1) A firm's production function is the relationship between:
A) the firm's production costs and the amount of revenue it receives from the sale of its output.
B) the inputs employed by the firm and the resulting costs of production.
C) the demand for a firm's output and the quantity it is able to produce with available resources.
D) the factors of production and the resulting outputs of the production process.
2) Which of the following inputs is most likely to be "fixed" in the short run?
A) Raw Material. B) Labor. C) Capital. D) Energy.
3) The main difference between the short run and the long run is that:
A) in the short run all inputs are fixed, while in the long run all inputs are variable.
B) in the long run, the firm is making a constrained decision about how to use existing plant and equipment efficiently.
C) in the short run the firm varies all of its inputs to find the least-cost combination of inputs.
D) in the short run, at least one of the firm's input levels is fixed.
4) The amount of output produced with an additional unit of variable input is referred to as:
A) marginal product. B) average fixed product.
C) average variable product. D) total product.
5) An implicit cost is defined as:
A) the amount by which the money spent on an input to production exceeds its opportunity cost.
B) the opportunity cost of using a resource that is not explicitly paid out by the firm.
C) the amount by which economic profit exceeds accounting profit.
D) the difference between an input's explicit cost and its actual cost.
6) A production method that relies on large quantities of machines and equipment and smaller quantities of labor is referred to as a:
A) variable-input-intensive method of production.
B) technology-intensive method of production
C) labor-intensive method of production.
D) capital-intensive method of production.
7) Assume a firm uses two inputs, capital and labor. All else constant, an increase in the price of labor would create an incentive for the firm to:
A) substitute capital for labor in its production function.
B) hire less capital while holding the amount of labor employed constant.
C) hire more capital and labor.
D) substitute labor for capital in its production function.
8) In which of the following market structures would X-inefficiency be most likely to exist?
A) Oligopoly. B) Monopoly.
C) Perfect competition. D) Monopolistic competition.
9) If an industry is characterized by substantial diseconomies of scale, as a particular firm in the industry expands its production capacity we will observe:
A) an increase in the marginal product of labor.
B) a decrease in marginal costs.
C) an increase in the average total costs of production.
D) a decrease in the total fixed costs of production.
10) The list of the major factors that create economies of scale includes all of the following except:
A) quantity discounts.
B) specialization and division of labor.
C) an increase in demand for the firm's output.
D) the use of automation devices.
11) All of the following are characteristics of a perfectly competitive market except:
A) barriers to entry. B) a large number of sellers.
C) a homogeneous product. D) perfectly elastic demand.
12) Consumers don't care which supplier they buy from in a perfectly competitive market because:
A) price is always low enough that the choice of supplier doesn't matter.
B) the consumers have no choice regarding who they buy from.
C) the outputs of the firms in a perfectly competitive market are all the same.
D) all of the above.
13) The demand curve faced by the individual perfectly competitive firm is:
A) unit elastic. B) elastic or inelastic depending on price.
C) perfectly inelastic. D) perfectly elastic.
14) In order to maximize its profits, a price-taking firm should produce the level of output at which:
A) variable revenue = variable cost. B) marginal revenue = marginal cost.
C) total revenue = total cost. D) average revenue = average cost.
15) Assume that goods X and Y are substitutes and are produced in perfectly competitive markets. All else constant, in the short run, a decrease in the supply of good X would cause what to happen FIRST?:
A) a decrease in supply of good Y. B) an increase in the supply of good Y.
C) an increase in the demand for good Y. D) a decrease in the demand for good Y.
16) All of the following are possible characteristics of a monopoly except:
A) there is a single firm. B) the firm produces a unique product.
C) the firm is a price taker. D) the existence of some advertising.
17) Suppose a monopolist is producing a level of output such that MR > MC. What should the firm do to maximize its profits?
A) The firm should increase output.
B) The firm should do nothing it wants to maximize the difference between MR and MC in order to maximize its profits.
C) The firm should increase price.
D) The firm should hire less labor.
18) Which of the following barriers to entry is most likely to result in the creation of new products and production processes?
A) Ownership of an essential raw material.
C) Significant economies of scale.
19) The term "network externality" refers to a barrier to entry that exists because:
A) a group of firms has divided the market into interconnected shares controlled by each firm.
B) consumers are unable to network, i.e., cooperate, with each other to control market price.
C) several firms are able to network with each other and control the market.
D) the value of the product to a consumer depends on the number of consumers using the product.
20) Which of the following is the best example of a monopolistically competitive market?
A) The wheat market. B) The electricity market.
C) The market for automobiles. D) The restaurant market
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