Question 1

Which of the following characterizes a competitive market?

Accepted Answer

A)   A downward-sloping demand curve for the firm.
B)   A vertical demand curve facing each firm in the market.
C)   Some of the firms sell at a price above the market equilibrium price.
D)   A downward-sloping demand curve for the market.

Question 2

Suppose a firm has an annual budget of $200,000 in wages and salaries, $75,000 in materials, $30,000 in new equipment, $20,000 in rented property, and $35,000 in interest costs on capital. The owner/manager does not choose to pay himself, but he could receive income of $90,000 by working elsewhere. The firm earns revenues of $360,000 per year. What are the annual explicit costs for the firm described above?

Accepted Answer

A)   $450,000.
B)   $160,000.
C)   $90,000.
D)   $360,000.

Question 3

The rule established for short-run profit maximization guarantees that a firm that follows it will earn economic profits.

Accepted Answer

A) True 
 B)False

Question 4

A firm experiencing economic losses will still continue to produce output in the short run as long as

Accepted Answer

A)   Revenues are greater than total fixed cost.
B)   MR = MC.
C)   Price is above average variable cost.
D)   Price is above average fixed cost.

Question 5

A firm that makes zero economic profits

Accepted Answer

A)   Must eventually go bankrupt and exit the industry.
B)   Does not cover its variable costs and should shut down in the short run.
C)   Incurs an accounting loss if fixed costs are greater than variable costs.
D)   Covers all its costs, including a provision for normal profit.

Question 6

The basic incentive to supply goods and services is the expectation of profit.

Accepted Answer

A) True 
 B)False  True

Question 7

If price is greater than marginal cost, a perfectly competitive firm should increase output because

Accepted Answer

A)   Marginal costs are increasing.
B)   Additional units of output will add to the firm's profits (or reduce losses) .
C)   The price it receives for its product is increasing.
D)   Total revenues would increase. B

Question 8

In which of the following types of markets does a single firm have the most market power?

Accepted Answer

A)   Perfect competition.
B)   Monopolistic competition.
C)   Oligopoly.
D)   Monopoly.

Question 9

Which of the following is a production decision?

Accepted Answer

A)   How much output the firm should produce in the long run.
B)   Whether the firm should shut down or produce.
C)   Whether the firm should exit or enter the market.
D)   Whether the firm should merge with one of its rivals.

Question 10

Refer to the data in Figure 22.1. The profit-maximizing output for this firm is

Accepted Answer

A)   100 units.
B)   Above 280 units.
C)   280 units.
D)   200 units.

Question 11

If price is less than marginal cost, a perfectly competitive firm should decrease output because

Accepted Answer

A)   Marginal costs are increasing.
B)   Total revenues are decreasing.
C)   The firm is producing units that cost more to produce than the firm receives in revenue, thus reducing profits (or increasing losses) .
D)   Marginal revenue is decreasing.

Question 12

All of the following are ways a business can earn economic profits except

Accepted Answer

A)   Discover new products.
B)   Maximize implicit costs but not explicit costs.
C)   Take above-average risks.
D)   Find new and better methods of production.

Question 13

Production of catfish has skyrocketed in the United States from 16 million pounds in 1975 to an expected 340 million pounds this year. The business is growing among farmers in Alabama, Arkansas, and Louisiana. Which of the following is the motive that enticed many farmers to give up the production of row crops to produce catfish?

Accepted Answer

A)   Row crops are relatively more profitable than catfish.
B)   Row crops necessarily have negative economic profits.
C)   Catfish is relatively more profitable than row crops.
D)   Catfish is easier to produce than row crops. C

Question 14

Normal profit implies that

Accepted Answer

A)   Economic profit must be positive.
B)   Economic profit must be negative.
C)   The factors employed are earning as much as they could in the best alternative employment.
D)   Firms will expand their scale of production.

Question 15

The marginal cost curve

Accepted Answer

A)   Is not affected by changes in the price of variable inputs.
B)   Slopes downward to the right as output increases.
C)   Is the long-run supply curve for a competitive firm at prices below the AVC curve.
D)   Is the short-run supply curve for a competitive firm at prices above the AVC curve.

Question 16

The difference between the total revenue and total cost curves at a given output is equal to

Accepted Answer

A)   Total profit.
B)   Profit per unit.
C)   Average revenue.
D)   Average total cost.

Question 17

The perfectly competitive market structure includes all of the following except

Accepted Answer

A)   Many firms.
B)   Identical products.
C)   Large advertising budgets.
D)   Low entry barriers.

Question 18

In the short run, a firm will maximize profits if it increases output when marginal revenue is greater than marginal cost.

Accepted Answer

A) True 
 B)False

Question 19

If diminishing returns exist, then

Accepted Answer

A)   Each unit produced will cost incrementally less.
B)   Each unit produced will cost incrementally more.
C)   The total cost curve will be flat.
D)   The total cost curve will be negatively sloped.

Question 20

When payroll taxes are raised, the firm's marginal cost curve shifts

Accepted Answer

A)   Upward, and supply increases.
B)   Downward, and supply increases.
C)   Upward, and supply decreases.
D)   Downward, and supply decreases.

Exam 8: The Business Cycle

Which of the following characterizes a competitive market?

Correct Answer
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Correct Answer
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The rule established for short-run profit maximization guarantees that a firm that follows it will earn economic profits.

Correct Answer
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A firm experiencing economic losses will still continue to produce output in the short run as long as

Correct Answer
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A firm that makes zero economic profits

Correct Answer
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The basic incentive to supply goods and services is the expectation of profit.

Correct Answer
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True

If price is greater than marginal cost, a perfectly competitive firm should increase output because

Correct Answer
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B

In which of the following types of markets does a single firm have the most market power?

Correct Answer
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Which of the following is a production decision?

Correct Answer
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Refer to the data in Figure 22.1. The profit-maximizing output for this firm is

Correct Answer
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If price is less than marginal cost, a perfectly competitive firm should decrease output because

Correct Answer
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All of the following are ways a business can earn economic profits except

Correct Answer
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Correct Answer
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C

Normal profit implies that

Correct Answer
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The marginal cost curve

Correct Answer
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The difference between the total revenue and total cost curves at a given output is equal to

Correct Answer
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The perfectly competitive market structure includes all of the following except

Correct Answer
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In the short run, a firm will maximize profits if it increases output when marginal revenue is greater than marginal cost.

Correct Answer
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If diminishing returns exist, then

Correct Answer
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When payroll taxes are raised, the firm's marginal cost curve shifts

Correct Answer
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Exam 8: The Business Cycle

Which of the following characterizes a competitive market?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The rule established for short-run profit maximization guarantees that a firm that follows it will earn economic profits.

Correct AnswerverifiedShow Answer

A firm experiencing economic losses will still continue to produce output in the short run as long as

Correct AnswerverifiedShow Answer

A firm that makes zero economic profits

Correct AnswerverifiedShow Answer

The basic incentive to supply goods and services is the expectation of profit.

Correct AnswerverifiedTrue

If price is greater than marginal cost, a perfectly competitive firm should increase output because

Correct AnswerverifiedB

In which of the following types of markets does a single firm have the most market power?

Correct AnswerverifiedShow Answer

Which of the following is a production decision?

Correct AnswerverifiedShow Answer

Refer to the data in Figure 22.1. The profit-maximizing output for this firm is

Correct AnswerverifiedShow Answer

If price is less than marginal cost, a perfectly competitive firm should decrease output because

Correct AnswerverifiedShow Answer

All of the following are ways a business can earn economic profits except

Correct AnswerverifiedShow Answer

Correct AnswerverifiedC

Normal profit implies that

Correct AnswerverifiedShow Answer

The marginal cost curve

Correct AnswerverifiedShow Answer

The difference between the total revenue and total cost curves at a given output is equal to

Correct AnswerverifiedShow Answer

The perfectly competitive market structure includes all of the following except

Correct AnswerverifiedShow Answer

In the short run, a firm will maximize profits if it increases output when marginal revenue is greater than marginal cost.

Correct AnswerverifiedShow Answer

If diminishing returns exist, then

Correct AnswerverifiedShow Answer

When payroll taxes are raised, the firm's marginal cost curve shifts

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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True

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B

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C

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