microeconomics test 2 – Flashcards
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Explicit costs are the opportunity costs of using the resources of:
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owners
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2. A firm has $200 million in total revenue and explicit costs of $190 million. Suppose its owners have invested $100 million in the company at an opportunity cost of 10% interest per year. What is the firm's economic profit?
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Zero
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3. Variable inputs are defined as any resource that:
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can be changed as output changes
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4. The short run is a period of time:
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in which there is at least one fixed input
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5. Marginal product measures the change in:
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the firm's output brought about by employing one additional unit of a variable input.
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6. The law of diminishing returns applies to which of the following segments of the marginal product of labor curve?
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The downward-sloping segment only.
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7. Total fixed costs are costs that are fixed with respect to:
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the rate of output.
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8. Marginal cost is defined as the increase in total cost resulting from an increase in:
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one additional unit of output.
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9. Which of the following is true if marginal cost is below average total cost?
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Average total cost is decreasing.
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10. If a firm enlarges its factory size and realizes lower average (per unit) costs of production, then:
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it has experienced economies of scale.
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11. Which of the following is not a characteristic of the structure of perfectly competitive markets?
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Few sellers
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12. Which of the following is a characteristic of a competitive price-take market?
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There are many firms in the market, each producing a small share of total market output.
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13. In the short run, a perfectly competitive firm's most profitable level of output is where:
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total revenue minus total cost is at a maximum and marginal cost equals marginal revenue.
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14. Under perfect competition, a business firm can accept losses:
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only in the short run.
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15. A firm is currently operating where the MC of the last unit produced = $64, and the MR of this unit = $70. What would you advise this firm to do?
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Increase output.
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16. If a business firm is not operating at the point where MR=MC, then:
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it is not earning the maximum potential profit or minimizing losses.
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17. In the short run, a firm should shut down its business if price is less than:
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AVC.
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18. A perfectly competitive firm's short-run supply curve is the:
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marginal cost curve above the average variable cost curve.
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19. In long-run equilibrium, a competitive firm produces the level of output at which:
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short-run average total cost and long-run average cost are at a minimum.
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20. The long-run supply curve for a competitive constant-cost industry is
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vertical
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21. A monopoly is:
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the only seller of a good for which there are no good substitutes in a market with high barriers to entry.
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22. A monopolist faces a downward-sloping demand curve because:
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the entire market demand curve is the monopolists demand curve.
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23. A monopoly:
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must lower price in order to increase output.
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24. Graphically, the marginal revenue curve of a monopolist:
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will always lie below the demand curve of the monopolist.
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25. At any point where a monopolist's marginal revenue is positive, the downward-sloping straight line demand curve is:
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elastic, but not perfectly elastic.
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26. At a price of $5, 24 units of the good would be sold, at a price of $7, 25 units of output would be sold. The marginal revenue of the 25th unit of output is:
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$55
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27. In the short-run, a monopolist earns an economic profit only when:
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average total cost at the MC=MR output is less than price.
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28. Assume a monopolist charges a price corresponding to the intersection of the marginal cost and marginal revenue curves. If this price is between its average variable cost and average total cost curves, the firm will:
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continue to operate in the short run.
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29. The strategy underlying price discrimination is to:
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increase total revenue by charging higher prices to those with the most inelastic demand for the product and lower prices to those with the most elastic demand.
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30. Compared to a perfectly competitive firm, a monopolist:
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charges a higher price, produces lower output and fails to achieve an efficient allocation of resources
