P.S: This is just a study guide. The questions may not appear exactly like this.
1. Diseconomies of scale occur mainly because
a. of the law of diminishing returns.
b. firms in an industry must be relatively large in order to use the most efficient production techniques.
c. of the inherent difficulties involved in managing and coordinating a large business enterprise.
d. the short-run average total cost curve rises when marginal product is greater than average total cost.
2. The main difference between the short run and the long run is that
a. firms earn zero profits in the long run.
b. the long run always refers to a time period of one year or longer.
c. in the short run, some inputs are fixed and some are variable.
d. in the long run, all inputs are fixed.
3. Answer the question on the basis of the accompanying table that shows average total costs (ATC) for a manufacturing firm whose total fixed costs are $10.
4. An industry is expected to expand if firms in the industry are earning positive
a. normal profits.
b. economic profits.
c. accounting profits.
d. total revenues.
d. Total fixed costs cannot be determined from the given data.
6. (Consider This) Susie purchased a nonrefundable ticket to a soccer match for $20. It will cost her $10 worth of gas and wear and tear to drive to the match and $5 to park her car. On the day of the match, Susie’s boss offers her $100 to come to work instead. In considering what to do, which of the above would be considered a sunk cost?
a. The $20 ticket to the match.
b. The $10 cost to drive to the match.
c. The $5 cost to park at the stadium.
d. The $100 offered by Susie’s boss.
7. If marginal cost exceeds average total cost in the short run, then which is likely to be true?
a. Average total cost is increasing.
b. Average variable cost is decreasing.
c. Average total cost is less than average variable cost.
d. Marginal cost is less than average variable cost.
9. 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.
a. 180 units of output.
b. 30 units of output.
c. 15 units of output.
11. Because the monopolist’s demand curve is downsloping,
a. MR will equal price.
b. price must be lowered to sell more output.
c. the elasticity coefficient will increase as price is lowered.
d. its supply curve will also be downsloping.
13. Successful price discrimination requires that buyers charged the different prices be physically separated.
14. The marginal revenue curve of a purely competitive firm
a. lies below the firm’s demand curve.
b. is downsloping because price must be reduced to sell more output.
c. is horizontal at the market price.
d. has all of these characteristics.
15. The MR = MC rule applies
a. to firms in all types of industries.
b. only when the firm is a “price taker.”
c. only to monopolies.
d. only to purely competitive firms.
16. Price and marginal revenue are identical for an individual purely competitive seller.
17. In the short run, a competitive firm will not produce unless price is at least equal to average total costs.
18. Brand names and packaging are forms of product differentiation under monopolistic competition.
19. Monopolistic competition is characterized by a
a. few dominant firms and low entry barriers.
b. large number of firms and substantial entry barriers.
c. large number of firms and low entry barriers.
d. few dominant firms and substantial entry barriers.
20. Which set of characteristics below best describes the basic features of monopolistic competition?
a. easy entry, many firms, and standardized products
b. barriers to entry, few firms, and differentiated products
c. easy entry, many firms, and differentiated products
d. easy entry, few firms, and standardized products