Question 1

Suppose that all firms in a perfectly competitive industry are experiencing economic losses to varying degrees.One can predict that

Accepted Answer

A)  market supply will increase. 
B)  market demand will decrease. 
C)  the market price will decrease. 
D)  market demand will increase. 
E)  the market price will rise. 
A)  market supply will increase. 
B)  market demand will decrease. 
C)  the market price will decrease. 
D)  market demand will increase. 
E)  the market price will rise.

Question 2

Harvey quit his job at the University of Toronto where he earned $45,000 a year,the same as other employees of normal ability,the same as other employees of normal ability.But Harvey is unusually talented in another area,and he figures his entrepreneurial talent,or forgone entrepreneurial income,to be $5000 a year.He cashed in $100,000 in bonds that earned 10% interest annually to buy a software company,Extreme Gaming.In the first year,the firm sold 11,000 units of software at $75 per unit.Of the $75 per unit,$55 goes for the costs of production,packaging,marketing,employee wages and benefits,and rent on a building.
-Refer to the above information.The normal profit in the first year was

Accepted Answer

A)  $5000. 
B)  $10,000. 
C)  $45,000. 
D)  $60,000. 
E)  $250,000. 
A)  $5000. 
B)  $10,000. 
C)  $45,000. 
D)  $60,000. 
E)  $250,000.

Question 3

The long-run average cost curve represents the

Accepted Answer

A)  lowest possible production cost given a fixed quantity of machinery and capital stock. 
B)  lowest possible production cost given the current factory size. 
C)  the best possible combination of inputs for a large quantity of output. 
D)  the best possible combination of inputs for any quantity of output. 
E)  the best possible combination of inputs for output that takes at least a year to produce. 
A)  lowest possible production cost given a fixed quantity of machinery and capital stock. 
B)  lowest possible production cost given the current factory size. 
C)  the best possible combination of inputs for a large quantity of output. 
D)  the best possible combination of inputs for any quantity of output. 
E)  the best possible combination of inputs for output that takes at least a year to produce.

Question 4

Barriers to entry

Accepted Answer

A)  will be established by firms earning economic losses. 
B)  are forces that limit new firms from entering an industry. 
C)  have little impact on the ability of the invisible hand to allocate resources efficiently. 
D)  are always illegal. 
E)  are uncommon today due to competition law. 
A)  will be established by firms earning economic losses. 
B)  are forces that limit new firms from entering an industry. 
C)  have little impact on the ability of the invisible hand to allocate resources efficiently. 
D)  are always illegal. 
E)  are uncommon today due to competition law.

Question 5

Economic profit

Accepted Answer

A)  includes only explicit costs. 
B)  has no relationship to accounting profit. 
C)  serves to motivate entry to,or exit from,an industry. 
D)  is always greater than accounting profit. 
E)  equals accounting profit plus implicit costs. 
A)  includes only explicit costs. 
B)  has no relationship to accounting profit. 
C)  serves to motivate entry to,or exit from,an industry. 
D)  is always greater than accounting profit. 
E)  equals accounting profit plus implicit costs.

Question 6

For exit from a particular perfectly competitive industry to occur,which of the following must be TRUE?

Accepted Answer

A)  Accounting profit < Economic profit < 0. 
B)  Economic profit < Accounting profit < 0. 
C)  0 < Economic profit < Accounting profit. 
D)  Economic profit < 0 < Accounting profit. 
E)  Economic profit < 0. 
A)  Accounting profit < Economic profit < 0. 
B)  Economic profit < Accounting profit < 0. 
C)  0 < Economic profit < Accounting profit. 
D)  Economic profit < 0 < Accounting profit. 
E)  Economic profit < 0.

Question 7

To say a firm is earning normal profit means that

Accepted Answer

A)  the owners are receiving what others in the industry earn. 
B)  accounting profit is large enough to cover the owners' opportunity costs. 
C)  the owners are receiving more than their next-best alternative. 
D)  the owners are receiving more what they expected. 
E)  the owners are receiving less than their next-best alternative. 
A)  the owners are receiving what others in the industry earn. 
B)  accounting profit is large enough to cover the owners' opportunity costs. 
C)  the owners are receiving more than their next-best alternative. 
D)  the owners are receiving more what they expected. 
E)  the owners are receiving less than their next-best alternative.

Question 8

In the long run,all costs are

Accepted Answer

A)  fixed costs. 
B)  variable costs. 
C)  average costs. 
D)  sunk costs. 
E)  market opportunity costs. 
A)  fixed costs. 
B)  variable costs. 
C)  average costs. 
D)  sunk costs. 
E)  market opportunity costs.

Question 9

Right Panel: The market: a shift of short-run supply in response to an increase in demand.  
-Refer to the diagrams above.If the market demand for wheat and the market supply of wheat are represented by D and SRS,respectively,the firm is

Accepted Answer

A)  making zero economic profit,so it should neither expand nor contract. 
B)  making zero economic profit,so it should shut down. 
C)  making zero economic profit,so it should contract. 
D)  making zero economic profit,so it should expand. 
E)  making zero economic profit,so it should raise its price. 
A)  making zero economic profit,so it should neither expand nor contract. 
B)  making zero economic profit,so it should shut down. 
C)  making zero economic profit,so it should contract. 
D)  making zero economic profit,so it should expand. 
E)  making zero economic profit,so it should raise its price.

Question 10

Refer to diagram D above.A firm producing efficiently with an existing plant size represented by SATC2 finds that market demand has fallen drastically.In the short run,this plant must

Accepted Answer

A)  continue to produce the same amount of output with plant size SATC2. 
B)  reduce its output while continuing to produce with plant size SATC2. 
C)  immediately switch to plant size SATC1. 
D)  switch to plant size SATC1 and reduce its output. 
E)  try to lower production costs by changing to a more efficient combination of inputs. 
A)  continue to produce the same amount of output with plant size SATC2. 
B)  reduce its output while continuing to produce with plant size SATC2. 
C)  immediately switch to plant size SATC1. 
D)  switch to plant size SATC1 and reduce its output. 
E)  try to lower production costs by changing to a more efficient combination of inputs.

Question 11

If an industry experiences an increase in the number of firms,then

Accepted Answer

A)  the original firms will produce more. 
B)  the new firms will produce more than the original firms. 
C)  the industry supply curve will shift left. 
D)  the new firms will produce the same amount as the original firms. 
E)  the industry supply curve will shift right. 
A)  the original firms will produce more. 
B)  the new firms will produce more than the original firms. 
C)  the industry supply curve will shift left. 
D)  the new firms will produce the same amount as the original firms. 
E)  the industry supply curve will shift right.

Question 12

Celine Dion earned large economic rents in the late 1990s.One can predict that,as a result,

Accepted Answer

A)  more amateur singers will turn professional and reduce Ms.Dion's economic rent. 
B)  more amateur singers will turn professional,but Ms.Dion's economic rent will be unaffected. 
C)  few record companies will be willing to sign her. 
D)  consumers will become disgusted with the size of her earnings and stop purchasing her CDs. 
E)  she will make sizeable contributions to Canadian charities. 
A)  more amateur singers will turn professional and reduce Ms.Dion's economic rent. 
B)  more amateur singers will turn professional,but Ms.Dion's economic rent will be unaffected. 
C)  few record companies will be willing to sign her. 
D)  consumers will become disgusted with the size of her earnings and stop purchasing her CDs. 
E)  she will make sizeable contributions to Canadian charities.

Question 13

Economic rent is

Accepted Answer

A)  the amount you pay for an apartment in a free market. 
B)  the payment made to suppliers of an input. 
C)  what a landlord receives from his tenants. 
D)  the difference between the payment made to the supplier of an input and the supplier's reservation price. 
E)  the same as the input supplier's reservation price. 
A)  the amount you pay for an apartment in a free market. 
B)  the payment made to suppliers of an input. 
C)  what a landlord receives from his tenants. 
D)  the difference between the payment made to the supplier of an input and the supplier's reservation price. 
E)  the same as the input supplier's reservation price.

Question 14

If a price-taking firm that belongs to an industry in long-run equilibrium discovers a significant cost-saving technology,then the

Accepted Answer

A)  firm will enjoy positive economic profit forever. 
B)  rest of the industry will be forced to exit,resulting in a monopoly. 
C)  firm will enjoy positive economic profit for a short period of time. 
D)  rest of the industry will experience economic losses. 
E)  rest of the industry will refuse to adopt the new technology. 
A)  firm will enjoy positive economic profit forever. 
B)  rest of the industry will be forced to exit,resulting in a monopoly. 
C)  firm will enjoy positive economic profit for a short period of time. 
D)  rest of the industry will experience economic losses. 
E)  rest of the industry will refuse to adopt the new technology.

Question 15

The costs of inputs supplied to the firm by the owners of the firm are

Accepted Answer

A)  fixed costs. 
B)  explicit costs. 
C)  variable costs. 
D)  implicit costs. 
E)  economic costs. 
A)  fixed costs. 
B)  explicit costs. 
C)  variable costs. 
D)  implicit costs. 
E)  economic costs.

Question 16

Suppose that all firms in a perfectly competitive industry are experiencing economic profits.One can predict that

Accepted Answer

A)  market supply will decrease. 
B)  the number of firms will rise. 
C)  market demand will increase. 
D)  the market price will rise. 
E)  the quantity supplied will decrease. 
A)  market supply will decrease. 
B)  the number of firms will rise. 
C)  market demand will increase. 
D)  the market price will rise. 
E)  the quantity supplied will decrease.

Question 17

-Refer to the diagram above.The firm is experiencing constant returns to scale when output is

Accepted Answer

A)  less than 18 units. 
B)  between 18 and 21 units. 
C)  greater than 21 units. 
D)  greater than 18 units. 
E)  less than 21 units. 
A)  less than 18 units. 
B)  between 18 and 21 units. 
C)  greater than 21 units. 
D)  greater than 18 units. 
E)  less than 21 units.

Question 18

As a firm gets larger and larger,it finds that it is able to charge a lower price and yet continue to make profit.This firm most likely has exploited

Accepted Answer

A)  economies of scale. 
B)  diseconomies of scale. 
C)  constant returns to scale. 
D)  labour by making them work with fewer machines. 
E)  the consumers by simply increasing its advertising budget to increase sales. 
A)  economies of scale. 
B)  diseconomies of scale. 
C)  constant returns to scale. 
D)  labour by making them work with fewer machines. 
E)  the consumers by simply increasing its advertising budget to increase sales.

Question 19

When a firm is facing economies of scale,total costs will

Accepted Answer

A)  decrease as the firm increases its output. 
B)  increase at a decreasing rate as the firm increases its output. 
C)  decrease at an increasing rate as the firm increases its output. 
D)  increase at an increasing rate as the firm increases its output. 
E)  increase proportionately to output. 
A)  decrease as the firm increases its output. 
B)  increase at a decreasing rate as the firm increases its output. 
C)  decrease at an increasing rate as the firm increases its output. 
D)  increase at an increasing rate as the firm increases its output. 
E)  increase proportionately to output.

Question 20

In a perfectly competitive industry,over the long run,

Accepted Answer

A)  economic profits tend to persist. 
B)  the number of firms in an industry grows. 
C)  economic losses tend to persist. 
D)  the number of firms in an industry shrinks. 
E)  economic profits and losses are driven towards zero by entry and exit. 
A)  economic profits tend to persist. 
B)  the number of firms in an industry grows. 
C)  economic losses tend to persist. 
D)  the number of firms in an industry shrinks. 
E)  economic profits and losses are driven towards zero by entry and exit.

Suppose that all firms in a perfectly competitive industry are experiencing economic losses to varying degrees.One can predict that

The long-run average cost curve represents the

Barriers to entry

Economic profit

For exit from a particular perfectly competitive industry to occur,which of the following must be TRUE?

To say a firm is earning normal profit means that

In the long run,all costs are

Right Panel: The market: a shift of short-run supply in response to an increase in demand. -Refer to the diagrams above.If the market demand for wheat and the market supply of wheat are represented by D and SRS,respectively,the firm is

Refer to diagram D above.A firm producing efficiently with an existing plant size represented by SATC2 finds that market demand has fallen drastically.In the short run,this plant must

If an industry experiences an increase in the number of firms,then

Celine Dion earned large economic rents in the late 1990s.One can predict that,as a result,

Economic rent is

If a price-taking firm that belongs to an industry in long-run equilibrium discovers a significant cost-saving technology,then the

The costs of inputs supplied to the firm by the owners of the firm are

Suppose that all firms in a perfectly competitive industry are experiencing economic profits.One can predict that

-Refer to the diagram above.The firm is experiencing constant returns to scale when output is

As a firm gets larger and larger,it finds that it is able to charge a lower price and yet continue to make profit.This firm most likely has exploited

When a firm is facing economies of scale,total costs will

In a perfectly competitive industry,over the long run,

Thinking Like an Economist

Comparative Advantage: the Basis for Exchange

Supply and Demand: an Introduction

Demand: the Benefit Side of the Market

Perfectly Competitive Supply: the Cost Side of the Market

The Quest for Profit and the Invisible Hand

Monopoly and Other Forms of Imperfect Competition

Thinking Strategically

Externalities and Property Rights

The Economics of Information

Labour Markets

The Economics of Public Policy

Public Goods and Taxation

Income Distribution

Filters

Exam 6: Efficiency and Exchange

Suppose that all firms in a perfectly competitive industry are experiencing economic losses to varying degrees.One can predict that

The long-run average cost curve represents the

Barriers to entry

Economic profit

For exit from a particular perfectly competitive industry to occur,which of the following must be TRUE?

To say a firm is earning normal profit means that

In the long run,all costs are

Right Panel: The market: a shift of short-run supply in response to an increase in demand. -Refer to the diagrams above.If the market demand for wheat and the market supply of wheat are represented by D and SRS,respectively,the firm is

Refer to diagram D above.A firm producing efficiently with an existing plant size represented by SATC2 finds that market demand has fallen drastically.In the short run,this plant must

If an industry experiences an increase in the number of firms,then

Celine Dion earned large economic rents in the late 1990s.One can predict that,as a result,

Economic rent is

If a price-taking firm that belongs to an industry in long-run equilibrium discovers a significant cost-saving technology,then the

The costs of inputs supplied to the firm by the owners of the firm are

Suppose that all firms in a perfectly competitive industry are experiencing economic profits.One can predict that

-Refer to the diagram above.The firm is experiencing constant returns to scale when output is

As a firm gets larger and larger,it finds that it is able to charge a lower price and yet continue to make profit.This firm most likely has exploited

When a firm is facing economies of scale,total costs will

In a perfectly competitive industry,over the long run,

Thinking Like an Economist

Comparative Advantage: the Basis for Exchange

Supply and Demand: an Introduction

Demand: the Benefit Side of the Market

Perfectly Competitive Supply: the Cost Side of the Market

The Quest for Profit and the Invisible Hand

Monopoly and Other Forms of Imperfect Competition

Thinking Strategically

Externalities and Property Rights

The Economics of Information

Labour Markets

The Economics of Public Policy

Public Goods and Taxation

Income Distribution

Filters