1. Suppose that when 3000 units of output are produced, the marginal cost of the 3001^stunit is $2. This amount is equal to the minimum of average total cost, and marginal cost is rising. If the optimal level of output in the short run is 3300 units, then at this higher level of output marginal cost is

• equal to $2 and marginal cost is equal to average total cost.
• less than $2 and marginal cost is greater than average total cost.
• greater than $2 and marginal cost is less than average total cost.
• greater than $2 and marginal cost is greater than average total cost.

2 . Mr. Solow has an income of $20 which he is spending on wine and cheese in such amounts that he derives 25 utils of satisfaction from the wine and 25 utils of satisfaction from the cheese. On the basis of this information we:

• cannot say whether or not Solow is buying the utility-maximizing amounts of wine and cheese.
• can say that Solow should buy more cheese and less wine.
• can say that Solow should buy more wine and less cheese.
• can say that Solow is buying the utility-maximizing amounts of wine and cheese.

3.In the short run, the portion of the marginal cost curve that lies above the average variable cost curve shows a competitive firm's:

• demand curve.
• supply curve.
• fixed cost curve.
• average cost curve.

4.An explicit cost is:

• omitted when accounting profits are calculated.
• a money payment made for factors of production not owned by the firm itself.
• an implicit cost to the factor of production owner who receives that payment.
• always in excess of a factor of production's opportunity cost.

5.The demand for Cheerios cereal is more price-elastic than the demand for cereals as a whole. This is best explained by the fact that:

• Cheerios are a luxury.
• cereals are a necessity.
• there are more substitutes for Cheerios than for cereals as a whole.
• consumption of cereals as a whole is greater than consumption of Cheerios.

6.Which is not a fixed cost?

• monthly rent of $1,000 contractually specified in a one-year lease
• an insurance premium of $50 per year, paid last month
• an attorney's retainer of $50,000 per year
• a worker's wage of $15 per hour

7.If an industry's long-run average total cost curve has an extended range of constant returns to scale, this implies that:

• technology precludes both economies and diseconomies of scale.
• the industry will be a natural monopoly.
• both relatively small and relatively large firms can be viable in the industry.
• the industry will be comprised of a very large number of small firms.

8.In the short run a monopolist's profit:

• will be maximized where price equals average total cost.
• may be positive, zero, or negative.
• are always positive.
• will be zero.

9.Suppose the resource costs increase in a perfectly competitive industry. This change will result in a(n):

• increase in average fixed costs for a firm in the industry.
• decrease in average variable costs for a firm in the industry.
• decrease in marginal costs for a firm in the industry.
• leftward shift in the short-run supply curve for a firm in the industry.

10.Costs to an economist:

• consist only of explicit costs.
• may or may not involve monetary outlays.
• never reflect monetary outlays.
• always reflect monetary outlays.

11.A natural monopoly occurs when:

• long-run average costs decline continuously through the range of demand.
• a firm owns or controls some resource essential to production.
• long-run average costs rise continuously as output is increased.
• economies of scale are obtained at relatively low levels of output.

12.Which is a barrier to entry?

• patents
• revenue maximization
• profit maximization
• elastic product demand

13.Which of the following willnotcause the demand for product K to change?

• a change in the price of close-substitute product J
• an increase in consumer incomes
• a change in the price of K
• a change in consumer tastes

14.To practice price discrimination, a firm must meet each of the conditions listed below, except:

• the firm must have some degree of monopoly power.
• the firm must be able to separate its customers into two or more groups with different demand elasticities for the product the firm produces.
• purchasers of the firm's product cannot resell it.
• the firm's production schedule must entail economies of scale.

15.Suppose an increase in product demand occurs in a decreasing-cost industry. As a result:

• the new long-run equilibrium price will be lower than the original long-run equilibrium price.
• equilibrium quantity will decline.
• firms will eventually leave the industry.
• the new long-run equilibrium price will be higher than the original price.

16.Which is a determinant of supply?

• tastes and preferences
• technology
• consumer income
• number of consumers

17.If MU_a/P_a= 100/$35 = MU_b/P_b= 300/? = MU_c/P_c= 400/?, the prices of products b and c in consumer equilibrium:

• cannot be determined from the information given.
• are approximately $105 and $140 respectively.
• are approximately $105 and $175 respectively.
• are $100 and $200 respectively.

18.Long-run competitive equilibrium:

• is realized only in constant-cost industries.
• will never change once it is realized.
• is not economically efficient.
• results in zero economic profits.

19.Assume a perfectly competitive firm in long-run equilibrium is producing 10,000 units of output that is sold at a price of $40 per unit. Which of the following outcomes indicates that the industry is an increasing-cost industry?

• A decline in demand increases the price to $45 and reduces the output to 9,000 units.
• An increase in demand increases the price to $50 and increases the output to 15,000 units.
• A decline in demand decreases the price to $35 and increases the output to 15,000 units.
• An increase in demand increases the price to $45 and reduces the output to 9,000 units.

20.Which of the following will not shift a nation's production possibilities curve?

• the acquisition of more education and training by its labour force
• the widespread application of irrigation to its agricultural land
• an increase in the rate of unemployment
• the discovery of new super-conductivity materials which makes manufacturing more efficient

21.After all long run adjustments in a perfectly competitive industry, product price will be exactly equal to, and production will occur at, each firm's

• maximum average total cost.
• minimum average total cost.
• marginal revenue.
• minimum marginal cost.

22.Labour, land, and capital are examples of:

• factors of production.
• revenue for businesses.
• goods and services for consumers.
• consumption for consumers.

23.Normal profit is:

• determined by subtracting implicit costs from total revenue.
• determined by subtracting explicit costs from total revenue.
• payments that must be made by a firm to obtain and retain entrepreneurial ability.
• the average profitability of an industry over the preceding 10 years