Question 1

Steve is about to start up a business in a monopolistically competitive market.Which of the following can he expect?

Accepted Answer

A) He can expect market entry to be difficult as there exist entry barriers. 
B) He can expect to enjoy a huge market power. 
C) He can expect to face a highly inelastic demand curve. 
D) He can expect to find close substitutes of the product he is planning to produce. 
E) He can expect to face an infinitely elastic demand curve. 
A) He can expect market entry to be difficult as there exist entry barriers. 
B) He can expect to enjoy a huge market power. 
C) He can expect to face a highly inelastic demand curve. 
D) He can expect to find close substitutes of the product he is planning to produce. 
E) He can expect to face an infinitely elastic demand curve. D

Question 2

Accounting profit does not include:

Accepted Answer

A) explicit cost. 
B) sunk cost. 
C) fixed cost. 
D) opportunity cost. 
E) variable cost. 
A) explicit cost. 
B) sunk cost. 
C) fixed cost. 
D) opportunity cost. 
E) variable cost. D

Question 3

The entry of new firms into the market stops when:

Accepted Answer

A) accounting profit falls to zero. 
B) the general price level in the economy rises. 
C) the rate of interest declines. 
D) economic profit falls to zero. 
E) the corporate taxes are relaxed. 
A) accounting profit falls to zero. 
B) the general price level in the economy rises. 
C) the rate of interest declines. 
D) economic profit falls to zero. 
E) the corporate taxes are relaxed. D

Question 4

The following graph shows the marginal revenue (MR)and marginal cost (MC)curves of an imperfectly competitive firm. Figure 8.2   Refer to Figure 8.2.If the current production level is 90 and the firm wishes to maximize profit, it should:

Accepted Answer

A) leave the current production level unchanged. 
B) decrease the quantity produced to 75. 
C) decrease the quantity produced to 50. 
D) decrease the quantity produced to 35. 
E) increase production until MR = MC. 
A) leave the current production level unchanged. 
B) decrease the quantity produced to 75. 
C) decrease the quantity produced to 50. 
D) decrease the quantity produced to 35. 
E) increase production until MR = MC.

Question 5

The market power enjoyed by a particular producer depends on the number of firms in the industry.

Accepted Answer

A) True 
 B)False

Question 6

When a firm incurs negative economic profit, it should:

Accepted Answer

A) hire more laborers to make the business activity profitable. 
B) transfer the resources from current use to other alternative uses. 
C) purchase additional raw materials to produce more output. 
D) transfer the resources from alternative uses to the current activity. 
E) continue to operate with the same resources. 
A) hire more laborers to make the business activity profitable. 
B) transfer the resources from current use to other alternative uses. 
C) purchase additional raw materials to produce more output. 
D) transfer the resources from alternative uses to the current activity. 
E) continue to operate with the same resources.

Question 7

The figure given below shows the cost curves of a firm. Figure 8.3   ATC: Average Total Cost
AVC: Average Variable Cost
MC: Marginal Cost
Refer to Figure 8.3.If the firm maximizes profits at 120 units of the output, calculate the firm's marginal revenue.

Accepted Answer

A) $35 
B) $40 
C) $55 
D) $4, 200 
E) Cannot be determined from the information given. 
A) $35 
B) $40 
C) $55 
D) $4, 200 
E) Cannot be determined from the information given.

Question 8

The demand curve faced by a perfectly competitive firm is:

Accepted Answer

A) perfectly inelastic. 
B) relatively elastic. 
C) unit elastic. 
D) perfectly elastic. 
E) relatively inelastic. 
A) perfectly inelastic. 
B) relatively elastic. 
C) unit elastic. 
D) perfectly elastic. 
E) relatively inelastic.

Question 9

The table given below shows the total revenue and total cost of producing a commodity. Table 8.1
  In Table 8.1, the marginal cost of producing the sixth unit of output is equal to _____.

Accepted Answer

A) $700. 
B) $600. 
C) $500. 
D) $300. 
E) $200. 
A) $700. 
B) $600. 
C) $500. 
D) $300. 
E) $200.

Question 10

Under imperfect competition:

Accepted Answer

A) demand curve lies below the marginal revenue curve. 
B) demand curve lies above the marginal revenue curve. 
C) demand curve coincides with the marginal revenue curve. 
D) demand curve coincides with the marginal cost curve. 
E) demand curve coincides with the average cost curve. 
A) demand curve lies below the marginal revenue curve. 
B) demand curve lies above the marginal revenue curve. 
C) demand curve coincides with the marginal revenue curve. 
D) demand curve coincides with the marginal cost curve. 
E) demand curve coincides with the average cost curve.

Question 11

The firm will always maximize profit where average total costs are minimized.

Accepted Answer

A) True 
 B)False

Question 12

A perfectly competitive firm spends a significant part of its revenue on advertisements, and tries to sell more by reducing its price below the market price.

Accepted Answer

A) True 
 B)False

Question 13

A perfectly competitive firm cannot affect the market price by raising or reducing its supply.

Accepted Answer

A) True 
 B)False

Question 14

In contrast to both perfect competition and monopolistic competition, an oligopoly market structure is characterized by:

Accepted Answer

A) price discrimination. 
B) a perfectly inelastic demand curve. 
C) the presence of infinite number of firms. 
D) only differentiated products. 
E) difficulty in the entry of new firms. 
A) price discrimination. 
B) a perfectly inelastic demand curve. 
C) the presence of infinite number of firms. 
D) only differentiated products. 
E) difficulty in the entry of new firms.

Question 15

Suppose a mechanic uses $150, 000 of his own money to start a business.The rate of interest he could earn in a savings account is 5 percent, and the rate of interest he could earn by investing in bonds is 8 percent.What is the opportunity cost of capital when the mechanic uses his money to start his own business?

Accepted Answer

A) $7, 500/year 
B) $8, 000/year 
C) $19, 500/year 
D) $12, 000/year 
E) $150, 000/year 
A) $7, 500/year 
B) $8, 000/year 
C) $19, 500/year 
D) $12, 000/year 
E) $150, 000/year

Question 16

Positive economic profit signals that the investors should divert their funds to alternative ventures.

Accepted Answer

A) True 
 B)False

Question 17

Scenario 8.2 Consider a publicly held firm (one whose stock shares are traded on the stock exchange)that earned revenue worth $350 million and incurred land, labor, and debt costs worth $320 million.The stockholders who have invested a total of $100 million in this firm could have earned 10 percent return on other comparable investments.
According to the information in Scenario 8.2, how much economic profit did the firm make last year?

Accepted Answer

A) $112 million 
B) $30 million 
C) $20 million 
D) -$20 million 
E) $2 million 
A) $112 million 
B) $30 million 
C) $20 million 
D) -$20 million 
E) $2 million

Question 18

Each firm under perfect competition charges different prices for their products.

Accepted Answer

A) True 
 B)False

Question 19

Accounting profit is always equal to or greater than economic profit.

Accepted Answer

A) True 
 B)False

Question 20

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:

Accepted Answer

A) 40, 000 units of output. 
B) 20, 000 units of output. 
C) 30, 000 units of output. 
D) 10, 000 units of output. 
E) 50, 000 units of output. 
A) 40, 000 units of output. 
B) 20, 000 units of output. 
C) 30, 000 units of output. 
D) 10, 000 units of output. 
E) 50, 000 units of output.

Exam 12: Profit Maximization

Steve is about to start up a business in a monopolistically competitive market.Which of the following can he expect?

Accounting profit does not include:

The entry of new firms into the market stops when:

The following graph shows the marginal revenue (MR)and marginal cost (MC)curves of an imperfectly competitive firm. Figure 8.2 Refer to Figure 8.2.If the current production level is 90 and the firm wishes to maximize profit, it should:

The market power enjoyed by a particular producer depends on the number of firms in the industry.

When a firm incurs negative economic profit, it should:

The figure given below shows the cost curves of a firm. Figure 8.3 ATC: Average Total Cost AVC: Average Variable Cost MC: Marginal Cost Refer to Figure 8.3.If the firm maximizes profits at 120 units of the output, calculate the firm's marginal revenue.

The demand curve faced by a perfectly competitive firm is:

The table given below shows the total revenue and total cost of producing a commodity. Table 8.1 In Table 8.1, the marginal cost of producing the sixth unit of output is equal to _____.

Under imperfect competition:

The firm will always maximize profit where average total costs are minimized.

A perfectly competitive firm spends a significant part of its revenue on advertisements, and tries to sell more by reducing its price below the market price.

A perfectly competitive firm cannot affect the market price by raising or reducing its supply.

In contrast to both perfect competition and monopolistic competition, an oligopoly market structure is characterized by:

Positive economic profit signals that the investors should divert their funds to alternative ventures.

Each firm under perfect competition charges different prices for their products.

Accounting profit is always equal to or greater than economic profit.

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:

Economics: The World Around You

Choice, Opportunity Costs, and Specialization

Markets, Demand and Supply, and the Price System

The Market System and the Private and Public Sector

Elasticity: Demand and Supply

National Income Accounting

an Introduction to the Foreign Exchange Market and the Balance of Payments

Consumer Choice

Supply: The Costs of Doing Business

Unemployment and Inflation

Macroeconomic Equilibrium: Aggregate Demand and Supply

Aggregate Expenditures

Perfect Competition

Income and Expenditures Equilibrium

Monopoly

Fiscal Policy

Monopolistic Competition and Oligopoly

Antitrust and Regulation

Money and Banking

Market Failures, Government Failures, and Rent Seeking

Monetary Policy

Macroeconomic Policy: Tradeoffs, Expectations, Credibility, and Sources of Business Cycles

Resource Markets

Macroeconomic Viewpoints: New Keynesian, Monetarist, and New Classical

The Labor Market

Capital Markets

Economic Growth

Development Economics

the Land Market and Natural Resources

Aging, Social Security and Health Care

Globalization

Elasticity: Demand and Supply

Income Distribution, Poverty and Government Policy

World Trade Equilibrium

Consumer Choice

International Trade Restrictions

World Trade Equilibrium

Exchange Rates and Financial Links Between Countries

International Trade Restrictions

Supply: the Costs of Doing Business

Exchange Rates and Financial Links Between Countries

Profit Maximization

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Antitrust and Regulation

Market Failures, Government Failures, and Rent Seeking

Resource Markets

The Labor Market

Capital Markets

The Land Market and Natural Resources

Aging, Social Security and Health Care

Income Distribution, Poverty and Government Policy

World Trade Equilibrium

International Trade Restrictions

Exchange Rates and Financial Links Between Countries

Filters