Micro Economics 2 Set 3

Bachelor of Arts in Economics (BA Economics)

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This set of Micro economics 2 Multiple Choice Questions & Answers (MCQs) focuses on Micro Economics 2 Set 3

Q1 | Perfect completion means _____ rivalry
  • perfect
  • absence of
  • fierce
  • intense
Answer: absence of
Q2 | _______ is situation in which a single company or group owns all or nearly all of themarket for a given type of product or service.
  • monopsony
  • oligopoly
  • perfect competition
  • monopoly
Answer: monopoly
Q3 | _______ is situation in which a particular market is controlled by a small group of firms.
  • monopsony
  • oligopoly
  • perfect competition
  • monopoly
Answer: oligopoly
Q4 | ________ is a market in which there are only a few large buyers for a product or service.
  • monopsony
  • oligopoly
  • oligopsony
  • monopoly
Answer: oligopsony
Q5 | ________ 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 manipulateprices.
  • industry
  • firm
  • monopoly
  • cartel
Answer: cartel
Q6 | Which of the following statements is true
  • oligopolies sell more output than perfect competition
  • oligopolies charge a higher price than monopolies
  • oligopolies sell more output than monopolies
  • oligopolies charge a lower price than perfect competition
Answer: oligopolies sell more output than monopolies
Q7 | The larger the number of firms in an oligopoly, the ________ the price and the ________the output of the industry.
  • lower, greater
  • higher, lesser
  • higher, greater
  • lower, lesser
Answer: lower, greater
Q8 | Factors of production are:
  • the coefficients in a production function
  • the characteristics of a market that determine how much is produced
  • the inputs used to produce goods and services
  • the outputs from a production function
Answer: the inputs used to produce goods and services
Q9 | The property of diminishing marginal product applies:
  • only to workers in the short run
  • applies to workers and any other variable inputs in the short run
  • only to workers in the long run
  • applies to workers and any other variable inputs in the long run
Answer: applies to workers and any other variable inputs in the short run
Q10 | All of the following will cause the value of the marginal product of labor to increase,EXCEPT:
  • an increase in the price of the good sold by the firm
  • a new production technology is developed and implemented by the firm
  • an increase in the number of workers employed by the firm
  • an increase in the quantity of other factors of production used by the firm
Answer: an increase in the number of workers employed by the firm
Q11 | If the supply curve for labor is backward bending, and if the wage of a worker increases,she might choose to work:
  • fewer hours per week, since she can earn the same income working fewer hours
  • more hours per week, since she can earn the same income working fewer hours
  • fewer hours per week, since every hour of leisure is cheaper than before
  • more hours per week, since she needs to work more hours to earn the same income
Answer: fewer hours per week, since she can earn the same income working fewer hours
Q12 | If many students choose to study to become accountants, when all of these studentseventually graduate, we can expect accountant's wages to ________, and the equilibrium number of accountants will ________
  • rise, increase
  • drop, increase
  • rise, decrease
  • drop, decrease
Answer: drop, increase
Q13 | If there is a permanent increase in the demand for cars, car manufacturers will want tohire ________ workers, which will cause wages in the industry to ________.
  • more, rise
  • more, drop
  • less, rise
  • less, drop
Answer: more, rise
Q14 | As firms gradually acquire ever more technology, machinery and equipment, workers'productivity gradually ________, and workers wages gradually ________.
  • rises, decrease
  • diminishes, decrease
  • diminishes, increase
  • rises, increase
Answer: rises, increase
Q15 | The price paid for any factor of production tends to be equal to:
  • the wage rate
  • the value of the marginal product of that input
  • the price of the product sold by the firm that inputs
  • the price of the product sold by the firm that buys the inputs
Answer: the value of the marginal product of that input
Q16 | In a perfectly competitive market
  • each firm sets its own price
  • there are a few firms selling unique products
  • when one firm ceases production, the market equilibrium price tends to rise
  • none of the above. in a perfectly competitive market, firms sell homogenous products and
Answer: none of the above. in a perfectly competitive market, firms sell homogenous products and
Q17 | The three primary characteristics of a perfectly competitive market are
  • the firms\ products are unique, they set their own price and can freely enter and exit the market
  • the firms\ products are homogenous, the firms are price takers and can freely enter and exit the market
  • the firms\ products are homogenous, the firms are price takers and there are barriers to entry into the market
  • the firms\ products are unique, they are price takers and there are no barriers to entry in the market
Answer: the firms\ products are homogenous, the firms are price takers and can freely enter and exit the market
Q18 | Microeconomic theory assumes that all firms maximize profits because
  • it has been observed that managers always align their goals with investors and seek to maximize short and long run profits
  • profit is likely to dominate almost all decisions for smaller firms
  • if managers deviate from profit maximization decisions for too long shareholders or the board of directors will replace them
  • both (b) and (c)
Answer: both (b) and (c)
Q19 | Profits are maximized when the firm
  • captures the largest market share in its market
  • produces at an output level where marginal revenue exceeds marginal cost
  • produces at the output level where marginal revenue equals marginal cost
  • produces at the output level where total revenue is maximized
Answer: produces at the output level where marginal revenue equals marginal cost
Q20 | The demand curve for a perfectly competitive firm
  • slopes downward as the quantity demanded increases as the firm lowers price
  • is a horizontal, perfectly elastic demand curve at the market price
  • is a straight, downward sloping curve that is price elastic at higher prices and price inelastic as price falls and approaches zero
  • both (b) and (c)
Answer: is a horizontal, perfectly elastic demand curve at the market price
Q21 | Profit maximization for a perfectly competitive firm is at the quantity where
  • price equals marginal revenue
  • the difference between price and marginal cost is the greatest
  • price equals marginal cost
  • marginal cost is at a minimum
Answer: price equals marginal cost
Q22 | A firm may decide to shut down in the short run
  • if profit maximization occurs at an output level where price is less than average variable cost
  • if profit maximization occurs at an output level where price is less than average total cost
  • profit maximization occurs at an output level where price is less than average total cost but greater than average variable cost
  • 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
Answer: if profit maximization occurs at an output level where price is less than average variable cost
Q23 | If a perfectly competitive firm finds that the profit maximizing output level occurs whereprice is equal to marginal cost but is less than average variable cost
  • 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
  • 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
  • the firm will increase its selling price to raise revenue in order to be able to continue to operate profitably in the short run
  • 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
Answer: 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
Q24 | In the long run, a perfectly competitive firm earning zero economic profits
  • will exit the market in search of more profitable use of its resources
  • is earning a normal rate of return on its investments
  • signifies that the firm is performing poorly and so should exit the market
  • will break even
Answer: is earning a normal rate of return on its investments
Q25 | In the long run, a constant cost industry
  • has an upward sloping supply curve as the quantity supplied increases with increases in demand
  • expands in response to an increase in demand despite rising input costs, and so the long run supply curve is horizontal
  • can expand in response to an increase in demand without input costs changing, and so the long run supply curve is horizontal
  • does not expand in response to an increase in demand and so the long run supply curve is horizontal
Answer: can expand in response to an increase in demand without input costs changing, and so the long run supply curve is horizontal
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