1)

A constant cost industry is one in which

a. input prices do not change as output changes in thelong-run.

b. supply is highly inelastic.

c. short-run supply is horizontal.

d. all of the above

2)

An increasing-cost industry is one in which the average cost ofproduction ________ as the total output of the industry________.

a. increases; increases

b. increases; decreases

c. decreases; increases

d. None of the above; there are no increasing-costindustries.

3)

Marginal revenue is equal to price for a perfectly competitivefirm because

a. total revenue increases by the price of the good when anadditional unit is sold.

b. total revenue increases by less than the price of the goodwhen an additional unit is sold.

c. firms need to lower price to increase the quantity sold.

d. firms can increase price and still increase the quantitysold.

4)

A firm will not shut down in the short run as long as at thepoint where MR = MC

a. P > AVC.

b. P > ATC.

c. P > MC.

d. P > AFC.

5)

Government means tested programs ________ the overall povertyrate.

a. substantially decrease

b. have not changed

c. lead to an increase in

d. drop to zero

6)

In the long run, the main reason that a monopolist can earnpositive economic profits while a perfectly competitive firm cannotis

a. monopolists enjoy greater economies of scale.

b. there are no barriers to entry in a perfectly competitivemarket.

c. the monopolist faces an inelastic demand for its product.

d. perfectly competitive firms face greater opportunitycosts.

7)

The government allows firms to engage in price discriminationunless the practice

a. allows the firm to earn positive economic profits.

b. reduces consumer surplus.

c. drives rival firms out of business.

d. increases prices to consumers.

8)

Why do pharmaceutical firms benefit most from patentprotection?

a. because research and development of drugs require largeexpenditures that need to be recouped while the patent is stillvalid

b. because pharmaceutical drugs need to be controlled by thegovernment

c. because pharmaceutical companies pay large taxes to thegovernment

d. because only physicians can legally prescribe pharmaceuticaldrugs

9)

Which of the following is an example of a barrier to entry?

a. A firm is open for business only at certain hours of the day,and has its doors locked at other times.

b. The government grants licenses to taxicab drivers, withoutwhich it is illegal to operate a taxicab.

c. A newspaper sells advertising space to businesses.

d. lack of a Web site

10)

A network externality occurs when

a. a firm has a patent.

b. the value of a product to a consumer increase with the numberof other consumers who use it.

c. a firm has large economies of scale.

d. the value of a product to a consumer requires anotherproduct.