# Econ Test 3 Multiple Choice

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### Calculate the Price

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275 words
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 Economists assume that the typical person who starts her own business does so with the intention of a. donating the profits from her business to charity. b. capturing the highest number of sales in her industry. c. maximizing profits. d. minimizing costs. C Total cost is the a. amount a firm receives for the sale of its output. b. fixed cost less variable cost. c. market value of the inputs a firm uses in production. d. quantity of output minus the quantity of inputs used to make a good. C Those things that must be forgone to acquire a good are called a. implicit costs. b. opportunity costs. c. explicit costs. d. accounting costs. B Explicit costs a. require an outlay of money by the firm. b. include all of the firm’s opportunity costs. c. include income that is forgone by the firm’s owners. d. Both b and c are correct. A Implicit costs a. do not require an outlay of money by the firm. b. do not enter into the economist’s measurement of a firm’s profit. c. are also known as variable costs. d. are not part of an economist’s measurement of opportunity cost. A Accounting profit is equal to a. marginal revenue minus marginal cost. b. total revenue minus the explicit cost of producing goods and services. c. total revenue minus the opportunity cost of producing goods and services. d. average revenue minus the average cost of producing the last unit of a good or service. B When calculating a firm’s profit, an economist will subtract only a. explicit costs from total revenue since these are the only costs that can be measured explicitly. b. implicit costs from total revenue since these include both the costs that can be directly measured as well as the costs that can be indirectly measured. c. the opportunity costs from total revenue since these include both the implicit and explicit costs of the firm. d. the marginal cost since the cost of the next unit is the only relevant cost. C A production function describes a. how a firm maximizes profits. b. how a firm turns inputs into output. c. the minimal cost of producing a given level of output. d. the relationship between cost and output. B The marginal product of labor is equal to the a. incremental cost associated with a one unit increase in labor. b. incremental profit associated with a one unit increase in labor. c. increase in labor necessary to generate a one unit increase in output. d. increase in output obtained from a one unit increase in labor. D The marginal product of an input in the production process is the increase in a. total revenue obtained from an additional unit of that input. b. profit obtained from an additional unit of that input. c. total revenue obtained from an additional unit of that input. d. quantity of output obtained from an additional unit of that input. D When the marginal product of an input declines as the quantity of that input increases, the production function exhibits a. increasing marginal product. b. diminishing marginal product. c. diminishing total product. d. Both b and c are correct. B A total-cost curve shows the relationship between the a. quantity of an input used and the total cost of production. b. quantity of output produced and the total cost of production. c. total cost of production and profit. d. total cost of production and total revenue. B Some costs do not vary with the quantity of output produced. Those costs are called a. marginal costs. b. average costs. c. fixed costs. d. incurred costs. C In the short run, a firm incurs fixed costs a. only if it incurs variable costs. b. only if it produces no output. c. only if it produces a positive quantity of output. d. whether it produces output or not. D The cost of producing the typical unit of output is the firm’s a. average total cost. b. opportunity cost. c. variable cost. d. marginal cost. A Average total cost is equal to a. output/total cost. b. total cost – total quantity of output. c. average variable cost + total fixed cost. d. total cost/output. D Marginal cost is equal to a. TC/Q. b. ATC/Q. c. TC/Q. d. Q/TC. C The amount by which total cost rises when the firm produces one additional unit of output is called a. average cost. b. marginal cost. c. fixed cost. d. variable cost. B If marginal cost is equal to average total cost, then a. marginal cost is minimized. b. average total cost is minimized. c. average variable cost is minimized. d. marginal cost is zero. B Which of the following statements is correct? a. If marginal cost is rising, then average total cost is rising. b. If marginal cost is rising, then average variable cost is rising. c. If average variable cost is rising, then marginal cost is minimized. d. If average total cost is rising, then marginal cost is greater than average total cost. D If marginal cost is greater than average total cost, then a. profits are increasing. b. economies of scale are becoming greater. c. average total cost remains constant. d. average total cost is increasing. D The efficient scale of the firm is the quantity of output that a. maximizes marginal product. b. maximizes profit. c. minimizes average total cost. d. minimizes average variable cost. C The nature of a firm’s cost (fixed or variable) depends on the a. firm’s revenues. b. time horizon under consideration. c. price the firm charges for output. d. explicit but not implicit costs. B In the long run, a. inputs that were fixed in the short run remain fixed. b. inputs that were fixed in the short run become variable. c. inputs that were variable in the short run become fixed. d. variable inputs are rarely used. B When comparing short-run average total cost with long-run average total cost at a given level of output, a. short-run average total cost is typically above long-run average total cost. b. short-run average total cost is typically the same as long-run average total cost. c. short-run average total cost is typically below long-run average total cost. d. the relationship between short-run and long-run average total cost follows no clear pattern. A A firm has market power if it can a. maximize profits. b. minimize costs. c. influence the market price of the good it sells. d. hire as many workers as it needs at the prevailing wage rate. C Which of the following is not a characteristic of a competitive market? a. Buyers and sellers are price takers. b. Each firm sells a virtually identical product. c. Free entry is limited. d. Each firm chooses an output level that maximizes profits. C Who is a price taker in a competitive market? a. buyers only b. sellers only c. both buyers and sellers d. neither buyers nor sellers C Competitive markets are characterized by a. a small number of buyers and sellers. b. unique products. c. the interdependence of firms. d. free entry and exit by firms. D For a competitive firm, a. total revenue equals average revenue. b. total revenue equals marginal revenue. c. total cost equals marginal revenue. d. average revenue equals marginal revenue. D Which of the following statements is correct? a. For all firms, marginal revenue equals the price of the good. b. Only for competitive firms does average revenue equal the price of the good. c. Marginal revenue can be calculated as total revenue divided by the quantity sold. d. Only for competitive firms does average revenue equal marginal revenue. D If a competitive firm is currently producing a level of output at which marginal revenue exceeds marginal cost, then a. a one-unit increase in output will increase the firm’s profit. b. a one-unit decrease in output will increase the firm’s profit. c. total revenue exceeds total cost. d. total cost exceeds total revenue. A The intersection of a firm’s marginal revenue and marginal cost curves determines the level of output at which a. total revenue is equal to variable cost. b. total revenue is equal to fixed cost. c. total revenue is equal to total cost. d. profit is maximized. D Suppose a firm operates in the short run at a price above its average total cost of production. In the long run the firm should expect a. new firms to enter the market. b. the market price to fall. c. its profits to fall. d. All of the above are correct. D Total profit for a firm is calculated as a. marginal revenue minus average total cost. b. average revenue minus average total cost. c. marginal revenue minus marginal cost. d. (price minus average cost) times quantity of output. D In the short-run, a firm’s supply curve is equal to the a. marginal cost curve above its average variable cost curve. b. marginal cost curve above its average total cost curve. c. average variable cost curve above its marginal cost curve. d. average total cost curve above its marginal cost curve. A The production decisions of perfectly competitive firms follow one of the Ten Principles of Economics, which states that rational people a. consider sunk costs. b. equate prices to the average costs of production. c. will eventually leave markets that experience zero profit. d. think at the margin. D Profit maximizing firms in competitive industries with free entry and exit face a price equal to the lowest possible a. marginal cost of production. b. fixed cost of production. c. total cost of production. d. average total cost of production. D Which of the following statements is correct? a. Both a competitive firm and a monopolist are price takers. b. Both a competitive firm and a monopolist are price makers. c. A competitive firm is a price taker, whereas a monopolist is a price maker. d. A competitive firm is a price maker, whereas a monopolist is a price taker. C One difference between a perfectly competitive firm and a monopoly is that a perfectly competitive firm produces where a. marginal cost equals price, while a monopolist produces where price exceeds marginal cost. b. marginal cost equals price, while a monopolist produces where marginal cost exceeds price. c. price exceeds marginal cost, while a monopolist produces where marginal cost equals price. d. marginal cost exceeds price, while a monopolist produces where marginal cost equals price. A A monopoly a. can set the price it charges for its output and earn unlimited profits. b. takes the market price as given and earns small but positive profits. c. can set the price it charges for its output but faces a downward-sloping demand curve so it cannot earn unlimited profits. d. can set the price it charges for its output but faces a horizontal demand curve so it can earn unlimited profits. C Which of the following is not a characteristic of a monopoly? a. barriers to entry b. one seller c. one buyer d. a product without close substitutes C The simplest way for a monopoly to arise is for a single firm to a. decrease its price below its competitors’ prices. b. decrease production to increase demand for its product. c. make pricing decisions jointly with other firms. d. own a key resource. D A firm that is the sole seller of a product without close substitutes is a. perfectly competitive. b. monopolistically competitive. c. an oligopolist. d. a monopolist. D Most markets are not monopolies in the real world because a. firms usually face downward-sloping demand curves. b. supply curves slope upward. c. price is usually set equal to marginal cost by firms. d. there are reasonable substitutes for most goods. D Patent and copyright laws are major sources of a. natural monopolies. b. government-created monopolies. c. resource monopolies. d. antitrust regulation. B Which of the following is a characteristic of a natural monopoly? a. Marginal cost declines over large regions of output. b. Average total cost declines over large regions of output. c. The product sold is a natural resource such as diamonds or water. d. All of the above are correct. B The market demand curve for a monopolist is typically a. unit price elastic. b. downward sloping. c. horizontal. d. vertical. B When a firm operates under conditions of monopoly, its price is a. not constrained. b. constrained by marginal cost. c. constrained by demand. d. constrained only by its social agenda. C Monopolies use their market power to a. charge prices that equal minimum average total cost. b. increase the quantity sold as they increase price. c. charge a price that is higher than marginal cost. d. dump excess supplies of their product on the market. C A monopoly is an inefficient way to produce a product because a. it can earn both short-run and long-run profits. b. it faces a downward-sloping demand curve. c. the cost to the monopolist of producing one more unit exceeds the value of that unit to potential buyers. d. it produces a smaller level of output than would be produced in a competitive market. D Macroeconomists study a. the decisions of households and firms. b. the interaction between households and firms. c. economy-wide phenomena. d. regulations on firms and unions. C We would expect a macroeconomist, as opposed to a microeconomist, to be particularly interested in a. explaining how economic changes affect prices of particular goods. b. devising policies to deal with market failures such as externalities and market power. c. devising policies to promote low inflation. d. identifying those markets that are competitive and those that are not competitive. C The basic tools of supply and demand are a. useful only in the analysis of economic behavior in individual markets. b. useful in analyzing the overall economy, but not in analyzing individual markets. c. central to microeconomic analysis, but seldom used in macroeconomic analysis. d. central to macroeconomic analysis as well as to microeconomic analysis. D Which of the following statistic is usually regarded as the best single measure of a society’s economic well-being? a. the unemployment rate b. the inflation rate c. gross domestic product d. the trade deficit C Which of the following statements about GDP is correct? a. GDP measures two things at once: the total income of everyone in the economy and the unemployment rate of the economy’s labor force. b. Money continuously flows from households to government and then back to households, and GDP measures this flow of money. c. GDP is to a nation’s economy as household income is to a household. d. All of the above are correct. C Gross domestic product measures two things at once: a. the total spending of everyone in the economy and the total saving of everyone in the economy. b. the total income of everyone in the economy and the total expenditure on the economy’s output of goods and services. c. the value of the economy’s output of goods and services for domestic citizens and the value of the economy’s output of goods and services for the rest of the world. d. the total income of households in the economy and the total profit of firms in the economy. B In a simple circular-flow diagram, total income and total expenditure are a. never equal because total income always exceeds total expenditure. b. seldom equal because of the ongoing changes in an economy’s unemployment rate. c. equal only when one dollar is spent on goods for every dollar that is spent on services. d. always equal because every transaction has a buyer and a seller. D In the actual economy, goods and services are purchased by a. households, but not firms or the government. b. households and firms, but not the government. c. households and the government, but not firms. d. households, firms, and the government. D GDP is defined as a. the market value of all goods and services produced within a country in a given period of time. b. the market value of all goods and services produced by the citizens of a country, regardless of where they are living, in a given period of time. c. the market value of all final goods and services produced within a country in a given period of time. d. the market value of all final goods and services produced by the citizens of a country, regardless of where they are living, in a given period of time. C In order to include many different goods and services in an aggregate measure, GDP is computed using, primarily, a. values of goods and services based on surveys of consumers. b. market prices. c. consumer and producer surpluses. d. costs of producing goods and services. B Which of the following items is included in U.S. GDP? a. goods produced by foreign citizens working in the United States b. the difference in the price of the sale of an existing home and its original purchase price c. known illegal activities d. None of the above is included in U.S. GDP. A Which of the following items is included in U.S. GDP? a. final goods and services that are purchased by the U.S. federal government b. intermediate goods that are produced in the U.S. but that are unsold at the end of the GDP accounting period c. goods and services produced by foreign citizens working in the U.S. d. All of the above are included in U.S. GDP. D Which of the following statements about GDP is correct? a. Nominal GDP values production at current prices, whereas real GDP values production at constant prices. b. Nominal GDP values production at constant prices, whereas real GDP values production at current prices. c. Nominal GDP values production at market prices, whereas real GDP values production at the cost of the resources used in the production process. d. Nominal GDP consistently underestimates the value of production, whereas real GDP consistently overestimates the value of production. A Most economists use the aggregate demand and aggregate supply model primarily to analyze a. short-run fluctuations in the economy. b. the effects of macroeconomic policy on the prices of individual goods. c. the long-run effects of international trade policies. d. productivity and economic growth. A Which of the following explains why production rises in most years? a. increases in the labor force b. increases in the capital stock c. advances in technological knowledge d. All of the above are correct. D Which of the following is most commonly used to monitor short-run changes in economic activity? a. the inflation rate b. real GDP c. aggregate demand d. aggregate supply B A relatively mild period of falling incomes and rising unemployment is called a a. depression. b. recession. c. expansion. d. business cycle. B During recessions a. workers are laid off. b. factories are idle. c. firms may find they are unable to sell all they produce. d. All of the above are correct. D During recessions which type of spending falls? a. consumption and investment b. investment but not consumption c. consumption but not investment d. neither consumption nor investment A The model of short-run economic fluctuations focuses on the price level and a. real GDP. b. economic growth. c. the neutrality of money. d. None of the above is correct. A The model of aggregate demand and aggregate supply explains the relationship between a. the price and quantity of a particular good. b. unemployment and output. c. wages and employment. d. real GDP and the price level. D Which of the following is included in the aggregate demand for goods and services? a. consumption demand b. investment demand c. net exports d. All of the above are correct. D Which of the following effects helps to explain the downward slope of the aggregate-demand curve? a. the exchange-rate effect b. the wealth effect c. the interest-rate effect d. All of the above are correct. D The aggregate supply curve is upward sloping in a. the short and long run. b. neither the short nor long run. c. the long run, but not the short run. d. the short run, but not the long run. D Which of the following shifts short-run aggregate supply right? a. an increase in the price level b. an increase in the minimum wage c. a decrease in the price of oil d. more people migrate abroad than immigrate from abroad C Which of the following would cause prices to fall and output to rise in the short run? a. Short-run aggregate supply shifts right. b. Short-run aggregate supply shifts left. c. Aggregate demand shifts right. d. Aggregate demand shifts left. A

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