Question 1

If diminishing returns exist,then

Accepted Answer

A) Each unit produced will cost incrementally less to produce. 
B) Each unit produced will cost incrementally more to produce. 
C) The total cost curve will be flat. 
D) The total cost curve will be negatively sloped. 
A) Each unit produced will cost incrementally less to produce. 
B) Each unit produced will cost incrementally more to produce. 
C) The total cost curve will be flat. 
D) The total cost curve will be negatively sloped.

Question 2

When a producer can control the market price for the good it sells,the producer

Accepted Answer

A) Is an entrepreneur. 
B) Is certain to make a profit. 
C) Has market power. 
D) Is a perfectly competitive firm. 
A) Is an entrepreneur. 
B) Is certain to make a profit. 
C) Has market power. 
D) Is a perfectly competitive firm.

Question 3

The profit motive can encourage businesses to do all of the following except

Accepted Answer

A) Pollute the environment. 
B) Restrict competition. 
C) Provide unsafe working conditions. 
D) Mistreat customers. 
A) Pollute the environment. 
B) Restrict competition. 
C) Provide unsafe working conditions. 
D) Mistreat customers.

Question 4

Refer to Figure 22.3 for a perfectly competitive firm.At a market price of $23,total profits are maximized at an output of

Accepted Answer

A) 39. 
B) 31. 
C) 25. 
D) 13. 
A) 39. 
B) 31. 
C) 25. 
D) 13.

Question 5

Adam is the owner/operator of a flower shop.Last year he earned $250,000 in total revenue.His explicit costs were $175,000 paid to his employees and suppliers (assume that this amount represents the total opportunity cost of these resources).During the year he received three offers to work for other flower shops with the highest offer being $75,000 per year.Which of the following is true about Adam's accounting and economic profit?

Accepted Answer

A) Accounting profit = $75,000;economic profit = $0. 
B) Accounting profit = $175,000;economic profit = $75,000. 
C) Accounting profit = $75,000;economic profit = negative $100,000. 
D) Accounting profit = $0;economic profit = negative $75,000. 
A) Accounting profit = $75,000;economic profit = $0. 
B) Accounting profit = $175,000;economic profit = $75,000. 
C) Accounting profit = $75,000;economic profit = negative $100,000. 
D) Accounting profit = $0;economic profit = negative $75,000.

Question 6

Table 22.1 $$\begin{array}{l}
\text { Assume an apple farmer incurs the following costs and revenues }\
\begin{array} {| l | r |} 
\hline \text { Fertilizer } & \$ 200 \
\hline \text { Seeds } & \$ 75 \
\hline \text { Water } & \$ 250 \
\hline \text { Wages } & \$ 750 \
\hline \text { Property taxes } & \$ 600 \
\hline \text { Interest paynents on borrowed funds } & \$ 1,200 \
\hline \text { Bales of apples } & \$ 4,000 \
\hline
\end{array}
\end{array}$$ Suppose the entrepreneur could earn $1,000 as an employee elsewhere.This means the economic profit is

Accepted Answer

A) -$925. 
B) -$75. 
C) -$1,000. 
D) $0. 
A) -$925. 
B) -$75. 
C) -$1,000. 
D) $0.

Question 7

Shutting down a firm's operation and quitting production is equivalent to exiting the industry.

Accepted Answer

A) True 
 B)False

Question 8

Refer to Figure 22.2 for a perfectly competitive firm.The profit-maximizing quantity of output is

Accepted Answer

A) B. 
B) C. 
C) D. 
D) E. 
A) B. 
B) C. 
C) D. 
D) E.

Question 9

A firm's total revenue can be determined by

Accepted Answer

A) Price times quantity. 
B) Profits minus costs. 
C) Total costs minus variable costs. 
D) Fixed costs minus quantity. 
A) Price times quantity. 
B) Profits minus costs. 
C) Total costs minus variable costs. 
D) Fixed costs minus quantity.

Question 10

Profit per unit is equal to

Accepted Answer

A) TR - TC. 
B) P - MR. 
C) P - ATC. 
D) TR - ATC. 
A) TR - TC. 
B) P - MR. 
C) P - ATC. 
D) TR - ATC.

Question 11

A monopoly is a market in which no buyer or seller has market power.

Accepted Answer

A) True 
 B)False

Question 12

Table 22.1 $$\begin{array}{l}
\text { Assume an apple farmer incurs the following costs and revenues }\
\begin{array} { |l | r |} 
\hline \text { Fertilizer } & \$ 200 \
\hline \text { Seeds } & \$ 75 \
\hline \text { Water } & \$ 250 \
\hline \text { Wages } & \$ 750 \
\hline \text { Property taxes } & \$ 600 \
\hline \text { Interest paynents on borrowed funds } & \$ 1,200 \
\hline \text { Bales of apples } & \$ 4,000 \
\hline
\end{array}
\end{array}$$ Suppose the entrepreneur could earn $800 as an employee elsewhere.This means the entrepreneur is earning

Accepted Answer

A) Breakeven profits. 
B) Economic losses. 
C) Economic profits. 
D) Accounting losses. 
A) Breakeven profits. 
B) Economic losses. 
C) Economic profits. 
D) Accounting losses.

Question 13

Fixed costs

Accepted Answer

A) Increase with the level of production in the short run. 
B) Can be altered in the short run but not in the long run. 
C) Increase as we move from the short run to the long run. 
D) Are constant in the short run. 
A) Increase with the level of production in the short run. 
B) Can be altered in the short run but not in the long run. 
C) Increase as we move from the short run to the long run. 
D) Are constant in the short run.

Question 14

When a firm sets its price on the basis of the price being charged by other firms in the market,there is evidence that the firm has market power.

Accepted Answer

A) True 
 B)False

Question 15

Competitive firms cannot individually affect market price because

Accepted Answer

A) There is an infinite demand for their goods. 
B) Demand is perfectly inelastic for their goods. 
C) Their individual production is insignificant relative to the production of the industry. 
D) The government exercises control over the market power of competitive firms. 
A) There is an infinite demand for their goods. 
B) Demand is perfectly inelastic for their goods. 
C) Their individual production is insignificant relative to the production of the industry. 
D) The government exercises control over the market power of competitive firms.

Question 16

If the demand curve for each firm in Industry X is horizontal,then the demand curve for Industry X must also be horizontal.

Accepted Answer

A) True 
 B)False

Question 17

In making an investment decision,an entrepreneur

Accepted Answer

A) Treats all costs as variable. 
B) Makes a shutdown decision if price is below average variable cost. 
C) Must take account of diminishing returns to fixed factors. 
D) Decides the level of output to produce. 
A) Treats all costs as variable. 
B) Makes a shutdown decision if price is below average variable cost. 
C) Must take account of diminishing returns to fixed factors. 
D) Decides the level of output to produce.

Question 18

Which of the following characterizes a competitive market?

Accepted Answer

A) A downward-sloping demand curve for the firm. 
B) A vertical demand curve facing each firm in the market. 
C) Some of the firms sell at a price above the market equilibrium price. 
D) A downward-sloping demand curve for the market. 
A) A downward-sloping demand curve for the firm. 
B) A vertical demand curve facing each firm in the market. 
C) Some of the firms sell at a price above the market equilibrium price. 
D) A downward-sloping demand curve for the market.

Question 19

Which of the following represents the change in total cost that results from a one-unit increase in production?

Accepted Answer

A) Marginal profit. 
B) Total revenue. 
C) Marginal cost. 
D) Marginal revenue. 
A) Marginal profit. 
B) Total revenue. 
C) Marginal cost. 
D) Marginal revenue.

Question 20

A perfectly competitive firm should expand output when

Accepted Answer

A) P  ATC. 
C) P  MC. 
A) P  ATC. 
C) P  MC.

Exam 22: The Competitive Firm

If diminishing returns exist,then

When a producer can control the market price for the good it sells,the producer

The profit motive can encourage businesses to do all of the following except

Refer to Figure 22.3 for a perfectly competitive firm.At a market price of $23,total profits are maximized at an output of

Shutting down a firm's operation and quitting production is equivalent to exiting the industry.

Refer to Figure 22.2 for a perfectly competitive firm.The profit-maximizing quantity of output is

A firm's total revenue can be determined by

Profit per unit is equal to

A monopoly is a market in which no buyer or seller has market power.

Fixed costs

When a firm sets its price on the basis of the price being charged by other firms in the market,there is evidence that the firm has market power.

Competitive firms cannot individually affect market price because

If the demand curve for each firm in Industry X is horizontal,then the demand curve for Industry X must also be horizontal.

In making an investment decision,an entrepreneur

Which of the following characterizes a competitive market?

Which of the following represents the change in total cost that results from a one-unit increase in production?

A perfectly competitive firm should expand output when

Economics: the Core Issues

The Useconomy: a Global View

Supply and Demand

The Role of Government

National Income Accounting

Unemployment

Inflation

The Business Cycle

Aggregate Demand

Self-Adjustment or Instability

Fiscal Policy

Deficits and Debt

Money and Banks

The Federal Reserve System

Monetary Policy

Supply-Side Policy: Short-Run Options

Growth and Productivity: Long-Run Possibilities

Theory Versus Reality

Consumer Choice

Elasticity

The Costs of Production

Competitive Markets

Monopoly

Oligopoly

Monopolistic Competition

Natural Monopolies: Deregulation

Environmental Protection

The Farm Problem

The Labor Market

Labor Unions

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Taxes: Equity Versus Efficiency

Transfer Payments: Welfare and Social Security

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