Final Econ Exam - Custom Scholars
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Final Econ Exam

question
Diminishing marginal returns means that

A. as more capital is used in production, holding labor input constant, MPK falls.

B. as labor increases and capital decreases along a given isoquant, MRTS increases.

C. if capital and labor inputs double, output increases by less than double.

D. as more capital is used in production, holding labor input constant, MPK falls, and if capital and labor inputs double, output increases by less than double.
answer
as more capital is used in production, holding labor input constant, MPK falls.
question
If, as a person consumes more and more of a good, each additional unit adds less satisfaction than the previous unit consumed, we are seeing the workings of
1. the law of demand.
2. the law of supply.
3. the law of increasing marginal opportunity cost.
4. the law of diminishing marginal utility.
answer
the law of diminishing marginal utility
question
When two goods are substitutes, which of the following occurs?
1. An increase in the price of good X leads to an increase in the quantity demanded of good Y.

2. An increase in the price of good X leads to a decrease in the quantity demanded of good Y.

3. An increase in the price of good X leads to a decrease in the quantity demanded of good X.

4. An increase in the price of good X leads to an increase in the price of good Y.
answer
an increase in the price of good X leads to an increase in quantity demanded of good Y
question
A consumer's utility-maximizing combination of goods is given by the bundle that corresponds to the point on

1. the indifference curve that intersects the horizontal axis.

2. the indifference curve that intersects the vertical axis.

3. an indifference curve that is tangent to the budget constraint.

4. the budget constraint where it intersects one of the axes.
answer
an indifference curve that is tangent to the budget constraint
question
Consider the supply of a good. Suppose firms enter the industry. What effect would this have in
the market price?
1. No effect
2. Price will be increased.
3. Price will be decreased.
4. None of the above is correct.
answer
price will decrease
question
Vinny consumes tacos and chicken wings. To keep his utility constant, he must consume more tacos if he consumes fewer chicken wings. This means that

1. Vinny's indifference curve for tacos and chicken wings must have a negative slope.

2. the prices Vinny pays for tacos and chicken wings are always the same.

3. Vinny's marginal utility from each good must be constant along his convex indifference curves for
tacos and chicken wings.

4. Vinny's marginal rate of substitution must be constant along his indifference curves for tacos and chicken wings.
answer
Vinny's indifference curve for tacos and chicken wings must have a negative slope.
question
What does the marginal rate of substitution measure?

1. It measures the rate at which a consumer must give up one good to purchase another good.

2. It measures the rate at which a consumer will substitute one good for another when the price of one good changes.

3. It measures the change in utility from consuming one additional unit of a good.

4. It measures the rate at which a consumer is willing to trade off one product for another while
keeping utility constant.
answer
it measures the rate at which a consumer is willing to trade off one product for another while keeping utility constant
question
If a firm lowered the price of the product, it sells and found that total revenue did not change, then the demand for its product is

1. perfectly inelastic.
2. perfectly elastic.
3. unit elastic.
4. relatively elastic.
answer
unit elastic
question
In making decisions about what to consume, a person's goal is to

1. allocate her limited income among all the products she wishes to buy so that she receives the highest total utility.

2. buy low-priced goods rather than high-priced goods.

3. maximize her marginal utility from the goods and services she wishes to buy using her limited
income.

4. consume as many necessities as possible and then, if there is money left over, to buy luxuries.
answer
allocate her limited income among all the products she wishes to buy so that she receives the highest total utility.
question
The amount of income a consumer has to spend on goods and services is known as
1. purchasing power.
2. wealth.
3. effective demand.
4. a budget constraint.
answer
budget constraint
question
A price ceiling is imposed in the market for aspirin. At the ceiling price,

1. the quantity supplied of aspirin exceeds the quantity demanded.

2. the quantity demanded of aspirin equals the quantity supplied.

3. the quantity demanded of aspirin exceeds the quantity supplied.

4. the quantity demanded of aspirin will be artificially restricted by the price ceiling.
answer
the quantity demanded of aspirin exceeds the quantity supplied
question
Price controls are
A. used to make markets more efficient.

B. usually enacted when policymakers believe that the market price of a good or service is unfair to buyers or sellers.

C. nearly always effective in eliminating inequities.

D. established by firms with monopoly power.
answer
usually enacted when policymakers believe that the market price of a good or service is unfair to buyers or sellers
question
A price ceiling causes

A. a shortage, which cannot be eliminated through market
adjustment.

B. a surplus, which cannot be eliminated through market
adjustment.

C. a shortage, which is temporary, since market adjustment will
cause price to rise.

D. a surplus, which is temporary, since market adjustment will cause
price to rise
answer
a shortage, which cannot be eliminated through market adjustment
question
Which assumption about preferences tells us that a consumer's most preferred market basket will lie on the budget constraint line, rather than below the budget constraint line?

A. Completeness
B. Transitivity
C. More is better.
D. Diminishing MRS
answer
more is better
question
If the demand for a product is perfectly inelastic, a decrease in the price of the product

will increase total revenue.
will decrease total revenue.
will not change total revenue.
any of the above are possible.
answer
will decrease total revenue
question
A production function for a firm describes

A. the revenue earned from producing efficiently.

B. the firm's actual production with given inputs.

C. the quantity that should be produced to maximize profit.

D. what is technically feasible when the firm produces efficiently.
answer
what is technically feasible when the firm produces efficiently
question
which of the following statements is correct
- in the short run all cost are adjustable
- in the long run all costs are fixed
- in the short run all costs are fixed
- in the long run all costs are adjustable
answer
in the long run all costs are adjustable
question
A production process would exhibit increasing returns to scale if

A. doubling output required less than twice as much energy.

B. opening a second assembly line increased output by 100 percent.

C. adding a complete second shift increased output by less than 100 percent.

D. planting twice as many acres and doubling all other inputs increased production by less than 100 percent
answer
a doubling output required less than twice as much energy
question
When the average product is decreasing, marginal product
A. equals average product
B. exceeds average product
C. is less than average product
D. is decreasing
answer
exceeds average product
question
which of the following statements is correct?

A. In the short run, all costs are adjustable.
B. In the long run, all costs are fixed.
C. In the short run, all costs are fixed.
D. In the long run, all costs are adjustable.
answer
in the long run all cost are adjustable
question
If price is less than the average variable cost, a firm that continues to produce in the short run

A. can cover all of its fixed costs and some of its variable costs.

B. can cover its variable costs but not its total costs

c. cannot cover any of its variable costs

d. incurs a loss that is greater than its fixed costs
answer
incurs a loss that is greater than its fixed costs
question
In the long run there are no barriers to new firms entering a perfectly competitive market. Suppose that firms already in the market are making profits. Which of the following sequence of events best describes the change in market price and output as a result of free entry?

A. The market demand curve shifts to the right, causing price to rise and market output to increase.

B. The market demand curve shifts to the left, causing price to fall and market output to decrease.

C. The short-run industry supply curve shifts to the right, causing price to fall and total market output to increase.

D. The short-run industry supply curve shifts to the left, causing price to rise; and total market output to decrease.
answer
the short run industry supply curve shifts to the right, causing price to fall and total market output to increase
question
Which of the following is true at the output level where average total cost is at its minimum?

A. Marginal cost equals average total cost.
B. Average variable cost equals fixed cost.
C. Marginal cost equals average variable cost.
D. Average total cost equals average fixed cost.
answer
MC equal average total cost
question
If the number of people in a publishing company does not go up or down with the quantity of books it publishes, then what categorization should be given to the salaries and benefits for those people?

A. They are not considered a cost of production.
B. They are a variable cost.
C. They are a fixed cost.
D. They are an implicit cost.
answer
they are fixed cost
question
Suppose the equilibrium price in a perfectly competitive industry is $10 and a firm in the industry charges $12. Which of the following will happen?
A. The firm will sell more output than its competitors.
B. The firm's revenue will increase.
C. The firm's profits will increase.
D. The firm will not sell any output.
answer
the firm will not sell any output
question
If a firm sells its output on a market that is characterized by many sellers and buyers, a differentiated product, and unlimited long-run resource mobility, then the firm is
A. a monopolist
B. an oligopolist
C. a perfect competitor
D. a monopolistic competitor
answer
monopolistic competitior
question
If a firm sells its output on a market that is characterized by a single seller and
many buyers of a homogeneous (identical) product for which there are no
close substitutes and barriers to long-run resource mobility, then the firm is

A. a monopolist
B. an oligopolist
C. a perfect competitor
D. a monopolistic competitor
answer
a monopolist
question
If a firm sells its output on a market that is characterized by many sellers and buyers, a homogeneous (identical) product, unlimited long-run resource mobility, and perfect knowledge, then the firm is a

A. a monopolist
B. an oligopolist
C. a perfect competitor
D. a monopolistic competitor
answer
a perfect competitor
question
If one perfectly competitive firm increases its level of output, market supply
A. will increase and market price will fall.
B. will increase and market price will rise.
C. and market price will both remain constant.
D. will decrease and market price will rise.
answer
and market price will both remain constant
question
Which of the following is a characteristic of monopolistic competition?

A. Few sellers.
B. A differentiated product.
C. A price taker.
D. All of the above are characteristics of monopolistic competition
answer
a differentiated product
question
Marginal revenue is equal to price for which one of the following types of market structure?
A. a monopolist.
B. an oligopolist
C. a perfect competitor
D. a monopolistic competitor
answer
a perfect competitor
question
If a firm sells its output on a market that is characterized by few sellers and many buyers and limited long-run resource mobility, then the firm is
A. a monopolist.
B. an oligopolist
C. a perfect competitor
D. a monopolistic competitor
answer
an oligopolist
question
In oligopoly:
A. The largest four firms are likely to have a small market share

B. The price is likely to equal marginal revenue

C. Firms will continue to produce in the long run if price is less than average cost

D. Firms may collude or compete depending on their assumptions about their competitor
answer
firms may collude or compete depending on their assumptions about their competitors
question
Which of the following describes a Nash equilibrium?

A. A firm chooses its dominant strategy, if one exists.
B. Every competing firm in an industry chooses a strategy that is optimal given the choices of every other firm.
C. Market price results in neither a surplus nor a shortage.
D. All firms in an industry are earning zero economic profits.
answer
every competing firm in an industry chooses a strategy that is optimal given the choices of every other firm
question
A prisoners' dilemma is a game with all of the following characteristics except
one. Which one is not present in a prisoners' dilemma?

A. Players cooperate in arriving at their strategies.

B. Both players have a dominant strategy.

C. Both players would be better off if neither chose their dominant strategy.

D. The payoff from a strategy depends on the choice made by the other player.
answer
a player cooperate in arriving at their strategies
question
In game theory, a choice that is optimal for a firm no matter what its
competitors do is referred to as
A. the game-winning choice.
B. Nash equilibrium.
C. a gonzo selection.
D. the dominant strategy
answer
the dominant strategy
question
a budget line shows the combinations of
answer
the quantities of two goods that can be purchased at various prices
question
in making decision about what to consume a person's goal is to
answer
allocate her limited income among all the products she wishes to buy so that she receives the highest total utility
question
economists usually assume that people act in a rational, self-interested way, in explaining how consumers make choices this means economists believe
answer
consumers make choices that will leave them as satisfied as possible given their incomes, tastes, and the price of the goods and services
question
The endpoints (horizontal and vertical intercepts) of the budget line:
answer
represents the quantity of each good that could be purchases if all the budgets were allocated to that good
question
an increase in income holding prices constant can be represented as
answer
a parallel outward shift in the budget line
question
The limitation that a consumer's total expenditure on goods and services purchased cannot exceed the income available is referred to as
answer
budget constraint
question
the field of behavioral economics has been built around which of the following assertions
answer
consumers have preferences among the various goods and services available to them
question
the theory of consumer behavior assumes that consumers can compare and rank all possible market baskets this assumption is called
answer
completeness
question
subjective and difficult to measure
answer
utility
question
is the extra satisfaction received from consuming one more unit of a product.
answer
marginal utility
question
As a consumer consumes more and more of a product in a particular time period, eventually marginal utility
answer
decreases
question
total utility is equal to the sum of all the _______ _________________ of all units consumed
answer
marginal utilities
question
if when you consume another piece of candy your marginal utility is zero
answer
you have maximized your total utility from consuming candy
question
the rate at which a consumer is willing to trade one good for another without any loss in utility
answer
marginal rate of substitution
question
a curve that shows combinations of consumptions bundles that give a consumer the same utility called
answer
an indifference curve
question
a consumer's utility-maximizing combination of goods is given by the bundle that corresponds to the point on
answer
an indifference curve that is tangent to the budget constraint
question
why do indifference curves have a negative slope
answer
because to keep utility constant a consumer must get more of one good if she is to give up some of the other
question
total utility is maximized in the consumption of two goods by
answer
equating the marginal utility per dollar spend for each good consumed
question
a change in the price of a good has two effects on the quantity consumed. what are those affects
- income effect and substitution effect
- utility effect and budget effect
- total utility effect and marginal utility effect
- consumption effect and expenditure effect
answer
income effect and substitution effect
question
the income effect of a price increase causes a decrease in the quantity of a normal good demanded
- true
-false
answer
true
question
If demand is inelastic, the absolute value of the price elasticity of demand is
- one
- less than one
- greater than one
- greater than the absolute value of the slope of the demand curve
answer
- less than one
question
perfectly inelastic demand is represented by a demand curve which is ______________, and relatively inelastic demand is represented by a demand curve which is __________.

- downward-sloping; vertical
- horizontal; downward sloping
- vertical; downward sloping
- upward sloping; horizontal
answer
vertical and downward sloping
question
If the demand for a life-saving drug was perfectly inelastic and the price doubled, the quantity demanded would

- also double
- decrease by 50%
- be cut in half
- remain constant
answer
remain constant
question
If a firm lowered the price of the product it sells and found that total revenue did not change, then the demand for its product is

- perfectly inelastic
- perfectly elastic
- unit elasitc
- relatively elastic
answer
unit elastic
question
a production isoquant describes
answer
all the combination of labor and capital that produce the same level of output
question
in the short run
answer
at least one input level cannot be varied
question
the marginal product of labor equals
answer
change in Q / change in L
question
decreasing returns to scale may arise from
answer
inefficiencies in management
question
a production process would exhibit increasing returns to scale if
answer
doubling output required less than twice as much energy
question
if a firm using only capital and labor double its labor inputs and output increases by less than 100 percent, then
answer
production exhibit diminishing returns
question
according to the law of diminishing returns
answer
the marginal product of input will eventually decline
question
the short run is
answer
a time period in which at least one input is fixed
question
a profit maximizing competitive firm making positive economics profits will produce in the short run up at the point at which
answer
MR = MC
question
A tax imposed by a government on imports is called a
- tariff
- quota
- subsidy
- penalty
answer
tariff
question
Efficiency in a market is achieved when

- the sum of producer surplus and consumer surplus is max

- all firms are producing the good at the same low cost per unit

- no buyer is wiling to pay more than the equilibrium price for any unit of the good
answer
the sum of producer surplus and consumer surplus is maximized
question
if a pure monopolist is choosing an output level where MR is positive but smaller than MC

- the firm should produce less output
- it is probably max profits
- the firm should produce more output
- the firm should maintain its output level, but raise the price
answer
the firm should produce less output
question
a monopolist practicing 3rd-degree price discrimination will maximize profits by

- charging a higher price to the market segment with the more elastic demand

- equating the price-cost margin across market segments

- charging prices that equate MR in different markets

- setting an entry fee to extract all consumer surplus
answer
charging prices that equate marginal revenue in different markets
question
comparing 1st degree price discrimination to perfect competition one can conclude that

- total surplus higher under perfect competition

- total surplus lower under perfect competition

- producer surplus is lower and consumer surplus is higher under perfect competition

- MR us equal to price under perfect competition, but not under 1st degree price discrimination
answer
producer surplus is lower and consumer surplus is higher under perfect competition
question
which of the following is a requirement for successful price discrimination

- the firm must be able to divide up, or segment, the market

- the product must not be easily re-sold

- some customer must have a greater willingness to pay for the product than other consumers

- all of the above
answer
all of the above
question
which of the following are key results of price discrimination

- profits increase and consumer surplus decreases
- profits decrease and consumer surplus increases
- profits decrease and consumer surplus decreases
- profits increase and consumer surplus increases
answer
profits increase and consumer surplus decreases
question
in a monopolistic competition there is/are

- many sellers who each face a downward-sloping demand curve

- only one seller who faces a downward-sloping demand curve

- many sellers who each face a perfectly elastic demand curve
answer
many sellers who each face a downward sloping demand curve
question
the key characteristics of a monopolistically competitive market structure include

- many small (relative to the total market) sellers acting independently

- all sellers sell a homogenous product

- barriers to entry are strong

- sellers have no incentive to advertise their products
answer
many small (relative to the total market) sellers acting independently
question
Firms in a monopolistically competitive market face downward sloping demand curves because

- of product differentiation

- there are few substitutes for its product

- its market decisions are affected by the decisions of its rivals
answer
of product differentiation
question
a major difference between monopolistic competition and perfect competition is

- the number of sellers in the markets

- the degree by which the market demand curves slope downwards

- those products are not standardized in monopolistic competition unlike in perfect competition unlike in perfect competition

- the barriers to entry in the two markets
answer
those products are not standardized in monopolistic competition unlike in perfect competition unlike in perfect competition
question
for a monopolistically competitive firm, marginal revenue

- is greater than the price
- equals the price
- is less than the price
- and price are unrelated
answer
is less than the price
question
Under perfect competition, MR is equal to
answer
price
question
In a large metropolitan area, the furniture retailing business is best described as

- perfectly competitive
- monopolistically competitive
- a cartel
answer
monopolistically competitive
question
in a monopolistically competitive industry, a firm earns zero profit in the LR equilibrium because

- each firm produces at minimum average total cost
- the demand curve is tangent to the ATC curve for each firm
- each firm has capacity less than desired output
- they are price-takers
answer
- the demand curve is tangent to the ATC curve for each firm
question
a group of oligopolists who try to behave like a single monopolist and split the benefits among themselves is called

- cartel
- a guild
answer
cartel
question
a market structure in which there are a few interdependent firms selling differentiated or homogenous products is called

- perfect competition
- oligopoly
- monopoly
- monopolistic competition
answer
- oligopoly
question
a situation in which each firm chooses the best strategy given its rivals strategies is called a

- dominant strategy
- nash equilibrium
- collusion
answer
nash equilibrium
question
as the number of firms in an oligopoly market power grows larger the price will approach

- MR
- MC
- Monopoly price
- zero
answer
MC
question
in which market structures might firms produce a homogenous product

- perfect competition only
- perfect competition and oligopoly
- monopolistic competition only
- perfect competition and monopolistic competition
answer
- perfect competition and oligopoly
question
when an oligopoly market is in nash equilibrium

- firms have colluded to set prices

- firms will not behave as profit maximizers

- a firm will choose its best pricing strategy given the strategies that it observes other firms taking

- a firm will not take into account the strategies of its rivals
answer
a firm will choose its best pricing strategy given the strategies that it observes other firms taking
question
which of the following is an example of a game in which the use of a dominant strategy by every player results in suboptimal outcomes for all players

- nash equilibrium
- tit for tat game
- a cooperative equilibrium
- prisoners dilemma
answer
prisoners dilemma
question
the consumer is able to compare and rank every bundle presented to her/him.
answer
completeness
question
if two bundles are identical then one of these bundles is at least weakly preferred over the one.
answer
reflexive
question
the preferences keep the rankings across comparison of different bundles.
answer
transitivity
question
More is better, the consumer ALWAYS prefers more to less. That is you will always prefer ten beers to five beers.
answer
monotonicity
question
inelastic: price increases expenditures and price decreases expenditures
answer
- increase and decrease = direct relationship
question
unit elastic: price increases expenditures and price decreases expenditures
answer
unchanged and unchanged no relationship
question
elastic: price increases expenditures and price decreases expenditures
answer
decrease and increase = inverse relationship
1 of 98
question
Diminishing marginal returns means that

A. as more capital is used in production, holding labor input constant, MPK falls.

B. as labor increases and capital decreases along a given isoquant, MRTS increases.

C. if capital and labor inputs double, output increases by less than double.

D. as more capital is used in production, holding labor input constant, MPK falls, and if capital and labor inputs double, output increases by less than double.
answer
as more capital is used in production, holding labor input constant, MPK falls.
question
If, as a person consumes more and more of a good, each additional unit adds less satisfaction than the previous unit consumed, we are seeing the workings of
1. the law of demand.
2. the law of supply.
3. the law of increasing marginal opportunity cost.
4. the law of diminishing marginal utility.
answer
the law of diminishing marginal utility
question
When two goods are substitutes, which of the following occurs?
1. An increase in the price of good X leads to an increase in the quantity demanded of good Y.

2. An increase in the price of good X leads to a decrease in the quantity demanded of good Y.

3. An increase in the price of good X leads to a decrease in the quantity demanded of good X.

4. An increase in the price of good X leads to an increase in the price of good Y.
answer
an increase in the price of good X leads to an increase in quantity demanded of good Y
question
A consumer's utility-maximizing combination of goods is given by the bundle that corresponds to the point on

1. the indifference curve that intersects the horizontal axis.

2. the indifference curve that intersects the vertical axis.

3. an indifference curve that is tangent to the budget constraint.

4. the budget constraint where it intersects one of the axes.
answer
an indifference curve that is tangent to the budget constraint
question
Consider the supply of a good. Suppose firms enter the industry. What effect would this have in
the market price?
1. No effect
2. Price will be increased.
3. Price will be decreased.
4. None of the above is correct.
answer
price will decrease
question
Vinny consumes tacos and chicken wings. To keep his utility constant, he must consume more tacos if he consumes fewer chicken wings. This means that

1. Vinny's indifference curve for tacos and chicken wings must have a negative slope.

2. the prices Vinny pays for tacos and chicken wings are always the same.

3. Vinny's marginal utility from each good must be constant along his convex indifference curves for
tacos and chicken wings.

4. Vinny's marginal rate of substitution must be constant along his indifference curves for tacos and chicken wings.
answer
Vinny's indifference curve for tacos and chicken wings must have a negative slope.
question
What does the marginal rate of substitution measure?

1. It measures the rate at which a consumer must give up one good to purchase another good.

2. It measures the rate at which a consumer will substitute one good for another when the price of one good changes.

3. It measures the change in utility from consuming one additional unit of a good.

4. It measures the rate at which a consumer is willing to trade off one product for another while
keeping utility constant.
answer
it measures the rate at which a consumer is willing to trade off one product for another while keeping utility constant
question
If a firm lowered the price of the product, it sells and found that total revenue did not change, then the demand for its product is

1. perfectly inelastic.
2. perfectly elastic.
3. unit elastic.
4. relatively elastic.
answer
unit elastic
question
In making decisions about what to consume, a person's goal is to

1. allocate her limited income among all the products she wishes to buy so that she receives the highest total utility.

2. buy low-priced goods rather than high-priced goods.

3. maximize her marginal utility from the goods and services she wishes to buy using her limited
income.

4. consume as many necessities as possible and then, if there is money left over, to buy luxuries.
answer
allocate her limited income among all the products she wishes to buy so that she receives the highest total utility.
question
The amount of income a consumer has to spend on goods and services is known as
1. purchasing power.
2. wealth.
3. effective demand.
4. a budget constraint.
answer
budget constraint
question
A price ceiling is imposed in the market for aspirin. At the ceiling price,

1. the quantity supplied of aspirin exceeds the quantity demanded.

2. the quantity demanded of aspirin equals the quantity supplied.

3. the quantity demanded of aspirin exceeds the quantity supplied.

4. the quantity demanded of aspirin will be artificially restricted by the price ceiling.
answer
the quantity demanded of aspirin exceeds the quantity supplied
question
Price controls are
A. used to make markets more efficient.

B. usually enacted when policymakers believe that the market price of a good or service is unfair to buyers or sellers.

C. nearly always effective in eliminating inequities.

D. established by firms with monopoly power.
answer
usually enacted when policymakers believe that the market price of a good or service is unfair to buyers or sellers
question
A price ceiling causes

A. a shortage, which cannot be eliminated through market
adjustment.

B. a surplus, which cannot be eliminated through market
adjustment.

C. a shortage, which is temporary, since market adjustment will
cause price to rise.

D. a surplus, which is temporary, since market adjustment will cause
price to rise
answer
a shortage, which cannot be eliminated through market adjustment
question
Which assumption about preferences tells us that a consumer's most preferred market basket will lie on the budget constraint line, rather than below the budget constraint line?

A. Completeness
B. Transitivity
C. More is better.
D. Diminishing MRS
answer
more is better
question
If the demand for a product is perfectly inelastic, a decrease in the price of the product

will increase total revenue.
will decrease total revenue.
will not change total revenue.
any of the above are possible.
answer
will decrease total revenue
question
A production function for a firm describes

A. the revenue earned from producing efficiently.

B. the firm's actual production with given inputs.

C. the quantity that should be produced to maximize profit.

D. what is technically feasible when the firm produces efficiently.
answer
what is technically feasible when the firm produces efficiently
question
which of the following statements is correct
- in the short run all cost are adjustable
- in the long run all costs are fixed
- in the short run all costs are fixed
- in the long run all costs are adjustable
answer
in the long run all costs are adjustable
question
A production process would exhibit increasing returns to scale if

A. doubling output required less than twice as much energy.

B. opening a second assembly line increased output by 100 percent.

C. adding a complete second shift increased output by less than 100 percent.

D. planting twice as many acres and doubling all other inputs increased production by less than 100 percent
answer
a doubling output required less than twice as much energy
question
When the average product is decreasing, marginal product
A. equals average product
B. exceeds average product
C. is less than average product
D. is decreasing
answer
exceeds average product
question
which of the following statements is correct?

A. In the short run, all costs are adjustable.
B. In the long run, all costs are fixed.
C. In the short run, all costs are fixed.
D. In the long run, all costs are adjustable.
answer
in the long run all cost are adjustable
question
If price is less than the average variable cost, a firm that continues to produce in the short run

A. can cover all of its fixed costs and some of its variable costs.

B. can cover its variable costs but not its total costs

c. cannot cover any of its variable costs

d. incurs a loss that is greater than its fixed costs
answer
incurs a loss that is greater than its fixed costs
question
In the long run there are no barriers to new firms entering a perfectly competitive market. Suppose that firms already in the market are making profits. Which of the following sequence of events best describes the change in market price and output as a result of free entry?

A. The market demand curve shifts to the right, causing price to rise and market output to increase.

B. The market demand curve shifts to the left, causing price to fall and market output to decrease.

C. The short-run industry supply curve shifts to the right, causing price to fall and total market output to increase.

D. The short-run industry supply curve shifts to the left, causing price to rise; and total market output to decrease.
answer
the short run industry supply curve shifts to the right, causing price to fall and total market output to increase
question
Which of the following is true at the output level where average total cost is at its minimum?

A. Marginal cost equals average total cost.
B. Average variable cost equals fixed cost.
C. Marginal cost equals average variable cost.
D. Average total cost equals average fixed cost.
answer
MC equal average total cost
question
If the number of people in a publishing company does not go up or down with the quantity of books it publishes, then what categorization should be given to the salaries and benefits for those people?

A. They are not considered a cost of production.
B. They are a variable cost.
C. They are a fixed cost.
D. They are an implicit cost.
answer
they are fixed cost
question
Suppose the equilibrium price in a perfectly competitive industry is $10 and a firm in the industry charges $12. Which of the following will happen?
A. The firm will sell more output than its competitors.
B. The firm's revenue will increase.
C. The firm's profits will increase.
D. The firm will not sell any output.
answer
the firm will not sell any output
question
If a firm sells its output on a market that is characterized by many sellers and buyers, a differentiated product, and unlimited long-run resource mobility, then the firm is
A. a monopolist
B. an oligopolist
C. a perfect competitor
D. a monopolistic competitor
answer
monopolistic competitior
question
If a firm sells its output on a market that is characterized by a single seller and
many buyers of a homogeneous (identical) product for which there are no
close substitutes and barriers to long-run resource mobility, then the firm is

A. a monopolist
B. an oligopolist
C. a perfect competitor
D. a monopolistic competitor
answer
a monopolist
question
If a firm sells its output on a market that is characterized by many sellers and buyers, a homogeneous (identical) product, unlimited long-run resource mobility, and perfect knowledge, then the firm is a

A. a monopolist
B. an oligopolist
C. a perfect competitor
D. a monopolistic competitor
answer
a perfect competitor
question
If one perfectly competitive firm increases its level of output, market supply
A. will increase and market price will fall.
B. will increase and market price will rise.
C. and market price will both remain constant.
D. will decrease and market price will rise.
answer
and market price will both remain constant
question
Which of the following is a characteristic of monopolistic competition?

A. Few sellers.
B. A differentiated product.
C. A price taker.
D. All of the above are characteristics of monopolistic competition
answer
a differentiated product
question
Marginal revenue is equal to price for which one of the following types of market structure?
A. a monopolist.
B. an oligopolist
C. a perfect competitor
D. a monopolistic competitor
answer
a perfect competitor
question
If a firm sells its output on a market that is characterized by few sellers and many buyers and limited long-run resource mobility, then the firm is
A. a monopolist.
B. an oligopolist
C. a perfect competitor
D. a monopolistic competitor
answer
an oligopolist
question
In oligopoly:
A. The largest four firms are likely to have a small market share

B. The price is likely to equal marginal revenue

C. Firms will continue to produce in the long run if price is less than average cost

D. Firms may collude or compete depending on their assumptions about their competitor
answer
firms may collude or compete depending on their assumptions about their competitors
question
Which of the following describes a Nash equilibrium?

A. A firm chooses its dominant strategy, if one exists.
B. Every competing firm in an industry chooses a strategy that is optimal given the choices of every other firm.
C. Market price results in neither a surplus nor a shortage.
D. All firms in an industry are earning zero economic profits.
answer
every competing firm in an industry chooses a strategy that is optimal given the choices of every other firm
question
A prisoners' dilemma is a game with all of the following characteristics except
one. Which one is not present in a prisoners' dilemma?

A. Players cooperate in arriving at their strategies.

B. Both players have a dominant strategy.

C. Both players would be better off if neither chose their dominant strategy.

D. The payoff from a strategy depends on the choice made by the other player.
answer
a player cooperate in arriving at their strategies
question
In game theory, a choice that is optimal for a firm no matter what its
competitors do is referred to as
A. the game-winning choice.
B. Nash equilibrium.
C. a gonzo selection.
D. the dominant strategy
answer
the dominant strategy
question
a budget line shows the combinations of
answer
the quantities of two goods that can be purchased at various prices
question
in making decision about what to consume a person's goal is to
answer
allocate her limited income among all the products she wishes to buy so that she receives the highest total utility
question
economists usually assume that people act in a rational, self-interested way, in explaining how consumers make choices this means economists believe
answer
consumers make choices that will leave them as satisfied as possible given their incomes, tastes, and the price of the goods and services
question
The endpoints (horizontal and vertical intercepts) of the budget line:
answer
represents the quantity of each good that could be purchases if all the budgets were allocated to that good
question
an increase in income holding prices constant can be represented as
answer
a parallel outward shift in the budget line
question
The limitation that a consumer's total expenditure on goods and services purchased cannot exceed the income available is referred to as
answer
budget constraint
question
the field of behavioral economics has been built around which of the following assertions
answer
consumers have preferences among the various goods and services available to them
question
the theory of consumer behavior assumes that consumers can compare and rank all possible market baskets this assumption is called
answer
completeness
question
subjective and difficult to measure
answer
utility
question
is the extra satisfaction received from consuming one more unit of a product.
answer
marginal utility
question
As a consumer consumes more and more of a product in a particular time period, eventually marginal utility
answer
decreases
question
total utility is equal to the sum of all the _______ _________________ of all units consumed
answer
marginal utilities
question
if when you consume another piece of candy your marginal utility is zero
answer
you have maximized your total utility from consuming candy
question
the rate at which a consumer is willing to trade one good for another without any loss in utility
answer
marginal rate of substitution
question
a curve that shows combinations of consumptions bundles that give a consumer the same utility called
answer
an indifference curve
question
a consumer's utility-maximizing combination of goods is given by the bundle that corresponds to the point on
answer
an indifference curve that is tangent to the budget constraint
question
why do indifference curves have a negative slope
answer
because to keep utility constant a consumer must get more of one good if she is to give up some of the other
question
total utility is maximized in the consumption of two goods by
answer
equating the marginal utility per dollar spend for each good consumed
question
a change in the price of a good has two effects on the quantity consumed. what are those affects
- income effect and substitution effect
- utility effect and budget effect
- total utility effect and marginal utility effect
- consumption effect and expenditure effect
answer
income effect and substitution effect
question
the income effect of a price increase causes a decrease in the quantity of a normal good demanded
- true
-false
answer
true
question
If demand is inelastic, the absolute value of the price elasticity of demand is
- one
- less than one
- greater than one
- greater than the absolute value of the slope of the demand curve
answer
- less than one
question
perfectly inelastic demand is represented by a demand curve which is ______________, and relatively inelastic demand is represented by a demand curve which is __________.

- downward-sloping; vertical
- horizontal; downward sloping
- vertical; downward sloping
- upward sloping; horizontal
answer
vertical and downward sloping
question
If the demand for a life-saving drug was perfectly inelastic and the price doubled, the quantity demanded would

- also double
- decrease by 50%
- be cut in half
- remain constant
answer
remain constant
question
If a firm lowered the price of the product it sells and found that total revenue did not change, then the demand for its product is

- perfectly inelastic
- perfectly elastic
- unit elasitc
- relatively elastic
answer
unit elastic
question
a production isoquant describes
answer
all the combination of labor and capital that produce the same level of output
question
in the short run
answer
at least one input level cannot be varied
question
the marginal product of labor equals
answer
change in Q / change in L
question
decreasing returns to scale may arise from
answer
inefficiencies in management
question
a production process would exhibit increasing returns to scale if
answer
doubling output required less than twice as much energy
question
if a firm using only capital and labor double its labor inputs and output increases by less than 100 percent, then
answer
production exhibit diminishing returns
question
according to the law of diminishing returns
answer
the marginal product of input will eventually decline
question
the short run is
answer
a time period in which at least one input is fixed
question
a profit maximizing competitive firm making positive economics profits will produce in the short run up at the point at which
answer
MR = MC
question
A tax imposed by a government on imports is called a
- tariff
- quota
- subsidy
- penalty
answer
tariff
question
Efficiency in a market is achieved when

- the sum of producer surplus and consumer surplus is max

- all firms are producing the good at the same low cost per unit

- no buyer is wiling to pay more than the equilibrium price for any unit of the good
answer
the sum of producer surplus and consumer surplus is maximized
question
if a pure monopolist is choosing an output level where MR is positive but smaller than MC

- the firm should produce less output
- it is probably max profits
- the firm should produce more output
- the firm should maintain its output level, but raise the price
answer
the firm should produce less output
question
a monopolist practicing 3rd-degree price discrimination will maximize profits by

- charging a higher price to the market segment with the more elastic demand

- equating the price-cost margin across market segments

- charging prices that equate MR in different markets

- setting an entry fee to extract all consumer surplus
answer
charging prices that equate marginal revenue in different markets
question
comparing 1st degree price discrimination to perfect competition one can conclude that

- total surplus higher under perfect competition

- total surplus lower under perfect competition

- producer surplus is lower and consumer surplus is higher under perfect competition

- MR us equal to price under perfect competition, but not under 1st degree price discrimination
answer
producer surplus is lower and consumer surplus is higher under perfect competition
question
which of the following is a requirement for successful price discrimination

- the firm must be able to divide up, or segment, the market

- the product must not be easily re-sold

- some customer must have a greater willingness to pay for the product than other consumers

- all of the above
answer
all of the above
question
which of the following are key results of price discrimination

- profits increase and consumer surplus decreases
- profits decrease and consumer surplus increases
- profits decrease and consumer surplus decreases
- profits increase and consumer surplus increases
answer
profits increase and consumer surplus decreases
question
in a monopolistic competition there is/are

- many sellers who each face a downward-sloping demand curve

- only one seller who faces a downward-sloping demand curve

- many sellers who each face a perfectly elastic demand curve
answer
many sellers who each face a downward sloping demand curve
question
the key characteristics of a monopolistically competitive market structure include

- many small (relative to the total market) sellers acting independently

- all sellers sell a homogenous product

- barriers to entry are strong

- sellers have no incentive to advertise their products
answer
many small (relative to the total market) sellers acting independently
question
Firms in a monopolistically competitive market face downward sloping demand curves because

- of product differentiation

- there are few substitutes for its product

- its market decisions are affected by the decisions of its rivals
answer
of product differentiation
question
a major difference between monopolistic competition and perfect competition is

- the number of sellers in the markets

- the degree by which the market demand curves slope downwards

- those products are not standardized in monopolistic competition unlike in perfect competition unlike in perfect competition

- the barriers to entry in the two markets
answer
those products are not standardized in monopolistic competition unlike in perfect competition unlike in perfect competition
question
for a monopolistically competitive firm, marginal revenue

- is greater than the price
- equals the price
- is less than the price
- and price are unrelated
answer
is less than the price
question
Under perfect competition, MR is equal to
answer
price
question
In a large metropolitan area, the furniture retailing business is best described as

- perfectly competitive
- monopolistically competitive
- a cartel
answer
monopolistically competitive
question
in a monopolistically competitive industry, a firm earns zero profit in the LR equilibrium because

- each firm produces at minimum average total cost
- the demand curve is tangent to the ATC curve for each firm
- each firm has capacity less than desired output
- they are price-takers
answer
- the demand curve is tangent to the ATC curve for each firm
question
a group of oligopolists who try to behave like a single monopolist and split the benefits among themselves is called

- cartel
- a guild
answer
cartel
question
a market structure in which there are a few interdependent firms selling differentiated or homogenous products is called

- perfect competition
- oligopoly
- monopoly
- monopolistic competition
answer
- oligopoly
question
a situation in which each firm chooses the best strategy given its rivals strategies is called a

- dominant strategy
- nash equilibrium
- collusion
answer
nash equilibrium
question
as the number of firms in an oligopoly market power grows larger the price will approach

- MR
- MC
- Monopoly price
- zero
answer
MC
question
in which market structures might firms produce a homogenous product

- perfect competition only
- perfect competition and oligopoly
- monopolistic competition only
- perfect competition and monopolistic competition
answer
- perfect competition and oligopoly
question
when an oligopoly market is in nash equilibrium

- firms have colluded to set prices

- firms will not behave as profit maximizers

- a firm will choose its best pricing strategy given the strategies that it observes other firms taking

- a firm will not take into account the strategies of its rivals
answer
a firm will choose its best pricing strategy given the strategies that it observes other firms taking
question
which of the following is an example of a game in which the use of a dominant strategy by every player results in suboptimal outcomes for all players

- nash equilibrium
- tit for tat game
- a cooperative equilibrium
- prisoners dilemma
answer
prisoners dilemma
question
the consumer is able to compare and rank every bundle presented to her/him.
answer
completeness
question
if two bundles are identical then one of these bundles is at least weakly preferred over the one.
answer
reflexive
question
the preferences keep the rankings across comparison of different bundles.
answer
transitivity
question
More is better, the consumer ALWAYS prefers more to less. That is you will always prefer ten beers to five beers.
answer
monotonicity
question
inelastic: price increases expenditures and price decreases expenditures
answer
- increase and decrease = direct relationship
question
unit elastic: price increases expenditures and price decreases expenditures
answer
unchanged and unchanged no relationship
question
elastic: price increases expenditures and price decreases expenditures
answer
decrease and increase = inverse relationship

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