Exam 2
Question 1
(1.5 points)

Economic profit:


cannot be negative.

can exceed the riskadjusted normal rate of return.

is less than the riskadjusted normal rate of return.

does not reflect the cost of ownersupplied inputs.

Question 2
(1.5 points)

In the short run, a perfectly competitive firm will shut down and produce nothing if:


excess profits equal zero.

total cost exceeds total revenue.

total variable cost exceeds total revenue.

the market price falls below the minimum average total cost.

Question 3
(1.5 points)

Suppose Q1 = 50 when P1 = $25, and Q2 = 20 when P2 = $40. A linear estimate of the demand curve is:


P = $50  $0.5Q

P = $50 + $0.5Q

Q = 100 + 2P

Q = 100  0.5P

Question 4
(1.5 points)

The firm demand curve in a competitive market is:


upward sloping.

downward sloping.

horizontal.

vertical.

Question 5
(1.5 points)

The change in cost caused by a given managerial decision is:


implicit cost.

incremental cost.

explicit cost.

opportunity cost.

Question 6
(1.5 points)

A multiple regression model necessarily involves:


a linear relation.

more than one X variable.

a multiplicative relation.

more than one Y variable.

Question 7
(1.5 points)

If P1 = $5, Q1 = 10,000, P2 = $6 and Q2 = 5,000, then a linear estimate of the demand curve is:


P = $7  $0.002Q

P = $5 + $10,000Q

Q = 7  0.002P

Q = 35,000  5,000P

Question 8
(1.5 points)

Market structure is not typically characterized on the basis of:


the number and size distribution of active buyers and sellers.

potential entrants.

exit barriers.

government regulation.

Question 9
(1.5 points)

A method for predicting buyer response to hypothetical changes in product quality is provided by:


field studies.

regression analysis.

consumer surveys.

market experiments.

Question 10
(1.5 points)

The demand for most consumer goods is insensitive to changes in:


competitor prices.

the weather.

advertising.

the corporate income tax rate.

Question 11
(1.5 points)

Noncash expenses are:


explicit costs.

sunk costs.

incremental costs.

implicit costs.

Question 12
(1.5 points)

The acquisition cost of an asset is:


a replacement cost.

an implicit cost.

an explicit cost.

an opportunity cost.

Question 13
(1.5 points)

Abovenormal profits in a perfectly competitive market are caused by:


increases in demand that are successfully anticipated.

decreases in cost that are successfully anticipated.

increases in productivity that are successfully anticipated.

luck.

Question 14
(1.5 points)

If P1 = $5, Q1 = 10,000, P2 = $6 and Q2 = 5,000, then at point P2 an estimate of the point price elasticity eP equals:


6

2.5

4.25

0.12

Question 15
(1.5 points)

Graphically, competitive market supply is measured by the:


vertical difference of competitor demand curves.

vertical sum of competitor demand curves.

horizontal difference of competitor MC curves.

horizontal sum of competitor MC curves.

Question 16
(1.5 points)

Opportunity cost is not:


a real economic cost.

an implicit cost.

a variable cost.

none of these.

Question 17
(1.5 points)

Costs that do not vary across decision alternatives are:


implicit.

explicit.

sunk.

economic.

Question 18
(1.5 points)

Competition tends to be light when:


potential entrants are few.

capital requirements are nominal.

standards for skilled labor and other inputs are modest.

regulatory barriers are modest.

Question 19
(1.5 points)

In a perfectly competitive market:


sellers and buyers have perfect information.

entry and exit are difficult.

sellers produce similar, but not identical products.

each seller can affect the market price by changing output.

Question 20
(1.5 points)

The rate of return necessary to attract and retain capital investment is called:


ROE.

economic losses.

normal profit.

economic profit.

Question 21
(1.5 points)

A firm's capacity is the output:


maximum that can be produced in the longrun.

level where shortrun average costs are minimized.

level where longrun average costs are minimized.

maximum that can be produced in the shortrun.

Question 22
(1.5 points)

A costoutput relation for a specific plant and operating environment is the:


shortrun cost curve.

longrun total cost curve.

longrun marginal cost curve.

longrun average cost curve.

Question 23
(1.5 points)

Endogenous determinants of demand include:


competitor prices.

the weather.

interest rates.

firm advertising.

Question 24
(1.5 points)

In competitive market equilibrium, the firm's:


MR = MC and P > AR

MR = MC and P > AC

AR = AC and MR > MC

P = MR = AR = AC = MC

Question 25
(1.5 points)

The following market cannot be described as perfectly competitive:


the unskilled labor market.

the milk market.

discount retailing.

the agricultural grain markets.

Question 26
(1.5 points)

If a decrease in price causes total revenue to increase, an estimate of the absolute value of the price elasticity of demand will be:


greater than zero but less than one.

equal to one.

greater than one.

equal to zero.

Question 27
(1.5 points)

The foregone value associated with the current rather than nextbest use of a given asset is called:


current cost.

replacement cost.

historical cost.

opportunity cost.

Question 28
(1.5 points)

In a simple regression model, the correlation coefficient is:


equal to one.

greater than one.

less than one.

the square root of the coefficient of determination.

Question 29
(1.5 points)

Perfect competition always prevails in markets with:


few buyers and sellers.

many buyers and sellers.

an even balance of power between sellers and buyers.

a single buyer.

Question 30
(1.5 points)

A multiplicative model is:


a plot of XY data.

the relation between one dependent Y variable and one independent X variable.

a straightline relation.

a nonlinear relation that involves X variable interactions.

Exam 2 Problems
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