MODULE 57: Introduction to Market Structure

Multiple-Choice Questions

Question

Consider the data about the cost of each year of college in the table below:

Opportunity Cost of a Year of College

Explicit cost		Implicit cost
Tuition	$17,000	Forgone salary	$35,000
Books and supplies	1,000
Computer	1,500
Total explicit cost	19,500	Total implicit cost	35,000
Total opportunity cost = Total explicit cost + Total implicit cost = $54,500

A rational person would attend another year of college if the additional income expected plus the value of improved quality of life were worth at least

$17,000.

$19,500.

$35,000.

$54,500.

$89,500.

Consider the data about the cost of each year of college in the table below:

Question

Comparing accounting profit to economic profit, accounting profit can
A.
only be greater than economic profit.
B.
only be less than economic profit.
C.
be equal to or more than economic profit.
D.
be equal to or less than economic profit.
E.
only be equal to economic profit.

Comparing accounting profit to economic profit, accounting profit can
Question

Which kind of profit is just enough to keep a firm operating in the long run?
A.
normal
B.
economic
C.
accounting
D.
implicit
E.
explicit

Which kind of profit is just enough to keep a firm operating in the long run?
Page 585

Question

Refer to the cost data in the table below to answer Question 4.

If this business can sell all it can produce at a market price of $16, the firm should produce how many units in order to maximize profits?
A.
1
B.
3
C.
5
D.
6
E.
7

If this business can sell all it can produce at a market price of $16, the firm should produce how many units in order to maximize profits?
Question

Assume a perfectly competitive firm is producing at a level of output where marginal revenue is greater than marginal cost. To maximize profits, the firm should
A.
continue to produce at that level.
B.
increase output.
C.
decrease output.
D.
raise prices.
E.
lower prices.

Assume a perfectly competitive firm is producing at a level of output where marginal revenue is greater than marginal cost. To maximize profits, the firm should
Question

When a firm is producing where marginal cost is equal to marginal revenue, the firm
A.
may be making profits or losses.
B.
will definitely be maximizing profits.
C.
should produce more to maximize profits.
D.
should produce less to maximize profits.
E.
will definitely be minimizing losses.

When a firm is producing where marginal cost is equal to marginal revenue, the firm
Question

A fixed input
A.
never changes.
B.
is a long-run phenomenon.
C.
does not change with the output level in the short run.
D.
causes marginal cost to fall as it is increased.
E.
causes marginal cost to rise as it is increased.

A fixed input
Question

If marginal product is positive and declining as more workers are hired, then total product is
A.
decreasing at an increasing rate.
B.
decreasing at a decreasing rate.
C.
increasing at an increasing rate.
D.
increasing at a decreasing rate.
E.
increasing at a constant rate.

If marginal product is positive and declining as more workers are hired, then total product is
Question

Diminishing marginal returns always involve
A.
too much plant capacity.
B.
a rapid expansion of plant size.
C.
a slow expansion of plant size.
D.
a fixed input.
E.
inputs that are all variable.

Diminishing marginal returns always involve
Question

If marginal cost is positive and rising as more output is produced, then total cost is
A.
decreasing at an increasing rate.
B.
decreasing at a decreasing rate.
C.
increasing at an increasing rate.
D.
increasing at a decreasing rate.
E.
increasing at a constant rate.

If marginal cost is positive and rising as more output is produced, then total cost is
Question

Marginal cost rises due to
A.
diminishing marginal returns.
B.
increasing marginal returns.
C.
constant returns to scale.
D.
increasing returns to scale.
E.
increasing average returns.

Marginal cost rises due to
Question

The relationship between the marginal cost curve and the average cost curve is that when marginal cost is
A.
rising, average cost must be rising.
B.
falling, average cost must be falling.
C.
above average cost, average cost must be rising.
D.
below average cost, average cost must be rising.
E.
above average cost, average cost must be falling.

The relationship between the marginal cost curve and the average cost curve is that when marginal cost is
Question

In the short-run, as output increases, average fixed cost
A.
remains constant.
B.
falls and then rises after a certain output level.
C.
rises initially, and then falls continuously.
D.
falls continuously.
E.
rises continuously.

In the shor
Question

If at the current level of output of 200 units, average variable cost is $10 per unit and average total cost is $15 per unit, then
A.
total fixed cost is equal to $1,000.
B.
total fixed cost is equal to $2,000.
C.
total fixed cost is equal to $3,000.
D.
marginal cost is equal to $5.
E.
marginal cost is equal to $25.

If at the current level of output of 200 units, average variable cost is $10 per unit and average total cost is $15 per unit, then
Question

If labor is the only variable input and the wage rate is constant, marginal cost reaches its minimum when
A.
marginal product reaches its maximum.
B.
average product reaches its maximum.
C.
marginal product reaches its minimum.
D.
average product reaches its minimum.
E.
average cost reaches its minimum.

If labor is the only variable input and the wage rate is constant, marginal cost reaches its minimum when
Question

The spreading effect causes the average total cost curve to
A.
rise, while the diminishing returns effect causes it to fall.
B.
rise, as does the diminishing returns effect.
C.
fall, while the diminishing returns effect causes it to rise.
D.
fall, as does the diminishing returns effect.
E.
remain constant until the beginning of the diminishing marginal returns effect.

The spreading effect causes the average total cost curve to
Page 586

Question

If marginal cost is rising and lies above average variable cost, then average total cost
A.
may be rising or falling.
B.
will definitely be rising.
C.
will definitely be falling.
D.
will definitely be constant.
E.
None of the above are correct.

If marginal cost is rising and lies above average variable cost, then average total cost
Question

If the average product of labor is rising as more workers are hired, then
A.
the marginal product of labor must be rising.
B.
the marginal product of labor must be falling.
C.
the marginal product of labor must be higher than the average product of labor.
D.
the average total cost must be rising.
E.
the marginal cost must be falling.

If the average product of labor is rising as more workers are hired, then
Question

The long-run average cost curve eventually slopes up due to
A.
economies of scale.
B.
economies of scope.
C.
diseconomies of scale.
D.
overcrowding of the fixed factors of production.
E.
diminishing marginal returns.

The lon
Question

When a firm makes production decisions, the sunk cost should be
A.
set equal to the variable cost.
B.
set equal to the marginal cost.
C.
set equal to the total cost.
D.
subtracted from the fixed cost to determine profit.
E.
ignored.

When a firm makes production decisions, the sunk cost should be
Question

Monopolistically competitive industries are characterized by
A.
standardized products, many firms, and easy entry and exit.
B.
standardized products, few firms, and easy entry and exit.
C.
differentiated products, many firms, and easy entry and exit.
D.
subtracted from the fixed cost to determine profit.
E.
Ignored

Monopolistically competitive industries are characterized by
Question

Compared to a monopolistically competitive industry, an oligopoly has
A.
a higher Herfindahl–Hirschman Index, fewer firms, and more barriers to entry.
B.
a higher Herfindahl–Hirschman Index, more firms, and more barriers to entry.
C.
a higher Herfindahl–Hirschman Index, fewer firms, and fewer barriers to entry.
D.
a lower Herfindahl–Hirschman Index, fewer firms, and more barriers to entry.
E.
a lower Herfindahl–Hirschman Index, more firms, and more barriers to entry.

Compared to a monopolistically competitive industry, an oligopoly has
Question

Compared to a monopoly, an oligopoly has
A.
a higher Herfindahl–Hirschman Index, fewer firms, and more barriers to entry.
B.
a higher Herfindahl–Hirschman Index, more firms, and more barriers to entry.
C.
a lower Herfindahl–Hirschman Index, fewer firms, and fewer barriers to entry.
D.
a lower Herfindahl–Hirschman Index, more firms, and more barriers to entry.
E.
a lower Herfindahl–Hirschman Index, more firms, and fewer barriers to entry.

Compared to a monopoly, an oligopoly has
Question

Diseconomies of scale can be caused by
A.
increasing returns to scale.
B.
overcrowding of the fixed factors of production.
C.
increasing average fixed cost.
D.
decreasing average fixed cost.
E.
communication problems.

Diseconomies of scale can be caused by