Exam 2 Multiple Choice

Question 1

Implicit costs are

Answer 1

Payments for self employed resources

Question 2

Competitive firms are assumed to be

Answer 2

Price takers

Question 3

Costs that do not change with output are called

Answer 3

Fixed

Question 4

The monopolistically competitive firm that is earning an economic profit is also

Answer 4

Earning a normal profit

Question 5

If price is equal to ATC the firm is

Answer 5

Earning only normal profit

Question 6

Costs that are incurred through monetary payment are

Answer 6

Explicit

Question 7

What is an example of a homogeneous good?

Answer 7

Wheat

Question 8

Rate-of-return regulation of a natural monopolist has a goal of

Answer 8

Lower prices, higher output

Question 9

What is a characteristic of monopolistic competition?

Answer 9

Relatively easy entry

Question 10

The change in total cost that results from a change in output is what cost?

Answer 10

Marginal

Question 11

When does a horizontal merger occur?

Answer 11

When a firm buys its competition

Question 12

What is not a type of merger?

Answer 12

Reverse

Question 13

The US auto industry is an

Answer 13

Oligopoly

Question 14

A major distinction between a monopolistically competitive firm and an oligopolistic firm is that

Answer 14

A recognized interdependence exists between firms in one industry but not the other

Question 15

Most economists say the firm’s goal is

Answer 15

To maximize profits

Question 16

In the short run output:

Answer 16

Can vary as a result of using a fixed amount of plant and equipment more or less intensively

Question 17

Which is true of pure competition but not monopolistic competition?

Answer 17

Long-run equilibrium occurs at the minimum point on the ATC curve

Question 18

Local Utility type services are typically

Answer 18

Regulated by various government units to restrain market power

Question 19

Which of the following is an assumption of the theory of monopoly?

Answer 19

There are extremely high barriers to entry

Question 20

The marginal cost curve cuts the what curve at its lowest point?

Answer 20

Average variable cost

Question 21

The main difference between the short and long run is

Answer 21

In the short run one or more inputs is fixed

Question 22

As outputs increase, fixed costs

Answer 22

Remain constant

Question 23

Which market has the smallest number of firms?

Answer 23

Pure monopoly

Question 24

A firm should increase the quantity of output as long as its:

Answer 24

Marginal revenue is greater than marginal cost

Question 25

A profit-maximizing firm should shut down in the short run if the average revenue is less than

Answer 25

Average variable cost

Question 26

Where does a profit maximizing monopolist set production?

Answer 26

MR = MC

Question 27

Where does a perfectly competitive market set production?

Answer 27

MC = D

Question 28

What happens to the number of firms in the industry and the supply curve in the long run

Answer 28

Number of firms entering grows while profitable and increases until the normal profit rate of return occurs