An oligopolistic   industry is one in which

      A.   a large number of small firms sell differentiated products.

      B.   a large number of small firms sell a homogeneous product.

      C.   a few large firms dominate the market for a standardized product.

      D.   a few large firms dominate the market for a differentiated product.

E. a few large firms dominate the market for a   standardized or a differentiated

            product.

2.   Marginal cost

     A.  declines as   long as output increases.

     B.  initially   rises as output is increased, but then begins to decline when the point of

           diminishing   returns is reached.

     C.  is defined as   the difference between total cost and total variable cost.  .

     D.  intersects   both the average variable cost and the average total cost curves at their

           minimum   points.

3.   Individual firms in a purely competitive   industry do not advertise because

      A.  these   firms do not make long-run profits.

      B.  the   market demand curve cannot be   increased.        

      C.  the   quantity of the product demanded is very large.

     D.  they   produce a standardized (homogeneous) product.

     E.   None of the above – purely competitive firms advertise extensively.

4.    Which   of the following is correct? (Marginal Product = MP; Marginal Cost = MC)

A.  When MP rising is MC is falling, and when MP is falling   MC is rising.

B.  When MP is rising MC is rising, and when MP is falling   MC is falling.

C.  When MP is at its maximum MC is at its maximum, and   when MP is at its minimum MC

     is at its minimum.
 

  D.  There is no relationship between Marginal Product and Marginal Cost.

5.    Price is constant or “given” to the   individual firm selling in a purely competitive market because

      A.  there   are no good substitutes for this firm’s product.

      B.  each   seller supplies a negligible fraction of the differentiated product sold in   this

            Market

 C.  each seller supplies a negligible   fraction of the standardized (homogeneous) product

            sold   in this market.

     D.  each purely   competitive firm extensively advertises, thus the consumer has   perfect  knowledge of this market.

6.  When a purely competitive firm produces 10   units of output, its average total cost is $20 and its average variable cost   is $15. From this information it can be concluded that

     A.  this data is   valid in the short run.

     B.  this firm’s   total fixed cost for 12 units is $50

     C.  this firm’s   average fixed cost for 10 units is $5.

     D.  Both A and C   are correct

     E.  All of the   above are correct.   

7.   Normal   profits

     A.  are zero under   pure competition in the long run.

     B.  are greater   than the opportunity cost to the firm.

     C.  are necessary   to keep a firm in the industry in the long run.

     D.  are not   included in the firm’s economic costs of production.

8.    Fixed   costs

      A.  exist   even if the firm produces zero output.

      B.  decrease   continuously as the firm produces more output.

      C.  increase   as the firm produces more output.

      D.  are   equal to total variable costs minus total costs.

      E.  Both   A and B are correct.

9.   The basic characteristic of the short run is   that

     A.  it is no more   than two years in duration.

     B.  the firm does   not have sufficient time to reduce its output to zero.

     C.  the firm does   not have sufficient time to change the size of its plant.

     D.  the firm does   not have sufficient time to change the amounts of any resources   it    

           employs.

10.  Suppose the total revenue for a firm is   $16,000.  Explicit costs are $14,000 and normal profit

      is   $5,000. Which of the following is correct?

      A.  Accounting   and economic profit both equal $2,000.

      B.  Accounting   and economic profit both equal -$3,000.

      C.  Accounting   profit equals $2,000 while economic profit equals $0.

      D.  Accounting   profit equals -$2,000 while economic profit equals -$3,000.

      E.  Accounting   profit equals $2,000 while economic profit equals -$3,000.

11.A purely competitive firm’s short-run supply curve is

     A.  perfectly   elastic at minimum average total cost.

B.  upward sloping and equal to the portion of the   marginal cost curve which lies above

      the average total cost   curve.

     C.  upward sloping   and equal to the portion of the marginal cost curve which lies   above                           the   average variable cost curve.

     D.  upward sloping   and equal to the portion of the marginal cost curve which   lies                           

           between   the average variable cost curve and the average total cost curve.

12.  Average   variable costs

      A.  decrease   continuously as output increases.

      B.  exist   only in the long run.

C. equal average total costs minus average   fixed costs.

      D.   are of no concern to the firm.

13.“I’m losing money, but with my investment in equipment I   can’t afford to shut down at this time.” If this entrepreneur is attempting   to maximize profits/minimize losses, his behavior is

      A.  irrational   since fixed costs are eliminated when a firm closes down in the short run.

      B.  irrational   since closing the plant is necessary to eliminate all losses in the short   run.

      C.  rational   if the firm is covering all its fixed costs in the short run.

      D.  rational   if the firm is covering all its variable costs in the short run.

14. Marginal product

     A.  is always less   than average product.

     B.  diminishes   continuously as a firm increases production.

     C.  may increase,   then diminish, and ultimately become negative as a firm increases 

           production.

     D.  may initially   increase, then diminish, but never becomes zero  or negative as a   firm

           increases   production.

15.Diseconomies of scale arise primarily because

      A.  the   short-run average total cost curve rises when marginal product is increasing.

      B.  beyond   some point marginal product declines as additional units of a   variable      

            resource   (e.g., labor) are added to a fixed resource (e.g., capital).

      C.  of the   difficulties involved in managing and coordinating a large business   enterprise.

      D.  firms   must be large both absolutely and relative to the market in order to employ   the              

            most   efficient productive techniques available.

16.In the short run a firm’s output

     A.  cannot be increased   or decreased.

     B.  may be altered   by changing the size of its plant and equipment.

     C.  can vary as a   result of new firms entering or leaving the industry.

     D.  can vary as a   result of using a fixed amount of plant and equipment more or less

          intensely.

     E.  both B and C   are correct.

17. The market demand “curve” for a purely competitive firm is   ____________ while the demand “curve” for the purely competitive   industry/market is ____________.

     A.  downward   sloping; perfectly elastic

     B.  perfectly   elastic; downward sloping

     C.  downward   sloping; perfectly inelastic

     D.  perfectly   inelastic; downward sloping

18.The long-run average total cost curve for some industries   have an extended range of constant returns to scale. This implies that

     A.  neither   economies of scale nor diseconomies of scale exist in this industry.

     B.  this industry   is comprised of a very large number of small firms.

     C.  this industry   is comprised of a very small number of very large firms.

     D.  both   relatively small and relatively large firms coexist in this industry.

19.  The   defining characteristics of a purely monopolistic market are

      A.many   suppliers, unique product, and easy entry.

      B.many suppliers,   differentiated products, and easy entry.

      C.single   supplier, product with close substitutes, and barriers to entry.

      D.single   supplier, unique product, and barriers to entry.

20.  Farmer Jones produces and sells soy beans in a   purely competitive market. If there is no change in his costs of production   and the price of soy beans falls, in the short run Farmer Jones should

     A.  increase   production to offset the decrease in price.

     B.  stop producing   soy beans if the new price is less than marginal revenue.

     C.  continue   growing soy beans only if the new price covers average total costs.

      D.  continue   growing soy beans only if the new price covers average fixed costs.

     E.  continue   growing soy beans only if the new price covers average variable costs.

21.  Assume that a purely competitive firm is   producing where MR = MC = $14. Additionally, data for this firm shows that MC   = AVC at $16 and MC = ATC at $20. On the basis of this information, this firm   should

     A.  close down in   the short run to minimize losses.

     B.  realize an   economic profit of $6 per unit of output.

     C.  minimize   economic losses by producing in the short run.

     D.  maximize   economic profits by producing in the short run.

22.  If a firm’s average total costs of   production increase as the firm increases its output   in the long run, we can conclude that

      A.  economies   of scale are being encountered.

      B.  the firm   is in the stage of increasing returns.

      C.  the firm   is in the stage of diminishing returns.

      D.  diseconomies   of scale are being encountered.

23.  The American restaurant industry would be   described as ____________ while the restaurant industry in the single-diner   town of Timbuktu would be described by the economist as ___________.

     A.  purely   competitive; monopolistically competitive.

     B.  a pure   monopoly; monopolistically competitive.

     C.  monopolistically   competitive; a pure monopoly.

     D.  monopolistically   competitive; purely competitive.

24.  Which of the following is a long run   adjustment?

           A.  Starbucks   extends the hours its stores are open by 2 hours per day.

      B.  A   foreign owned automobile manufacturer opens a new plant in the U.S.

      C.  Mariano’s   supermarket hires four additional workers for its deli department.

      D.  A   local bakery lets two of its current employees go. (i.e., reduces its   workforce)

      E.   All of the above are long run adjustments.

25.  If economic profits are being earned in a purely   competitive industry in the short-run, in the long run?

     A.  the   economic profits will continue to exist.

     B.  new   firms will enter the industry and the economic profits will be eliminated.

     C.  existing firms   will leave the industry and economic profits will be eliminated.

    D.  the firms in this   industry will increase their output in order to increase their economic

            profits.

26.An industry which consists of 75 firms, none of which   has more than 0.5 percent of total market sales, and produces a differentiated product   is operating in

      A.  pure   competition.

      B.  monopolistic   competition.

      C.  oligopoly.

      D.  pure   monopoly. 

  E.  either A or B – this industry   can be operating in pure competition and can be operating   in    

       monopolistic   competition.

27. If a firm must   always sell its product at the market price and it wants to earn as much   profit

       as   possible, it should

       A.  produce   the quantity of output at which marginal cost is minimized.

       B.  keep   marginal cost lower than price, so profits will be greater than zero.

       C.  produce   the quantity of output at which marginal cost has risen to equality with   price.

       D.  try   to sell all the output it can produce so that its fixed costs are spread   across the   largest                                possible   number of units.

28.  When   average variable cost is increasing, which of the following must be   true?

      A.  Average   total cost must be increasing.

      B.  Average   fixed cost must be increasing.

      C.  Marginal   cost must be above the average variable cost.

      D.  Both A   and C are correct.

      E.  All of   the above are correct.

29.  When   technology advances, thus improving the purely competitive firm’s   productivity,

     the   firm will most likely experience 

     A.  a   decrease in average fixed costs.

     B.  an   increase in average variable costs.

     C.  a   decrease in marginal costs and an increase in supply.

     D.  an increase in   marginal costs and an increase in supply.

30. It is most   difficult for new firms to enter which of the following market structures?

      A.  pure   competition

      B.  monopolistic   competition

      C.  oligopoly

      D.  pure monopoly

31.  The   most important goal of the purely competitive firm is to

     A.  minimize   costs.

      B.  maximize   total revenue.

     C.  maximize   average (per unit) profits.

     D.  maximize total   normal profits.  

     E.  maximize total   economic profits.

32.  If the total variable cost of 9 units of output   is $90 and the total variable cost of 10 units of output is $120, then

      A.    the average variable cost of 10 units is $10.
 

         B.  the average fixed cost of   10 units is $3.
 

         C.  the marginal cost of the   tenth unit is $30.
 

         D.  the firm is operating in   the range of increasing marginal returns.

33. Marginal product   is

      A.   the change in total output when the firm employs an additional unit of a   fixed resource.

      B.   the change in total output when the firm employs an additional unit of one of   its variable

           resources.

      C.   the increase in total output when the firm employs fewer resources.

      D.   the change in the physical appearance of a product when a new model of the

           product   is developed.

      E.   Both A and B are correct.

34. The basic   difference between the "short run" and the "long run" is   that:

A.  all costs are fixed in the short run, but all costs are   variable in the long run.
 

  B.  economies of scale are present in the short run, but not in the long   run.

C.  the law of diminishing returns applies in the long run,   but not in the short run.
 

  D.  at least one resource is fixed in the short run, while all resources   are variable in

     the long run.
 

  E.  at least one resource is variable in the short run, while all   resources are fixed in

     the long run.

35.  If you own and operate a small bakery, which of   the following would be a variable cost in the short run?

      A.    your normal profit
 

         B.  interest on business   loans
 

         C.  annual lease payment for   use of the building
 

         D.  baking supplies (flour,   salt, etc.)

      E.  Both   A and D are variable costs.

36. If a purely competitive firm closes down in the short run

      A.  its   losses will be zero.

      B.  it will   earn a normal profit.

      C.  it will   take a loss equal to its fixed costs.

      D.  it will   take a loss equal to its variable costs.

      E.  it will   take a loss equal to its marginal cost.

37.  An example of an implicit cost to a farmer   growing wheat on 100 acres of land that he owns (and has been in his family   for 50 years) is the amount of money he

     A.  would receive   if he rented the land to someone else.

     B.  must pay a   part-time farm worker who is not a family member.

      C.  spends   on fuel (gasoline or diesel fuel) for his farm equipment.

      D.  must pay   a trucking company to transport his harvested wheat to the market.

      E.  All of   the above are examples of implicit costs.

38.  The   purely competitive firm faces a demand schedule that is

A.  perfectly inelastic because there are no good   substitutes for the firm's product.
 

  B.  perfectly elastic because each seller supplies a negligible fraction   of total supply.
 

  C.  of unit elasticity throughout since a standardized product is being   produced..
 

  D.  downward sloping and product differentiation is reinforced by   extensive

     advertising

39.  The implicit economic, or opportunity, cost   of attending school

      A.is   the same for all people.

      B.is   higher for people with greater earnings potential.

      C.is   higher for teenagers than for people in their 30s.

      D.depends   only on the amount of tuition charged by the school.

40.  One of the economies of scale   experienced by the Mauna Loa Macadamia Nut Farm is 

     A.  production   of a large output.

     B.  use   of nut shells as fuel.

c. the small size of their farm.

     D.  good   weather on the Big Island.

     E.  managerial   inefficiencies because of its large size.

41.  If all   firms producing a product in a perfectly competitive market are required to   adopt antipollution devices   that increase their costs of production, one would expect:

A. the market   demand for the product to fall.

B. the market supply curve to   shift to the left.

C.   the long run economic profits of the individual firms to fall

     D.   the short run economic profits of the individual firms to remain unchanged

42.  Product   differentiation can be

      A.   an actual difference in one product versus another.

      B.   due to consumers’ perception of product differentiation due to brand names.

      C.   both A and B.

      D.   None of the above – all products are identical.

43.  Fixed   costs

      A.   exist even if the firm produces zero output.

      B.   are equal to total variable costs minus total costs.

      C.   decrease continuously as the firm produces more output.

      D.   increase continuously as the firm produces more output.

44.  In pure competition, the marginal revenue of a   firm always equals

      A. marginal cost.

      B. average total cost.

      C. average variable   cost.

      D. the price of the   product.

      E. None of the above.

Fill- In-The-Blank: In the space provided to the left of each   description place the name of the economic concept being described. There is   only one correct term for each description. 

_________________ 1. Cause of increasing long-run average total   cost

_________________ 2. Total Revenue – (Explicit + Implicit   Costs)        

_________________ 3. Fire Insurance Premium

_________________ 4. The amount the entrepreneur could earn   elsewhere                                    

_________________ 5. Market structure where one firm produces a   unique product

_________________ 6. Change in total variable cost as output   changes by one unit