Economics Exam Practice Set 2

48 Questions | Total Attempts: 65

SettingsSettingsSettings
Please wait...
Economics Quizzes & Trivia

Study


Questions and Answers
  • 1. 
    When diseconomies of scale occur?
    • A. 

      The long-run average total cost curve rises

    • B. 

      The long-run average total cost curve falls

    • C. 

      Average fixed costs will rise

    • D. 

      Marginal cost intersects average total cost

  • 2. 
    Average fixed cost:
    • A. 

      Graphs as a U-shape curve

    • B. 

      May be found for any output by adding average variable ost and average total cost

    • C. 

      Declines continually as output increases

    • D. 

      Equals marginal cost when average total cost is at its minimum

  • 3. 
    Accounting profits are typically 
    • A. 

      Greater than economic profits because the former do not take explicit costs into account

    • B. 

      Equal to economic profits because accounting costs include all opportunity costs

    • C. 

      Smaller than economic profits because the former do not take implicit costs into account

    • D. 

      Greater than economic profits because the former do not take implicit costs into account

  • 4. 
    The law of diminishing returns indicates that: 
    • A. 

      The demand for goods produced by purely competitive industries is downsloping

    • B. 

      Because of economies and diseconomies of scale a competitive firm's long-run average total cost curve will be U-shaped

    • C. 

      As extra units of a variable resource are added to a fixed resource, marginal product will decline beyond some point

    • D. 

      Beyond some point he extra utility derived from additional units of a product will yield the consumer smaller and smaller extra amounts of satisfaction

  • 5. 
    The long run is characterized by:
    • A. 

      At least one fixed input

    • B. 

      The ability of the firm to change its plant size

    • C. 

      The relevance of the law of diminishing returns

    • D. 

      Insufficient time for firms to enter or leave the industry

  • 6. 
    An explicit cost is
    • A. 

      Always in excess of a resources opportunity cost

    • B. 

      A money payment made for resources not owned by the firm itself

    • C. 

      An implicit cost to the resource owner who receives that payment

    • D. 

      Omitted when accounting profits are calculated

  • 7. 
    Marginal cost is the: 
    • A. 

      Change in total cost the results from producing one more unit of output

    • B. 

      Change in average total cost that results from producing one more unit of output

    • C. 

      Rate of change in total fixed cost that results from producing one more unit of output

    • D. 

      Change in average variable cost that results from producing one more unit of output

  • 8. 
    If a firm decides to produce no output in the short run, its costs will be:
    • A. 

      Its variable costs

    • B. 

      Its marginal costs

    • C. 

      Its fixed costs

    • D. 

      Zero

  • 9. 
    The vertical distance between a firm's ATC and AVC curves represents:
    • A. 

      Marginal costs, which decrease as output decreases

    • B. 

      AFC, which increases as output increases

    • C. 

      Marginal costs, which increase as output increases

    • D. 

      AFC, which decreases as output increases

  • 10. 
    Economies and diseconomies of scale explain:
    • A. 

      The profit-maximizing level of production

    • B. 

      The distinction between fixed and variable costs

    • C. 

      Why the firm's long-run average total cost curve is U-shaped

    • D. 

      Why the firm's short-run marginal cost curve cuts the short-run average variable cost curve at its minimum point

  • 11. 
    The basic characteristic of the short run is that:
    • A. 

      A firm does not have sufficient time to change the amounts of any of the resources it employs

    • B. 

      Barriers to entry prevent new firms from entering the industry

    • C. 

      The firm does not have sufficient time to change the size of its plant

    • D. 

      The firm does not have sufficient time to cut its rate of output to zero

  • 12. 
    Economic profits are calculated by subtracting
    • A. 

      Explicit costs from total revenue

    • B. 

      Explicit and implicit costs from total revenue

    • C. 

      Implicit costs from total revenue

    • D. 

      Implicit costs from normal profits

  • 13. 
    The minimum efficient scale of a firm:
    • A. 

      Is the smallest level of output at which long-run average total cost is minimized

    • B. 

      Occurs where marginal product becomes zero

    • C. 

      Is realized somewhere in the range of diseconomies of scale

    • D. 

      Is in the middle of the range of constant returns to scale

  • 14. 
    In the long run:
    • A. 

      Variable costs equal fixed costs

    • B. 

      All costs are variable costs

    • C. 

      Fixed costs are greater than variable costs

    • D. 

      All costs are fixed costs

  • 15. 
    Suppose a firm in a purely competitive market discovers that the price of its product is above the minimum AVC point but everywhere below ATC. Given this, the firm:
    • A. 

      Minimizes the losses by producing at the minimum point of its AVC curve

    • B. 

      Should continue producing in the short run, but leave the industry in the long run if the situation persists.

    • C. 

      Maximizes profits by producing where MR = ATC

    • D. 

      Should close down immediately

  • 16. 
    The demand schedule or curve confronted by the individual purely competitive firm is: 
    • A. 

      Relatively inelastic, that is, the elasticity coefficient is less than unity

    • B. 

      Perfectly inelastic

    • C. 

      Relatively elastic, that is, the elasticity coefficient is greater than unity

    • D. 

      Perfectly elastic

  • 17. 
    The MR = MC rule applies: 
    • A. 

      Only to purely competitive firms

    • B. 

      Only when the firm is a "price taker."

    • C. 

      To firms in all types of industries

    • D. 

      Only to monopolies

  • 18. 
    Marginal Revenue is the 
    • A. 

      Difference between product price and average total cost

    • B. 

      Change in product price associated with the sale of one more unit of output

    • C. 

      Change in total revenue associated with the sale of one more unit of output

    • D. 

      Change in average revenue associated with the sale of more unit of output

  • 19. 
    The principle that a firm should produce up to the point where the marginal revenue from the sale of an extra unit of output is equal to the marginal cost of producing it is known as the: 
    • A. 

      Profit-maximizing rule

    • B. 

      Break-even rule

    • C. 

      Shut-down rule

    • D. 

      Output-maximizing rule

  • 20. 
    For a purely competitive seller, price equals:
    • A. 

      Average revenue

    • B. 

      Marginal revenue

    • C. 

      Total revenue divided by output

    • D. 

      All of these

  • 21. 
    The primary force encouraging the entry of new firms into a purely competitive industry is: 
    • A. 

      Government subsidies for start-up firms

    • B. 

      A desire to provide goods for the betterment of society

    • C. 

      Economic profits earned by firms already in the industry

    • D. 

      Normal profits earned by firms already in the industry

  • 22. 
    In which of the following industry structures is the entry of new firms the most difficult? 
    • A. 

      Monopolistic competition

    • B. 

      Pure competition

    • C. 

      Oligopoly

    • D. 

      Pure monopoly

  • 23. 
    If a purely competitive firm shuts down in the short run:
    • A. 

      Its loss will be zero

    • B. 

      It will realize a loss equal to its total variable costs

    • C. 

      It will realize a loss equal to its explicit costs

    • D. 

      It will realize a loss equal to its total fixed costs

  • 24. 
    In the short run the individual competitive firm's supply curve is that segment of the:
    • A. 

      Marginal cost curve lying between the average total cost and average variable cost curve

    • B. 

      Marginal revenue curve lying below the demand curve

    • C. 

      Marginal cost curving lying about the average variable cost curve.

    • D. 

      Average variable cost curve lying below the marginal cost curve

  • 25. 
    Firms seek to maximize: 
    • A. 

      Market share

    • B. 

      Total profit

    • C. 

      Per unit profit

    • D. 

      Total revenue

Back to Top Back to top