1

Which of the following is true regarding how a market type interacts with constant, increasing and decreasing cost industries?

•  

In a perfectly competitive market, firms tend to experience diseconomies of scale at relatively low levels of output.

•  

In a perfectly competitive market, firms will usually experience significant economies of scale until very high levels of output.

•  

In a monopoly, firms are likely to begin experiencing diseconomies of scale at relatively low levels of output.

•  

In a natural monopoly, firms will always reach diseconomies of scale at high levels of output.

CONCEPT

Constant, Increasing and Decreasing Cost Industries

2

Which scenario corresponds with economies of scale?

•  

A decrease in production will cause the next unit to cost the same.

•  

A decrease in production will cause the next unit to first increase in cost, then decrease, then increase again.

•  

An increase in production will cause the cost of the next unit to increase.

•  

An increase in production will cause the cost of the next unit to decrease.

CONCEPT

Economies, Constant and Diseconomies of Scale

3

Sergio leaves his job as a hockey coach to open his own skate sharpening shop at a local rink. Sergio is confident that the skate sharpening business will earn him more than the $500 per week that he earned at his coaching position.

Sergio's business is good; he averages 100 pairs of skates per week, and charges $8 per pair to sharpen skates. He does all of the work himself, but has to pay the rink $150 per week for the lease on the equipment. 

Is Sergio better off operating his own business?

•  

No, he is only earning $150 per week.

•  

No, he should have stayed at the coaching position where he earned $500 per week.

•  

Yes, he is earning an economic profit of $800 each week.

•  

Yes, he is now earning an economic profit of $150 per week.

CONCEPT

Economic Profit

4

  

 

If the market price of apples drops to $9, at which of the following will the firm be?

•  

Making a profit

•  

At the shutdown point

•  

Below the shutdown point

•  

Operating at a short term loss

•  

Just breaking even

CONCEPT

Breakeven Point

5

Select the definition that represents an oligopoly.

•  

A model that explains why price fixing tends to break down

•  

A group of firms engaged in price fixing

•  

A market structure that consists of a few firms that all sell similar products

•  

When firms work together to determine the price and number of products

CONCEPT

Oligopoly

6

If variable costs for a firm are $800, the average total costs are $6, and the firm sells 175 units, what are the firm's fixed costs?

•  

$162.50

•  

$975

•  

$1050

•  

$250

CONCEPT

Cost: Total, Marginal and Average

7

When a firm uses four machines, it can produce 300 units daily.  A fifth machine allows the firm to product 440 units.

 

Which of the following is true regarding production?

•  

The marginal product for the fifth machine is 140 units and the average product is 88 units.

•  

The marginal production for the fifth machine is 440 units and total production would be 740 units.

•  

The marginal product for the fourth machine is 300 and the average product is 75 units

•  

The total production for nine machines would be 740 units with an average production of 123.33 units.

CONCEPT

Product: Total, Marginal, Average, and (Marginal) Revenue

8

The graph shown here is used to determine how to maximize the quantity of helium balloons a company can produce based on the combination of labor they employ and machines they use.

  

 

What should the company do in order to maximize efficiency?

•  

The company should employ eight laborers and use eight helium balloons machines.

•  

The company should employ eight laborers and use five helium balloons machines.

•  

The company should employ nine laborers and use six helium balloons machines.

•  

The company should employ 14 laborers and use two helium balloons machines.

CONCEPT

Production Function and Constraints

9

  

Given the information in the graph shown here, at which level of production will profit be maximized? 

•  

73

•  

50 

•  

80

•  

69

CONCEPT

Output Optimization: Total Revenue / Total Cost

10

Which of the scenarios below is an example of a monopoly?

•  

In this industry, it is easy to enter and exit the market.

•  

This industry has stable pricing due to the tendency of groups of firms to work together to set prices. 

•  

A company produces a lemon-lime soda that is identical to others on the market in terms of taste but has a recognizable brand because of advertising. 

•  

A company engages in predatory price cutting in order to discourage any competition. 

CONCEPT

Monopoly

11

Which of the following is true about marginal cost?

•  

The marginal cost will consistently fall with an increase in production.

•  

Marginal cost can be found at the intersection of a firm's budget constraints and production function.

•  

Marginal cost is the change in total cost that results from a single unit increase in the quantity produced. 

•  

In the long run, every firm’s marginal cost must equal zero.

CONCEPT

Cost: Total, Marginal and Average

12

Product Price

  Unit Cost Quantity Sold Quantity Produced Opportunity Cost

$20.50

  $10.25 500 800 $550

 

Calculate the firm’s accounting profit from the data shown above.

•  

–$11,275

•  

–$1,500

•  

$1,500

•  

$2,050

CONCEPT

Accounting Profit

13

  

If the goal is to maximize profit, at which point on the graph would a firm’s output be optimized?

•  

Point 1

•  

Point 4

•  

Point 2

•  

Point 3

CONCEPT

Output Optimization: Marginal Revenue / Marginal Cost

14

Number of Employees Total Production Marginal Product of Labor Marginal Revenue Product

0 0 0

1 18 18

2 30 12

3 41 11

4 46 5

 

If the price of the item is $10.00 per unit and the employees cost $100 each, how many employees should the firm hire to maximize their profit?

•  

Two employees

•  

Three employees

•  

One employee

•  

Four employees

CONCEPT

Output Optimization: Marginal Revenue Product

15

  

 

If the firm is decreasing production from Q1 to Q2, how is the firm doing?

 

•  

Good; it is making a profit.

 

•  

Poorly; it is at the shutdown point.

•  

None of these answer choices are correct.

•  

Very poorly; it is past the shutdown point.

•  

It is at the break even point.

CONCEPT

Shut-down Point

16

The Prisoner's Dilemma can come into play when firms ___________.

•  

are forced to advertise and market their goods to consumers

•  

are regulated by the government in order to provide fair pricing to consumers

•  

decide whether to work together on things like price or production levels

•  

engage in predatory pricing to move each other out of the market

CONCEPT

Oligopoly

17

Which of the following is why the long run average cost curve must lie at the same level or below any short run average cost curve? 

•  

Because in the long run, all production costs are variable

•  

Because of economies of scale

•  

Because in the long run, a firm will generally operate at higher per-unit cost than in the short run

•  

Because of the law of diminishing returns

CONCEPT

Long-Run Supply Curve

18

Which type of market structure has many small firms that spend money in order to differentiate their products through advertising?

•  

Perfect competition

•  

Oligopoly

•  

Monopoly

•  

Monopolistic competition

CONCEPT

Monopolistic Competition

19

Which of the following is a trait of a perfectly competitive market?

•  

Barriers to entry exist

•  

Firms are price makers

•  

Information flows freely

•  

Firms are not producing at minimum cost

CONCEPT

Perfect Competition

20

Mimi is granted a license to sell her unique Spirit Pins at local high school lacrosse games.  When Mimi prices her pins at $10, she sells 20 pins per game. When she lowers her price to $8, she sells 40 pins. 

 

The additional money she earns from dropping her price is known as the __________.

•  

Output effect

•  

Marginal revenue

•  

Opportunity cost

•  

Price effect

CONCEPT

Revenue: Total, Marginal and Average

21

Which example below represents a fixed input?

•  

Hourly employees

•  

Utility bills

•  

Office space being rented

•  

Raw materials for construction

 

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Status NEW Posted 03 May 2020 08:05 PM My Price 28.00

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