Wednesday, January 2, 2013

Question Bank - Economics


Q1. If marginal cost exceeds marginal revenue at a firm's current level of output, the firm can increase profit if it increases its level of output.


(a) * True
(b) * False
 
 Q2. The competitive firm maximizes profit when it produces output up to the point where

(a) * price equals average variable cost
(b) * marginal revenue equals average revenue
(c) * marginal cost equals total revenue
(d) * marginal cost equals marginal revenue
 
Q3. If a competitive firm is producing a level of output where marginal revenue exceeds marginal cost, the firm could increase profits if it

(a) * decreased production
(b) * maintained production at the current level
(c) * temporarily shut down
(d) * increased production
 
Q4. When firms cooperate with one another, it is generally good for society as a whole.

(a) * True (b) * False
 
Q5. There is a constant tension in an oligopoly between cooperation and self-interest because after an agreement to reduce production is reached, it is profitable for each individual firm to cheat and produce more.
(a) * True     (b) * False
 
Q6. When oligopolists collude and form a cartel, the outcome in the market is similar to that generated by a perfectly competitive market.

(a) * True    (b) * False
 
Q7. In long-run equilibrium in a competitive market, firms are operating at

(a) * the minimum of their average-total-cost curves
(b) * all of these answers are correct
(c) * their efficient scale
(d) * zero economic profit
(e) * the intersection of marginal cost and marginal revenue
Q8. Which of the following is true regarding the similarities and differences in monopolistic competition and monopoly?
(a) * The monopolist faces a downward-sloping demand curve while the monopolistic competitor faces an elastic demand curve
(b) * The monopolist charges a price above marginal cost while the monopolistic competitor charges a price equal to marginal cost
(c) * The monopolist makes economic profits in the long run while the monopolistic competitor makes zero economic profits in the long run
(d) * Both the monopolist and the monopolistic competitor operate at the efficient scale
 
Q9. Which of the following firms is most likely to spend a large percentage of their revenue on advertising?

(a) * the producer of a highly differentiated consumer product
(b) * the manufacturer of an undifferentiated commodity
(c) * a perfect competitor
(d) * the manufacturer of an industrial product
(e) * the producer of a low quality product that costs the same to produce as a similar high quality product
 
Q10. The use of the word "competition" in the name of the market structure called "monopolistic competition" refers to the fact that


(a) * there are many sellers in a monopolistically competitive market and there is free entry and exit in the market just like a competitive market
(b) * monopolistically competitive firms face a downward-sloping demand curve just like competitive firms
(c) * monopolistically competitive firms charge prices equal to the minimum of their average total cost just like competitive firms
(d) * the products are differentiated in a monopolistically competitive market just like in a competitive market.
 
 
Q11. Look at the image below
A graph showing showing a monopolistic competitor
This image depicts a monopolistic competitor
(a) * It is impossible to determine from this graph whether the firm is generating profits or losses.
(b) * generating profits in the short run
(c) * generating zero profits in the long run
(d) * generating losses in the short run
 
 
 
 
 
 
 
 
 
 

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