Deck 2: Principles of Market Structures and Microeconomic Theory

Question 1

Perfect completion means _____ rivalry

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

Answer 1

absence of

Question 2

_______ is situation in which a single company or group owns all or nearly all of the market for a given type of product or service.

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

Answer 2

monopoly

Question 3

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

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

Answer 3

oligopoly

Question 4

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

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

Question 5

________ 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.

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

Question 6

Which of the following statements is true

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 7

The larger the number of firms in an oligopoly, the ________ the price and the ________ the output of the industry.

A)lower, greater
B)higher, lesser
C)higher, greater
D)lower, lesser

Question 8

Factors of production are:

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 9

The property of diminishing marginal product applies:

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 10

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

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 11

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

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 12

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 ________

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

Question 13

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 ________.

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

Question 14

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

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

Question 15

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

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 16

In a perfectly competitive market

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 17

The three primary characteristics of a perfectly competitive market are

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 18

Microeconomic theory assumes that all firms maximize profits because

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

Profits are maximized when the firm

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 20

The demand curve for a perfectly competitive firm

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 21

Profit maximization for a perfectly competitive firm is at the quantity where

A)price equals marginal revenue
B)the difference between price and marginal cost is the greatest
C)price equals marginal cost
D)marginal cost is at a minimum

Question 22

A firm may decide to shut down in the short run

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

Question 23

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

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 24

In the long run, a perfectly competitive firm earning zero economic profits

A)will exit the market in search of more profitable use of its resources
B)is earning a normal rate of return on its investments
C)signifies that the firm is performing poorly and so should exit the market
D)will break even

Question 25

In the long run, a constant cost industry

A)has an upward sloping supply curve as the quantity supplied increases with increases in demand
B)expands in response to an increase in demand despite rising input costs, and so the long run supply curve is horizontal
C)can expand in response to an increase in demand without input costs changing, and so the long run supply curve is horizontal
D)does not expand in response to an increase in demand and so the long run supply curve is horizontal