Question 1

A firm may decide to shut down in the short run

Accepted Answer

A)  if profit maximization occurs at an output level where price is less than average variable cost
B)  if profit maximization occurs at an output level where price is less than average total cost
C)  profit maximization occurs at an output level where price is less than average total cost but greater than average variable cost
D)  if profit maximization occurs at an output level where price is equal to average total cost and the firm does not foresee changes to the market price in the future A

Question 2

If there is a permanent increase in the demand for cars, car manufacturers will want to hire ________ workers, which will cause wages in the industry to ________.

Accepted Answer

A)  more, rise
B)  more, drop
C)  less, rise
D)  less, drop A

Question 3

Perfect completion means _____ rivalry

Accepted Answer

A)  perfect
B)  absence of
C)  fierce
D)  intense B

Question 4

In a perfectly competitive market

Accepted Answer

A)  each firm sets its own price
B)  there are a few firms selling unique products
C)  when one firm ceases production, the market equilibrium price tends to rise
D)  none of the above. in a perfectly competitive market, firms sell homogenous products and

Question 5

_______ is situation in which a particular market is controlled by a small group of firms.

Accepted Answer

A)  monopsony
B)  oligopoly
C)  perfect competition
D)  monopoly

Question 6

________ is a market in which there are only a few large buyers for a product or service.

Accepted Answer

A)  monopsony
B)  oligopoly
C)  oligopsony
D)  monopoly

Question 7

Profits are maximized when the firm

Accepted Answer

A)  captures the largest market share in its market
B)  produces at an output level where marginal revenue exceeds marginal cost
C)  produces at the output level where marginal revenue equals marginal cost
D)  produces at the output level where total revenue is maximized

Question 8

If many students choose to study to become accountants, when all of these students eventually graduate, we can expect accountant's wages to ________, and the equilibrium number of accountants will ________

Accepted Answer

A)  rise, increase
B)  drop, increase
C)  rise, decrease
D)  drop, decrease

Question 9

If a perfectly competitive firm finds that the profit maximizing output level occurs where price is equal to marginal cost but is less than average variable cost

Accepted Answer

A)  the firm will continue to operate in the short run since total revenue exceeds total variable cost but will exit the industry in the long run
B)  the firm will continue to operate in the short run since it has to pay the total fixed cost whether or not it continues to operate
C)  the firm will increase its selling price to raise revenue in order to be able to continue to operate profitably in the short run
D)  the firm will shut down in the short run and exit the industry in the long run if it does not foresee market conditions changing

Question 10

If the supply curve for labor is backward bending, and if the wage of a worker increases, she might choose to work:

Accepted Answer

A)  fewer hours per week, since she can earn the same income working fewer hours
B)  more hours per week, since she can earn the same income working fewer hours
C)  fewer hours per week, since every hour of leisure is cheaper than before
D)  more hours per week, since she needs to work more hours to earn the same income

Question 11

The demand curve for a perfectly competitive firm

Accepted Answer

A)  slopes downward as the quantity demanded increases as the firm lowers price
B)  is a horizontal, perfectly elastic demand curve at the market price
C)  is a straight, downward sloping curve that is price elastic at higher prices and price inelastic as price falls and approaches zero
D)  both (b)  and (c)

Question 12

________ is one organization created from a formal agreement between a group of producers of a good or service, to regulate supply in an effort to regulate or manipulate prices.

Accepted Answer

A)  industry
B)  firm
C)  monopoly
D)  cartel

Question 13

The three primary characteristics of a perfectly competitive market are

Accepted Answer

A)  the firms\ products are unique, they set their own price and can freely enter and exit the market
B)  the firms\ products are homogenous, the firms are price takers and can freely enter and exit the market
C)  the firms\ products are homogenous, the firms are price takers and there are barriers to entry into the market
D)  the firms\ products are unique, they are price takers and there are no barriers to entry in the market

Question 14

All of the following will cause the value of the marginal product of labor to increase, EXCEPT:

Accepted Answer

A)  an increase in the price of the good sold by the firm
B)  a new production technology is developed and implemented by the firm
C)  an increase in the number of workers employed by the firm
D)  an increase in the quantity of other factors of production used by the firm

Question 15

Which of the following statements is true

Accepted Answer

A)  oligopolies sell more output than perfect competition
B)  oligopolies charge a higher price than monopolies
C)  oligopolies sell more output than monopolies
D)  oligopolies charge a lower price than perfect competition

Question 16

The price paid for any factor of production tends to be equal to:

Accepted Answer

A)  the wage rate
B)  the value of the marginal product of that input
C)  the price of the product sold by the firm that inputs
D)  the price of the product sold by the firm that buys the inputs

Question 17

The property of diminishing marginal product applies:

Accepted Answer

A)  only to workers in the short run
B)  applies to workers and any other variable inputs in the short run
C)  only to workers in the long run
D)  applies to workers and any other variable inputs in the long run

Question 18

Microeconomic theory assumes that all firms maximize profits because

Accepted Answer

A)  it has been observed that managers always align their goals with investors and seek to maximize short and long run profits
B)  profit is likely to dominate almost all decisions for smaller firms
C)  if managers deviate from profit maximization decisions for too long shareholders or the board of directors will replace them
D)  both (b)  and (c)

Question 19

Factors of production are:

Accepted Answer

A)  the coefficients in a production function
B)  the characteristics of a market that determine how much is produced
C)  the inputs used to produce goods and services
D)  the outputs from a production function

Question 20

As firms gradually acquire ever more technology, machinery and equipment, workers' productivity gradually ________, and workers wages gradually ________.

Accepted Answer

A)  rises, decrease
B)  diminishes, decrease
C)  diminishes, increase
D)  rises, increase

Exam 2: Principles of Market Structures and Microeconomic Theory