If MR is greater than MC, a firm should:

• A.increase production
• B.lower the price
• C.decrease production
• D.increase price

Question 2 of 34

Juan's marginal utility from strawberries is 200 and his marginal utility from cream is 100. Juan spends all his budget. The price of strawberries is R5 per pound and the price of cream is R5 per pint. To maximize his utility, Juan should:

• A.change nothing because Juan is maximizing his utility now.
• B.buy less cream and fewer strawberries.
• C.buy more cream and more strawberries.
• D.buy less cream and more strawberries.

Question 3 of 34

You can use marginal utility theory to find the demand curve by changing

• A.only the prices of both goods.
• B.only the price of one good.
• C.income and the prices of both goods.
• D.only income.

Question 4 of 34

The slope of a demand curve depends on:

• A.the units used to measure quantity but not the units used to measure price.
• B.the units used to measure price and the units used to measure quantity.
• C.the units used to measure price but not the units used to measure quantity.
• D.neither the units used to measure price nor the units used to measure quantity.

Question 5 of 34

Unit elastic demand:

• A.means that the ratio of a change in the quantity demanded to a change in the price equals 1.
• B.will be horizontal.
• C.means that the ratio of a percentage change in the quantity demanded to a percentage change in the price equals 1.
• D.will be vertical.

Question 6 of 34

In perfect competition, a profit maximizing firm will produce where:

• A.Total revenue is maximized
• B.Marginal revenue equals average cost
• C.Marginal revenue equals zero
• D.Marginal revenue equals marginal cost

Question 7 of 34

When the quantity of coal supplied is measured in kilograms instead of pounds, the demand for coal becomes:

• A.more elastic.
• B.neither more nor less elastic.
• C.less elastic.
• D.undefined.

Question 8 of 34

The price elasticity of demand equals:

• A.the percentage change in the quantity demanded divided by the percentage change in the price.
• B.the change in the quantity demanded divided by the change in price.
• C.the percentage change in the price divided by the percentage change in the quantity demanded.
• D.the change in the price divided by the change in quantity demanded.

Question 9 of 34

Which one of the following statements about a monopoly is true?

• A.Price in the long run is not usually equal to minimum average total cost.
• B.The monopolist has a flat demand curve because of high barriers to entry.
• C.In the long run, a monopolist can earn only normal profits.
• D.For a monopolistic firm, profit will be maximised where P = MR.

Question 10 of 34

If a consumer has spent all her income on two goods, A and B, and we find that MUA/MUB = PA/PB, what can we say about the consumer?

• A.The consumer should purchase more of A and less of B.
• B.The consumer should purchase more of B and less of A.
• C.The prices of goods A and B must be equal.
• D.The consumer cannot increase her utility.

Question 11 of 34

The total revenue of a firm in perfect competition:

• A.is a horizontal line equal to price
• B.is an upward sloping straight line
• C.is a downward sloping straight line
• D.increases when demand is elastic then declines

Question 12 of 34

In the long run equilibrium in perfect competition:

• A.P = MR = TR = TC = MC
• B.P = AC = TC = MR = AR
• C.P = MR = MC = AR = AC
• D.Total revenue = total variable costs

Question 13 of 34

A firm is allocatively and productively efficient when:

• A.It is producing where P = MC in the long run and where LRAC is at the minimum
• B.It is producing where MR > MC in the long run and where LRAC is at the minimum
• C.It is producing where P = MC and where LRAC are decreasing
• D.It is producing where MC > AC and where and where LRAC are decreasing

Question 14 of 34

In general, if marginal costs are less than average variable costs, then:

• A.Marginal costs must be decreasing
• B.Average variable costs must be at their minimum
• C.Average total costs must be decreasing
• D.Average variable costs must be increasing

Question 15 of 34

In the short-run, if a firm shuts down,

• A.Cost will be reduced to zero
• B.Cost will be reduced to fixed costs
• C.Cost will be reduced to variable costs
• D.Cost will be less than revenues

Question 16 of 34

According to the law of diminishing marginal utility: A. B. C. D. Answer: A.

• A.marginal utility always falls with the extra consumption of a good.
• B.a consumer inevitably reaches a point where the additional satisfaction from consuming each additional unit of a good rises.
• C.a consumer inevitably reaches a point where he or she decreasingly values additional units of a good.
• D.utility is easily measured by dollar values.

Question 17 of 34

Utility from consuming a good is understood by economists to mean:

• A.how much it costs to buy the good.
• B.how much satisfaction or benefit we get from consuming the good.
• C.how often we consume the good.
• D.how we best use the good.

Question 18 of 34

For a given range of production, the extra product of each additional worker is less than the extra product of the worker hired just before. This statement describes _________ returns.

• A.constant
• B.negative
• C.diminishing
• D.increasing

Question 19 of 34

In monopoly when abnormal profits are made:

• A.The price set is greater than the average cost
• B.The price is less than the marginal cost
• C.The average revenue equals the marginal cost
• D.Revenue equals total cost

Question 20 of 34

If a monopoly market were to be replaced with a perfectly competitive market for the same product and with the same cost structure, we would expect:

• A.prices to increase, output to increase and efficiency to increase.
• B.prices to decrease, output to decrease and efficiency to decrease.
• C.prices to decrease, output to increase and efficiency to increase
• D.prices to increase, output to decrease and efficiency to decrease.

Question 22 of 34

In the short run, a firm in perfect competition is making normal profits when:

• A.Price = ATC = 0
• B.Price > ATC
• C.Price = ATC
• D.Price < ATC

Question 23 of 34

Which of the following is not a legal barrier to entry in a monopolized market?

• A.An exclusive license.
• B.An exclusive franchise.
• C.Decreasing average cost.
• D.A patent.

Question 24 of 34

Which statement is true about LR adjustments in perfect competition when the firm initially makes an economic loss:

• A.Existing firms will leave the industry causing the industry supply to shift outwards in the LR and market prices to decrease, ceteris paribus
• B.Existing firms will leave the industry causing the industry supply to shift inwards in the LR and market price to increase, ceteris paribus
• C.New firms will enter the industry causing the industry supply to shift outwards in the LR and market price to decrease ceteris paribus
• D.When economic losses are made there is no incentive for new firms to enter the market or for existing firms to leave the market

Question 25 of 34

Average total cost will equal marginal cost when:

• A.MC is declining
• B.AFC is decreasing
• C.MC is at its lowest point
• D.ATC is at its lowest point

Question 26 of 34

Which of the following statements about market structure is true:

• A.Oligopolies and monopolies have few large sellers that produce unique goods with no close substitutes
• B.All market structures have downward sloping demand curves
• C.Both a monopoly and perfect competition have perfect information
• D.Monopolistic competition and monopolies can influence prices and often collude to increase their profits

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Question 27 of 34

Demand is perfectly inelastic when:

• A.the good in question has perfect substitutes.
• B.shifts in the supply curve results in no change in price.
• C.shifts of the supply curve results in no change in quantity demanded.
• D.shifts of the supply curve results in no change in the total revenue from sales.

Question 28 of 34

The marginal revenue of a firm in perfect competition:

• A.is a horizontal line equal to price
• B.is an upward sloping straight line
• C.is a downward sloping straight line
• D.increases when demand is elastic then declines

Question 30 of 34

The price elasticity of demand depends on:

• A.the units used to measure price but not the units used to measure quantity.
• B.the units used to measure price and the units used to measure quantity.
• C.the units used to measure quantity but not the units used to measure price.
• D.neither the units used to measure price nor the units used to measure quantity.

Question 31 of 34

Which of the following statements is incorrect about perfect competition:

• A.Firms will be allocatively and technically efficient
• B.Firms are price takers because there are so many firms in the market that no single firm can influence the price of the product
• C.In the long run, firms in perfect competition may make positive economic profits
• D.Information is and collusion is impossible

Question 32 of 34

The marginal revenue curve in monopoly:

• A.Is parallel with the demand curve
• B.Lies below and diverges from the demand curve
• C.Equals the demand curve
• D.Lies below and converges with the demand curve

Question 33 of 34

The price elasticity of demand can range between:

• A.negative one and one.
• B.zero and infinity.
• C.zero and one.
• D.negative infinity and infinity.

Question 34 of 34

The price elasticity of demand measures:

• A.the slope of a budget curve.
• B.how often the price of a good changes.
• C.the responsiveness of the quantity demanded to changes in price.
• D.how sensitive the quantity demanded is to changes in demand.