Exam 2 Review

Question 1

A perfectly inelastic demand schedule:

Answer 1

can be represented by a line parallel to the vertical axis.

Question 2

If the demand for bacon is relatively elastic, a 10% decline in the price of bacon will:

Answer 2

increase the amount demanded by more than 10%.

Question 3

For a linear demand curve:

Answer 3

demand is elastic at high prices.

Question 4

If a price reduction reduces a firm’s total revenue:

Answer 4

the demand for the product is inelastic in this price range.

Question 5

Cross elasticity of demand measures how sensitive purchases of a specific product are to changes in:

Answer 5

the price of some other product.

Question 6

Economies of scale are indicated by:

Answer 6

the declining segment of the long-run average total cost curve.

Question 7

If marginal cost is:

Answer 7

rising, then average total cost could be either falling or rising.

Question 8

A fixed cost is:

Answer 8

any cost which a firm would incur even if output was zero.

Question 9

If a firm decides to produce no output in the short run, its costs will be:

Answer 9

It’s fixed costs.

Question 10

Marginal cost is the:

Answer 10

change in total cost that results from producing one more unit of output.

Question 11

An industry comprised of a very large number of sellers producing a standardized product is known as:

Answer 11

pure competition.

Question 12

A purely competitive seller is:

Answer 12

a “price taker.”

Question 13

If a firm in a purely competitive industry is confronted with an equilibrium price of $5, its marginal revenue:

Answer 13

will also be $5.

Question 14

In the short run a purely competitive seller will shut down if:

Answer 14

price is less than the average variable cost at all outputs.

Question 15

If a purely competitive firm is producing at some level less than the profit-maximizing output, then:

Answer 15

marginal revenue exceeds marginal cost.