1. With respect to production, the short run is best defined as a time period

A) lasting about six months.

B) lasting about two years.

C) in which all inputs are fixed.

D) in which at least one input is fixed.

2. Homer's Donut Shoppe has the production function q = 10L + 20L2 - 5L3. The marginal product of labor is

A) MP = 10 + 40L -15L2

B) MP = 10 + 20L -5L2 C) MP = 10L

D) MP = 10 + 20L

3. Which of the following statements best summarizes the law of diminishing marginal returns?

A) In the short run, as more labor is hired, output diminishes.

B) In the short run, as more labor is hired, output increases at a diminishing rate.

C) In the short run, the amount of labor a firm will hire diminishes as output increases.

D) As more labor is hired, the length of time that defines the short run diminishes.

4. In the market for electric bikes, assume there is the following production function:

q = L0.4 K0.4. Which of the following statements is TRUE?

A) The production function has constant returns to scale.

B) The production function has increasing returns to scale.

C) The production function has decreasing returns to scale.

D) Returns to scale vary with the level of output.

5. Decreasing returns to scale may occur as increasing the amount of inputs used

A) increases specialization.

B) always increases the amount of output produced.

C) may cause coordination difficulties.

D) increases efficiency.

6. If average cost is decreasing,

A) marginal cost equals average cost.

B) marginal cost exceeds average cost.

C) marginal cost is less than average cost.

D) Not enough information is provided.

7. When diminishing marginal returns set in,

A) average product is increasing.

B) average variable cost is decreasing.

C) average cost is decreasing.

D) None of above.

8. The slope of the isoquant tells the firm how much

A) output increases when labor increases by one unit.

B) output increases when capital and labor are doubled.

C) capital must decrease to keep output constant when labor increases by one unit.

D) a unit of capital costs relative to the cost of labor.

9. A change in relative factor prices will always result in

A) a change in the slope of the isoquants.

B) a tangency between the new isocost line and a new isoquant.

C) a rotation of the isocost lines.

D) All of the above.

10. Learning by doing will result in

A) an upward-sloping long-run average cost curve.

B) a larger long-run marginal cost than long-run average cost.

C) a rotation in the isocost curves.

D) lower long-run costs than short-run costs.

11. In a competitive market, if buyers did not know all the prices charged by the many firms, A) all firms still face horizontal demand curves.

B) firms sell a differentiated product.

C) demand curves can be downward sloping for some or all firms.

D) the number of firms will most likely decrease.

12. If marginal revenue equals marginal cost, the firm is maximizing profits as long as A) the resulting profits are positive.

B) marginal cost exceeds marginal revenue for greater levels of output.

C) the average cost curve lies above the demand curve.

D) All of the above are required.

13. If a competitive firm maximizes short-run profits by producing some quantity of output, which of the following must be TRUE at that level of output?

A) p > MC.

B) MR > MC.

C) p AVC.

D) All of the above.

14. A firm should always shut down if its revenue is A) declining.

B) less than its average fixed costs.

C) less than its total costs.

D) less than its avoidable costs.

15. Suppose that for each firm in the competitive market for electric bikes, long-run average cost is minimized at $200 per e-bike when 500 e-bikes are produced. If the e-bike long-run supply curve is horizontal, then

A) some e-bike firms enjoy long-run profits because they operate at minimum average cost.

B) the long-run price will be $200 per e-bike.

C) each consumer will purchase $1000 worth of e-bikes.

D) the long-run price will be set just above $200 per e-bike.

16. For a monopoly, marginal revenue is less than price because A) the demand for the firm's output is downward sloping.

B) the firm has no supply curve.

C) the firm can sell all of its output at any price.

D) the demand for the firm's output is perfectly elastic.

17. One difference between a monopoly and a competitive firm is that

A) only a monopoly is a price taker.

B) only a monopoly maximizes profit by setting marginal revenue equal to marginal cost.

C) only a monopoly faces a downward-sloping demand curve.

D) None of the above.

18. When a monopoly is maximizing its profits,

A) MR > MC.

B) MR < MC.

C) dMR/dQ > dMC/dQ.

D) dMR/dQ < dMC/dQ.

19. The ability of a monopoly to charge a price that exceeds marginal cost depends on A) the price elasticity of supply.

B) price elasticity of demand.

C) slope of the demand curve.

D) shape of the marginal cost curve.

20. A monopoly sets a price of $50 per unit for an item that has a marginal cost of $10. Assuming profit maximization, the implicit demand elasticity is

A) -0.2.

B) -0.8.

C) -1.25.

D) -5.0.