Exam 2

Question 1

As more labor is hired in the short run, diminishing returns are observed because

Answer 1

each new worker has less capital and land (fixed inputs) to use at work

Question 2

If a firm increases output, total costs will rise because of a change in

Answer 2

variable costs

Question 3

The maximum output that can be produced from a set of inputs is measured by

Answer 3

the production function

Question 4

A firm can be identified as profitable if the

Answer 4

difference between its total revenue and total costs is positive

Question 5

Flour would be considered which of the following factors of production?

Answer 5

capital

Question 6

Which of the following is most likely a variable cost in the short run?

Answer 6

labor payments

Question 7

If the first, second, third, and fourth worker employed by the firm add 15, 21, 12, and 8 units of total product respectively, we can conclude that

Answer 7

after the second worker marginal product declines

Question 8

When a firm makes an investment decision, it views all inputs as

Answer 8

variable over the long run

Question 9

For most firms, the most desirable rate of output is the one that

Answer 9

maximizes total profit

Question 10

Average total cost is defined as

Answer 10

total cost divided by the quantity produced

Question 11

Sam’s surf shop has total costs of $2,000 when it is not producing any surfboards. This means that

Answer 11

fixed costs are $2,000

Question 12

Which of the following is most likely a fixed cost?

Answer 12

property taxes

Question 13

Which of the following government policies is least likely to increase productivity?

Answer 13

transfer payments to unemployed workers

Question 14

Which of the following must be considered in long-run planning?

Answer 14

investment choices

Question 15

As more output is produced, a firms production cost rises. This will affect the firm’s _________blank decisions

Answer 15

production

Question 16

Which of the following definitions is correct?

Answer 16

Economic Profit = Accounting Profit − Implicit Costs

Question 17

When producing jeans, which of the following are not a variable cost in the short run?

Answer 17

rent paid for the use of a factory

Question 18

Ceteris paribus, the law of diminishing returns states that beyond some point the

Answer 18

marginal physical product of a variable input declines as more of it is used

Question 19

In defining costs, economists recognize

Answer 19

explicit and implicit costs, while accountants recognize only explicit costs

Question 20

Economic costs are greater than accounting costs

Answer 20

only if implicit costs are greater than zero

Question 21

If perfectly competitive firms earn economic profit in the short run, then we would expect that in the long run

Answer 21

new firms will enter the market

Question 22

Which of the following is an example of monopolistic competition?

Answer 22

Many firms supply similar products, each with some consumers who show significant brand loyalty

Question 23

The number and relative size of firms in an industry define the type of

Answer 23

market structure

Question 24

Which of the following is not considered a barrier to entry?

Answer 24

marginal cost pricing

Question 25

Market power

Answer 25

is the ability to alter the market price of a good or service

Question 26

A perfectly competitive firm is a price taker because

Answer 26

it has no control over the market price of its product

Question 27

When a new firm enters a perfectly competitive market, it

Answer 27

reduces the profits of existing firms

Question 28

Which of the following is not characteristic of a perfectly competitive market?

Answer 28

a significant degree of brand loyalty for each firm

Question 29

Which of the following does not characterize a perfectly competitive market?

Answer 29

advertising by individual firms

Question 30

If firms in an industry are experiencing economic losses, firms will _________ the industry and the price of the good will _________.

Answer 30

leave; increase

Question 31

An industry in which only two firms compete to supply a particular product is best characterized by which of the following market structures?

Answer 31

duopoly

Question 32

Which of the following is an example of perfect competition?

Answer 32

Many small firms all produce the same good

Question 33

If one perfectly competitive firm is the only one to raise its price above the market price, it will

Answer 33

not sell any output

Question 34

Obstacles that make it difficult or impossible for additional producers to begin producing or selling in a new market are referred to as

Answer 34

barriers to entry

Question 35

If the number of catfish farms in Arkansas fell over the course of five years, this would suggest that

Answer 35

firms are exiting due to reductions in economic profits

Question 36

Competitive firms cannot individually affect market price because

Answer 36

their individual production is insignificant relative to the production of the industry

Question 37

Which of the following is considered a barrier to entry?

Answer 37

brand loyalty

Question 38

A horizontal demand curve for a firm indicates that

Answer 38

the firm has no market power

Question 39

An individual competitive firm

Answer 39

produces a small proportion of output relative to the market

Question 40

Which of the following is true concerning a monopoly?

Answer 40

The largest firm has significant market power

Question 41

An industry in which a few large firms supply most or all of a product is known as

Answer 41

an oligopoly

Question 42

From the firm perspective, the price of a good multiplied by the quantity sold equals

Answer 42

total revenue

Question 43

The competitive process creates strong pressures on firms to

Answer 43

pursue product and technological innovation

Question 44

In a competitive market, economic losses indicate that

Answer 44

consumers want resources to be reallocated

Question 45

If a perfectly competitive firm produces and sells more output, its _________blank will definitely increase

Answer 45

total revenue

Question 46

If a firm can change market prices by altering its output, then it

Answer 46

has market power

Question 47

In a perfectly competitive market

Answer 47

no seller has market power

Question 48

The change in total revenue that results from a one-unit increase in quantity sold is

Answer 48

marginal revenue

Question 49

If firms are earning positive economic profits

Answer 49

All of these choices are correct

Question 50

The total quantities of a good that people are willing and able to buy at alternative prices defines

Answer 50

market demand

Question 51

A patent

Answer 51

is a government grant of exclusive ownership of an innovation

Question 52

If a firm converts a previously competitive industry into a monopoly without any changes in the cost curves, it will

Answer 52

reduce market-level output and raise price to generate more profit

Question 53

Total profit can be calculated as

Answer 53

the difference between price and average total cost multiplied by the quantity sold

Question 54

If the entire output of a market is produced by a single seller, the firm

Answer 54

is a monopoly

Question 55

Market power exists if a firm can alter

Answer 55

the market price