Question 1

Implicit opportunity costs of running a business include:

Accepted Answer

A) bills that a company pays. 
B) debt that a company has accumulated during the year. 
C) earnings that are given up in order for the owner to start or run a business. 
D) the imagined costs of inputs that a company buys at a discount. 
A) bills that a company pays. 
B) debt that a company has accumulated during the year. 
C) earnings that are given up in order for the owner to start or run a business. 
D) the imagined costs of inputs that a company buys at a discount.

Question 2

When free entry and free exit exist in a market, then in the long run, a seller's demand curve will:

Accepted Answer

A) barely touch its average cost curve. 
B) be below its average cost curve. 
C) be above its average cost curve. 
D) cross its average cost curve. 
A) barely touch its average cost curve. 
B) be below its average cost curve. 
C) be above its average cost curve. 
D) cross its average cost curve.

Question 3

In which of the following situations would a seller be better able to survive a price war than other sellers in a given market?

Accepted Answer

A) The seller has lower marginal revenue than other sellers in the market. 
B) The seller has lower switching costs than other sellers in the market. 
C) The seller has lower demand than other sellers in the market. 
D) The seller has cost curves that are lower than those of other sellers in the market. 
A) The seller has lower marginal revenue than other sellers in the market. 
B) The seller has lower switching costs than other sellers in the market. 
C) The seller has lower demand than other sellers in the market. 
D) The seller has cost curves that are lower than those of other sellers in the market.

Question 4

In the short run, a firm makes zero profits if it produces the quantity at which:

Accepted Answer

A) Price - Average Cost  0. 
D) Price = (TR / Q + TC / Q) × Q. 
A) Price - Average Cost  0. 
D) Price = (TR / Q + TC / Q) × Q.

Question 5

Suppose that Anna is a profit-maximizing monopolist who creates a new technology that reduces her marginal and average total costs by $40. If, as a result of this cost reduction, Anna changes her price in a profit-maximizing way, then Anna's total economic profit will:

Accepted Answer

A) fall. 
B) remain unchanged. 
C) rise. 
D) It is not possible to make a determination from the information given. 
A) fall. 
B) remain unchanged. 
C) rise. 
D) It is not possible to make a determination from the information given.

Question 6

Which of the following is NOT one of the ways companies create barriers to entry through unique cost advantages?

Accepted Answer

A) advantageous relationships with suppliers 
B) mass production 
C) regulations 
D) learning by doing 
A) advantageous relationships with suppliers 
B) mass production 
C) regulations 
D) learning by doing

Question 7

Lenore operates a tool rental firm and will earn a profit in the short run when she produces the profit-maximizing quantity and the price is:

Accepted Answer

A) greater than marginal cost. 
B) less than marginal cost. 
C) less than variable cost. 
D) greater than average cost. 
A) greater than marginal cost. 
B) less than marginal cost. 
C) less than variable cost. 
D) greater than average cost.

Question 8

When a seller uses a demand-side strategy to create barriers to entry, the seller is trying to:

Accepted Answer

A) increase market demand so that there are extra customers for the new entrants. 
B) ensure that new entrants face higher cost curves. 
C) encourage the government to use regulations to discourage new entrants. 
D) prevent new entrants from attracting any of the seller's customers. 
A) increase market demand so that there are extra customers for the new entrants. 
B) ensure that new entrants face higher cost curves. 
C) encourage the government to use regulations to discourage new entrants. 
D) prevent new entrants from attracting any of the seller's customers.

Question 9

Effective entrance deterrent strategies are based on:

Accepted Answer

A) rising costs. 
B) decreasing market demand. 
C) enacted regulations. 
D) credible threats. 
A) rising costs. 
B) decreasing market demand. 
C) enacted regulations. 
D) credible threats.

Question 10

The larger the quantity, the more of the variable input is needed to produce additional units of quantity. Called the _____ effect, this leads to _____ variable costs as quantity rises.

Accepted Answer

A) spreading; lower 
B) spreading; higher 
C) diminishing marginal product; lower 
D) diminishing marginal product; higher 
A) spreading; lower 
B) spreading; higher 
C) diminishing marginal product; lower 
D) diminishing marginal product; higher

Question 11

If a business owner is maximizing their economic profit, the owner:

Accepted Answer

A) might be suffering accounting losses. 
B) cannot have any implicit opportunity costs. 
C) is better off financially than with any other use of the resources used in the business. 
D) has implicit opportunity costs that are larger than the direct financial costs. 
A) might be suffering accounting losses. 
B) cannot have any implicit opportunity costs. 
C) is better off financially than with any other use of the resources used in the business. 
D) has implicit opportunity costs that are larger than the direct financial costs.

Question 12

If a seller can develop large enough _____ compared to other sellers in the market, this will deter the entry of new sellers.

Accepted Answer

A) cost advantages 
B) marginal costs 
C) competitive forces 
D) costs 
A) cost advantages 
B) marginal costs 
C) competitive forces 
D) costs

Question 13

When there is free entry and exit of sellers in an industry, in the long run, sellers will have:

Accepted Answer

A) positive economic profits. 
B) economic losses. 
C) zero economic profits. 
D) enhanced market power. 
A) positive economic profits. 
B) economic losses. 
C) zero economic profits. 
D) enhanced market power.

Question 14

Which of the following statements is FALSE regarding total costs?

Accepted Answer

A) Total costs are equal to fixed costs plus variable costs. 
B) Total costs are equal to direct financial costs plus implicit opportunity costs. 
C) Total costs minus fixed costs equals average cost. 
D) Total costs divided by output equals average cost. 
A) Total costs are equal to fixed costs plus variable costs. 
B) Total costs are equal to direct financial costs plus implicit opportunity costs. 
C) Total costs minus fixed costs equals average cost. 
D) Total costs divided by output equals average cost.

Question 15

The assumption of easy entry and exit implies that, in the _____ run, all firms in the industry will earn _____ economic profits.

Accepted Answer

A) long; zero 
B) short; positive 
C) short; zero 
D) long; positive 
A) long; zero 
B) short; positive 
C) short; zero 
D) long; positive

Question 16

Harrison owns a flower shop. Generally, when preferences for a good rise, demand for the good rises. Holding all else constant, this will result in a higher market price, which will lead to _____ in the industry. The latter will in turn _____, leading the price to _____.

Accepted Answer

A) positive economic profits; attract new firms into; fall 
B) economic losses; attract new firms into; fall 
C) positive economic profits; cause some firms to leave; rise further 
D) economic losses; cause some firms to leave; rise further 
A) positive economic profits; attract new firms into; fall 
B) economic losses; attract new firms into; fall 
C) positive economic profits; cause some firms to leave; rise further 
D) economic losses; cause some firms to leave; rise further

Question 17

Free entry into a market tends to cause _____ to disappear.

Accepted Answer

A) desirable opportunities 
B) low prices 
C) product quality 
D) freedom 
A) desirable opportunities 
B) low prices 
C) product quality 
D) freedom

Question 18

(Scenario: Accounting and Economic Profit ) Use Scenario: Accounting and Economic Profit.
Scenario: Accounting and Economic Profit
Casey recently inherited $100,000 from her grandmother. Rather than invest the money in a mutual fund that earns 5% per year, she quit her job as a translator for the United Nations, which paid $60,000 per year, and started Casey's Coffee Crush, a small café in Tribeca. The location she rented cost $20,000 for the year. The equipment, café furniture, and coffee machines cost another $60,000. Staff, sales help, and advertising cost yet another $40,000. In her first year, her revenue was $150,000. The implicit opportunity cost of capital of Casey's Coffee Crush is:

Accepted Answer

A) $0. 
B) $2,000. 
C) $5,000. 
D) $50,000. 
A) $0. 
B) $2,000. 
C) $5,000. 
D) $50,000.

Question 19

When there are new entrants into a market, an existing seller will NOT face:

Accepted Answer

A) decreased demand. 
B) lower profits. 
C) upwardly shifting cost curves. 
D) customers with more choices. 
A) decreased demand. 
B) lower profits. 
C) upwardly shifting cost curves. 
D) customers with more choices.

Question 20

The costs used to calculate economic profit are:

Accepted Answer

A) accounting costs. 
B) strictly dollar costs, not opportunity costs. 
C) only implicit opportunity costs. 
D) accounting costs and implicit opportunity costs. 
A) accounting costs. 
B) strictly dollar costs, not opportunity costs. 
C) only implicit opportunity costs. 
D) accounting costs and implicit opportunity costs.

Exam 15: Entry, Exit, and Long-Run Profitability

Implicit opportunity costs of running a business include:

When free entry and free exit exist in a market, then in the long run, a seller's demand curve will:

In which of the following situations would a seller be better able to survive a price war than other sellers in a given market?

In the short run, a firm makes zero profits if it produces the quantity at which:

Suppose that Anna is a profit-maximizing monopolist who creates a new technology that reduces her marginal and average total costs by $40. If, as a result of this cost reduction, Anna changes her price in a profit-maximizing way, then Anna's total economic profit will:

Which of the following is NOT one of the ways companies create barriers to entry through unique cost advantages?

Lenore operates a tool rental firm and will earn a profit in the short run when she produces the profit-maximizing quantity and the price is:

When a seller uses a demand-side strategy to create barriers to entry, the seller is trying to:

Effective entrance deterrent strategies are based on:

The larger the quantity, the more of the variable input is needed to produce additional units of quantity. Called the _____ effect, this leads to _____ variable costs as quantity rises.

If a business owner is maximizing their economic profit, the owner:

If a seller can develop large enough _____ compared to other sellers in the market, this will deter the entry of new sellers.

When there is free entry and exit of sellers in an industry, in the long run, sellers will have:

Which of the following statements is FALSE regarding total costs?

The assumption of easy entry and exit implies that, in the _____ run, all firms in the industry will earn _____ economic profits.

Harrison owns a flower shop. Generally, when preferences for a good rise, demand for the good rises. Holding all else constant, this will result in a higher market price, which will lead to _____ in the industry. The latter will in turn _____, leading the price to _____.

Free entry into a market tends to cause _____ to disappear.

When there are new entrants into a market, an existing seller will NOT face:

The costs used to calculate economic profit are:

The Core Principles of Economics

Demand: Thinking Like a Buyer

Supply: Thinking Like a Seller

Equilibrium: Where Supply Meets Demand

Elasticity: Measuring Responsiveness

When Governments Intervene in Markets

Welfare and Efficiency

Gains From Trade

International Trade

Externalities and Public Goods

Labor Demand and Supply

Wages, Workers, and Management

Inequality, Social Insurance, and Redistribution

Market Structure and Market Power

Business Strategy

Sophisticated Pricing Strategies

Game Theory and Strategic Choices

Decisions Involving Uncertainty

Decisions With Private Information

Sizing up the Economy Using Gdp

Economic Growth

Unemployment

Inflation and Money

Consumption and Saving

Investment

The Financial Sector

International Finance and the Exchange Rate

Business Cycles

IS-MP Analysis: Interest Rates and Output

Phillips Curve

The Fed Model: Linking Interest Rates, Output, and Inflation

Aggregate Demand and Aggregate Supply

Monetary Policy

Government Spending, Taxes, and Fiscal Policy

Appendix: Aggregate Expenditure and the Multiplier

Filters

The larger the quantity, the more of the variable input is needed to produce additional units of quantity. Called the _ effect, this leads to _ variable costs as quantity rises.

The assumption of easy entry and exit implies that, in the _ run, all firms in the industry will earn _ economic profits.

Harrison owns a flower shop. Generally, when preferences for a good rise, demand for the good rises. Holding all else constant, this will result in a higher market price, which will lead to ___ in the industry. The latter will in turn _, leading the price to ___.