1. If firms are making economic losses, then in the long run:

the short-run industry supply curve will shift rightward.

new firms will enter the industry.

industry output will rise, and the price will rise.

firms will leave the industry.

2. When new sellers enter a market, existing sellers will:

face upward shifts in their average cost curves.

face reductions in average cost.

see average revenue rise.

have less market power.

3. When sellers exit a market in which the average seller has losses, the remaining sellers will each experience:

a steady price, lower sales, and decreased market power.

a rising price, lower sales, and increased market power.

a rising price, higher sales, and increased market power.

a steady price, higher sales, and decreased market power.

4. In the long run, each firm in an industry will:

earn only enough to cover the opportunity costs of all resources used in production.

produce where MR is less than MC.

offer more than one variation of the same good.

set price in coordination with other producers in the market.

5. Total revenue divided by quantity is called _____ or _____.

average revenue; profit

price; profit

average revenue; price

price; marginal revenue

6. How long does it take for a company to be in the long run?

It is any time period longer than two years.

It takes as long as is needed for the number of sellers in the company's market to increase or decrease.

It is any time period longer than one year.

It takes as long as is needed for the prices of inputs to vary.

7. In the short run, companies face _____, and in the long run, _____.

a changing number of competitors; the number of competitors is fixed

variation in all costs; all costs are fixed

only fixed costs; all costs vary

a fixed set of competitors; the number of competitors can change

8. (Scenario: Accounting and Economic Profit) Use Scenario: Accounting and Economic Profit.

Scenario: Accounting and Economic Profit

Casey recently inherited $100,000 from her grandmother. Rather than invest the money in a mutual fund that earns 5% per year, she quit her job as a translator for the United Nations, which paid $60,000 per year, and started Casey's Coffee Crush, a small caf in Tribeca. The location she rented cost $20,000 for the year. The equipment, caf furniture, and coffee machines cost another $60,000. Staff, sales help, and advertising cost yet another $40,000. In her first year, her revenue was $150,000. Her accounting profit is:

$200,000.

$60,000.

$30,000.

$0.

9. If Giordano's pizza in Chicago computed its profits without taking into account its implicit opportunity costs, it would then only be considering its _____ profit.

explicit financial

accounting

implicit

economic

10. Creating _____ to _____ is key to a company's ability to earn profits in the long run.

barriers to entry; deter new entrants

marginal revenue; increase demand

reduced barriers to entry; raise profit margins

network effects; reduce costs

11. _____ exist(s) when the value of a good or service to an individual increases as the number of other people using the same good or service increases.

Dependence on a scarce resource or input

Returns to scale

Government-created barriers

Network externalities

12. A company produces a particular cell phone that requires accessories (such as chargers, cases, and ear plugs) that are specific to that phone and cannot be used with phones manufactured by other companies. The company that produces this cell phone is using what strategy to have the barrier to entry?

Intimidating rivals.

Increasing switching costs to ensure demand for its product.

Creating cost advantages.

Controlling the markets for key inputs needed by all firms in the product market.

13. The shampoo aisle at a large store that sells personal care products contains many versions of shampoo produced by a small number of companies. This indicates that shampoo producers are engaging in _____ to _____.

government policy support; create cost advantages

brand proliferation; deter new entrants

product differentiation; stimulate market demand

cost-switching; limit market supply

14. Which factor is NOT a barrier to entry?

control of an input essential to production

government-mandated limits on the number of sellers of a good

a ban on certain kinds of advertising

network effects

15. Which of the following is NOT a government action that results in a barrier to entry in a product market?

requiring that advertising not make false claims

issuing compulsory licenses to produce the product

imposing regulations that increase start-up costs for new companies

granting a patent on a product

16. Suppose you were the only firm that has an official license to sell corn dogs in your community. Your monopoly would result from:

control of a scarce resource or input.

technological superiority.

excess capacity.

government-created barriers.

17. If a seller can develop large enough _____ compared to other sellers in the market, this will deter the entry of new sellers.

cost advantages

costs

competitive forces

marginal costs

18. You own an orange juice stand in a competitive market, and so you are a price-taking firm. Which event would MOST likely increase your market power?

The government abolishes the system of patents and copyrights.

A booming economy increases the demand for orange juice and attracts entry into the market.

The average total cost curve for firms in the industry becomes horizontal.

You acquire exclusive rights to harvest oranges from all domestic citrus orchards.