Multiple Choice Question, Question 1

What is the main difference between a competitive firm and a monopoly firm?

a - The number of customers served by the firm

b - Monopoly firms are more efficient and therefore have lower costs.

c - Monopoly firms can generally earn positive profits over a longer period of time.

d - Monopoly firms enjoy government protection from competition.

Question 2

Assume a firm has the following cost and revenue characteristics at its current level of output: price=$10.00, average variable cost=$8.00 and average fixed cost =$4.00. This firm is

a - incurring a loss of $2.00 per unit and should shut down.

b - realizing only a normal profit.

c - realizing an economic profit of $2.00 per unit

d - incurring a loss per unit of $2.00 but should continue to operate in the short run.

Flag question: Question 3

A manager of a clothing firm is deciding whether to add another factory in addition to one already in production. The manager would compare

a - the total benefits gained from the two factories to the total costs of running the two factories.

b - the incremental benefit expected from the second factory to the total costs of running the two factories.

c - the incremental benefit expected from the second factory to the cost of the second factory

d - the total benefits gained from the two factories to the incremental costs of running the two factories.

Question 4

Average costs curves initially fall

a - due to declining average fixed costs

b - due to rising average fixed costs

c - due to declining accounting costs

d - due to rising marginal costs

Question 5

An economist estimated the cross-price elasticity for peanut butter and jelly to be 1.5. Based on this information, we know the goods are

a - inferior goods.

b - complements.

c - inelastic.

d - substitutes.

Question 6

Managers undertake an investment only if

a - Marginal benefits of the investment are greater than zero

b - MCs of the investment are greater than marginal benefits of the investment

c - Marginal benefits are greater than MCs

d - Investment decisions do not depend on marginal analysis

Question 7

If a firm successfully adopts a product differentiation strategy, the elasticity of demand for its products should

a - increase

b - decrease

c - become marginal

d - be unaffected

Question 8

Jim is a manager of a gasoline station and he has estimated elasticity of demand for gasoline to be -0.7 in the short-run and -1.8 in the long run. A decrease in taxes on gasoline would:

a - lower revenue in both the short and long run.

b - raise revenue in both the short and long run.

c - raise revenue in the short run but lower revenue in the long run.

d - lower revenue in the short run but raise revenue in the long run

Question 9

According to the law of diminishing marginal returns, marginal returns:

a - decreases eventually before it is increased

b - diminish constantly.

c - diminish never.

d - diminish eventually.

Question 10

What would happen to revenues if a firm in a perfectly competitive industry raised prices?

a - They would increase

b - They would increase but profit would decrease

c - They would increase along with profit

d - They would fall to zero

Question 11

A firm in a perfectly competitive market (a price taker) faces what type of demand curve?

a - Unit elastic

b - Perfectly inelastic

c - Perfectly elastic

d - None of the above

Question 12

What might you reasonably expect of an industry in which firms tend to have economies of scale?

a - Exceptional competition among firms

b - A large number of firms

c - Highly diversified firms

d - A small number of firms