PRACTICE QUESTION MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) The short run is a period of time in which 1) _______ A) the quantities of some resources are fixed, and others can be varied. B) the amount of output produced is fixed. C) the firm is not able to hire more workers. D) there is a shortage of most resources. E) There is not enough time to make all of the decisions. marginal product that would be produced if the firm employed four workers is A) 6. B) 2. C) 9. D) 4. E) 7.
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PRACTICE QUESTION MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1) The short run is a period of time in which 1) _______ A) the quantities of some resources are fixed, and others can be
varied. B) the amount of output produced is fixed. C) the firm is not able to hire more workers. D) there is a shortage of most resources. E) There is not enough time to make all of the decisions.
2) Fixed inputs are those inputs 2) _______
A) that are too expensive for the firm to purchase. B) that must be held in storage for at least one year. C) in which the marginal product of the last unit of the input
employed exceeds the marginal product of the previous unit. D) which can be purchased only in fixed quantity lots (e.g., 200 at a
time). E) whose quantity used cannot be changed in the short run.
3) Which of the following inputs is usually an explicit cost to a firm? 3) _______
A) capital B) labour C) a sunk cost D) all of the above E) none of the above
Use the table below to answer the following question(s).
Table 10.1
4) Refer to Table 10.1 which represents Swankyʹs total product curve. The marginal product that would be produced if the firm employed four workers is
4) _______
A) 6. B) 2. C) 9. D) 4. E) 7.
5) The law of diminishing marginal returns states: 5) _______ A) as a firm uses more of a variable input, given the quantity of fixed
inputs, its average cost eventually decreases. B) as the size of a plant increases, its marginal product eventually
decreases. C) as the size of a plant increases, its average cost eventually
decreases. D) as a firm uses more of a variable input, given the quantity of fixed
inputs, its marginal product eventually decreases. E) as a firm uses more of a fixed input, given the quantity of variable
inputs, its marginal product eventually decreases.
Use the table below to answer the following question(s).
Table 10.5
6) Refer to Table 10.5, which represents Swankyʹs short-run total cost schedule. The average fixed cost of producing 9 sweaters per day is
6) _______
A) $1.11. B) $1.25. C) $2.22. D) $10.00. E) $1.54.
7) Refer to Table 10.5, which represents Swankyʹs short-run total cost
schedule. The average total cost of producing 16 sweaters per day is 7) _______
A) $5.51. B) $2. C) $7.50. D) $5. E) $3.33.
8) Refer to Table 10.5, which represents Swankyʹs short-run total cost
schedule. When output goes up from 4 to 9 sweaters, the marginal cost of one of the 5 sweaters is
8) _______
A) $5. B) $4.25. C) $25. D) $4. E) $6.25.
9) Marginal cost is calculated as 9) _______ A) the increase in total cost divided by the increase in labour input,
given the amount of capital. B) total cost divided by output. C) total variable cost minus total fixed cost. D) the increase in total cost divided by the increase in variable cost. E) the increase in total cost divided by the increase in output.
10) Which one of the following statements concerning the short-run cost
curves is false? 10) ______
A) The average fixed cost curve is always downward sloping. B) The average total cost curve is U-shaped. C) When marginal cost is above average variable cost, average
variable cost is rising. D) When marginal cost is above average total cost, average total cost
is rising. E) The marginal cost curve cuts the average variable and average
total cost curves at their maximum points.
11) If the average variable cost of producing 10 units is $18 and the average variable cost of producing 11 units is $20, we know that, between 10 and 11 units of output,
11) ______
A) there is excess capacity. B) marginal cost is increasing. C) average total cost is increasing. D) diminishing returns have not set in. E) there are increasing returns to scale.
12) Which of the following business quotes best illustrates the idea of
average cost? 12) ______
A) ̋My primary source of overhead cost is the cost of running the head office.ʺ
B) ̋As we increase output, per-unit costs fall.ʺ C) ̋ If I double the number of workers and trucks, I get only 80
percent more packages delivered.ʺ D) ̋ If I need to, I can negotiate more overtime with my work force to
meet unexpected orders.ʺ E) none of the above
13) The ATC curve shifts upward if 13) ______
A) a new technology is introduced. B) more workers are hired. C) factor prices rise. D) all of the above. E) none of the above.
14) A production function is the relationship between the maximum output attainable and the
14) ______
A) price of output. B) change in technology. C) amount of labour used. D) demand for output. E) quantities of inputs used.
15) Suppose a candy manufacturer could triple its production of fudge by
doubling its production facility for making fudge. This indicates the presence of
15) ______
A) diseconomies of scale. B) constant returns to scale. C) the law of diminishing returns. D) market constraints. E) economies of scale.
16) Which of the following business quotes best illustrates the idea of
diseconomies of scale? 16) ______
A) ̋As we increase output, per-unit costs fall.ʺ B) ̋ If I need to, I can negotiate more overtime with my work force to
meet unexpected orders.ʺ C) ̋ If I double the number of workers and trucks, I get only 80
percent more packages delivered.ʺ D) ̋My primary source of overhead cost is the cost of running the
head office.ʺ E) none of the above
17) Which one of the following does not occur in perfect competition? 17) ______
A) No single firm can exert a significant influence on the market price of the good.
B) Firms already in the industry have no advantage over potential new entrants.
C) There are many buyers. D) There are significant restrictions on entry into the industry. E) Firms and buyers are completely informed about the prices of the
products of each firm in the industry.
18) A price-taking firm faces a 18) ______ A) downward-sloping supply curve. B) downward-sloping demand curve. C) demand curve that is perfectly elastic. D) downward-sloping marginal revenue curve. E) downward-sloping average revenue curve.
19) In perfect competition, a firmʹs marginal revenue equals its 19) ______
A) average revenue. B) total revenue. C) supply curve. D) price. E) A and D.
20) Complete the following sentence. Marginal revenue is the 20) ______ A) change in total quantity resulting from a 1-unit increase in the
price of the product sold. B) total revenue divided by a 1-unit increase in the quantity sold. C) change in total revenue resulting from a 1-unit increase in the
quantity sold. D) change in price resulting from a 1-unit increase in the quantity
sold. E) increase in profit divided by a 1-unit increase in the quantity sold.
Use the table below to answer the following question(s).
Table 11.2
21) Refer to Table 11.2, which represents the total revenue and cost schedule of a perfectly competitive firm. The marginal cost of the production of the 5th unit of output is
21) ______
A) $100. B) $128. C) $30. D) $25. E) $14.
22) Refer to Table 11.2, which represents the total revenue and cost schedule
of a perfectly competitive firm. If the firm produces 2 units of output, it will make an economic
22) ______
A) loss of $60. B) profit of $9. C) loss of $9. D) loss of $69. E) profit of $60.
23) It pays a firm to shut down production if price is 23) ______
A) below minimum average revenue. B) above minimum average fixed cost. C) below minimum average variable cost. D) above minimum average variable cost. E) below average total cost.
Use the table below to answer the following question(s).
Table 11.4
24) Refer to Table 11.4, which shows the hourly costs for Brendaʹs Balloon Shop, a perfectly competitive firm. The total fixed cost of production is
24) ______
A) $4. B) $29. C) $3. D) $7. E) not determinable from the data.
25) Refer to Table 11.4, which shows the hourly costs for Brendaʹs Balloon
Shop, a perfectly competitive firm. The marginal cost of producing the 5th unit of output is
25) ______
A) $4.40. B) $1. C) $4.50. D) $4.80. E) $4.70.
26) When a perfectly competitive firm makes zero economic profit, its
owner, 26) ______
A) is suffering economic hardship. B) will shut down in the short run. C) will exit in the long run. D) is taking a loss. E) is making a sufficient income to compensate him for the time and
capital that he supplies.
27) A firm maximizes profit by producing the output at which marginal cost equals
27) ______
A) average total cost. B) average variable cost. C) average fixed cost. D) marginal revenue. E) none of the above.
28) The fast food industry cannot be considered a perfectly competitive market because
28) ______
A) a large number of firms produce foods in the industry. B) entry and exit are not easy. C) fast foods differ from each other. D) producers do not have control of the market price. E) advertising expenditures play an important role in the industry.
29) If a competitive firm is producing an output at which price is equal to
average total cost, the firm 29) ______
A) is breaking even. B) is making a negative accounting profit. C) is still making a positive economic profit. D) should shut down. E) is experiencing economic losses.
Use the figure below to answer the following question(s).
Figure 11.5
30) Refer to Figure 11.5, which represents the short-run production decision of a perfectly competitive firm. The firm is
30) ______
A) making an economic profit. B) taking a loss. C) going to close down temporarily. D) failing to cover its opportunity costs. E) breaking even.
Use the figure below to answer the following question(s).
Figure 11.6
31) Refer to Figure 11.6 which represents the short-run production decision of a perfectly competitive firm. Firms are making an economic
31) ______
A) loss, and some firms will leave the industry, causing the industry supply curve to decrease.
B) loss, and some firms will enter the industry, causing the industry supply curve to increase.
C) profit, and some firms will enter the industry, causing the industry supply curve to increase.
D) loss, but since they are covering average variable cost, no one will exit the industry in the long run.
E) profit, and some firms will leave the industry, causing the industry supply curve to decrease.
32) Firms will stop exiting an industry only when 32) ______
A) marginal revenue equals average fixed cost. B) marginal revenue equals marginal cost. C) marginal revenue equals average revenue. D) economic profits are present once more. E) zero economic profits are being made.
33) Market power refers to 33) ______
A) a firm whose production is small relative to the size of the industry B) a firmʹs ability to produce more than a firm that produces in a
perfect competitive market C) a firmʹs ability to charge the maximum possible price. D) a firmʹs ability to sell any amount of output it desires at the market
price determined by supply and demand E) a firmʹs ability to raise the price of good without facing the fear
that it may lose all its demand for the product it produces
34) Barriers to entry characterize markets 34) ______ A) that set price equal to minimum average variable cost. B) that are perfectly competitive. C) in which economic profit must be zero. D) with many buyers, making it difficult for new firms to enter. E) that may be dominated by a monopoly.
35) Barriers to entry do not include 35) ______
A) a government franchise. B) patents. C) economies of scale. D) copyrights. E) union pickets.
36) The ability to maximize profit by setting the price is 36) ______
A) an essential characteristic of competitive markets. B) reserved exclusively for government franchises. C) possible only if the firm has a natural monopoly. D) an essential characteristic of monopoly. E) possible only if the firm holds a patent on the product it sells.
37) The ________ substitutes for a good, the ________ a monopolist has
market power to set the market price of the good. 37) ______
A) more; more B) less; more C) more; less D) less; less E) more; same
38) Which one of the following is an example of a possible natural barrier to
entry of new firms into an industry? 38) ______
A) issuing a patent B) a public franchise C) economies of scale D) licensing of professions E) all of the above
Use the figure below to answer the following question(s).
Figure 12.5
39) Refer to Figure 12.5 At the profit maximum point for a single-price monopoly, output is ________ units per day and the price is $________ per unit.
39) ______
A) 20; 75 B) 40; 50 C) 20; 20 D) 20; 50 E) zero; 0
40) Refer to Figure 12.5. If this market were perfectly competitive, the
output level would exceed the single-price monopoly output level by 40) ______
A) 30 units. B) 20 units. C) an amount impossible to determine without more information. D) zero. They would be the same since marginal cost is constant. E) 40 units.
41) An important characteristic of monopolistic competition is that 41) ______
A) entry to industry is impossible. B) firms do not have any control over the price of their products. C) there are relatively few barriers to entry. D) products are homogeneous. E) firms can differentiate their products.
42) In Toronto, one may find a large number of retail stores that sell clothes. Each store has its own characteristics which differ from the other stores. Therefore, clothing business in Toronto can be counted as an example of a(n) ________ industry.
42) ______
A) duopoly B) monopoly C) oligopoly D) monopolistically competitive E) perfectly competitive
43) In monopolistic competition 43) ______
A) there is only one firm in the market. B) there are two firms in the market. C) the size of firms is small relative to the size of the industry. D) the size of firms is large relative to the size of the industry. E) the size of firms is the same as the size of the industry.
44) Firms in monopolistically competitive industries may earn only normal
economic profit in the long run because 44) ______
A) the market eventually becomes perfectly competitive. B) their marginal cost curve slopes upward. C) the demand they face will be decreased as rival firms offer slightly
differentiated products for sale in the same market. D) costs always rise over time. E) their costs rise as the capital stock grows older.
45) When the economic profit is negative in an industry that is
monopolistically competitive, then 45) ______
A) firms will exit the industry, and the demand will decrease for the firms that remain in the industry.
B) firms will exit the industry, and the demand will increase for the products of the firms that remain.
C) the industry will eventually disappear. D) firms will enter the industry, and the demand will increase for the
firms that were originally in the industry. E) firms will enter the industry and produce better products.
46) The existence of brand names is an example of 46) ______
A) illegal barriers to entry. B) economies of scope. C) oligopoly. D) economies of scale. E) product differentiation.
47) Suppose that industry A consists of four firms who collectively control
96 percent of total sales in the market. We can conclude that industry A is classified as
47) ______
A) a duopoly. B) monopolistically competitive. C) an oligopoly. D) perfectly competitive. E) a monopoly.
48) Which one of the following characteristics applies to oligopolistic
markets? 48) ______
A) There is a large number of firms. B) Firms are large relative to the size of the market. C) The absence of barriers to entry of firms. D) Firms produce only differentiated products. E) All firms are price takers.
49) Complete the following sentence. Oligopolies compete 49) ______
A) by altering quantity and price. B) only by cheating within a cartel. C) only by raising the quality of their goods. D) by lowering prices, raising quality, product differentiation,
advertising, research and development. E) only by offering lower prices than their competitors.
50) Regulation refers to 50) ______
A) the discipline of the marketplace. B) rules administered by a government agency. C) selling a publicly owned corporation to private shareholders. D) the formation of monopolies. E) cartelization of a competitive industry.
51) When Bell Canada was ordered in 1980 to permit its customers to buy
equipment from any supplier, 51) ______
A) this meant lower prices for long-distance telephone service. B) this meant less competition in telephone markets. C) this meant higher prices for long-distance telephone service. D) this meant a rise in the variety and quality of equipment. E) this led to the merger of Bell Canada and Northern Telecom.
52) Anti-combine law attempts to 52) ______
A) establish fair trade laws. B) regulate monopolies. C) establish Crown corporations. D) prevent monopoly practices. E) support prices.
53) Under the Competition Act of 1986, the Tribunal may do all of the
following except: 53) ______
A) prevent mergers. B) prohibit persons from engaging in anti-competitive acts. C) dissolve mergers. D) force firms to lower their prices. E) prohibit persons from completely controlling a class of business.
54) Air pollution generated by a paper mill factory is an example of 54) ______ A) an efficient economy. B) a negative externality. C) a positive externality. D) a marginal external benefit. E) a marginal private cost.
55) Effective strategies for addressing the problem of pollution and
externalities include 55) ______
A) closing down a polluting industry. B) taxing the profit of polluting companies at twice the rate of non-
polluting companies. C) imposing taxes on the activity that generates the pollution. D) stressing the use of renewable resources. E) imposing recycling laws.
PRACTICE QUESTION ‐ ANSWERS 1) A 2) E 3) B 4) D 5) D 6) C 7) C 8) A 9) E 10) E 11) B 12) B 13) C 14) E 15) E 16) C 17) D 18) C 19) E 20) C 21) E 22) C 23) C 24) A 25) D 26) E 27) D 28) C 29) A 30) A 31) A 32) E 33) E 34) E 35) E 36) D 37) C 38) C 39) A 40) B 41) E 42) D 43) C 44) C 45) B 46) E 47) C 48) B 49) D 50) B 51) D