Question

1.

When total revenue is less than variable costs in the short run, what will a firm in a competitive market do?

Select one:

a. It will continue to operate as long as average revenue exceeds marginal cost.

b. It will shut down.

c. It will continue to operate as long as average revenue exceeds average fixed cost.

d. It will always exit the industry.

2.

Consider a monopoly that is able to practice perfect price discrimination. Which of the following outcomes will result?

Select one:

a. Total surplus is always decreased.

b. Consumer surplus is always increased.

c. The price effect dominates the output effect on monopoly revenue.

d. Consumer surplus and deadweight losses are transformed into monopoly profits.

3.

Suppose the government required firms in a monopolistically competitive market to set price equal to marginal cost?

Select one:

a. Firms would operate at the maximum efficient scale.

b. firms would try to lower their average total cost.

c. Firms would most likely experience economic losses.

d. new firms would be likely to enter the market.

4.

Defenders of advertising argue that advertising enhances market efficiency through which of the following influences?

Select one:

a. Advertising provides information that is useful to consumers.

b. Advertising decreases the elasticity of demand for a product.

c. Advertising is psychological rather than informational.

d. Advertising focuses on issues other than the prices of products.

5.

How does equilibrium quantity in markets characterized by oligopoly compare with that in monopolies and perfectly competitive markets?

Select one:

a. It is lower than in monopoly markets and lower than in perfectly competitive markets.

b. It is lower than in monopoly markets and higher than in perfectly competitive markets.

c. It is higher than in monopoly markets and lower than in perfectly competitive markets.

d. It is higher than in monopoly markets and higher than in perfectly competitive markets.

6.

For a competitive, profit-maximizing firm, what is the labour demand curve also known as?

Select one:

a. the production function

b. the marginal cost curve

c. the value of marginal product curve

d. the profit function

Answer 1

Ans 1. b) It will shut down.

When the firm is not able to cover even the variable costs, then it is not economically beneficial for the firm to produce anything.

Ans 2. d) Consumer surplus and deadweight losses are transformed into monopoly profit.

Under perfect price discrimination, each unit of production is sold at the maximum price that the consumer is willing to pay for that unit.

Ans 3. c) Firms would most likely experience economic losses.

Ans 4. a) Advertising provides information that is useful to consumers.

Ans 5. c) It is higher than in monopoly markets and lower than in perfectly competitive markets.

Ans 6. c) The value of marginal product curve

Since the firm chooses the quantity of labor at which the marginal product equals the wage, the value of marginal product curve is the firm's labor demand curve.