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Exam 2

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Question 1 (4 points)
Marginal Revenue
In the figure above, what is marginal revenue at a quantity of 120 if the firm maximizes profits at a quantity of 120?
  1. $35
  2. $40
  3. $55
  4. $4,200
  5. Cannot be determined from the information given.
Question 2 (4 points)
Average total cost will equal marginal cost when
  1. MC is at its lowest point.
  2. ATC is at its lowest point.
  3. ATC is zero.
  4. AFC is increasing.
  5. MC is declining.
Question 3 (4 points)
In the short run, a perfectly competitive firm maximizes profit where
  1. marginal revenue equals marginal cost.
  2. price equals marginal cost.
  3. the short-run average-total-cost curve reaches a minimum.
  4. price equals marginal revenue.
  5. Both a. and b.
Question 4 (4 points)
If average physical product is increasing,
  1. then marginal physical product must be equal to average physical product.
  2. then marginal physical product must be greater than average physical product.
  3. then marginal physical product must be less than average physical product.
  4. then marginal physical product must be equal to zero.
  5. then marginal physical product must be increasing.
Question 5 (4 points)
A perfectly competitive firm's short-run supply curve is
  1. the portion of the marginal-cost curve that lies above the minimum point of the AVC curve.
  2. the portion of the marginal-cost curve that lies above the minimum point of the ATC curve.
  3. the portion of the AVC curve that is increasing.
  4. the portion of the marginal-revenue curve that lies above the minimum point of the AVC curve.
  5. the portion of the marginal-cost curve that lies below the minimum point of the ATC curve.
Question 6 (4 points)
Break Even Point
In the figure above, in the long run the firm breaks even at the output level of
  1. 4 units.
  2. 20 units.
  3. 15 units.
  4. 31 units.
  5. Cannot be determined from the information given.
Question 7 (4 points)
The law of diminishing marginal returns states
  1. when successive equal amounts of a variable resource are combined with a fixed amount of another resource, total physical product can never increase.
  2. when successive equal amounts of a variable resource are combined with a fixed amount of another resource, marginal increases in output that can be attributed to each additional unit of the variable will eventually increase.
  3. when successive equal amounts of a variable resource are combined with a fixed amount of another resource, marginal physical product immediately drops to zero.
  4. when successive equal amounts of a variable resource are combined with a fixed amount of another resource, marginal increases in output that can be attributed to each additional unit of the variable will eventually decline.
  5. when successive equal amounts of a variable resource are combined with a fixed amount of another resource, total physical product always increases.
Question 8 (4 points)
When practicing price discrimination, a firm can increase its revenue by
  1. charging all customers the same price.
  2. concealing the practice from government authorities.
  3. charging a higher price to those customers with more inelastic demand.
  4. charging a higher price to those customers with more elastic demand.
  5. charging a lower price to those customers with more inelastic demand.
Question 9 (4 points)
Which of the following statements is true?
  1. A perfectly competitive firm's demand curve is the market-demand curve.
  2. For a monopolist, the law of demand generally does not apply since it is the only firm in a market.
  3. For a monopolist, the demand curve is perfectly elastic.
  4. There are more firms in a monopoly market compared to perfect competition.
  5. A monopolist's demand curve is the market demand curve.
Question 10 (4 points)
If an individual firm is a price taker, then
  1. it faces a horizontal demand curve.
  2. it has no real control over the price that it charges; if it raises its price, it will lose all of its customers, and if it lowers its price, it loses revenue.
  3. it is operating in a perfectly competitive market.
  4. its price is determined by the market-supply and market-demand curves.
  5. All of these.
Question 11 (4 points)
Since each firm is subject to the law of diminishing marginal returns, then all firms
  1. have an inelastic demand curve.
  2. have the same cost curves.
  3. have price-elastic demand curves.
  4. have U-shaped costs curves in the short run.
  5. have a demand curve that is downward sloping.
Question 12 (4 points)
If economic profits are being realized in a perfectly competitive market,
  1. an oligopoly will form between the firms in the market.
  2. firms will differentiate their products in hope of capturing the entire economic profit.
  3. many people will rush to buy more goods and services.
  4. new firms will enter the market until everybody in the market is earning zero economic profit.
  5. new firms will enter the market until everybody in the market is earning zero accounting profit.
Question 13 (4 points)
Because of the relationship of the marginal to the average, the marginal physical product intersects
  1. the marginal cost curve at its minimum point.
  2. the average physical product at the latter's minimum point.
  3. the average physical product at the latter's maximum point.
  4. the average cost at the latter's minimum point.
  5. the total physical product at the latter's inflection point.
Question 14 (4 points)
Constant returns to scale occur when
  1. an increase in all resources causes no change in output.
  2. the marginal-cost curve is increasing at a decreasing rate.
  3. the marginal-cost curve lies below the average-cost curve.
  4. the long-run average-cost curve is declining.
  5. an increase in all resources results in an exactly proportionate increase in output.
Question 15 (4 points)
Which of the following is not one of the bases on which sellers' market structures are typically distinguished?
  1. Number of firms in the industry
  2. Product differentiation
  3. Short-run profitability
  4. Ease of entry
  5. How difficult it is for new firms to start up
Question 16 (4 points)
If barriers to entry exist in a market,
  1. then the costs of entry and exit are relatively low.
  2. there will likely be few firms in the market.
  3. firms will be able to earn economic profits in both the short and long runs.
  4. All of these.
  5. Both b. and c.
Question 17 (4 points)
The marginal revenue of a monopolist
  1. is a vertical line.
  2. is perfectly inelastic.
  3. is a horizontal line.
  4. is downward sloping.
  5. is perfectly elastic.
Question 18 (4 points)
The efficiency loss that occurs when a market is monopolized is known as
  1. a monopoly loss.
  2. an X-loss.
  3. an economic loss.
  4. a deadweight loss.
  5. None of these.
Question 19 (4 points)
In perfectly competitive markets,
  1. the number of firms is large.
  2. buyers and sellers have adequate information.
  3. there is ease of entry into the market and exit from the market.
  4. the product is homogeneous.
  5. All of these.
Question 20 (4 points)
Maximize Profit
Consider the monopolist described in the figure above. The firm can maximize profit by producing
  1. zero units.
  2. Q 1 units.
  3. Q 2 units.
  4. Q 3 units.
  5. Q 4 units.
Question 21 (4 points)
Accountants measure only the accounting costs. Economists measure
  1. all opportunity costs except that of labor.
  2. all opportunity costs except that of capital.
  3. all opportunity costs.
  4. all opportunity costs except that of land.
  5. all opportunity costs except those of accounting costs.
Question 22 (4 points)
The profit-maximizing rule is:
  1. marginal cost = marginal revenue.
  2. marginal revenue = marginal profit.
  3. normal profit = economic profit.
  4. total costs = total revenue.
  5. total revenue = total costs.
Question 23 (4 points)
Maximize Profit
Refer to the figure above. If the current production level is 90 and the firm wishes to maximize profit, it should
  1. increase production until MR = MC.
  2. leave the current production level unchanged.
  3. decrease the quantity produced to 35.
  4. decrease the quantity produced to 75.
  5. decrease the quantity produced to 50.
Question 24 (4 points)
Economists classify three types of firms as
  1. corporations, companies, and conglomerates.
  2. sole proprietorships, partnerships, and corporations.
  3. companies, conglomerates, and partnerships.
  4. public enterprises, private enterprises, and companies.
  5. sole proprietorships, partnerships, and fly-by-night outfits.
Question 25 (4 points)
In the long run, a perfectly competitive market will
  1. have normal economic profits in long-run equilibrium.
  2. have exit of firms if economic profits are negative.
  3. have entry and exit of firms until economic profits are zero.
  4. have entry of firms if economic profits are positive.
  5. All of these.
Question 26 (4 points)
Maximize Profit
In the figure above, to maximize profits or minimize losses the firm should produce __________ units.
  1. 4
  2. 10
  3. 15
  4. 20
  5. 28
Question 27 (4 points)
Maximize Revenue
Refer to the figure above, which shows a monopolist's MR, AR, and TR curves. If the monopolist is selling a quantity between B and E, then to maximize total revenue the monopolist should
  1. decrease price because it is operating on the elastic portion of the demand curve.
  2. increase price because it is operating where price elasticity of demand is greater than 1.
  3. increase price because it is operating on the inelastic portion of the demand curve.
  4. increase price because it is operating on the elastic portion of the demand curve.
  5. decrease price because it is operating on the inelastic portion of the demand curve.
Question 28 (4 points)
One assumption of the model of perfect competition is that entry into the market is easy. This implies that
  1. one firm has gained a patent in the industry.
  2. there are not significant economies of scale relative to the size of the market.
  3. there are government licensing requirements for a firm to enter the market.
  4. significant economies of scale do exist in the industry.
  5. None of these.
Question 29 (4 points)
Short Run Price
In the figure above, the firm will shut down in the short run if the price is
  1. under $13.
  2. under $8.
  3. between $4 and $8.
  4. under $4.
  5. The firm will never shut down in the short run.
Question 30 (4 points)
__________ account for the downward-sloping section of the long-run average-total-cost curve, while __________ account for the upward-sloping section of the short-run average-total-cost curve.
  1. Diseconomies of scale; economies of scale
  2. Economies of scale; diseconomies of scale
  3. Diminishing marginal returns; economies of scale
  4. Diminishing marginal returns; diseconomies of scale
  5. Economies of scale; diminishing marginal returns
Question 31 (4 points)
Total physical product
  1. is always increasing as an input is increased.
  2. is only relevant in the long run.
  3. is identical to average physical product.
  4. is the maximum output that can be produced from different quantities of a resource.
  5. explains why the demand curve is downward sloping.
Question 32 (4 points)
Consumer Surplus
In the figure above, what is the consumer surplus at the profit-maximizing levels of output and price?
  1. HMQ
  2. JNM
  3. 0JNV
  4. 0HQX
  5. Cannot be determined from the information given.
Question 33 (4 points)
Economic profit
  1. is the difference between a firm's total revenue and its full costs of production, including opportunity costs of the owner's capital.
  2. acts as a signal to firms for resource allocation.
  3. is usually smaller than accounting profit.
  4. can be positive, negative, or zero.
  5. All of these.
Question 34 (4 points)
Which of the following is an example of a monopoly?
  1. The electric utility provides the delivery of electricity to your house.
  2. Postal services in most nations are run by the government.
  3. In most nations, money is printed by the central bank.
  4. Cable television service in most areas is provided by a single company.
  5. All of these.
Question 35 (4 points)
Since a monopolist is a price maker and not a price taker,
  1. it can never earn economic profits in the long run.
  2. it has a horizontal demand curve.
  3. it has a supply curve identical to the perfectly competitive market.
  4. it has no demand curve.
  5. it has no supply curve, only a supply point on the demand curve where MR = MC.
Question 36 (4 points)
Barriers to entry occur when
  1. a firm controls a scarce resource..
  2. the government requires a professional license or franchise agreement.
  3. the firm that introduces a product is granted a patent.
  4. economies of scale in production exist in an industry.
  5. All of these.
Question 37 (4 points)
The perfectly competitive producer's demand curve is
  1. downward sloping but more elastic than the market-demand curve.
  2. vertical.
  3. perfectly elastic.
  4. perfectly inelastic.
  5. the market-demand curve.
Question 38 (4 points)
Surplus
According to the figure above, which of the following is not true?
  1. Consumer surplus is the difference between the market price and what the consumer would be willing to pay.
  2. If producer surplus rises, consumer surplus falls.
  3. If consumer surplus rises, producer surplus falls.
  4. Producer surplus is the difference between the market price and the price at which the firm would be willing to supply the good.
  5. If consumer surplus falls, producer surplus falls.
Question 39 (4 points)
Assume that one laborer produces 6 units of output, two laborers produce 14 units, three laborers 20 units, and four laborers 24 units. Diminishing returns set in when the firm hires
  1. the first laborer.
  2. the second laborer.
  3. the third laborer.
  4. the fourth laborer.
  5. Diminishing returns have not set in; total product is still increasing.
Question 40 (4 points)
Total costs are
  1. the costs of all variable resources.
  2. defined to be equal to dollars multiplied by the marginal physical product.
  3. defined to be equal to the value of consumer surplus.
  4. the costs of all variable resources used to produce goods and services.
  5. the costs of variable and fixed resources.
Copyright 2008, by the Contributing Authors. Cite/attribute Resource . admin. (2009, January 27). Exam 2. Retrieved January 07, 2011, from Free Online Course Materials — USU OpenCourseWare Web site: http://ocw.usu.edu/economics/introduction-to-microeconomics-1/exam2.htm. This work is licensed under a Creative Commons License Creative Commons License