Suppose a monopolist is producing a level of output such that MR > MC. What should the firm do to maximize its profits? The firm should do nothing ? it wants to maximize the difference between MR and MC in order to maximize its profits. The firm should increase output. The firm should increase price. The firm should hire less labor. Question 45 The law of diminishing returns begins first to affect a firm’s short-run cost structure when average variable cost begins to increase. marginal cost begins to increase. average cost begins to increase. average fixed cost begins to decrease. Question 46 A firm that seeks to maximize its revenue is most likely to adhere to which of the following? MR = MC MR =0 MR < MC MR =P Question 47 Which of the following statements is true of a monopolist? The monopolist sets marginal revenue equal to marginal cost to maximize profits. The monopolist sets price equal to marginal cost to maximize profits. The monopolist will always earn positive economic profits. The marginal revenue curve is the same as the demand curve for the monopolist's output. Question 48 When the marginal dollar of product development expenditure brings in a dollar of additional revenue, the firm is spending the ________ on product development. profit-maximizing amount inefficient amount loss-maximizing amount profit-minimizing amount maximum amount it can Question 49 If MRP > MLC, it means that a firm should use less labor. use more labor. increase its fixed capacity. decrease its fixed capacity. Question 50 Which of the following is not true when a monopoly market is in equilibrium? Price > MR. Price = Average Revenue. Price > MC. Consumer well being would be improved if less resources were allocated to the industry in which the monopoly operates. Question 51 If a firm experiences constant returns to the variable input in the short run, marginal product and average variable product will be equal over the range of output in question. marginal product will be greater than average variable product, but the two will become more equal as output increases. marginal product will be less than average variable product, but the two will become more equal as output increases. marginal product will be greater than average variable product, and the difference between the two will become larger as output increases. Question 52 Which of the following statements about the short-run production function is true? MP always equals AP at the maximum point of MP. MP always equals zero when TP is at its maximum point. TP starts to decline at the point of diminishing returns. When MP diminishes, AP is at its minimum point. None of the above is true. Question 53 Assume the four major grocery stores in a large metropolitan area decide to meet secretly to fix prices for meat. It would be easiest to maintain this arrangement when: demand for meat and fresh vegetables is falling. individual firms are able to offer secret price discounts to selected buyers. the number of additional competitors is very small. the cost conditions for the four firms differ substantially. Question 54 An implicit cost is defined as: the amount by which the money spent on an input to production exceeds its opportunity cost. the difference between an input’s explicit cost and its actual cost. the opportunity cost of using a resource that is not explicitly paid out by the firm. the amount by which economic profit exceeds accounting profit. Question 55 Financial Risk occurs due to variations in returns which: is induced by leverage is due to the ups and downs of the economy is due to changes in government regulations is a result of changes in exchange rates Question 56 If the income elasticity coefficient equals 1, the proportion of a consumer’s income spent on a given product after a change in income will be _________ the proportion of income spent on that product prior to the income change. greater than equal to less than either greater than or equal to Question 57 A tax that is imposed as a specific amount per unit of a product is a(n) sales or ad valorem tax. excise or specific tax. income tax. compound duty. Question 58 The derived demand curve for a product component will be more inelastic the larger is the fraction of total cost going to this component. the less essential is the component in question. the more inelastic is the demand curve for the final product. the more elastic are the supply curves of cooperating factors. Question 59 The fact that the firms in an oligopoly are mutually interdependent means that each firm: must consider the reactions of its competitors when it sets the price for its output. produces a product that is similar, but not identical, to the products of its competitors. faces a perfectly elastic demand curve for its product. produces a product that is identical to the products of its competitors. Question 60 In the market for pizza, which of the following would cause a change in quantity supplied, as opposed to a change in supply? A decrease in the price of pizzas. A decrease in the price of sub sandwiches. A decrease in the price of ingredients used to make pizza. An increase in the number of pizza restaurants. Question 61 Which of the following statements is false? Economic profit is the difference between total revenue and the full opportunity cost of all the resources used in production. The owners of a firm must be compensated for the use of their funds, because those funds have alternative uses. Accounting profit is typically measured as the difference between total revenue and explicit costs. Economic profit is the difference between total revenue and implicit costs. Question 62 When a firm increased its output by unit, its AFC decreased. This is an indication that the law of diminishing returns has taken effect. MC < AFC. AVC < AFC. the firm is spreading out its total fixed cost. Moving to another question will save this response. Question 63 Much of the empirical evidence on the behavior of costs for real-world firms suggests that: there is no relationship between the marginal and average variable costs of production. for many firms, marginal and average variable costs are constant over wide ranges of output. average costs functions are U-shaped as suggested by economic theory. for most firms, marginal costs are declining in the range in which the firms operate. Question 64 The possible alternatives for an oligopoly range from the monopoly case with ________ to the perfectly competitive case with ________. low output; high output high output; low output no cooperation among the firms; much cooperation among the firms low prices; high prices low profits; high profits Question 65 When price is less than average variable cost at the profit-maximizing level of output, a firm should: shutdown, because it will lose nothing in that case. shutdown, because it cannot even cover all of its variable costs let alone its fixed costs if it stays in business. continue to produce the level of output at which marginal revenue equals marginal cost if it is operating in the long run. continue to produce the level of output at which marginal revenue equals marginal cost if it is operating in the short run. Question 66 Nike is a firm in monopolistic competition. If Nike is earning an economic profit from new cross-training shoe, over time the demand for these shoes increases as firms exit the market. does not change as new firms enter the market. decreases as firms exit the market. decreases as new firms enter the market. increases as new firms enter the market.
