Q1. Table 5.4
Quantity of
Labor
Total
Product
Average
Product
1
220
2
335
Marginal
Product
3
338
4
320
Refer to Table 5.4. What does total product equal when 2 units of labor are used?
a. 320
b. 350
c. 335
d. 670
Q2. It is possible for a firm to have positive accounting profit and zero economic profit.
a. true
b. false
Q3. Table 5.3
Quantity of
Workers
Total
Product
0
0
1
3
2
7
3
12
4
16
5
18
6
18
Average
Physical
Product
Marginal
Physical
Product
In Table 5.3, the average physical product of the 3rd worker is
a. 3.
b. 12.
c. 5.
d. 4.
Q4. The marginal physical product of labor declines as long as there is any opportunity cost
associated with production of the good.
a. true
b. false
Q5. Table 5.6
Quantity
Total Cost
0
90
1
115
2
122
3
132
4
154
5
185
Refer to Table 5.6. What is the marginal cost of producing the third unit?
a. 25
b. 115
c. 90
d. 10
Q6. Table 5.6
Quantity
Total Cost
0
90
1
115
2
122
3
132
4
154
5
185
Refer to Table 5.6. What is the average total cost of producing five units?
a. 180
b. 37
c. 31
d. 185
Q7. Financial investors prefer to invest their funds in firms that
a. steadily earn a high profit.
b. have high levels of variable cost and low levels of fixed cost.
c. can charge prices above the equilibrium price.
d. have high levels of fixed cost and low levels of variable cost.
Q8. Table 5.5
Total Output Total Costs
0
10
1
18
2
21
3
23
4
24
5
26
6
29
7
33
8
38
9
44
10
51
In Table 5.5, the marginal cost of the third unit is
a. 2.
b. 4.
c. 3.
d. 1.
Q9. Table 5.7
1
Total
Variable
Cost
10
2
50
Q
3
Average
Variable
Cost
Total Cost
Average
Total Cost
50
90
40
Refer to Table 5.7. What is the average variable cost of producing two units?
a. 25
b. 10
c. 50
d. Not enough information is provided.
Q10. Which one of the following is TRUE?
a. Marginal cost increases as marginal physical product decreases.
b. Marginal cost decreases as marginal product decreases.
c. Total cost is the difference between marginal cost and total variable cost.
d. Total cost is the sum of marginal cost plus total variable cost.
Q11. The perfectly competitive firm will shut down immediately if price falls below average
variable cost.
a. true
b. false
Q12. A single supplier of a good or service for which there is no close substitute is referred
to as a(n)
a. monopolistic competitor.
b. strategic competitor.
c. monopoly.
d. oligopoly.
Q13. In perfect competition, the larger firms will be able to charge a higher price than the
smaller firms.
a. true
b. false
Q14. A company finds that at the MR = MC output level, its total cost is $500, total variable
cost is $400, and total revenue is $450. Your advice to the firm is to
a. reduce output to reduce the cost of production.
b. continue to produce, as total revenue covers total variable cost.
c. increase output to reduce the per unit cost of production.
d. shut down immediately.
Q15. In the short run in perfect competition, a firm will shut down when
a. marginal revenue equals marginal cost.
b. price is below average total cost.
c. price is below average variable cost.
d. economic profit is zero.
Q16. The perfect competitor
a. chooses the profit-maximizing quantity.
b. chooses the profit-maximizing price.
c. chooses a quantity that will make the most efficient use of his labor and capital resources.
d. produces what he thinks can be sold, regardless of cost.
Q17. For a monopolist, selling more units requires
a. allowing more firms to enter the industry.
b. hiring a more productive labor force.
c. forming a cartel.
d. lowering the selling price.
Q18. Which of the following is true of a perfectly competitive firm and a monopoly in the
long run?
a. P = ATC
b. P = MC
c. P = MR
d. MR = MC
Q19. Monopoly implies
a. low prices.
b. high costs.
c. low profits.
d. no competition.
Q20. For the perfectly competitive firm, price equals marginal revenue.
a. true
b. false
Q21. Monopolistic competition means
a. monopolies from several countries compete in the global market.
b. a large number of firms producing differentiated products.
c. a large number of firms producing homogeneous products.
d. few firms producing differentiated products.
Q22. Signaling occurs as part of
a. noncooperative behavior.
b. advertising.
c. price leadership.
d. opportunistic behavior.
Q23. The monopolistic competitor depicted below would find that which of the following is
INCORRECT?
Figure 7.2
a. The profit maximizing rate of output is indicated by E, where MR intersects MC.
b. The demand curve shows that the firm faces a perfectly elastic demand.
c. The profit-maximizing rate of output is qe, and the profit maximizing price is P.
d. A downward sloping marginal revenue curve lies below the demand curve.
Q24. The marginal revenue curve of a monopolistically competitive firm is
a. downward sloping and above the demand curve.
b. identical to the demand curve as there are many small firms in the market.
c. downward sloping and below the demand curve.
d. perfectly elastic.
Q25. For the monopolistic competitor, which is INCORRECT?
a. The profit maximizing rate of output is where the marginal cost curve intersects the marginal
revenue curve.
b. The marginal revenue curve is downward sloping and lies below the demand curve.
c. Because the firm has some control over price, its demand curve slopes downward.
d. If the firm in a monopolistically competitive industry were making economic losses, firms
would enter the industry.
Q26. The industry of fine art auction houses is
a. a monopoly.
b. monopolistically competitive.
c. a duopoly.
d. perfectly competitive.
Q27. To the extent that a firm has market power, it can force its competitors out of
business.
a. true
b. false
Q28. Monopolistically competitive firms produce a product that is homogeneous.
a. true
b. false
Q29. Opportunistic behavior is discouraged by the desire to have repeat transactions.
a. true
b. false
Q30. Price leadership is a form of tacit collusion.
a. true
b. false
Q31. The first case prosecuted under the Sherman Act was the antitrust case against
Microsoft.
a. true
b. false
Q32. The problem of positive externalities can be addressed by having some firms exit the
industry.
a. true
b. false
Q33. Antitrust legislation seeks to correct market failure by ensuring that all firms in the
industry earn an economic profit.
a. true
b. false
Q34. Which one of the following is TRUE?
a. Private goods are subject to the principle of rival consumption.
b. Public goods are those that generate positive externalities.
c. Public goods are a subset of private goods.
d. Private goods are produced for a local market; public goods are produced for a national
market.
Q35. External costs can be defined as
a. the cost of providing all public goods and services.
b. the sum of all private production costs.
c. the cost of running the federal government.
d. the cost associated with private production, but partially borne by society.
Q36. Licensing requirements for taxis mean that taxi fares are higher than they otherwise
would be.
a. true
b. false
Q37. Contestable markets arise when firms currently in an industry know that it would be
easy for potential competitors to enter the industry.
a. true
b. false
Q38. Private goods are characterized by the principle of rival consumption.
a. true
b. false
Q39. Cases prosecuted under the Sherman Antitrust Act are intended to correct market
failure arising from negative externalities.
a. true
b. false
Q40. What would happen in a free market system when production of a good generates
negative externalities?
a. There would be a shortage of the good.
b. The equilibrium quantity of the good would be more than the efficient amount.
c. The equilibrium quantity of the good would be less than the efficient amount.
d. There would be a surplus of the good.
Q41. The demand curve for labor is
a. the marginal physical product curve for labor divided by the price of the good.
b. the marginal revenue product curve for labor.
c. the marginal physical product curve for labor multiplied by the price of labor.
d. the demand curve for the good produced divided by the price of the good.
Q42. When MFC = MRP, a firm in a competitive market will
a. hire more workers.
b. stop hiring.
c. layoff workers.
d. earn additional profits.
Q43. Collective bargaining is the process by which unions and employers negotiate the
conditions of employment and wages.
a. true
b. false
Q44. The supply of labor to the health care industry will decrease when
a. working conditions for health care workers improve through legislated mandates.
b. minimum wages are legislated for health care workers.
c. workers receive better employment opportunities in other industries.
d. there is an increased demand for health care.
Q45. Who was the first president of the American Federation of Labor?
a. David Hale
b. Carroll Wright
c. John L. Lewis
d. Samuel Gompers
Q46. The marginal physical product of labor is the addition to total revenue a firm
experiences when it hires one additional worker.
a. true
b. false
Q47. If workers in an industry become less productive due to low employee morale, we
would expect the
a. demand for workers to decrease.
b. wages in the industry to increase.
c. supply of workers to increase.
d. demand for workers to increase.
Q48. If labor productivity increases,
a. the supply of labor will increase.
b. the supply of labor will decrease.
c. workers will earn wages higher than their marginal revenue product.
d. the demand for labor will increase.
Q49. The number of strikes occurring in U. S. firms has steadily increased over the past 25
years.
a. true
b. false
Q50. The upward slope of the labor supply curve suggests that the income effect of a wage
increase outweighs the substitution effect.
a. true
b. false