Microeconomics; Chps 6, 7, 8, 9

question

Perfectly competitive firms must make all of the following decisions EXCEPT:
A) how much output to supply.
B) which production technology to use.
C) how much of each input to demand.
D) what price to charge for its output.

answer

D) what price to charge for its output.

question

A firm ________ if it earns zero economic profit.
A) earns a negative rate of return
B) will leave the industry
C) earns a positive but below normal rate of return
D) earns exactly a normal rate of return

answer

D) earns exactly a normal rate of return

question

Richard is consuming X and Y so that he is spending his entire income and MUx/Px = 12 and MUy/Py = 4. To maximize utility, he should
A) continue to consume the same amount of X and Y since he is already maximizing utility.
B) consume less of both X and Y.
C) consume more X and less Y.
D) consume less X and more Y.

answer

C) consume more X and less Y.

question

If a household's income falls by 30%, its budget constraint will
A) shift out parallel to the old one.
B) pivot at the Y-intercept.
C) shift in parallel to the old one.
D) be unaffected.

answer

C) shift in parallel to the old one.

question

Marginal utility is the ________ satisfaction gained by consuming ________ of a good.
A) total; all units
B) total; one more unit
C) additional; all units
D) additional; one more unit

answer

D) additional; one more unit

question

If an individual perfectly competitive firm charges a price below the industry equilibrium price while competitors charge the equilibrium price, the firm will
A) not sell any of what it produces.
B) sell part of what it produces but forgo no revenue.
C) sell all that it produces and forgo no revenue.
D) sell all that it produces but forgo revenue that it could have had.

answer

D) sell all that it produces but forgo revenue that it could have had.

question

If a profit maximizing firm is currently producing output where MR = MC, it should
A) increase output so that marginal revenue is less than marginal cost.
B) decrease output so that marginal revenue will be greater than marginal cost and the firmʹs profit will increase.
C) not change output because it is already maximizing profit.
D) exit the industry.

answer

C) not change output because it is already maximizing profit.

question

Assuming the price of labor (L) is $10 per unit and the price of capital (K) is $5 per unit, what production technique should this firm use to produce 2 units of output?

Technology Units of K Units of L
A 14 5
B 10 8
C 5 15
D 9 12

a) Technology A
b) Technology B
c) Technology C
d) Technology D

answer

a) Technology A

question

The short-run supply curve of a competitive firm is the portion of
A) the average variable cost curve that lies above its marginal cost curve.
B) its marginal cost curve that lies above its average variable cost curve.
C) its marginal cost curve that lies above its average total cost curve.
D) its average total cost curve that lies above its marginal cost curve.

answer

B) its marginal cost curve that lies above its average variable cost curve.

question

An industry is in ________ if firms have an incentive to enter or exit in the ________ run.
A) disequilibrium; short
B) disequilibrium; long
C) equilibrium; short
D) equilibrium; long

answer

B) disequilibrium; long

question

To produce one unit of output, a firm can use either one unit of capital or one unit of labor. In this case, capital and labor are
A) complementary inputs.
B) substitutable inputs.
C) both complementary and substitutable inputs.
D) unrelated inputs.

answer

B) substitutable inputs.

question

If P = MC and P < ATC, then a perfectly competitive firm will earn ________ profits.
A) positive
B) zero
C) negative
D) breakeven

answer

C) negative

question

If TR > TC, a firm would ________ in the short run and ________ in the long run.
A) operate; expand
B) operate; contract
C) shut down; expand
D) shut down; contract

answer

A) operate; expand

question

Price decreases will ________ a household's choice set.
A) increase
B) decrease
C) not change
D) sometimes increase and other times decrease

answer

A) increase

question

A firm is experiencing ________ on the downward sloping portion of a firm's long run average cost curve.
A) increasing returns to scale
B) constant returns to scale
C) decreasing returns to scale
D) diminishing marginal returns

answer

A) increasing returns to scale

question

If labor is a variable input in production, the law of diminishing marginal returns implies that in the short run
A) laborʹs marginal product is constant.
B) laborʹs marginal product decreases after a certain point.
C) total product is negative.
D) total product is negative after a certain point has been reached.

answer

B) laborʹs marginal product decreases after a certain point.

question

A firm suffering economic losses decides whether or not to produce in the short run on the basis of whether
A) revenues cover variable costs.
B) revenues from operating are sufficient to cover fixed costs.
C) revenues from operating are sufficient to cover fixed plus variable costs.
D) firms suffering economic losses will always shut down.

answer

A) revenues cover variable costs.

question

In the short run
A) existing firms do NOT face limits imposed by a fixed input.
B) all firms have costs that they must bear regardless of their output.
C) new firms can enter an industry.
D) existing firms can exit an industry.

answer

B) all firms have costs that they must bear regardless of their output.

question

If a firm shuts down in the short run, then
A) its economic profits are zero.
B) its losses are equal to its fixed cost.
C) its operating profits are negative.
D) its total costs are zero.

answer

B) its losses are equal to its fixed cost.

question

A firm earning positive short-run profits has an incentive to ________ its long-run scale of operation.
A) expand
B) contract
C) not change
D) encourage another firm to expand

answer

A) expand

question

Average fixed costs
A) are the costs associated with producing an additional unit of output.
B) provide a per unit measure of costs.
C) fall as output rises.
D) reach their minimum at the output level where the average fixed cost curve is intersected by the marginal cost curve.

answer

C) fall as output rises.

question

For normal goods, the substitution and income effects of a price decrease will
A) both decrease the quantity of the good demanded.
B) both increase the quantity of the good demanded.
C) the substitution effect will increase the quantity of the good demanded while the income effect will decrease the quantity of the good demanded.
D) the substitution effect will decrease the quantity of the good demanded while the income effect will increase the quantity of the good demanded.

answer

B) both increase the quantity of the good demanded.

question

The shape of a firm's ________ average cost curve depends on how costs vary with ________.
A) short-run; scale of operations
B) short-run; no fixed factor of production
C) long-run; scale of operations
D) long-run; a fixed factor of production

answer

C) long-run; scale of operations

question

A person maximizes utility when she equalizes the ________ across products.
A) total utility
B) total utility per dollar spent
C) marginal utility
D) marginal utility per dollar spent

answer

D) marginal utility per dollar spent

1 of 24

question

answer

D) what price to charge for its output.

question

answer

D) earns exactly a normal rate of return

question

answer

C) consume more X and less Y.

question

If a household's income falls by 30%, its budget constraint will
A) shift out parallel to the old one.
B) pivot at the Y-intercept.
C) shift in parallel to the old one.
D) be unaffected.

answer

C) shift in parallel to the old one.

question

Marginal utility is the ________ satisfaction gained by consuming ________ of a good.
A) total; all units
B) total; one more unit
C) additional; all units
D) additional; one more unit

answer

D) additional; one more unit

question

answer

D) sell all that it produces but forgo revenue that it could have had.

question

answer

C) not change output because it is already maximizing profit.

question

answer

a) Technology A

question

answer

B) its marginal cost curve that lies above its average variable cost curve.

question

An industry is in ________ if firms have an incentive to enter or exit in the ________ run.
A) disequilibrium; short
B) disequilibrium; long
C) equilibrium; short
D) equilibrium; long

answer

B) disequilibrium; long

question

answer

B) substitutable inputs.

question

If P = MC and P < ATC, then a perfectly competitive firm will earn ________ profits.
A) positive
B) zero
C) negative
D) breakeven

answer

C) negative

question

If TR > TC, a firm would ________ in the short run and ________ in the long run.
A) operate; expand
B) operate; contract
C) shut down; expand
D) shut down; contract

answer

A) operate; expand

question

Price decreases will ________ a household's choice set.
A) increase
B) decrease
C) not change
D) sometimes increase and other times decrease

answer

A) increase

question

answer

A) increasing returns to scale

question

answer

B) laborʹs marginal product decreases after a certain point.

question

answer

A) revenues cover variable costs.

question

answer

B) all firms have costs that they must bear regardless of their output.

question

If a firm shuts down in the short run, then
A) its economic profits are zero.
B) its losses are equal to its fixed cost.
C) its operating profits are negative.
D) its total costs are zero.

answer

B) its losses are equal to its fixed cost.

question

A firm earning positive short-run profits has an incentive to ________ its long-run scale of operation.
A) expand
B) contract
C) not change
D) encourage another firm to expand

answer

A) expand

question

answer

C) fall as output rises.

question

answer

B) both increase the quantity of the good demanded.

question

answer

C) long-run; scale of operations

question

A person maximizes utility when she equalizes the ________ across products.
A) total utility
B) total utility per dollar spent
C) marginal utility
D) marginal utility per dollar spent

answer

D) marginal utility per dollar spent

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Microeconomics; Chps 6, 7, 8, 9

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