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45 Cards in this Set
- Front
- Back
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The primary objective of most private firms is to
A. maximize revenue. B. maximize profit. C. minimize cost. D. maximize output. |
B. maximize profit.
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A price taker confronts a demand curve that is
A. vertical at the market price. B. upward sloping. C. downward sloping. D. horizontal at the market price. |
D. horizontal at the market price.
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A profit maximizing perfectly competitive firm must decide
A. only on what price to charge, taking output as fixed. B. both what price to charge and how much to produce. C. only on how much to produce, taking price of the good as fixed. D. only on which industry to join, taking price and output as fixed. |
C. only on how much to produce, taking price of the good as fixed.
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The short run is defined as
A. one year or less. B. a period in which all factors of production are variable. C. the period of time between quarterly accounting reports. D. a period in which at least one factor of production is fixed. |
D. a period in which at least one factor of production is fixed.
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Which of the following is most likely to be a fixed factor of production at a university?
A. The number of personal computers. B. The number of lecture halls. C. The number of professors and lecturers. D. The amount of chalk. |
B. The number of lecture halls.
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Which of the following is most likely to be a variable factor of production at a university?
A. The number of teaching assistants and work-study students. B. The size of the basketball arena or football stadium. C. The school mascot. D. The location of the university. |
A. The number of teaching assistants and work-study students.
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One reason that variable factors of production tend to show diminishing returns in the short run is that
A. too much capital equipment is idle. B. there are too many workers using a fixed amount of productive resources. C. the firm has become too large to effectively manage workers. D. the cost of hiring additional workers increases as firms seek to hire more. |
B. there are too many workers using a fixed amount of productive resources.
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Marginal cost is calculated as
A. total revenue minus total costs. B. the change in output divided by the change in total costs. C. the percentage change in total costs divided by the percentage change in output. D. the change in total costs divided by the change in output. |
D. the change in total costs divided by the change in output.
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The shutdown condition for a firm is where
A. total revenues are less than the total cost of fixed and variable factors of production. B. total revenues are less than the cost of variable factors of production. C. total revenues are less than the cost of fixed factors of production. D. profits are zero. |
B. total revenues are less than the cost of variable factors of production.
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Suppose the firm knows that it is not going to shut down but it is going to earn a loss. It should pick the output level
where A. total costs are minimized. B. price equals marginal costs. C. total revenues are maximized. D. the costs of the variable factors of production are minimized. |
B. price equals marginal costs.
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Suppose a firm is collecting $1700 in total revenues and the total costs of its variable factors of production are
$1900 at its current level of output. One can predict that the firm will A. shut down. B. raise its price. C. earn a loss. D. continue to operate. |
A. shut down.
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Average variable cost is defined as
A. Total cost divided by output B. Total cost divided by number of workers. C. Variable cost divided by output D. Variable cost divided by price |
C. Variable cost divided by output
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Perfectly competitive firms maximize profit when
A. average costs are minimized B. total costs are minimized C. average costs equal price D. marginal costs equal price |
D. marginal costs equal price
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If a perfectly competitive firm produces an output level where price is greater than marginal costs, then the firm
should A. pay more to its variable factors of production. B. contract output to earn greater profits or smaller losses. C. expand output to earn greater profits or smaller losses. D. leave its output decision unchanged. |
C. expand output to earn greater profits or smaller losses.
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An increase in the price the firm receives for its output will cause the firm to
A. expand output and earn greater profits or smaller losses. B. leave output unchanged and earn greater profits. C. leave output unchanged and earn greater profits or smaller losses. D. contract output and earn greater profits. |
A. expand output and earn greater profits or smaller losses.
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A firm's output price is $5 and the firm is producing 37 units with a marginal cost of $3. The firm should
A. lower its price. B. decrease production. C. increase production. D. raise its price. |
C. increase production.
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When the market price of mushrooms is $40 per bushel, if Moe chooses the profit maximizing quantity he will
A. earn zero profits B. earn negative profits (losses) C. earn positive profits D. shut down |
C. earn positive profits
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Explicit costs
A. measure the opportunity costs of the business owners. B. are always fixed in the short run. C. measure the payments made to the firm's factors of production. D. are always variable in the short run. |
C. measure the payments made to the firm's factors of production.
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Implicit costs
A. are always fixed. B. measure the forgone opportunities of the owners of the business. C. always exceed explicit costs. D. are irrelevant to business decisions. |
B. measure the forgone opportunities of the owners of the business.
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If you were to start your own business, your implicit costs would include
A. rent that you have paid in advance for use of a building. B. the opportunity cost of your time. C. profit over and above normal profit D. interest that you pay on your business loans. |
B. the opportunity cost of your time.
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If a firm is earning zero economic profits
A. its revenues are sufficient to pay explicit costs, but not implicit costs. B. the owner will not be able to pay himself or herself a salary. C. it will shut down in the long run, but will continue to operate in the short run. D. the owners are earning a return on their time and investment that is equal to the opportunity costs of that time and investment. |
D. the owners are earning a return on their time and investment that is equal to the opportunity costs of that time
and investment. |
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Economic profits are
A. the same as accounting profits. B. equal to total revenue minus the sum of explicit fixed and variable costs. C. equal to total revenue minus both explicit and implicit costs. D. greater than accounting profits. |
C. equal to total revenue minus both explicit and implicit costs.
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Normal profits occur when
A. accounting profits are positive. B. economic profits are positive. C. economic profits are zero. D. total revenues are greater than explicit and implicit costs. |
C. economic profits are zero.
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Chris was the business manager for a real estate firm earning an annual salary of $40,000. Then Chris decided to
become a consultant. Chris hired an administrative assistant at $15,000 per year and rents office space (utilities included) for $3,000 per month. Chris earned $100,000 in total revenue the first year. Chris's opportunity cost of running her own business is ______ which is the _______. A. $ 15,000; implicit cost B. $ 51,000; explicit cost C. $ 40,000; implicit cost D. $ 51,000; economic cost |
C. $ 40,000; implicit cost
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Chris was the business manager for a real estate firm earning an annual salary of $40,000. Then Chris decided to
become a consultant. Chris hired an administrative assistant at $15,000 per year and rents office space (utilities included) for $3,000 per month. Chris earned $100,000 in total revenue the first year. Chris's accounting profit is _______. A. $100,000 B. $64,000 C. $49,000 D. $9,000 |
C. $49,000
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Chris was the business manager for a real estate firm earning an annual salary of $40,000. Then Chris decided to
become a consultant. Chris hired an administrative assistant at $15,000 per year and rents office space (utilities included) for $3,000 per month. Chris earned $100,000 in total revenue the first year. Chris's economic profit is _______. A. $100,000 B. $9,000 C. $64,000 D. $49,000 |
B. $9,000
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If all firms in a perfectly competitive industry earn a normal profit, then
A. new firms will enter the industry. B. old firms will exit the industry. C. the number of firms in the industry is stable. D. market supply will shift to the left. |
C. the number of firms in the industry is stable.
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The signal for new firms to join an industry is
A. economic profits. B. normal profits. C. accounting profits. D. economic losses. |
A. economic profits.
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An imperfectly competitive firm is one
A. that attempts but fails to compete perfectly. B. with the ability to set price at any level it wishes. C. that possesses some degree of control over its price. D. that faces perfectly inelastic demand. |
C. that possesses some degree of control over its price.
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The common feature in pure monopoly, oligopoly, and monopolistic competition is
A. the absence of close substitutes. B. blocked entry. C. interdependent decision making by firms. D. downward sloping demand. |
D. downward sloping demand.
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In order to sell another unit, an imperfectly competitive firm must
A. increase its advertising. B. increase the value of its product. C. lower its price. D. lower its quality. |
C. lower its price.
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Suppose a firm is collecting $100 in total revenues when it sells 10 units and it receives $110 in total revenues
when it sells 11 units. The firm is a(n) A. pure monopolist. B. oligopolist. C. monopolistic competitor. D. perfect competitor. |
D. perfect competitor.
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Suppose a competitive firm and a monopolist are both charging $5 for their respective outputs. One can infer
that A. marginal revenue is $5 for both firms. B. marginal revenue is $5 for the competitive firm and less than $5 for the monopolist. C. marginal revenue is less than $5 for both firms. D. the competitive firm is charging too much and the monopolist too little. |
B. marginal revenue is $5 for the competitive firm and less than $5 for the monopolist.
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Market power measures the firm's ability to
A. under cut its competitors. B. force consumers to pay prices higher than their reservation prices. C. raise its price without losing all of its sales. D. influence the price its competitors charge. |
C. raise its price without losing all of its sales.
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Which of the following is NOT an example of a good with network economies?
A. Text messaging capabilities B. An internet connection C. A computer printer D. Computer operating systems |
C. A computer printer
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De Beers accounts for approximately 80% of diamond sales worldwide. The source of their market power is
A. its exclusive ownership of South African diamond mines. B. its patent on diamond production. C. the perfectly inelastic demand for diamonds. D. Western engagement customs. |
A. its exclusive ownership of South African diamond mines.
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A firm is most likely to experience economies of scale if it has _____ start up costs and ______ marginal costs.
A. high; increasing B. high; low C. high; high D. low; decreasing |
B. high; low
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Economies of scale exist when
A. firms become extremely large. B. input prices are falling. C. average costs fall as the scale of production grows. D. a 10% increase in all inputs causes a 9% increase in output. |
C. average costs fall as the scale of production grows.
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The term "natural monopoly" refers to
A. government ownership of parks. B. industries with constant returns to scale. C. the desire of all firms to be monopolists. D. industries with economies of scale. |
D. industries with economies of scale.
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When a perfect competitor sells additional units, __________, and when a monopolist sells additional units,
___________ A. total revenues always rise; total revenues may rise, fall, or remain unchanged. B. total revenues remain unchanged; total revenues always rise. C. marginal revenues stay the same; marginal revenues rise. D. total revenues always rise; total revenues always fall. |
A. total revenues always rise; total revenues may rise, fall, or remain unchanged.
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The monopolist will maximize profits if it produces where
A. price equals marginal costs. B. price equals the minimum average total cost. C. marginal revenue equals average total cost. D. marginal revenue equals marginal cost. |
D. marginal revenue equals marginal cost.
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The profit maximizing rule MR = MC applies to
A. all firms. B. monopolists only. C. perfect competitors only. D. all firm types except perfect competitors. |
A. all firms.
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Price discrimination means charging
A. higher prices to women and minorities. B. different prices to different consumers because production costs are different. C. the same price to all consumers even if production costs are different. D. different prices to different consumers when production costs are the same. |
D. different prices to different consumers when production costs are the same.
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Perfect price discrimination occurs when
A. each buyer pays his or her marginal cost. B. most buyers pay their reservation price. C. each buyer pays exactly his or her reservation price. D. the buyer with the highest reservation price sets the market price. |
C. each buyer pays exactly his or her reservation price.
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When a consumer must take some sort of additional action to receive a lower price, the consumer is being
subjected to A. "bait and switch" sales tactics. B. perfect price discrimination. C. the "hurdle" method of price discrimination. D. the "rebate and wait" method of price discrimination. |
C. the "hurdle" method of price discrimination.
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