OPEN REVIEW QUIZ

 

OPEN REVIEW QUIZ

 

1. What is the maximum output that a given quantity of labor can produce called?
   a) Marginal product
   b) Average product
   c) Total product
   d) Labor productivity

Answer: c) Total product

2. What happens to total product when Campus Sweaters employs more labor?
   a) It decreases
   b) It remains the same
   c) It increases
   d) It fluctuates

Answer: c) It increases

3. What is the marginal product of labor?
   a) The total output produced by all workers
   b) The average output per worker
   c) The increase in total product from a one-unit increase in labor
   d) The decrease in total product from a one-unit decrease in labor

Answer: c) The increase in total product from a one-unit increase in labor

 

4.      What is the purpose of the total product curve?
a) To show the technologically efficient output levels
b) To show the unattainable output levels
c) To compare the output of different firms
d) To show the marginal product of labor

Answer: a) To show the technologically efficient output levels

5.      What does the slope of the total product curve represent?
a) Marginal product
b) Average product
c) Total product
d) Labor input

Answer: a) Marginal product

6.      What happens to the marginal product curve as labor input increases?
a) It increases constantly
b) It decreases constantly
c) It increases initially and then decreases
d) It remains constant

Answer: c) It increases initially and then decreases

 

7.      What happens when there are increasing marginal returns?
a) The marginal product of an additional worker is less than the previous worker
b) The marginal product of an additional worker is equal to the previous worker
c) The marginal product of an additional worker exceeds the previous worker
d) The marginal product remains constant

Answer: c) The marginal product of an additional worker exceeds the previous worker

8.      Why do increasing marginal returns arise?
a) Due to decreased specialization and division of labor
b) Due to increased specialization and division of labor
c) Due to the law of diminishing returns
d) Due to the fixed factor of production

Answer: b) Due to increased specialization and division of labor

9.      What is the law of diminishing returns?
a) The marginal product of a variable factor eventually increases
b) The marginal product of a variable factor eventually diminishes
c) The marginal product remains constant
d) The fixed factor of production increases

Answer: b) The marginal product of a variable factor eventually diminishes

 

10.  What is the average product of labor?
a) Total product divided by labor
b) Marginal product divided by labor
c) Total fixed cost divided by labor
d) Total variable cost divided by labor

Answer: a) Total product divided by labor

11.  What is the shape of the average total cost curve?
a) U-shaped
b) Downward sloping
c) Upward sloping
d) Constant

Answer: a) U-shaped

12.  What happens to average total cost when marginal cost is less than average cost?
a) It increases
b) It decreases
c) It remains constant
d) It fluctuates

Answer: b) It decreases

13.  How is the long-run average cost curve (LRAC) derived?
a) By adding short-run marginal cost curves
b) By combining pieces of short-run average total cost curves
c) By multiplying short-run average product curves
d) By dividing long-run marginal cost curves

Answer: b) By combining pieces of short-run average total cost curves

14.  What are economies of scale?
a) Features that increase average total cost as output increases
b) Features that decrease average total cost as output increases
c) Features that keep average total cost constant as output increases
d) Features that have no effect on average total cost

Answer: b) Features that decrease average total cost as output increases

15.  What happens to the LRAC curve when there are diseconomies of scale?
a) It slopes downward
b) It slopes upward
c) It remains constant
d) It fluctuates

Answer: b) It slopes upward

 What is perfect competition?

 A. A market with only a few firms selling different products

B. A market where firms sell identical products and there are no entry restrictions

C. A market where established firms have significant advantages over new ones

D. A market where sellers are not well informed about prices

Answer: B. A market where firms sell identical products and there are no entry restrictions

 

Which of the following is NOT a characteristic of perfect competition?

 A. Many firms sell identical products

B. There are no restrictions on entry into the market

C. Established firms have an advantage over new ones

D. Sellers and buyers are well informed about prices

Answer: C. Established firms have an advantage over new ones

 

Which of the following industries is NOT mentioned as an example of a highly competitive industry?

 A. Grocery retailing

B. Photo finishing

C. Automobile manufacturing

D. Lawn services

Answer: C. Automobile manufacturing

 

What happens if a firm's minimum efficient scale is small relative to market demand?

 A. The firm has a monopoly

B. There is room in the market for many firms

C. The firm will face high barriers to entry

D. The firm can influence the market price

Answer: B. There is room in the market for many firms

 

In perfect competition, why are firms considered price takers?

 A. Because their production is a significant part of the total market

B. Because they can influence the market price

C. Because their production is an insignificant part of the total market

D. Because they have unique products

Answer: C. Because their production is an insignificant part of the total market

 

If the market price of wheat is $4 a bushel, what happens if a farmer tries to sell it for $4.10?

 A. The farmer will sell all their wheat immediately

B. No one will buy the wheat

C. The farmer will make more profit

D. The market price will increase

Answer: B. No one will buy the wheat

 

What is the goal of a firm in perfect competition?

 A. To maximize total revenue

B. To minimize total cost

C. To maximize economic profit

D. To maximize the market price

Answer: C. To maximize economic profit

 

What is marginal revenue?

 A. Total revenue divided by total cost

B. The change in total revenue from selling one more unit

C. Total cost divided by the quantity sold

D. The price of one unit of output

Answer: B. The change in total revenue from selling one more unit

 

In perfect competition, how is the firm's marginal revenue curve represented?

 A. As an upward-sloping line

B. As a downward-sloping line

C. As a horizontal line at the market price

D. As a vertical line

Answer: C. As a horizontal line at the market price

 

Which decision is NOT one of the firm's decisions to maximize economic profit?

 A. How to produce at minimum cost

B. What quantity to produce

C. Whether to enter or exit a market

D. How to increase the market price

Answer: D. How to increase the market price

1. **What do a firm's cost curves describe?**

   - A. The relationship between output and revenue

   - B. The relationship between output and costs

   - C. The relationship between market demand and supply

   - D. The relationship between fixed costs and variable costs

   **Answer:** B. The relationship between output and costs

 

2. **What is economic profit equal to?**

   - A. Total revenue minus total cost

   - B. Total cost minus total revenue

   - C. Marginal revenue minus marginal cost

   - D. Average revenue minus average cost

   **Answer:** A. Total revenue minus total cost

 

3. **In the given example, how many sweaters does Campus Sweaters produce to maximize its economic profit?**

   - A. 8 sweaters

   - B. 9 sweaters

   - C. 10 sweaters

   - D. 12 sweaters

   **Answer:** B. 9 sweaters

 

4. **At what output rates would Campus Sweaters incur an economic loss?**

   - A. Less than 3 sweaters and more than 11 sweaters

   - B. Less than 4 sweaters and more than 12 sweaters

   - C. Less than 5 sweaters and more than 11 sweaters

   - D. Less than 6 sweaters and more than 13 sweaters

   **Answer:** B. Less than 4 sweaters and more than 12 sweaters

 

5. **What is the break-even point for Campus Sweaters?**

   - A. 6 or 11 sweaters a day

   - B. 5 or 13 sweaters a day

   - C. 4 or 12 sweaters a day

   - D. 3 or 14 sweaters a day

   **Answer:** C. 4 or 12 sweaters a day

 

6. **What happens when marginal revenue (MR) exceeds marginal cost (MC)?**

   - A. The firm should decrease output to increase economic profit

   - B. The firm should increase output to increase economic profit

   - C. The firm should maintain the current level of output

   - D. The firm should shut down temporarily

   **Answer:** B. The firm should increase output to increase economic profit

 

7. **What does it mean when MR equals MC?**

   - A. The firm is incurring a loss

   - B. The firm is maximizing economic profit

   - C. The firm should increase output

   - D. The firm should decrease output

   **Answer:** B. The firm is maximizing economic profit

 

8. **What is the foundation of the law of supply in perfect competition?**

   - A. The lower the market price of a good, the greater the quantity supplied

   - B. The higher the market price of a good, the greater the quantity supplied

   - C. The market price has no effect on the quantity supplied

   - D. The firm’s supply curve is horizontal

   **Answer:** B. The higher the market price of a good, the greater the quantity supplied

 

9. **When should a firm decide to shut down temporarily?**

   - A. When price exceeds average total cost

   - B. When price is less than average variable cost

   - C. When price is equal to marginal cost

   - D. When price is higher than average variable cost but lower than average total cost

   **Answer:** B. When price is less than average variable cost

 

10. **What is the shutdown point for a firm?**

    - A. The price and quantity at which total cost is minimized

    - B. The price and quantity at which the firm maximizes profit

    - C. The price and quantity at which average variable cost is at a minimum

    - D. The price and quantity at which total revenue equals total cost

    **Answer:** C. The price and quantity at which average variable cost is at a minimum

 

11. **What does a firm’s economic loss equal when it shuts down temporarily?**

    - A. Total variable cost

    - B. Total fixed cost

    - C. Total cost

    - D. Total revenue

    **Answer:** B. Total fixed cost

 

12. **How is the supply curve of a perfectly competitive firm derived?**

    - A. From the firm’s marginal cost curve and average total cost curves

    - B. From the firm’s marginal cost curve and average variable cost curves

    - C. From the firm’s total cost curve and total revenue curves

    - D. From the firm’s marginal revenue curve and average revenue curves

    **Answer:** B. From the firm’s marginal cost curve and average variable cost curves

 

13. **What happens if the price is above the minimum average variable cost but below average total cost?**

    - A. The firm will produce and maximize profit

    - B. The firm will produce and incur a loss less than total fixed cost

    - C. The firm will shut down temporarily

    - D. The firm will produce zero output

    **Answer:** B. The firm will produce and incur a loss less than total fixed cost

 

14. **What quantity maximizes economic profit when the price equals minimum average variable cost?**

    - A. The firm produces zero output

    - B. The firm produces the output where marginal cost equals price

    - C. The firm produces the output where average total cost is maximized

    - D. The firm produces the loss-minimizing output

    **Answer:** D. The firm produces the loss-minimizing output

 

15. **What does the firm’s supply curve look like at prices below the minimum average variable cost?**

    - A. It follows the marginal cost curve

    - B. It is horizontal

    - C. It shows zero output

    - D. It shows the shutdown point

    **Answer:** C. It shows zero output

 

What defines the short run in a perfectly competitive market?

A. The number of buyers is fixed

B. The number of firms is fixed

C. The market price is fixed

D. The quantity supplied is fixed

Answer: B. The number of firms is fixed

 

How is the market supply curve in the short run derived?

 A. By averaging the quantities supplied by all firms

B. By multiplying the quantity supplied by one firm by the number of firms

C. By summing the quantities supplied by all firms at each price

D. By taking the highest quantity supplied by any firm

Answer: C. By summing the quantities supplied by all firms at each price

 

What happens to the market supply curve at prices below $17 a sweater in the given example?

 A. It becomes vertical

B. It becomes horizontal

C. It runs along the y-axis

D. It slopes downward

Answer: C. It runs along the y-axis

 

At what price do firms in the market shut down in the given example?

 A. $20 a sweater

B. $17 a sweater

C. $25 a sweater

D. $15 a sweater

Answer: B. $17 a sweater

 

How many sweaters does each firm produce when the market price is $20?

 A. 7 sweaters

B. 8 sweaters

C. 9 sweaters

D. 10 sweaters

Answer: B. 8 sweaters

 

What happens to the market output if the demand curve shifts rightward to D2?

 A. It decreases to 7,000 sweaters

B. It increases to 9,000 sweaters

C. It remains unchanged

D. It increases to 8,000 sweaters

Answer: B. It increases to 9,000 sweaters

 

What is the market price when the demand curve shifts leftward to D3?

 A. $25 a sweater

B. $20 a sweater

C. $17 a sweater

D. $15 a sweater

Answer: C. $17 a sweater

 

In short-run equilibrium, how is economic profit (or loss) per sweater calculated?

 A. P + ATC

B. P – ATC

C. P × Q

D. ATC – P

Answer: B. P – ATC

 

If the market price remains at $17 due to a further leftward shift in the demand curve, what do firms do?

 A. All firms increase their output

B. All firms shut down temporarily

C. Some firms continue producing while others shut down temporarily

D. All firms decrease their output

Answer: C. Some firms continue producing while others shut down temporarily

 

What does a perfectly elastic supply curve at a price of $17 indicate?

 A. Firms will supply an unlimited quantity at this price

B. No firm will supply any quantity at this price

C. Firms will supply a fixed quantity regardless of price changes

D. Firms will either produce 7 sweaters or shut down, keeping the price constant

Answer: D. Firms will either produce 7 sweaters or shut down, keeping the price constant

  

1. **What is a monopoly?**

   - A. A market with many firms producing identical goods

   - B. A market with a single firm producing a good or service with no close substitutes and protected by a barrier to entry

   - C. A market with a single buyer and multiple sellers

   - D. A market with several firms producing differentiated products

    **Answer:** B. A market with a single firm producing a good or service with no close substitutes and protected by a barrier to entry

 

2. **Which of the following is NOT a type of barrier to entry that can lead to a monopoly?**

   - A. Natural barrier

   - B. Ownership barrier

   - C. Legal barrier

   - D. Technological barrier

    **Answer:** D. Technological barrier

 

3. **What is a natural monopoly?**

   - A. A market where a single firm owns all the natural resources

   - B. A market where economies of scale enable one firm to supply the entire market at the lowest possible cost

   - C. A market where a single firm is granted an exclusive right by the government

   - D. A market where firms cannot enter due to high licensing fees

    **Answer:** B. A market where economies of scale enable one firm to supply the entire market at the lowest possible cost

 

4. **Which of the following is an example of an ownership barrier to entry?**

   - A. The U.S. Postal Service’s exclusive right to carry first-class mail

   - B. De Beers controlling a significant portion of the world’s diamond supply

   - C. A patent granted for a new pharmaceutical drug

   - D. Licensing requirements for practicing medicine

    **Answer:** B. De Beers controlling a significant portion of the world’s diamond supply

 

5. **What is a single-price monopoly?**

   - A. A firm that sells its output at different prices to different customers

   - B. A firm that must sell each unit of its output for the same price to all customers

   - C. A firm that charges the maximum possible price for its product

   - D. A firm that sets different prices based on the quantity sold

    **Answer:** B. A firm that must sell each unit of its output for the same price to all customers

 

6. **What is price discrimination?**

   - A. Charging the same price for all units sold

   - B. Charging different prices for different units of a good or service

   - C. Charging a lower price for higher quantities

   - D. Setting the price based on cost plus a markup

    **Answer:** B. Charging different prices for different units of a good or service

 

7. **Why is marginal revenue less than price in a monopoly?**

   - A. Because the firm must increase the price to sell more units

   - B. Because the firm faces competition from other firms

   - C. Because the firm must lower the price to sell more units, which affects revenue from all units sold

   - D. Because the firm’s costs increase with each additional unit produced

    **Answer:** C. Because the firm must lower the price to sell more units, which affects revenue from all units sold

 

8. **When is demand considered elastic?**

   - A. When a 1 percent fall in price brings a greater than 1 percent increase in quantity demanded

   - B. When a 1 percent fall in price brings a less than 1 percent increase in quantity demanded

   - C. When a 1 percent fall in price brings a 1 percent increase in quantity demanded

   - D. When total revenue does not change with a price change

    **Answer:** A. When a 1 percent fall in price brings a greater than 1 percent increase in quantity demanded

 

9. **In which part of the demand curve does a profit-maximizing monopoly never produce?**

   - A. The elastic range

   - B. The inelastic range

   - C. The unit elastic range

   - D. The vertical portion

    **Answer:** B. The inelastic range

 

10. **How does a monopoly set its price and output level?**

    - A. By producing where marginal cost equals average total cost

    - B. By producing where marginal cost equals marginal revenue

    - C. By producing at the highest possible price

    - D. By producing at the lowest possible cost

     **Answer:** B. By producing where marginal cost equals marginal revenue

 

1. **In a perfectly competitive market, the equilibrium price and quantity are determined by:**

   - A) The demand curve only.

   - B) The supply curve only.

   - C) The intersection of the supply and demand curves.

   - D) The government.

    **Answer:** C) The intersection of the supply and demand curves.

 

2. **Which of the following is a characteristic of a perfectly competitive firm?**

   - A) It can set the price of its product.

   - B) It has significant barriers to entry.

   - C) It is a price taker.

   - D) It can earn long-term economic profits.

    **Answer:** C) It is a price taker.

 

3. **In a monopoly, the monopolist maximizes profit by producing the quantity where:**

   - A) Marginal cost equals average total cost.

   - B) Marginal revenue equals marginal cost.

   - C) Price equals marginal cost.

   - D) Price equals average total cost.

   **Answer:** B) Marginal revenue equals marginal cost.

 

4. **Compared to perfect competition, a monopoly will generally:**

   - A) Produce more and charge a higher price.

   - B) Produce less and charge a lower price.

   - C) Produce less and charge a higher price.

   - D) Produce more and charge a lower price.

    **Answer:** C) Produce less and charge a higher price.

 

5. **Economic profit in a perfectly competitive market in the long run is:**

   - A) Positive.

   - B) Negative.

   - C) Zero.

   - D) Variable.

    **Answer:** C) Zero.

 

6. **Price discrimination requires the ability to:**

   - A) Set a single price for all customers.

   - B) Identify and separate different buyer types.

   - C) Prevent any customer from reselling the product.

   - D) Both B and C.

    **Answer:** D) Both B and C.

 

7. **Which of the following is an example of price discrimination?**

   - A) A movie theater charging different prices for children, adults, and seniors.

   - B) A store offering a discount on bulk purchases.

   - C) A restaurant having a fixed price menu.

   - D) A company offering a single price for all customers.

    **Answer:** A) A movie theater charging different prices for children, adults, and seniors.

 

8. **In a monopoly with perfect price discrimination, the monopolist will:**

   - A) Maximize consumer surplus.

   - B) Capture the entire consumer surplus.

   - C) Minimize economic profit.

   - D) Produce less than in a single-price monopoly.

    **Answer:** B) Capture the entire consumer surplus.

 

9. **In the context of monopoly and perfect competition, which statement is true?**

   - A) Perfect competition leads to allocative inefficiency.

   - B) Monopolies always lead to productive efficiency.

   - C) Perfect competition results in both allocative and productive efficiency.

   - D) Monopolies charge prices equal to marginal cost.

    **Answer:** C) Perfect competition results in both allocative and productive efficiency.

 

10. **Price discrimination can increase a monopolist’s profit by:**

    - A) Reducing the quantity sold.

    - B) Charging a higher price to all customers.

    - C) Charging each customer the maximum they are willing to pay.

    - D) Increasing consumer surplus.

     **Answer:** C) Charging each customer the maximum they are willing to pay.

  

1. **Which of the following is a characteristic of monopolistic competition?**

   - A) A single firm dominates the market.

   - B) Firms produce identical products.

   - C) Firms have significant barriers to entry.

   - D) Firms produce differentiated products.

    **Answer:** D) Firms produce differentiated products.

 

2. **In monopolistic competition, each firm has:**

   - A) Large market share and significant price control.

   - B) Small market share and limited price control.

   - C) No influence on the price.

   - D) Complete control over the market price.

    **Answer:** B) Small market share and limited price control.

 

3. **Which of the following is NOT true about firms in monopolistic competition?**

   - A) Each firm produces a product that is a close substitute but not a perfect substitute for other firms' products.

   - B) Firms can easily collude to fix higher prices.

   - C) Firms compete on quality, price, and marketing.

   - D) There is free entry and exit in the market.

    **Answer:** B) Firms can easily collude to fix higher prices.

 

4. **In the long run, firms in monopolistic competition:**

   - A) Make positive economic profits.

   - B) Make zero economic profits.

   - C) Incur economic losses.

   - D) Have significant barriers to entry.

    **Answer:** B) Make zero economic profits.

 

5. **Product differentiation in monopolistic competition means that:**

   - A) All firms produce identical products.

   - B) Each firm's product is slightly different from others.

   - C) Firms do not compete on quality or price.

   - D) Firms can produce at the lowest possible cost.

    **Answer:** B) Each firm's product is slightly different from others.

 

6. **A firm in monopolistic competition faces a demand curve that is:**

   - A) Perfectly elastic.

   - B) Perfectly inelastic.

   - C) Downward sloping.

   - D) Upward sloping.

    **Answer:** C) Downward sloping.

 

7. **In monopolistic competition, advertising and packaging are important because:**

   - A) They help firms to produce at a lower cost.

   - B) They are the only ways to differentiate the product.

   - C) They persuade buyers that the product is higher quality or better value.

   - D) They eliminate the need for product differentiation.

    **Answer:** C) They persuade buyers that the product is higher quality or better value.

 

8. **What happens when new firms enter a monopolistically competitive market?**

   - A) Prices increase and economic profits rise.

   - B) Prices decrease and economic profits are eliminated.

   - C) The market becomes a monopoly.

   - D) The products become identical.

    **Answer:** B) Prices decrease and economic profits are eliminated.

 

9. **Which of the following industries is an example of monopolistic competition?**

   - A) Electricity production.

   - B) Agriculture.

   - C) Clothing and apparel.

   - D) Public transportation.

    **Answer:** C) Clothing and apparel.

 

10. **In the long-run equilibrium of monopolistic competition, firms:**

    - A) Continue to earn economic profits.

    - B) Exit the market due to economic losses.

    - C) Earn zero economic profit.

    - D) Form collusive agreements to maximize profits.

     **Answer:** C) Earn zero economic profit.

 

1. **In the short run, how does a firm in monopolistic competition decide the quantity of output to produce?**

   - A) By producing where average total cost is minimized.

   - B) By producing where marginal revenue equals marginal cost.

   - C) By producing where price equals average total cost.

   - D) By producing where demand equals supply.

    **Answer:** B) By producing where marginal revenue equals marginal cost.

 

2. **According to the text, what is the price per jacket Nautica charges when it produces 125 jackets a day?**

   - A) $25

   - B) $50

   - C) $75

   - D) $100

    **Answer:** C) $75

 

3. **What economic profit does Nautica make when producing 125 jackets a day?**

   - A) $3,125

   - B) $6,250

   - C) $12,500

   - D) $15,625

    **Answer:** B) $6,250

 

4. **What happens to the demand curve for a firm’s product in monopolistic competition if other firms enter the market?**

   - A) The demand curve shifts rightward.

   - B) The demand curve remains unchanged.

   - C) The demand curve becomes perfectly elastic.

   - D) The demand curve shifts leftward.

    **Answer:** D) The demand curve shifts leftward.

 

5. **In long-run equilibrium, what is the economic profit for firms in monopolistic competition?**

   - A) Positive economic profit

   - B) Negative economic profit

   - C) Zero economic profit

   - D) Infinite economic profit

    **Answer:** C) Zero economic profit

 

6. **Which of the following best describes "excess capacity" in monopolistic competition?**

   - A) Producing at the minimum point of the average total cost curve.

   - B) Producing more than the efficient scale of production.

   - C) Producing less than the efficient scale of production.

   - D) Producing at the point where marginal cost equals average total cost.

    **Answer:** C) Producing less than the efficient scale of production.

 

7. **What is "markup" in the context of monopolistic competition?**

   - A) The difference between price and average total cost.

   - B) The difference between price and marginal cost.

   - C) The difference between total revenue and total cost.

   - D) The difference between total cost and variable cost.

    **Answer:** B) The difference between price and marginal cost.

 

8. **In long-run equilibrium in monopolistic competition, how does price compare to marginal cost?**

   - A) Price equals marginal cost.

   - B) Price is less than marginal cost.

   - C) Price exceeds marginal cost.

   - D) Price equals average total cost.

    **Answer:** C) Price exceeds marginal cost.

 

9. **Why might a firm in monopolistic competition incur an economic loss in the short run?**

   - A) Because of high fixed costs.

   - B) Due to a demand that is too low relative to its costs.

   - C) Because it cannot set its own prices.

   - D) Due to excess competition from perfect competitors.

    **Answer:** B) Due to a demand that is too low relative to its costs.

 

10. **What happens to firms in a monopolistically competitive market that incur economic losses in the long run?**

    - A) They will continue to operate indefinitely.

    - B) They will merge with other firms.

    - C) They will exit the industry.

    - D) They will increase their prices.

     **Answer:** C) They will exit the industry.

 

To understand some graph-related questions use Michael Parkin's Economics Book.