Final Chapter 6,10,11,14

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Quiz questions and answers for Chapter 6,10, 14 and 11

Price elasticity of demand measures

A. how responsive sales are to changes in the price of a related good.
B. how responsive quantity demanded is to a change in price.
C. how responsive sales are to a change in buyers' incomes.
D. how responsive suppliers are to price changes.

Answer: B

If demand is inelastic, the absolute value of the price elasticity of demand is

A. greater than the absolute value of the slope of the demand curve.
B. greater than one.
C. less than one.
D. one.

Answer: C

Jaycee Jeans sold 40 pairs of jeans at a price of $40. When it lowered its price to $20, quantity sold
increased to 60 pairs. Calculate the absolute value of the price elasticity of demand? Use the midpoint
formula.

A. 1.67
B. 0.6
C. 1
D. 0.53

Answer: B

Which of the following statements is true about
the price elasticity of demand?

A. The elastic portion of a straight-line
downward sloping demand curve
corresponds to the segment above the
midpoint.
B. The inelastic portion of the demand curve
corresponds to the segment above the
midpoint.
C. The elasticity coefficient is constant along
the demand curve.
D. At the midpoint of the demand curve, the
elasticity coefficient is zero.

Answer: A

If, for a given percentage increase in price, quantity demanded falls by a proportionately smaller
percentage, then demand is

A. unit-elastic.
B. relatively inelastic.
C. perfectly elastic.
D. relatively elastic.

Answer: B

Which of the following would result in a higher absolute value of the price elasticity of demand for a
product?

A.The expenditure on the good is small relative to one's budget.
B. The time period under consideration is short
C. A wide variety of substitutes are available for the good.
D. The good is a necessity.

Answer: C

If the market for a product is broadly defined, then

A there are few substitutes for the product and the demand for the product is relatively inelastic.
B. the expenditure on the good is likely to make up a large share of one's budget.
C. the good has many complements.
D. there are many substitutes for the product and the demand for the product is relatively elastic.

Answer: A

Over longer periods of time, increases in oil prices provides firms with incentives to expore and recover oil. What does this indicate about the long run price elasticity of the supply of oil?

A. The elasticity coefficient approaches 0 in the long run as supplies are depleted.
B. The elasticity coefficient is likely to be higher int he long run than in the short run.
C. The elasticity coefficient is likely to be lower in the long run thant int he short run.
D. The elasticity coefficient is unstable in the long run because oil supplies may be depleted.

Answer: B

When demand is price elastic, a fall in price causes total revenue to rise because

A. Percentage increase in quantity demanded is less than the percentage fall in price.
B When price falls, quantity sold increases so total revenue automatically rises.
C. The demand curve shifts
D. The increase in quantity sold is large enough to offset the lower price

Answer: D

Income elasticity measures

A. How a good's quantity demanded responds to change in the goods price.
B. How a good's quantity demanded responds to change in the price of another good.
C. How a good's quantity demanded responds to producers' incomes
D. How a good's quantity demanded responds to change in buyers' income.

Answer: D

Corss-price elasticity of demand is calculated as the

A. Percentage change in quantity supplied divided by percentage change in price of a good.
B. Percentage change in quantity sold divided by percentage change in buyers' incomes
C. Percentage change in quantity demanded of one good divided by percentage change in price of a different good
D. Percentage change in quantity demanded divided by percentage change in price of a good

Answer: C

The price elasticity of an upward-sloping supply curve is always

A impossible to determine
B. Negative
C. Positive
D. Greater than one

Answer C

The price elastisity of supply is equal to

A. The value of the slope of the supply curve
B. The percentage change in price divided by the percentage change in the quantity supplied
C. The percentage change inquantity supplied divided by the percentage change in price
D The change in quantity supplied divided by the change in price.

Answer: C

The difference between technology and technological change is that

A. Technology is carried out by firms producting physical goods but technological change is an intellectual exercise into seeking ways to improve production.
B. Technology refers to the processes used by a firm to transform inputs into output while technological change is a change in a firm's ability to produce a given level of output with a given quantity of inputs.
C. Technology is product-centered, that is, developing new products with our limited resources whil technological change is process - centered in that it focuses on developing new production techniques.
D. Technology involves the use of capital equipment while technological change requires the use of brain power.

Answer B

A characteristic of the long run is

A. All inputs can be varied
B. There are both fixed and variable inputs
C. Plant capacity cannot be increased or decreased
D. There are fixed inputs

Answer: A

If a producer is not able to expand its plant capacity immedicately, it is

A. Operating in the short run
B. Bankrupt
C. Losing money
D. Operating in the long run

Answer: A

Implicit costs can be defined as

A. Accounting profit minus explicit costs.
B. The deferred cost of production
C. The non-monetary opportunity cost of using the firm's own resources
D. Total cost minus fixed costs.

Answer: C

The production function shows

A. The total costs of producing a given quanitity of output
B. The technology used to produce output
C. The maximum output that can be produced from each possible quantity of inputs.
D. The incremental output gained by improving the production process.

Answer: C

The average total costs of production

A. Is the extra cost required to produce one more unit
B. Equals total cost of production divided by the level of output.
C. Equals the explicit cost of production
D. Equals total cost of production multiplied ties the level of output.

Answer: B

The marginal product of labor is defined as

A. The additional number of workers required to produce one more uit of output
B. The additional output that results when one more worker is hired, holding all other resources constant
C. The additional sales revenue that results when one more worker is hired
D. The cost of hiring one more worker

Answer: B

The law of diminishing return states

A. Average total costs of production initially falls and after some points start to rise at a decreasing rate as output increases
B. That at some point, adding more of a fixed input to a given amount of variable inputs will cause the marginal product of the variable input to decline
C. Tat in the presence of a fixed factor, at some point average product of labor starts to fall as more and more variable inputs are added.
D. That at some point, adding more of a variable input to a given amount of a fixed input, will cause the marginal product of the variable input to decline.

Answer D

Refer to the diagrm to the right. The marginal product of the 3rd worker is

A. 11
B. 19
C. 57
D. 15

Answer: D

Marginal cost is equal to the

A. Change in total cost divided by the change in output
B. Change in average total costs divided by the change in output.
C. Change in average product divided by the change in output
D. Change in total product divided by the change in output.

Answer: A

Economics of scale exist as a firm increases its size in the long run because of all of the following except

A. The firm can afford more sophisticated technology in production
B. Labor and management can specialize even furthre in their tasks.
C. As a firm expands its production, its profit margin per unit of output increases
D. As a larger input buyer, the firm can purchase inputs at a lower per unit costs.

Answer: C

The long run average cost curve shows

A. Where the msot profitable level of output occurs
B. The lowest average cost of producing every level of output in the long run
C. The plant size or scale that the firm should build.
D. The average cost of producing where diminishing returns are not present.

Answer: B

The minimum efficient scale is

A. The plant size that yields the most profit.
B. The level of output where diminishing returns have not set in yet.
C. The smallest output level where the firm finally reaches productive efficiency
D. Level of operation where long run average costs are lowest.

Answer: D

If production displays diseconomies of scale, the long run average cost curve is

A. Above the short run average total cost curve
B. Upward sloping
C. Downward-sloping
D. Above the long run marginal cost curve

Answer: B

Perfect competition is characterized by all of the following except

A. Horizontal demand for indicidual sellers
B. Heavy advertising by individual sellers
C. Homogeneous products
D. Sellers are price takers

Answer: B

The price of a seller's product in perfect competitionis determined by

A. A few of the sellers
B. The individual seller
C. The individual demander
D. Market demand and market supply

Answer: D

Which of the following is not true for a firm in perfect competition?

A. Marginal revenue equals the change in total revenue from selling one more unit.
B. Profit equals total revenue minus total costs
C. Price equals average revenue
D. Average revenue is greater than marginal revenue

Answer: D

For a perfectly competitive firm, which of the following is not true at profit maximization?

A. Market price is greater than marginal cost
B. Price equals marginal cost
C. Total revenue minus total cost is maximized
D. Marginal revenue equals marginal cost

Answer: A

A firm's total profit can be calculated as all of the following except

A. (Price minus average total cost) times quantitiy sold.
B. Average profit per unit times quantity sold
C. Total revenue minus total cost.
D. Marginal profit times quantity sold

Answer: D

If a perfectly competitive firm's price is above its average total cost, the firm

A. Should shut down
B. Is breaking even
C. Is earning a profit
D. Is incurring a loss

Answer: C

Market supply is found by

A. Horizontally summing each individual producer's average total cost curve
B. Vertically summing each individual producer's average total cost curve
C. Horizontally summing the relevant part of each individual producer's marginal cost curve
D. Vertically summing the relevant part of each individual producer's marginal cost curve.

What is the difference between a firms' shutdown point int he short run and in the long run?

A. In the short run, a firm's shutdown point is the minimum point on the average variable cost, curve, while in the long run, a firm cannot shut down.
B. In the short run, a firm's shutdown point is the minimum point on the average variable cost curve, while in the long run, a firm's shutdown point is the minimum point on the average total cost curve.
C. In the short run and in the long run, a firm's shutdown point is the minimum point on the averaage total cost curve.
D. In the short run, a firm's shutdown point is the minimum point on the average variable cost curve, while in the long run, a firm's shutdown point is the miimum point on the average fixed cost curve.
E. In the short run and in the long run, a firm's shutdown point is the minimum point on the marginal cost curve.

Answer: B

Why are firms willing to accept losses in the short run but not in the long run?

A. It may be profitable to incur losses in the short run for profits in the long run.
B. There are fixed costs in the short run but not in the long run.
C. Firms are price takers in the short run but not in the long run.
D. Sunk costs are larger in the long run than in the short run.
E. Firms cannot shut down in the short run.

Answer: B

What is the relationship between a perfectly competitive firm's marginal cost curve and its supply curve/

A. A firms marginal cost curve is upward sloping with twice the slope of its supply curve
B. A firm's marginal cost and supply curves are horizontal lines equal to the market price.
C. A firm's marginal cost curve is equal to its supply curve for prices above average total cost.
D. A firm's marginal cost curve is equal to it's supply curve for all prices.
E. A firm's marginal cost curve is equal to its supply curve for prices above average variable cost.

Answer: E

If a typical firms in a perfectly competitive industry is earning profits, then

A. New firms will enter in the long run causing lmarket supply to decrease, market price to rise and profits to increase.
B. All lfirms will continue to earn profits.
C. New firms will enter in the long run causing market supply to increase, market price to fall and profits to decrease
D. The number of firms in the industry will remain constant in the long run.

Answer: C

Refer to the diagram to the right. Suppose the prevailing price is $20 and the firm is currently producing 1,350 units. In the long run equilibrium

A. There will be fewer firms in the industry but total industry output increases
B. There will be more firms in the industry and total industry output remains constant
C. There will be fewer firms in the industry and total industry output decreases.
D. There will be more firms in the industry and total industry output increases.

Answer: D

If a typical firm in a perfectly competitive industry is incurring losses, then

A. Some firms will exit in the long run causing market supply to decrease and market price to rise increasing profits for the remaining firms.
B. Some firms will exit in the long run causing market supply to decrease and market price to fall increasing losses for the remaining firms.
C. Some firms will enter in the long run causing market supply to increase and market price to rise increasing profit for all firms.
D. All firms will continue to lose money

Answer: A

In long-run perfectly competitive equilibriu, whihc of the following is a false?

A. Firms earn economic profit
B. Economic surplus is maximized
C. Economies of scale are exhausted
D. There is efficient, low-cost production at the minimum efficient scale.

Answer: A

Refer to the diagram to the right. Suppose the prevailing price is Pt and the firm is currently producing its loss-manimizing quantity. In the long run equilibrium

A. There will be fewer firms in the industry but total industry output increases.
B. There will be more firms in the industry and total industry output remains constant
C. There will be fewer firms in the industry and total industry output decreases
D. There will be more firms in the industry and total industry output increases.

Answer: C

Refer to the diagrams avove. The demand curve on which elasticity change sat every point is given in

A Panel A
B. Panel B
C. Panel C
D. Panel D

Answer: C (diaganol line)

Refer to the diagrms above. A perfectly elastic supply curve is shown in

A. Panel A
B. Panel B
C. Panel C
D. Panel D

Answer B (a straight line laying down)

Refer to the diagrams above. A perfectly inelastic supply curve is shown in

A. Panel A
B. Panel B
C. Panel C
D. Panel D

Answer: A ( a straight line up and down)

Refer to the diagram to the right. Identify the curves in the diagram.

B. E = Marginal cost curve; F = Average total cost curve; G= Average variable cost curve, H= Average fixed cost curve

Refer to the diagram to the right. What is the amount of profit if the firm produces Q2 units

A. It is equal to the vertical distance c to g
B. It is equal to the vertical distance c to g multiplied by Q2 units
C. It is equal to the vertical distance g to Q2
D. It is equal to the vertical distance c to Q2

Answer: A

A monopoly is characterized by all of the following except

A. the firm has market power
B. there are no close substitutes to the firm's product
C. there are only a few sellers each selling a unique product
D. entry barriers are high

Answer:C

A monopolist faces

A. a downward-sloping demand curve
B. a perfectly elastic demand curve
C. a horizontal demand curve
D. a perfectly inelastic demand curve

Answer: A

Which of the following is a characteristic shared by a perfectly competitive firm and a monopoly:

A. each maximizes profits by producting a quantity for which marginal revenue equals marginal cost
B. Each sets a price for its product that will maximze its revenue
C. Each must lower its price to sell more output
D. each mazimzed profits by producting a quantity for which price equals marginal cost

Answer: A

A local electricity-generating company as a monopoly that is protected by an entry barrier that takes the form of

A. perfectly inelastic demand curve
B. network externalitites
c. control of a key raw material
d. economies of scale

Answer: D

For a natural monopoly to exist

A. a firm must have a government-imposed barrier
B. a firm's long run average cost curve must exhibit economies of scale throughout the relevant range of market demand
C. a firm's long run average cost curve must exhibit diseconomies of scale beyond the economically efficient output level
D. a firm must continually buy up its rivals

Answer: B

The demand curve for the monopoly's product is

A. undefined
B. more inelastic than the market demand for the product
C. more elastic than the market demand for the product
D. the market demand for the product

Answer: D

A monopolists's profit maximizing price and output correspond to the point on a graph

A. where price is as high as possible
B. where marginal revenue equals marginal cost and charging the price on the market demand curve for that output
C. where total costs are the smallest relative to price
D. where average total cost is minimized

Answer: B

Because a monopoly's demand curve is the same as the market demand curve for its product,

A. the monopoly's marginal revenue equals its price
B. the monopoly must lower its price to sell more of its product
C. the monopoly's average total cost always falls as it increases its output
D. the monopoly is a price taker

economic efficiency in a free market occurs when

A. producer surplus is maximized
B. price is as low as possible
C. consumer surplus is maximized
D. the sum of consumer surplus and producer surplus is maximized

Answer: D

Compared to perfect competition, the consumer surplus in a monopoly

A. is higher because price is higher and output is the same
B. is eleminated
C. is unchanged because price and output are the same
D. is lower because price is higher and output is lower

Answer: D

Why does a monopoly cause a deadwieght loss?

A. because it appropriates a portion of consumer surplus for itself
B. because it does not produce some output for which demand exceeds supply
C. because it does not produce some output for which marginal benefit exceeds marginal cost
D. because it increases producer surplus as the expense of consumer surplus

Answer: C

A Herfindahl-Hirschman Index is calculated by

A. summing the amount of sales by the for largest firms and dividing by total industry sales
B. summing the advertising expenditures of the firms that want to merge by total industry advertising expenditures
C. summing th squares of the marekt share of each firm in the industry
D. dividing the number of firms wanting to merge by the total number in the industry

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