Prncpls of Econ:Microeconomics mid term II (ucdenver university)

Marginal cost is the: (Points : 2)

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

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

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

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

2. (Last Word) Which of the following is an example of a sunk cost, as it relates to a firm? (Points : 2)

       an expenditure on raw materials used in the production process.

       an expenditure on a nonrefundable, nontransferable airline ticket.

       an expenditure to buy a delivery van.

       an expenditure for a new factory.

3. Required payments to parties injured by firms found to have violated the Sherman Act are known as: (Points : 2)

       antitrust fines.

       treble damages.

       economic reparations.

       loss carry-forwards.

4. Suppose that a firm introduces a highly profitable new product. If this new product is priced higher than existing substitute products, then the: (Points : 2)

       new product has greater marginal utility than the existing products.

       laws of economics have been violated.

       new product must have increasing, not diminishing, marginal utility.

       existing products were unprofitable to produce.

5. A pure monopolist is producing an output such that ATC = $4, P = $5, MC = $2, and MR = $3. This firm is realizing: (Points : 2)

       a loss that could be reduced by producing more output.

       a loss that could be reduced by producing less output.

       an economic profit that could be increased by producing more output.

       an economic profit that could be increased by producing less output.

6. False advertising and the misrepresentation of products were made illegal by the: (Points : 2)

       Federal Trade Commission Act.

       Wheeler-Lea Act.

       Sherman Act.

       Clayton Act.

7. Barriers to entering an industry: (Points : 2)

       are justified because they result in allocative efficiency.

       are justified because they result in productive efficiency.

       are the basis for monopoly.

       apply only to purely monopolistic industries.

8. Average fixed costs can be determined graphically by: (Points : 2)

       summing the marginal costs of any number of units of output and dividing the sum by that output.

       the vertical distance between TC and TVC.

       the vertical distance between AVC and MC.

       the vertical distance between ATC and AVC.

9. (Last Word) When patents on new medications expire, the market for those drugs: (Points : 2)

       change from being monopolistic to being competitive.

       change from being competitive to being monopolistic.

       collapse.

       encourage firms to leave the market.

10. Marginal cost: (Points : 2)

       equals both average variable cost and average total cost at their respective minimums.

       is the difference between total cost and total variable cost.

       rises for a time, but then begins to decline when diminishing returns set in.

       declines continuously as output increases.

11. Assuming no change in product demand, a pure monopolist: (Points : 2)

       can increase price and increase sales simultaneously because it dominates the market.

       adds an amount to total revenue which is equal to the price of incremental sales.

       should produce in the range where marginal revenue is negative.

       must lower price to increase sales.

12. Technological advance improves allocative efficiency by: (Points : 2)

       enhancing monopoly power.

       reducing income inequality.

       giving society a more-preferred mix of goods and services.

       encouraging saving.

13. For an imperfectly competitive firm: (Points : 2)

       total revenue is a straight, upsloping line because a firm's sales are independent of product price.

       the marginal revenue curve lies above the demand curve because any reduction in price applies to all units sold.

       the marginal revenue curve lies below the demand curve because any reduction in price applies to all units sold.

       the marginal revenue curve lies below the demand curve because any reduction in price applies only to the extra unit sold.

14. A natural monopoly occurs when: (Points : 2)

       long-run average costs decline continuously through the range of demand.

       a firm owns or controls some resource essential to production.

       long-run average costs rise continuously as output is increased.

       economies of scale are obtained at relatively low levels of output.

15. We would expect an industry to expand if firms in that industry are: (Points : 2)

       earning normal profits.

       earning economic profits.

       incurring economic losses.

       earning accounting profits.

16. Economies and diseconomies of scale explain: (Points : 2)

       the profit-maximizing level of production.

       why the firm's long-run average total cost curve is U-shaped.

       why the firm's short-run marginal cost curve cuts the short-run average variable cost curve at its minimum point.

       the distinction between fixed and variable costs.

17. If a profit-seeking competitive firm is producing its profit-maximizing output and its total fixed costs fall by 25 percent, the firm should: (Points : 2)

       use more labor and less capital to produce a larger output.

       not change its output.

       reduce its output.

       increase its output.

18. A nondiscriminating pure monopolist's demand curve: (Points : 2)

       is perfectly inelastic.

       coincides with its marginal revenue curve.

       lies above its marginal revenue curve.

       lies below its marginal revenue curve.

19. If a firm is confronted with economic losses in the short run, it will decide whether or not to produce by comparing: (Points : 2)

       marginal revenue and marginal cost.

       price and minimum average variable cost.

       total revenue and total cost.

       total revenue and total fixed cost.

20. The short-run supply curve of a purely competitive producer is based on its: (Points : 2)

       AVC curve.

       ATC curve.

       AFC curve.

       MC curve.

21. The MR = MC rule applies: (Points : 2)

       to firms in all types of industries.

       only when the firm is a "price taker."

       only to monopolies.

       only to purely competitive firms.

22. The marginal revenue curve for a monopolist: (Points : 2)

       is a straight, upward sloping curve.

       rises at first, reaches a maximum, and then declines.

       becomes negative when output increases beyond some particular level.

       is a straight line, parallel to the horizontal axis.

23. Which of the following represents a long-run adjustment? (Points : 2)

       a farmer uses an extra dose of fertilizer on his corn crop

       unable to meet foreign competition, a U.S. watch manufacturer sells one of its branch plants

       a steel manufacturer cuts back on its purchases of coke and iron ore

       a supermarket hires four additional clerks

24. Price is constant or given to the individual firm selling in a purely competitive market because: (Points : 2)

       the firm's demand curve is downsloping.

       of product differentiation reinforced by extensive advertising.

       each seller supplies a negligible fraction of total supply.

       there are no good substitutes for its product.

25. Firms seek to maximize: (Points : 2)

       per unit profit.

       total revenue.

       total profit.

       market share.

26. Those who contend that oligopolists are less likely than more competitive firms to engage in R&D say that: (Points : 2)

       Oligopolists have little incentive to introduce costly new technology and produce new products when they currently are earning large economic profit using existing technology and selling existing products.

       the undistributed profits of oligopolists give them a source of readily available, relatively low cost funds for financing R &D.

       entry barriers enable oligopolists to sustain the profits they gain from innovation.

       the large size of oligopolists' R&D departments allow them to use very specialized, expensive R&D equipment and employ teams of specialized researchers.

27. Technological advance improves productive efficiency by: (Points : 2)

       lowering average total cost.

       increasing marginal utility.

       enhancing monopoly power.

       decreasing a nation's exports.

28. Innovation: (Points : 2)

       is the first discovery of a product or process, rather than its first successful commercial introduction.

       includes new products, but not new production methods.

       is also known as diffusion.

       can either increase or decrease the market share of a large firm, depending on whether it is introduced by the large firm or one of its competitors.

29. In the short run the individual competitive firm's supply curve is that segment of the: (Points : 2)

       average variable cost curve lying below the marginal cost curve.

       marginal cost curve lying above the average variable cost curve.

       marginal revenue curve lying below the demand curve.

       marginal cost curve lying between the average total cost and average variable cost curves.

30. The monopolistic competition model predicts that: (Points : 2)

       allocative efficiency will be achieved.

       productive efficiency will be achieved.

       firms will engage in nonprice competition.

       firms will realize economic profits in the long run.

31. The kinked-demand curve of an oligopolist is based on the assumption that: (Points : 2)

       competitors will follow a price cut but ignore a price increase.

       competitors will match both price cuts and price increases.

       competitors will ignore a price cut but follow a price increase.

       there is no product differentiation.

32. Which of the following is not a barrier to entry? (Points : 2)

       patents

       X-inefficiency

       economies of scale

       ownership of essential resources

33. In the United States cartels are: (Points : 2)

       quite common in industries that produce nondurable goods.

       in violation of the antitrust laws.

       concentrated in monopolistically competitive industries.

       encouraged by government policy so firms can achieve economies of scale.

34. The amount of calendar time associated with the long run: (Points : 2)

       is less than that associated with the immediate market period.

       varies from industry to industry.

       is the same for all firms.

       is one year by definition.

35. In the short run: (Points : 2)

       TVC will increase for a time at a diminishing rate, but then beyond some point will increase at an increasing rate.

       TVC will increase for a time at an increasing rate, but then beyond some point will increase at a diminishing rate.

       TVC will increase by the same absolute amount for each additional unit of output produced.

       one cannot generalize concerning the behavior of TVC as output increases.

36. Economic profit in the long run is: (Points : 2)

       possible for both a pure monopoly and a pure competitor.

       possible for a pure monopoly, but not for a pure competitor.

       impossible for both a pure monopolist and a pure competitor.

       only possible when barriers to entry are nonexistent.

37. A pure monopolist is: (Points : 2)

       any firm realizing all existing economies of scale.

       any firm whose demand curve is downsloping.

       any firm which can engage in price discrimination.

       a one-firm industry.

38. A purely competitive firm's short-run supply curve is: (Points : 2)

       perfectly elastic at the minimum average total cost.

       upsloping and equal to the portion of the marginal cost curve that lies above the average variable cost curve.

       upsloping and equal to the portion of the marginal cost curve that lies above the average total cost curve.

       upsloping only when the industry has constant costs.

39. An industry comprised of 40 firms, none of which has more than 3 percent of the total market for a differentiated product is an example of: (Points : 2)

       monopolistic competition.

       oligopoly.

       pure monopoly.

       pure competition.

40. Long-run competitive equilibrium: (Points : 2)

       is realized only in constant-cost industries.

       will never change once it is realized.

       is not economically efficient.

       results in zero economic profits.

41. Fixed costs are associated with: (Points : 2)

       highly adjustable inputs such as labor.

       both the short run and the long run.

       the short run only.

       the long run only.

42. If a pure monopolist is operating in a range of output where demand is elastic: (Points : 2)

       it cannot possibly be maximizing profits.

       marginal revenue will be positive but declining.

       marginal revenue will be positive and rising.

       total revenue will be declining.

43. The law of diminishing returns indicates that: (Points : 2)

       as extra units of a variable resource are added to a fixed resource, marginal product will decline beyond some point.

       because of economies and diseconomies of scale a competitive firm's long-run average total cost curve will be U-shaped.

       the demand for goods produced by purely competitive industries is downsloping.

       beyond some point the extra utility derived from additional units of a product will yield the consumer smaller and smaller extra amounts of satisfaction.

44. The basic difference between the short run and the long run is that: (Points : 2)

       all costs are fixed in the short run, but all costs are variable in the long run.

       the law of diminishing returns applies in the long run, but not in the short run.

       at least one resource is fixed in the short run, while all resources are variable in the long run.

       economies of scale may be present in the short run, but not in the long run.

45. Large minimum efficient scale of plant combined with limited market demand may lead to: (Points : 2)

       natural monopoly.

       patent monopoly.

       government franchise monopoly.

       shared monopoly.

46. If the price of product Y is $25 and its marginal cost is $18: (Points : 2)

       Y is being produced with the least-cost combination of resources.

       society will realize a net gain if less of Y is produced.

       resources are being underallocated to Y.

       resources are being overallocated to Y.

47. The spread of innovation through imitation refers to: (Points : 2)

       invention.

       diffusion.

       duplication.

       diversification.

48. A purely competitive seller is: (Points : 2)

       both a "price maker" and a "price taker."

       neither a "price maker" nor a "price taker."

       a "price taker."

       a "price maker."

49. A major source of funding of R&D in large, established corporations is: (Points : 2)

       venture capital.

       dividends.

       mutual funds.

       retained earnings.

50. Which of the following statements is correct? (Points : 2)

       Economic profits induce firms to enter an industry; losses encourage firms to leave.

       Economic profits induce firms to leave an industry; profits encourage firms to leave.

       Economic profits and losses have no significant impact on the growth or decline of an industry.

       Normal profits will cause an industry to expand.