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MULTIPLE CHOICE
1. If a firm has no ability to select the price of its product, it:
a. will go out of business due to losses.
b. is a price-maker.
c. cannot maximize profit.
d. has a horizontal individual demand curve.
2. Under perfect competition, which of the following are the same (equal) at all levels of output?
a. Price and marginal cost.
b. Price and marginal revenue.
c. Marginal cost and marginal revenue.
d. All of these.
1. If a firm has no ability to select the price of its product, it:
a. will go out of business due to losses.
b. is a price-maker.
c. cannot maximize profit.
d. has a horizontal individual demand curve.
2. Under perfect competition, which of the following are the same (equal) at all levels of output?
a. Price and marginal cost.
b. Price and marginal revenue.
c. Marginal cost and marginal revenue.
d. All of these.
MULTIPLE CHOICE
1. Which of the following is a characteristic of a competitive price-taker market?
a. Profit maximizing firms in the market will expand output until price equals average variable cost.
b. The market demand curve for the product is a horizontal line.
c. There are many firms in the market, each producing a small share of total market output.
d. The product produced by each of the firms is differentiated.
2. Which of the following best illustrates perfect competition?
a. Wheat farming.
b. Orange growers setting quotas under the Sunkist cooperative.
c. General Motors advertising campaign for its cars.
d. All of these.
1. Which of the following is a characteristic of a competitive price-taker market?
a. Profit maximizing firms in the market will expand output until price equals average variable cost.
b. The market demand curve for the product is a horizontal line.
c. There are many firms in the market, each producing a small share of total market output.
d. The product produced by each of the firms is differentiated.
2. Which of the following best illustrates perfect competition?
a. Wheat farming.
b. Orange growers setting quotas under the Sunkist cooperative.
c. General Motors advertising campaign for its cars.
d. All of these.
TRUE/FALSE
1. If marginal product is at a maximum, then marginal cost is at a minimum.
2. A firm's average fixed cost curve can never be U-shaped, even if its other average cost curves are U-shaped.
3. If a firm's average variable cost curve is rising, its marginal cost must exceed its average variable cost.
4. If a firm increases output and its average total cost rises, then the firm is experiencing economies of scale.
5. Diseconomies of scale occur when high levels of output are produced in a short period of time.
1. If marginal product is at a maximum, then marginal cost is at a minimum.
2. A firm's average fixed cost curve can never be U-shaped, even if its other average cost curves are U-shaped.
3. If a firm's average variable cost curve is rising, its marginal cost must exceed its average variable cost.
4. If a firm increases output and its average total cost rises, then the firm is experiencing economies of scale.
5. Diseconomies of scale occur when high levels of output are produced in a short period of time.
If a firm's long-run average cost curve is rising, it is experiencing:
a. a constant return to scale.
b. economies of scale.
c. diseconomies of scale.
d. none of these.
Which of the following explains most accurately why the firm's short-run marginal cost curve will
eventually rise?
a. As more of the variable factor is used, its price will rise.
b. When diminishing marginal returns set in, it will take ever - larger quantities of the variable
resources to produce an additional unit of output.
c. As the variable factor is used more intensely, its marginal product will rise, causing an
increase in marginal costs.
d. As the size of the firm increases, the operational efficiency of the firm declines, causing an
increase in marginal costs.
a. a constant return to scale.
b. economies of scale.
c. diseconomies of scale.
d. none of these.
Which of the following explains most accurately why the firm's short-run marginal cost curve will
eventually rise?
a. As more of the variable factor is used, its price will rise.
b. When diminishing marginal returns set in, it will take ever - larger quantities of the variable
resources to produce an additional unit of output.
c. As the variable factor is used more intensely, its marginal product will rise, causing an
increase in marginal costs.
d. As the size of the firm increases, the operational efficiency of the firm declines, causing an
increase in marginal costs.
Since the 1980s, Wal - Mart stores have appeared in almost every community in America. Wal
- Mart buys their goods in large quantities and therefore at cheaper prices. Wal - Mart also locates its stores where land prices are low, usually outside of the community business district. Many customers shop at Wal - Mart because of low prices and free parking. Local retailers, like the neighborhood drug store, often go out of business because they lose customers. This story demonstrates that:
a. consumers are boycotting local retailers.
b. Wal - Mart engages in illegal acts of monopolization.
c. there are diseconomies of scale in retail sales.
d. there are economies of scale in retail sales.
e. Wal - Mart is managed by ruthless business people.
- Mart buys their goods in large quantities and therefore at cheaper prices. Wal - Mart also locates its stores where land prices are low, usually outside of the community business district. Many customers shop at Wal - Mart because of low prices and free parking. Local retailers, like the neighborhood drug store, often go out of business because they lose customers. This story demonstrates that:
a. consumers are boycotting local retailers.
b. Wal - Mart engages in illegal acts of monopolization.
c. there are diseconomies of scale in retail sales.
d. there are economies of scale in retail sales.
e. Wal - Mart is managed by ruthless business people.
A bus is mostly filled with passengers and ready to travel from Los Angeles to San
Francisco. At the last minute, a person comes running up to the bus and takes a seat. The change in the bus company's total cost as a result of transporting one more passenger on this trip is called:
a. marginal cost.
b. average total cost.
c. variable cost.
d. fixed cost.
e. opportunity cost.
Francisco. At the last minute, a person comes running up to the bus and takes a seat. The change in the bus company's total cost as a result of transporting one more passenger on this trip is called:
a. marginal cost.
b. average total cost.
c. variable cost.
d. fixed cost.
e. opportunity cost.
1. Which of the following explains most accurately why the firm's short - run marginal cost curve will eventually rise?
a. As more of the variable factor is used, its price will rise.
b. When diminishing marginal returns set in, it will take ever - larger quantities of the variable
resources to produce an additional unit of output.
c. As the variable factor is used more intensely, its marginal product will rise, causing an
increase in marginal costs.
d. As the size of the firm increases, the operational efficiency of the firm declines, causing an
increase in marginal costs.
.
2. When marginal cost is below average total cost:
a. total cost is falling.
b. total cost is rising.
c. average total cost is falling.
d. average fixed cost is rising.
e. total variable cost is falling
a. As more of the variable factor is used, its price will rise.
b. When diminishing marginal returns set in, it will take ever - larger quantities of the variable
resources to produce an additional unit of output.
c. As the variable factor is used more intensely, its marginal product will rise, causing an
increase in marginal costs.
d. As the size of the firm increases, the operational efficiency of the firm declines, causing an
increase in marginal costs.
.
2. When marginal cost is below average total cost:
a. total cost is falling.
b. total cost is rising.
c. average total cost is falling.
d. average fixed cost is rising.
e. total variable cost is falling
Which of the following is true if the total variable cost curve is rising?
a. Average fixed cost is increasing.
b. Marginal cost is decreasing.
c. Marginal cost is increasing.
d. Average fixed cost is constant.
What is the shape of the average fixed cost curve for a firm in the short run?
a. U - shaped.
b. A curve that constantly increases as output expands and eventually approaches infinity at
high rates of output.
c. A vertical line.
d. A curve that declines as output expands and approaches the horizontal - axis when output is
large.
a. Average fixed cost is increasing.
b. Marginal cost is decreasing.
c. Marginal cost is increasing.
d. Average fixed cost is constant.
What is the shape of the average fixed cost curve for a firm in the short run?
a. U - shaped.
b. A curve that constantly increases as output expands and eventually approaches infinity at
high rates of output.
c. A vertical line.
d. A curve that declines as output expands and approaches the horizontal - axis when output is
large.
Barbara owns a small shop where dresses are made. At the end of a given month, she has 250 dresses. Her expenses for the month are BAM 1,000 for rent, BAM 6,000 for wages, BAM 1,500 for fabric and thread, and BAM 500 for electricity. Her total variable costs for the month are:
a. BAM 4,000.
b. BAM 32 per dress.
c. BAM 7,500.
d. BAM 8,000.
e. both b. and d.
Mirza lives in Herzegovina and likes to grow zucchini. He applies fertilizer to his crops twice during the growing season and notices that the second layer of fertilizer increases his crop, but not as much as the first layer. What economic concept best explains this observation?
a. The law of diminishing marginal utility.
b. The law of diminishing returns.
c. Return equalization principle.
d. The principal - agent problem.
e. None of the above.
a. BAM 4,000.
b. BAM 32 per dress.
c. BAM 7,500.
d. BAM 8,000.
e. both b. and d.
Mirza lives in Herzegovina and likes to grow zucchini. He applies fertilizer to his crops twice during the growing season and notices that the second layer of fertilizer increases his crop, but not as much as the first layer. What economic concept best explains this observation?
a. The law of diminishing marginal utility.
b. The law of diminishing returns.
c. Return equalization principle.
d. The principal - agent problem.
e. None of the above.
Table 1 Production of pizza data
Workers Pizzas
0 0
1 4
2 10
3 15
4 18
5 19
3. Table 1 shows the change in the short - run production of pizzas as more workers are hired. The table shows the marginal product of the labor input is decreasing with the hiring of the third worker. A possible reason for this diminishing marginal product is:
a. decreased wages.
b. increases in plant size.
c. decreases in fixed cost.
d. increased division of labor as additional workers are hired.
e. decreases in labor productivity.
Workers Pizzas
0 0
1 4
2 10
3 15
4 18
5 19
3. Table 1 shows the change in the short - run production of pizzas as more workers are hired. The table shows the marginal product of the labor input is decreasing with the hiring of the third worker. A possible reason for this diminishing marginal product is:
a. decreased wages.
b. increases in plant size.
c. decreases in fixed cost.
d. increased division of labor as additional workers are hired.
e. decreases in labor productivity.
