Assignment:
1. Firms may be able to produce more efficiently than households because:
a. firms can reduce transaction costs
b. team production may be more productive than individual production
c. Both of the above
d. Neither of the above
2. Transaction costs:
a. are the costs of bringing buyers and sellers together for exchanges
b. are always minimized when consumers purchase directly from producers
c. Both of the above
d. Neither of the above
3. In terms of sales, the most important type of business firm is the:
a. proprietorship
b. partnership
c. corporation
d. nonprofit firm
4. The chief goal of all business firms is assumed to be:
a. market share maximization
b. profit-maximization
c. sales maximization
d. maximum cost efficiency
5. In a competitive market, the goal of profit-maximization will compel a business firm to:
a. use its resources to produce in response to consumer demand
b. use its resources so as to ensure maximum job security for its employees
c. Both of the above
d. Neither of the above
6. The most common legal type of business firm is the:
a. corporation
b. partnership
c. proprietorship
d. nonprofit firm
7. A firm owned and operated by two or more co-owners is a:
a. corporation
b. partnership
c. proprietorship
d. nonprofit firm
8. A corporate share of stock:
a. is the same as a corporate bond
b. is an ownership interest in the corporation
c. Both of the above
d. Neither of the above
9. A corporate bond:
a. is an ownership interest in the corporation
b. is a debt obligation of the corporation
c. Both of the above
d. Neither of the above
10. According to Adam Smith, the greatest improvement in the productivity of labor is caused by:
a. public education
b. the division of labor
c. the internet
d. None of the above
11. A sunk cost:
a. is a past cost that cannot be changed by current decisions
b. should not influence current decisions
c. Both of the above
d. Neither of the above
12. A period in which at least one input is fixed is:
a. the short run
b. the long run
c. the planning run
d. the Pamplona run
13. The change in output with one additional unit of input is:
a. marginal revenue product
b. marginal cost
c. marginal physical product
d. marginal input output
14. The law of diminishing marginal returns:
a. applies eventually when larger amounts of a variable input are combined with fixed inputs
b. causes an increase in the marginal cost of production
c. Both of the above
d. Neither of the above
15. Fixed costs:
a. are costs that vary with output
b. are costs that do not vary with output
c. are the costs associated with the fixed inputs
d. Both b. and c. above
16. Concerning the cost curves:
a. the AFC curve always slopes downward
b. the AVC and ATC curves eventually slope upward due to the law of diminishing marginal returns
c. Both of the above
d. Neither of the above
17. If marginal cost is equal to ATC:
a. ATC must be decreasing
b. ATC must be increasing
c. ATC must be at its lowest point
d. All of the above are possible
18. If marginal cost is greater than ATC:
a. ATC must be decreasing
b. ATC must be increasing
c. ATC must be at its lowest point
d. All of the above are possible
19. A perfect competitor:
a. is one of many sellers in a market
b. can increase market price by decreasing its output
c. Both of the above
d. Neither of the above
20. Market power:
a. is the ability of a seller or a buyer to affect market price
b. is the same in the different market structures
c. Both of the above
d. Neither of the above
21. The demand curve faced by a perfect competitor will be:
a. upward sloping
b. horizontal
c. downward sloping
d. All of the above are possible
22. In order to maximize profits, a perfect competitor will produce the quantity of output:
a. where total revenue is maximized
b. where total cost is minimized
c. where marginal revenue equals marginal cost
d. where marginal revenue exceeds marginal cost by the maximum amount
23. The change in total revenue from selling an additional unit of output is:
a. marginal revenue
b. marginal cost
c. marginal physical product
d. marginal output
24. For a perfect competitor:
a. price and marginal revenue are the same
b. the marginal revenue curve runs parallel to and slightly below the demand curve
c. Both of the above
d. Neither of the above
25. If price is above ATC for a perfect competitor:
a. the firm will earn economic profit
b. the firm will maximize profits by producing where marginal revenue equals marginal cost
c. Both of the above
d. Neither of the above
26. If price is below ATC, but still above AVC for a perfect competitor:
a. the firm will earn economic profit
b. the firm will minimize its loss by producing where marginal revenue equals marginal cost
c. the firm should shutdown to minimize its loss
d. None of the above
27. If price is below AVC for a perfect competitor:
a. the firm will earn economic profit
b. the firm will minimize its loss by producing where marginal revenue equals marginal cost
c. the firm should shutdown to minimize its loss
d. None of the above
28. Perfect competition:
a. is the ideal market structure
b. results in maximum economic profits in the long run
c. Both of the above
d. Neither of the above
29. A firm that is the lone seller of a product with no close substitutes is a(n):
a. perfect competitor
b. oligopoly
c. monopoly
d. monopolistic competitor
30. Factors that block the entry of new firms into a market are:
a. firm blockers
b. entry blockers
c. barriers to entry
d. beta blockers
31. Which of the following is not an example of a legal barrier to entry?
a. patent
b. economies of scale
c. license
d. trade restrictions
32. Economies of scale:
a. occur when a firm's average total cost decreases as the scale of its operation increases
b. make it difficult for a new firm to break into a market
c. Both of the above
d. Neither of the above
33. A natural monopoly:
a. is an industry in which economies of scale are so important only one firm can survive
b. is the result of legal barriers to entry
c. Both of the above
d. Neither of the above
34. For a monopoly:
a. the demand curve is downward sloping
b. price is less than marginal revenue
c. demand and marginal revenue are the same
d. All of the above
35. In comparison to perfect competition, monopoly results in:
a. less output, at a lower price
b. less output, at a higher price
c. more output, at a higher price
d. more output, at a lower price
36. When people use resources to manipulate public policy in order to redistribute income to themselves from others:
a. this is rent seeking
b. this is socially beneficial
c. Both of the above
d. Neither of the above
37. Compared to more competitive firms, monopoly producers tend to be:
a. more responsive to consumer demand
b. more diligent to minimize costs of production
c. Both of the above
d. Neither of the above
38. When a seller charges different prices to different buyers for the same good, this:
a. is price discrimination
b. allows the firm to increase is profits by gaining some of the consumer's surplus
c. Both of the above
d. Neither of the above
39. The process of distinguishing a firm's product from similar products is:
a. product differentiation
b. important to perfect competitors
c. Both of the above
d. Neither of the above
40. A monopolistic competitor will maximize profits by producing the quantity of output where:
a. marginal revenue is equal to marginal cost
b. marginal revenue is maximized
c. total revenue is maximized
d. price is maximized
41. In comparison to perfect competition, monopolistic competition results in:
a. less output, at a lower price
b. less output, at a higher price
c. more output, at a higher price
d. more output, at a lower price
42. Compared to the economically efficient quantity of output, a monopolistic competitor:
a. underproduces
b. overproduces
c. produces the economically efficient quantity
d. cheese
43. An industry dominated by a few mutually interdependent firms is:
a. monopoly
b. oligopoly
c. monopolistic competition
d. monarchical oligarchy
44. In oligopoly, each firm's actions affect the other firms. This is called:
a. independence
b. mutual interdependence
c. mutual independence
d. monarchical oligarchy
45. The kinked demand curve theory assumes:
a. that other firms will match price increases, but not price decreases
b. that other firms will match price decreases, but not price increases
c. that other firms will match both price increases and price decreases
d. that other firms will not match either price increases or price decreases
46. An organization through which members jointly make decisions about prices and production is:
a. a cartel
b. perfect competition
c. a monarchical oligarchy
d. None of the above