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The law of diminishing returns

Select one:

a. deals specifically with the diminishing marginal product of fixed input factors

b. states that as the quantity of a variable input increases, the resulting output must eventually diminish, with the quantities of all other factors being held constant 

c. can be derived deductively

d. states that the marginal product of a variable input factor must eventually decline as increasingly more is employed

Question 2

 

 

 

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Total output is maximized when

Select one:

a. average product is maximized

b. marginal product is maximized

c. average product equals zero

d. marginal product equals zero 

Question 3

 

 

 

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When comparing monopolistic competition and perfect competition markets, which is true?

Select one:

a. Both have unreasonable entry and exit conditions.

b. There are fewer sellers in perfect competition than monopolistic competition.

c. Product differentiation is the biggest single difference between the two market structures. 

d. Excess economic profits may be earned in the long run for both market structures.

Question 4

 

 

 

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Which of the following is the best example of a monopoly firm?

Select one:

a. Washington Mutual Funds Bank

b. National City Bank

c. The US Bank

d. The Bank of America

e. The Federal Reserve 

Question 5

 

 

 

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

Select one:

a. total cost equals total revenue

b. excess profits equal zero 

c. total variable cost is lower than total revenue

d. the market price falls below the average total cost at the firm's production level

Question 6

 

 

 

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If the productivity of variable factors is decreasing in the short run

Select one:

a. average cost must decrease as output increases

b. marginal cost must decrease as output increases

c. marginal cost must increase as output increases 

d. average cost must increase as output increases

Question 7

 

 

 

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The table given below shows the total revenue and total cost of producing a commodity.

 

Total Output

 

Total Revenue

 

Total Cost

 

0

 

$0

 

$1,000

 

1

 

$1,700

 

$2,000

 

2

 

$3,300

 

$2,800

 

3

 

$4,800

 

$3,500

 

4

 

$6,200

 

$4,000

 

5

 

$7,500

 

$4,500

 

6

 

$8,700

 

$5,200

 

7

 

$9,800

 

$6,000

 

8

 

$10,800

 

$7,000

 

9

 

$11,700

 

$9,000

 

 

In the table, the marginal revenue from the sixth unit of output is

 

Select one:

a. $1,700.

b. $1,200. 

c. $1,500.

d. $1,300.

e. $1,600.

Question 8

 

 

 

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When MR from a unit of output = $25, the price of a unit of labor is PX = $200, and the MP (marginal product of labor) = 8 units, employment

Select one:

a. should contract

b. None of these 

c. is optimal

d. should expand

Question 9

 

 

 

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Suppose that, at a given level of output, a perfectly competitive firm charges a price of $12 and has average total costs of $10. If its economic profit is $20,000, then it must be producing

Select one:

a. 20,000 units of output

b. 10,000 units of output 

c. 50,000 units of output

d. 30,000 units of output

e. 40,000 units of output

Question 10

 

 

 

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For which of the following types of firms does the average revenue curve coincide with the marginal revenue curve?

Select one:

a. A perfectly competitive firm 

b. A monopolistically competitive firm

c. A monopsonist

d. A monopolist

e. An oligopoly firm

Question 11

 

 

 

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A producer can raise profit by expanding output if

Select one:

a. marginal revenue is negative

b. marginal revenue is less than marginal cost 

c. marginal revenue is equal to marginal cost

d. marginal cost is negative

e. marginal revenue is greater than marginal cost

Question 12

 

 

 

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For monopolistic competition in the short run, it is possible to make an excess economic profit, while in the long run that is not possible.  Which of the following explains the disappearance of the excess profits occurs over the long run?

Select one:

a. Neither of the above answers is feasible.  Rather, the excess profits disappear for a monopolistic competitor because, as everyone knows, all input factor prices always increase over time, thus removing any excess profits that existed in the short run.

b. More suppliers enter this market due to a relatively low entry cost and capture part of the original market, which in turn forces prices down and removes excess profits for all.  This occurs because good product differentiation is maintained for all, moving the demand curve for an individual company down and to the left. This reduces the price and quantity demanded for an individual company. 

c. If product differentiation is not strong, other companies enter this market with similar (but not identical) products, thus making the monopolistic competitive demand curve flatter and closer to perfect competition. As a result, prices fall, and, even though individual quantities demanded for a company may be maintained, excess profits are removed due to the lower and more competitive pricing.

d. Both of the above could explain the long run outcome of no excess profits in monopolistic competition, depending on the degree of product differentiation.

e. The excess profits disappear because management gets complacent and forgets to update its pricing strategies.  Thus, management failure within an individual company is the reason that excess profits disappear.

Question 13

 

 

 

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Barriers to entry do not occur when

Select one:

a. a firm controls a scarce resource

b. the government requires a professional license or franchise agreement

c. diseconomies of scale in production exist in an industry 

d. economies of scale in production exist in an industry

e. the firm that introduces a product is granted a patent

Question 14

 

 

 

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A firm such as a public utility, which is the sole producer in a market in which government determines prices and standards of service, is known as a(n)

Select one:

a. oligopoly

b. regulated monopoly 

c. local monopoly

d. monopolistically competitive firm

e. natural monopoly

Question 15

 

 

 

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When Glaxo-Wellcome introduced AZT, an AIDS drug, it was able to enjoy high profits because of

Select one:

a. recommendations by doctors

b. its competitive price in the pharmaceutical industry

c. barriers to entry provided by patents 

d. the quick response of rivals in introducing substitute drugs

e. constant returns to scale in the long run

Question 16

 

 

 

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Which of the following is true of marginal revenue?

Select one:

a. Marginal revenue is the slope of the total cost curve when profit is maximized.

b. Marginal revenue is the slope of the supply curve of a firm.

c. Marginal revenue equals the income earned by selling the stocks on the margin.

d. Marginal revenue equals total revenue divided by quantity.

e. Marginal revenue equals the change in total revenue divided by the change in the quantity. 

Question 17

 

 

 

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A firm's total revenue is $400 for 8 units of output, $600 for 12 units of output, and $1,100 for 22 units of output. Evidently this firm is operating in a(n)

Select one:

a. oligopolistic market

b. perfectly competitive market 

c. monopolistically competitive market

d. monopolistic market

e. duopolistic market

Question 18

 

 

 

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A firm wishing to maximize profits will produce at the level of output where

Select one:

a. its total-cost curve intersects its total-revenue curve

b. marginal cost is equal to zero

c. total revenue exceeds total cost by the greatest amount 

d. costs are at a minimum

e. marginal revenue exceeds marginal cost by the greatest amount

Question 19

 

 

 

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Goodspeed Automobiles manufactures 100 disc brake cylinders. At this output level, its marginal revenue is equal to its marginal cost. If the revenue per unit of output is $500 and the per-unit cost is $350, its profit is:

Select one:

a. $15,000 

b. $25,000

c. $20,000

d. $45,000

e. $10,000

Question 20

 

 

 

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A(n) ____ is a price taker.

Select one:

a. oligopoly firm

b. monopolistically competitive firm

c. duopoly firm

d. perfectly competitive firm 

e. monopolistic firm