ECONOMICS FOR MANAGERS ASSESSMENT: EXAM
Question 1
A firm is making a profit under conditions of monopolistic competition if, at the equilibrium output,
AR is above MR
MR is above AR
AR is above AVC
AR is above ATC
Question 2
Firms in monopolistic competition sell a similar but differentiated product.
True
False
Question 3
A major characteristic of a monopoly is the ability of the monopolist to influence price.
True
False
Question 4
The Federal Trade Commission
prevents mergers that substantially lessen competition
rules on the antitrust activities of labor unions
issues patents
polices deceptive advertising
Question 5
If a monopolist lowers its price from $45 to $42 in order to increase its sales volume, marginal revenue
equals $45
equals $42
is less than $42
is between $45 and $42
Question 6
The first act to declare monopolies illegal in the United States was the
Sherman Antitrust Act
Clayton Act
Federal Trade Commission Act
Robinson-Patman Act
Question 7
One company that retained its monopoly position for years through control of raw materials was
Aluminum Company of America (ALCOA)
Proctor & Gamble
Ford Motor Company
U.S. Steel
Question 8
Monopsony is a market condition in which there is only one seller.
True
False
Question 9
If firms in monopolistic competition are earning short-run profits,
barriers to entry will allow the profits to continue in the long run
total supply in the market will decrease in the long run as firms reduce output to keep prices high
the entry of new firms will eliminate the profits in the long run
each existing firm will experience an increase in its average revenues in the long run
Question 10
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 11
All firms in monopolistic competition must sell at the same price.
True
False
Question 12
The major characteristic of a monopoly is
the degree of control over price it can exercise
its ability to produce numerous products
its price elasticity of demand
its source of revenue
Question 13
Under which type of market structure is the firm's pricing decision the most difficult?
perfect competition
monopoly
monopolistic competition
oligopoly
Question 14
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 15
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 16
In the long run, under conditions of perfect competition, market forces come into play to
enhance profits
increase demand
eliminate profits
separate MR and AR
Question 17
Under conditions of perfect competition, an individual producer
always maximizes output
operates where MR equals MC
never suffers a loss
operates where MR is greater than MC
Question 18
If all firms adhere to the conditions of perfect competition, short-run losses are avoided.
True
False
Question 19
If a firm in a perfectly competitive industry is producing at a point where TR equals TC and the market demand increases, then the firm will be making
economic profits; it will expand output
economic profits; output will not change
normal profits; output will expand
normal profits; output will not change
Question 20
In perfect competition, if the market price is at the same level as the minimum point of the firm's average total cost curve, the best the firm can hope for is to break even.
True
False
Question 21
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 22
A prime example of perfect competition is the U.S. auto industry.
True
False
Question 23
Elaine's firm is in a perfectly competitive industry. Why doesn't Elaine try to sell more of her product by lowering its price below the market price?
her demand curve is not elastic
doing so would be considered unethical price chiseling
her competitors would not allow it
she can sell all she wants at the market price
Question 24
Which of the following is correct when the perfectly competitive firm is producing its long-run equilibrium output level?
MR equals MC
AR equals ATC
P equals MC
all of the above
Question 25
Under conditions of perfect competition, short-run equilibrium does not necessarily exist where
profit is maximized or loss minimized
MR = AR
MR = MC
MR = ATC
Question 26
According to the simple circular flow concept, whenever planned investment is less than planned saving
inventories accumulate
output increases
prices rise
employment increases
Question 27
In the circular flow, investment refers to spending on
government bonds
certificates of deposit
capital goods
consumer goods
Question 28
Inventory accumulation occurs whenever
output is less than spending
output exceeds spending
investment exceeds saving
a deficit budget occurs
Question 29
A decrease in investment can cause a decrease in the price level without affecting total output.
True
False
Question 30
In the circular flow, nonprofit institutions are
counted as businesses
excluded
treated separately
counted as households
Question 31
During a period of unemployment, a deficit budget will most likely have which of the following effects on business activity?
increase total output
cause prices to rise
have a neutral effect
cause prices and total output to fall
Question 32
An increase in planned savings always results in an increase in planned investment.
True
False
Question 33
If the federal government spends less than it receives from taxes,
it has a surplus budget with injections exceeding leakages
it has a deficit budget with injections exceeding leakages
it has a deficit budget with leakages exceeding injections
it has a surplus budget with leakages exceeding injections
Question 34
In the simple circular flow model, if planned I exceeds planned S, then
the economy is not at equilibrium
the size of the circular flow is increasing
if the economy is at full employment, then prices will rise
all of the above
Question 35
If inventories are accumulating, income must be greater than spending.
True
False
Question 36
Whenever exports exceed imports (and other planned injections equal other planned leakages), the economy
remains stable
expands
contracts
deflates
Question 37
Which of the following statements concerning the circular flow model is (are) correct?
an increase in planned savings always generates an increase in planned investment spending
planned investment spending is an injection into the circular flow
increased investment always results in decreased savings
all of the above
Question 38
It is true that a stable economy occurs when
total injections into the circular flow are large enough to make up for government tax leakages
total leakages from the circular flow are great enough to offset the effects of government spending
total planned leakages from the circular flow are exactly equal to total planned injections into the circular flow
actual saving is equal to planned investment
Question 39
In a mature industry, all firms operate with constant returns to scale.
True
False
Question 40
If the accounting profit equals $200,000 and implicit costs equal $40,000, the economic profit equals
$240,000
$200,000
$160,000
$40,000
Question 41
If the firm produces one more unit of output and total cost rises from $1,000 to $1,050, marginal cost is
$1,050
$1,000
$2,050
$50
Question 42
The major factor accounting for diseconomies of scale is management inefficiency.
True
False
Question 43
Average revenue (AR) is equal to
total revenue/output
total revenue minus total cost
price per unit
both (a) and (c)
Question 44
The average fixed cost remains constant even in the long run.
True
False
Question 45
A production function is
a technique for determining the most profitable rate of output
the relationship between a combination of inputs and a quantity of output
an important factor in determining the shape of the long-run supply curve
all of the above
Question 46
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 47
The production function relates outputs to inputs.
True
False
Question 48
As units of input are added to the productive process, the marginal product
increases
decreases
remains the same
declines then rises
Question 49
The average product decreases any time the marginal product is decreased.
True
False
Question 50
If output changes in fixed proportion to a change in all of a firm's productive resources, the firm has
constant marginal returns
constant returns to scale
decreasing marginal returns
decreasing returns to scale