ECON test 2

Under conditions of perfect competition, AR always equals MR.

True

False

Question 4

Under conditions of perfect competition, if losses occur in an industry, market forces may come into play to

reduce supply

lower average revenue

increase supply

attract new firms

Question 5

Under conditions of perfect competition, marginal revenue

exceeds average revenue

is less than average revenue

always exceeds marginal cost

equals average revenue

Question 6

If economies of scale are present, a firm can enhance its profits by

operating at any larger scale

operating at any larger scale up to the optimal scale

operating beyond the optimal scale

operating at a lower scale

Question 7

Under conditions of perfect competition, an individual producer

always maximizes output

operates where MR equals MC

never suffers a loss

operates where MR is greater than MC

Question 8

The entry and exit of firms drive economic profits to zero in the long run in a perfectly competitive industry.

True

False

Question 9

If all firms adhere to the conditions of perfect competition, short-run losses are avoided.

True

False

Question 10

If a perfectly competitive firm is producing an output level for which MR equals $5, MC equals $6, and ATC equals $4, the firm

is earning a profit but should reduce output

is earning a profit and should increase output

is suffering a loss and should reduce output

is suffering a loss but should increase output

Question 11

In the long run, perfect competition results in firms producing

at the minimum point of their long-run average cost curves, which indicates allocative efficiency

where price equals marginal cost, which indicates economic efficiency

where price equals marginal cost, which indicates the optimal scale of operation

at the minimum point of their long-run average cost curves, which indicates economic efficiency

Question 12

If a firm in perfect competition is suffering a loss, it should continue to operate in the short run as long as

AR exceeds AVC

AR exceeds AFC

AVC exceeds AFC

AFC exceeds AVC

Question 13

Under which type of market structure is the firm’s pricing decision the most difficult?

perfect competition

monopoly

monopolistic competition

oligopoly

Question 14

If firms in monopolistic competition are earning short-run profits,

barriers to entry will allow the profits to continue in the long run

total supply in the market will decrease in the long run as firms reduce output to keep prices high

the entry of new firms will eliminate the profits in the long run

each existing firm will experience an increase in its average revenues in the long run

Question 15

In an oligopoly, the pricing policy of each firm is independent of that of other firms.

True

False

Question 16

Under monopolistic competition, a firm’s marginal revenue curve is

identical to the average revenue curve

above the average revenue curve

below the average revenue curve

unrelated to the average revenue curve

Question 17

The best example of an oligopolistic industry in the United States is

gas stations

grocery stores

automobile production

farming

Question 18

A kinked demand curve results when one firm’s price changes are followed downward but not upward by competing firms.

True

False

Question 19

In a purely competitive market, the Herfindahl Index would have a value approaching

1

100

0

infinity

Question 20

Requiring the buyer of one good to purchase another good as well is termed

predatory pricing

price discrimination

tying contracts

exclusive dealing

Question 21

Regarding U.S. antitrust activity, the rule of reason was expressed in the

Standard Oil case

Robinson-Patman Act

Clayton Act

ALCOA case

Question 22

Public utilities are often referred to as

supernatural monopolies

oligopolistic monopolies

natural monopolies

competitive monopolies

Question 23

Which of the following is always true of monopolists?

they charge the highest possible price

they always earn high profits

they do not have to worry about demand

they charge a price higher than marginal cost

Question 24

An administered price is a price

set by overall demand and supply

established by a seller

set by the government

determined through collective bargaining

Question 25

The demand for the product of a monopolist is perfectly inelastic.

True

False

Question 26

As units of input are added to the productive process, the average product

rises and then declines

declines and then rises

remains the same

is always greater than the marginal product

Question 27

Total profit is equal to

total revenue minus total cost

total revenue minus explicit cost

total revenue minus variable cost

total revenue minus marginal cost

Question 28

The marginal cost curve crosses the average total cost curve at the

highest level of average total cost

lowest level of average total cost

point where the ATC equals the AVC

point where the ATC equals the AFC

Question 29

Marginal cost is the

change in total cost resulting from producing one more unit of output

change in total fixed cost resulting from producing one more unit of output

total cost when one more unit of output is produced

total fixed cost when one more unit of output is produced

Question 30

The marginal product decreases, reaches a minimum, and then rises as output increases.

True

False

Question 31

The principle of diminishing marginal returns is applicable only to the use of labor as a productive resource.

True

False

Question 32

If a firm adds one more worker and total output increases from 100 to 120, the marginal product of labor equals

220

120

100

20

Question 33

Average revenue (AR) is equal to

total revenue/output

total revenue minus total cost

price per unit

both (a) and (c)

Question 34

The marginal product refers to the impact of which unit of a productive resource?

first

middle

last

average

Question 35

An example of an implicit cost is

rent

taxes

wages

forgone interest when investing one’s savings in one’s own business

Question 36

A graph of total fixed cost

is a downward sloping line

is a straight horizontal line

is an upward sloping line

has a U-shape

Question 37

To arrive at a logical determination of a firm’s optimum output, economists assume that the firm seeks to

maximize output

minimize cost

maximize profit or minimize loss

maximize price

Question 38

According to the simple circular flow concept, whenever planned investment is greater than planned saving during a period of less than full employment, there is a tendency for

total output to remain stable

prices to rise

employment to increase

inventories to accumulate

Question 39

In the circular flow, services rendered by the resource owners are compensated through payments of wages, rent, interest, and profits.

True

False

Question 40

A surplus budget will tend to have which one of the following effects on the circular flow of business activity?

increase total output and lower prices

increase total output and/or prices

decrease total output and/or prices

have a neutral effect

Question 41

An increase in planned savings, all else held constant, will always result in

a slowdown in the circular flow of income

an increase in the circular flow

an increase in planned investment spending

an increase in the price level

Question 42

Which of the following defines flows out of the circular flow that occur when resource income is received and not spent directly on purchases from domestic firms?

leakages

injections

exports

discharges

Question 43

Taxes are a leakage from the circular flow.

True

False

Question 44

If inventories are accumulating, income must be greater than spending.

True

False

Question 45

Total output and the price level may decline simultaneously.

True

False

Question 46

The operation of the total economy can best be demonstrated by a

merry-go-round

circular flow

Ferris wheel

roller coaster

Question 47

Inventory accumulation occurs whenever

output is less than spending

output exceeds spending

investment exceeds saving

a deficit budget occurs

Question 48

To have an increase in investment, consumption must decrease.

True

False

Question 49

In the simple circular flow model, if planned I exceeds planned S, then

the economy is not at equilibrium

the size of the circular flow is increasing

if the economy is at full employment, then prices will rise

all of the above

Question 50

Consider an economy that is operating at less than full employment. Suppose that total resource income equals $400,000, of which $350,000 is used for consumption spending and $50,000 is saved. If planned investment is $75,000, which of the following is most likely to occur?

inventories will accumulate

output will fall

income will rise

prices will fall