ECON 2a

Question 1 2 points Save

As output increases, total fixed cost

increases

remains constant

rises and then falls

falls and then rises

Question 2 2 points Save

On a cost/output graph, the average fixed cost is constructed as a straight horizontal line.

True

False

Question 3 2 points Save

Whenever marginal revenue exceeds marginal cost,

profit declines if output increases

profit increases if output increases

losses increase if output increases

marginal revenue must be rising

Question 4 2 points Save

The production function relates outputs to inputs.

True

False

Question 5 2 points Save

Which of the following is the best example of variable cost?

depreciation on a building

property taxes

wages

rent paid for one’s building

Question 6 2 points Save

So long as marginal cost is rising, average variable cost must rise.

True

False

Question 7 2 points Save

In the long run,

all the firm’s resources are variable

some of the firm’s resources are variable

none of the firm’s resources are variable

the time period exceeds one year

Question 8 2 points Save

The difference between the ATC and the AVC must represent the AFC.

True

False

Question 9 2 points Save

Under perfectly competitive conditions, marginal revenue is equal to the price at which a good is sold.

True

False

Question 10 2 points Save

Average revenue is synonymous with price.

True

False

Question 11 2 points Save

If a firm is in the short run,

all its resources are variable

it is planning its output for six months

it is not possible for a firm to be efficient

at least one of the firm’s resources cannot be varied

Question 12 2 points Save

If the selling price of a product is $10, the average total cost is $8, and total sales are 5,000 units, the total profit will be

$5,000

$8,000

$10,000

$20,000

Question 13 2 points Save

On a graph of average cost curves, the space between ATC and AVC represents AFC.

True

False

Question 14 2 points Save

The industry most closely associated with perfect competition is

manufacturing

banking

mining

farming

Question 15 2 points Save

In a perfectly competitive industry, if TR exceeds TC, then in the long run

firms will exit the industry

new firms will enter the industry

there will be no change in the number of firms

the market supply will shift to the left

Question 16 2 points Save

Under conditions of perfect competition, if a firm is suffering a loss but AR is above AFC, the firm should always continue to operate.

True

False

Question 17 2 points Save

Under perfect competition, if a firm is suffering a loss,

MR exceeds ATC

AR equals AVC

AR equals ATC

AR is less than ATC

Question 18 2 points Save

Perfect competition assumes that all products are identical and that no advertising exists.

True

False

Question 19 2 points Save

Consider a perfectly competitive firm for which MC equals ATC at the $10 level. If the market price is $10,

the firm can earn an economic profit

the firm will suffer an economic loss but should operate in the short run

the best the firm can do is to break even

the firm should shut down in the short run

Question 20 2 points Save

Consider a perfectly competitive firm for which MC equals ATC at the $10 level, and MC equals AVC at the $8 level. If the market price is $7,

the firm can earn an economic profit

the firm will suffer an economic loss but should operate in the short run

the best the firm can do is to break even

the firm should shut down in the short run

Question 21 2 points Save

The aerospace industry is a good example of perfect competition.

True

False

Question 22 2 points Save

The difference between the price firms would be willing to accept for their goods and the price they actually receive is called

consumer surplus

consumer efficiency

allocative efficiency

producer surplus

Question 23 2 points Save

Under conditions of perfect competition, maximum profit or minimum loss occurs at the point where

AR = ATC

MR = AR

AR = MC

AVC = ATC

Question 24 2 points Save

In the short run, each perfectly competitive firm is free to

increase its plant size

increase its volume of output up to its maximum existing capacity

charge a price above the market price

all of the above

Question 25 2 points Save

The greater the product differentiation,

the more elastic a firm’s demand curve

the less elastic a firm’s demand curve

the less the price difference between competing firms

the closer to perfect competition

Question 26 2 points Save

Perfect competition always provides a lower price than monopolistic competition or an oligopoly.

True

False

Question 27 2 points Save

Which of the following is always true of monopolists?

they charge the highest possible price

they always earn high profits

they do not have to worry about demand

they charge a price higher than marginal cost

Question 28 2 points Save

Forms of imperfect competition include monopoly, oligopoly, and monopolistic competition.

True

False

Question 29 2 points Save

Regarding U.S. antitrust activity, the rule of reason was expressed in the

Standard Oil case

Robinson-Patman Act

Clayton Act

ALCOA case

Question 30 2 points Save

Which of the following is the best example of a monopoly in the United States?

the U.S. Postal Service

the aluminum industry

a government-regulated public utility

the automobile industry

Question 31 2 points Save

One reason firms in monopolistic competition can charge different prices is that their products are

identical

similar

differentiated

guaranteed

Question 32 2 points Save

The rule of reason applies to antitrust activity.

True

False

Question 33 2 points Save

As more firms enter a monopolistic competitive industry, average revenue will fall for exiting firms.

True

False

Question 34 2 points Save

Oligopoly is a market structure in which

there are only two sellers

there are relatively few producers

no firm can influence price

there are many producers

Question 35 2 points Save

The demand curve for a monopolist’s product is also the monopolist’s

total revenue curve

marginal revenue curve

average revenue curve

total profit curve

Question 36 2 points Save

The demand for the product of a monopolist is perfectly inelastic.

True

False

Question 37 2 points Save

In 1911, the Supreme Court established the rule of reason. This rule held that

the Sherman Antitrust Act made only unreasonable restraints of trade illegal

the Court was entering a new deductive stage of reasoning

the Sherman Antitrust Act made the mere size of a firm an offense

all of the above

Question 38 2 points Save

According to the simple circular flow concept, whenever planned investment is less than planned saving

inventories accumulate

output increases

prices rise

employment increases

Question 39 2 points Save

According to the simple circular flow concept, whenever planned investment is greater than planned saving during periods of full employment, there is a tendency for

output to rise

prices to rise

employment to increase

government to regulate prices and wages

Question 40 2 points Save

If planned investment exceeds planned savings, the economy always expands.

True

False

Question 41 2 points Save

Inventory accumulation occurs whenever

output is less than spending

output exceeds spending

investment exceeds saving

a deficit budget occurs

Question 42 2 points Save

If inventories are accumulating, income must be greater than spending.

True

False

Question 43 2 points Save

Which of the following defines flows out of the circular flow that occur when resource income is received and not spent directly on purchases from domestic firms?

leakages

injections

exports

discharges

Question 44 2 points Save

In the circular flow, investment refers to spending on

government bonds

certificates of deposit

capital goods

consumer goods

Question 45 2 points Save

A surplus federal budget always results in a decrease in total output.

True

False

Question 46 2 points Save

During times of full employment, the only way a firm can obtain additional resources is to bid the resources away from other firms.

True

False

Question 47 2 points Save

The level of employment or unemployment helps determine whether or not price increases will result from an increase in spending.

True

False

Question 48 2 points Save

A balanced federal budget

cannot have any effect on the economy’s total output

is most likely to decrease total output by substituting government spending for private spending

may alter the composition of total output by substituting government spending for private spending

can never have an expansionary effect on total output

Question 49 2 points Save

The size of the circular flow

measures the level of household purchases from business

measures the level of income and output

increases if there are more planned leakages

measures the level of prices

Question 50 2 points Save

The circular flow can be affected by changes in

the money supply

interest rates

direct investments abroad

all of the above