaches a minimum and begins to rise.

D) marginal cost falls, reaches a minimum and begins to rise.

13. In the case of second-degree price discrimination

A) consumers do not get as much consumer surplus as they do under perfect price discrimination

B) the seller produces more than would be the case under perfect competition

C) all of the prices charged are equal to marginal cost

D) none of the above

14. Free entry does not exist when                                                                         

A) there are no differential impediments across firms in the mobility of resources into and out of an industry.

B) a firm experiences economies of scale.

C) an incumbent firm has an exclusive government patent.

D) a firm experiences diseconomies of scale.

15. The demand curve of a perfectly competitive firm is determined by                               

A) the level of the quality of the good the firm produces.

B) the intersection of the market demand and supply curves.

C) the reputation of the firm.

D) the slope of its marginal cost curve

16. The perfectly competitive firm's demand curve is horizontal because                             

A) it is part of the industry's demand curve which is horizontal in competitive industries.

B) its demand is so elastic that the firm behaves as a price-taker.

C) all the firms in the industry have agreed upon the price to charge customers.

D) none of the above.

17. A competitive firm maximizes profit at the output level where                                       

A) price minus average total cost is the largest.

B) average total cost equals marginal cost.

C) marginal revenue exceeds marginal cost by the greatest amount.

D) none of the above

18. In the short-run, if a competitive firm finds itself operating at a loss, it will                  

A) shut down.

B) continue to operate as long as price is greater than average variable cost.

C) raise the price of its product.

D) reduce the size of its plant to lower fixed costs.

19. In a constant-cost competitive industry, if price rises above its long-run equilibrium level, which of the following willnot occur as the industry adjusts to a new long-run equilibrium?

A) New firms will enter the industry.

B) Economic profit will be eliminated.

C) Input prices will rise.

D) Existing firms will increase production, at least for a while

20. The market demand curve and the demand curve faced by a monopoly are                  

A) different in that the market demand curve is less elastic.

B) different in that the market demand curve is more elastic.

C) different, but we can't tell which is more elastic without more information.

D) identical.

Answer 1

1.C

2.A

3.C

4.C

5.D

6.

7.B

8.B

9.B

10.

11.B

12.C

13.B

14.C

15.B

16.B

17.B

18.B

19.C

20.D