Revision Sheet for Final Exam
First: MCQ Questions
1- A fixed cost is:
A) the cost of any input whose per-unit price has been fixed, whether by long-term
contract or by some similar means.
B) a cost whose increases are exactly proportional to increases in output.
C) any component included in average cost which enters in AC as the same fixed perunit amount, no matter what the level of plant output may be.
D) a cost which the firm would incur even if its output were zero.
2- Given the curves shown in the above figure, the marginal cost of the 3rd unit
of output is:
A) $6.
B) $10.
C) $16.
D) $25.
3- Given the curves shown in the above figure, the average variable cost of 3
units of output is:
A) $3.
B) $8.
C) $16.
D) $25.
4- Which of the following is true if marginal cost is above average variable cost
as output rises?
A)
B)
C)
D)
Average
Average
Average
Average
total cost must be falling.
fixed cost must be rising.
variable cost must be falling.
variable cost must be rising.
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5- If 25 units of a good are produced at a fixed cost of $50 and a total cost of
$550, then the average variable cost of producing the good is:
A) $15.
B) $20.
C) $25.
D) $30.
6- A supplier in a perfectly competitive market is characterized by all but which
of the following?
A)
B)
C)
D)
It
It
It
It
can influence the price of its product.
produces such that marginal cost equals price.
can sell all it wants to at the prevailing market price.
produces a positive amount in the short run if it can recover variable costs.
7- If you are a wheat farmer and you want to earn as much profit as you can, you
should do which of the following:
A) try to produce and sell that quantity of output at which marginal cost has risen to
equality with price.
B) try to produce and sell that quantity of output at which marginal cost is equal to
average variable cost.
C) try to produce and sell that quantity of output at which marginal cost has reached
its minimum possible level.
D) never let marginal cost reach equality with price, since this is the point at which
profits become zero.
8- If a firm in circumstances of perfect competition finds that, at its best possible
operating position, total revenue is not sufficient to cover total variable costs, it
should:
A) plan to continue operating permanently.
B) plan to shut down, even in the short run.
C) continue to operate if, at this same level of output, price per unit is sufficient to
cover average cost.
D) increase the price it is charging.
9- Which of the following statements is correct in reference to the figure below?
P
MC
C
d
B
d
AC
AVC
A
Q
A) B is the shutdown point.
C) C is the zero-profit point.
B) B is the profit-maximizing point.
D) A is the shutdown point.
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10- The zero-profit point for a perfectly competitive firm occurs where the price
equals the minimum point of the:
A)
B)
C)
D)
AVC curve.
ATC curve.
MC curve.
AFC curve.
11- If a firm's demand curve is horizontal, then the firm's marginal revenue is:
A) less than the price of the product.
B) greater than the price of the product.
C) equal to the price of the product.
D) greater than, equal to, or less than the price of the product, depending on the
particular circumstances.
12- If you are the only mechanic in town which of the following is true about
your demand curve?
A) You don’t have one, it is all about supply.
B) it will be a downward sloping curve.
C) it will be a straight line.
D) it will be an upward sloping curve.
13- An oligopoly exists when:
A) a few sellers have complete control over the industry.
B) a few sellers have no control over the industry.
C) many sellers are in control of the industry.
D) no one controls the industry.
14- A monopoly finds that, at its present level of output and sales, marginal
revenue equals $5 and marginal cost is $4.10. Which of the following will
maximize profits?
A) Leave price and output unchanged.
B) Increase price and leave output unchanged.
C) Increase price and decrease output.
D) Decrease price and increase output.
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15- Which of the following are barriers to entry into a market:
A) legal restrictions.
B) high cost of entry.
C) advertising cost.
D) all of the above.
16- Given the following figure:
P
A
D
B
C
0
G
E
F
MC
I
H
Demand
Q
MR
If the market indicated by this figure is monopolized by one large seller, the
level of output and price will be, respectively:
A) F and C.
B) H and C.
C) F and B.
D) H and B.
17- The term "strategic interaction" refers to:
A) the link between consumer welfare and industry cost curves.
B) tacit agreements between the producers and the consumers of inputs.
C) the fact that each firm's business strategy depends upon its rival's business
behavior.
D) the realization by oligopolists that higher selling prices imply lower sales.
18- Gross Domestic Product (GDP) is:
A) the measure of the market value of only part of the goods and services produced in
a country during a year.
B) the measure of the market value of all final goods and services produced in a
country during a year.
C) the measure of the market value of all goods and services produced in a country
during a month.
D) not useful, so economist do not use it.
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19- Refer to the payoff matrix above. Which of the following is true for Best
Lights?
A) Their
B) Their
C) They
D) They
dominant strategy is to set a High Price.
dominant strategy is to set a Low Price.
do not have a pure strategy.
do not have a dominant strategy.
20- Refer to the payoff matrix above. Which of the following is true for Bright
Lights?
A) Their dominant strategy is to set a High Price.
B) They do not have a pure strategy.
C) They do not have a dominant strategy.
D) Their dominant strategy is to set a Low Price.
21- Refer to the payoff matrix above. If Best Lights and Bright Lights both set a
High Price, the profit for Best Lights are ________ and the profit for Bright
Lights are ________ than if both firms set a Low Price.
A) lower; lower
B) higher; higher
C) lower; higher
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D) higher; lower
Second: State whether the statements are true or false and correct the false
statements only
1- The marginal cost curve can cut the average variable cost curve from below only at
its minimum.
2- Unlike fixed costs, variable costs are zero if output is zero.
3- In the short run, plant capacity but not output can be changed.
4- A perfectly competitive firm is defined as one that can sell all it wants at the
prevailing market price.
5- When its variable costs are less than total revenue, a firm should shut down.
6- A profit maximizing competitive firm should produce at the point where marginal
cost is lowest.
7- A perfect competitor is defined as one who can earn economic profits, even in the
long run.
8- If marginal revenue becomes negative, this must mean that the firm's total revenue
is declining with additional output.
9- The monopolist sets MR = P above MC.
10- A firm should decrease its output if marginal cost is greater than marginal revenue.
11- Intense rivalry between Chrysler, Ford and GM means perfect competition in the
U.S. auto industry.
12- The market demand curve and the demand curve facing the firm are the same in
all imperfectly competitive markets.
13- Dominant strategy is the situation that arises when one player has a single best
strategy no matter what strategy the other player follows.
14- In a monopolistic competition model, there are a few firms selling slightly
differentiated products.
15- Real GDP is the total value of goods and services produced by an economy in one
year measured at current prices.
16- The most comprehensive measure of the total output in an economy is the real
gross domestic product.
17- Deflation occurs when prices rise.
18- The CPI uses a "market basket" of representative goods to measure the overall
price level.
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19- The unemployment rate is the percentage of those who are unemployed out of the
working-age population.
20- If the CPI was 120 in 2010, then the inflation rate would be equal to 20% in 2010
given that 2009 was the base year.
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