Test Bank For Principles of Microeconomics 7th Edition Taylor

Test Bank for Principles of Microeconomics, 7th Edition : Taylor
Test Bank for Principles of Microeconomics, 7th

Edition : Taylor
To download the complete and accurate content document, go to:

https://testbankbell.com/download/test-bank-for-principles-of-microeconomics-7th-edit
ion-taylor/
Visit TestBankBell.com to get complete for all chapters

Chapter 6—The Supply Curve and the Behavior of Firms
1. Which of the following is an example of a firm?

a. A local government agency
b. A family with four children
c. A grocery store
d. A public school
e. The U.S. Department of Commerce
ANS: C PTS: 1 DIF: basic OBJ: factual
NAT: Supply and demand TOP: Firm BLM: Bloom's: Knowledge
2. A firm is a(n)
a. organization formed to save on income taxes.
b. organization that produces goods and services.
c. entity that produces only services.
d. required organization mandated by government for tax purposes.
e. law representative for small businesses.
ANS: B PTS: 1 DIF: basic OBJ: factual
3. The three basic types of businesses in the United States are

a. enterprises, partnerships, and corporations.
b. partnerships, multinationals, and corporations.
c. partnerships, firms, and sole proprietorships.
d. corporations, households, and sole proprietorships.
e. corporations, sole proprietorships, and partnerships.
ANS: E PTS: 1 DIF: basic OBJ: factual
NAT: Supply and demand TOP: Forms of Firms
BLM: Bloom's: Knowledge
4. Partnerships differ from sole proprietorships because partnerships

a. generate fewer profits than do sole proprietorships.
b. are characterized by unlimited liability and sole proprietorships are not.
c. consist of two or more partners sharing the responsibilities of the firm and sole
proprietorships do not.
d. require a written agreement and sole proprietorships do not.
e. require a state charter and sole proprietorships do not.
ANS: C PTS: 1 DIF: moderate OBJ: conceptual
BLM: Bloom's: Analysis | AACSB: Analytic
5. The owner of a sole proprietorship

a. has unlimited liability and is responsible for all debts of the firm.
b. assumes no responsibility for any debt of the firm and enjoys only limited profits.
c. assumes no responsibility for any debt of the firm but also receives no profits
d. has limited liability and shares the responsibility of all debts of the firm with others.
e. has limited liability up to the total value of her or his own personal property.
ANS: A PTS: 1 DIF: basic OBJ: factual
6. Separation of ownership from control is most commonly found in a
a. sole proprietorship.
b. partnership.
c. corporation.
d. nonprofit firm.
e. consortium.
NAT: Supply and demand TOP: Corporations
7. Stock shares are issued by

a. sole proprietorships.
b. partnerships.
c. corporations.
d. nonprofit firms.
e. government enterprises.
8. The owner often also acts as the manager in

a. sole proprietorships.
b. all businesses.
c. corporations.
d. nonprofit firms.
e. government enterprises.
9. A corporation differs from other forms of businesses because it

a. is required to own a seat on a stock exchange.
b. has a lower debt ratio.
c. has no tax liability.
d. is characterized by limited profits.
e. is owned by people who enjoy limited liability.
ANS: E PTS: 1 DIF: moderate OBJ: conceptual
10. T or F. A firm is one of the terms for a business organization.
ANS: T PTS: 1 DIF: basic OBJ: factual

11. T or F. The main advantage of a corporation over other types of firms is that owners also manage the
firm.
ANS: F PTS: 1 DIF: basic OBJ: factual

12. T or F. All types of firms suffer from managerial conflicts.
ANS: F PTS: 1 DIF: moderate OBJ: conceptual

13. T or F. Most firms in the United States are sole proprietorships.

14. In the pumpkin-growing firm example in the text, land is a fixed factor because
a. it is a physical factor of production.
b. the firm produces a single product.
c. it cannot be varied during the season.
d. it has no close substitutes.
e. the firm is a price-taker.
NAT: Costs of production TOP: Fixed Factor BLM: Bloom's: Knowledge
15. Which of the following is typically a variable factor of production?

a. Land
b. Equipment
c. Plant
d. Labor
e. Money
ANS: D PTS: 1 DIF: basic OBJ: factual
NAT: Costs of production TOP: Variable Factor
16. T or F. Land is commonly considered a fixed factor of production.

NAT: Costs of production TOP: Fixed Factor BLM: Bloom's: Knowledge
17. T or F. A variable factor is the type of input that varies with a firm's output level.

NAT: Costs of production TOP: Variable Factor
18. A price-taking firm cannot affect its own output price because
a. price is determined by consumers, not producers.
b. market demand is perfectly elastic; that is, even a tiny increase in price results in zero
quantity demanded.
c. it is only one firm among many, so the price is determined in the market as a whole.
d. consumer preferences dictate a single price in a competitive market.
e. of government statutes, such as price floors and price ceilings.
NAT: Perfect competition TOP: Price-Taking
19. A competitive market is

a. one in which firms cannot change output levels.
b. any market with several firms in it.
c. a market with a single firm.
d. one in which a single firm cannot influence market price.
e. one in which consumers compete to buy goods and services.
NAT: Perfect competition TOP: Competitive Market
20. In the pumpkin-growing firm example in the text, the firm is a price-taker because
a. the firm does not have the ability to charge whatever price it wants to charge.
b. the firm is not a profit-maximizing firm.
c. price setting is too complicated for an individual firm.
d. the market for pumpkins is a competitive market.
e. it faces no demand.
ANS: D PTS: 1 DIF: moderate OBJ: factual
NAT: Perfect competition TOP: Price-Taker
21. An individual firm in a competitive market

a. decides, given the market price, how much to produce and sell.
b. has no control over the price or the quantity it produces and sells.
c. takes the market-determined amount it should sell as given, and then, based on this
amount, determines what price to charge.
d. decides what price to charge and how much to produce and sell.
e. has control over the price but not the quantity to produce and sell.
NAT: Perfect competition TOP: The Firm as a Price-Taker
22. A firm that considers price as a given and chooses quantity of output accordingly is called a
a. profit-maximizer.
b. quantity-setter.
c. market-taker.
d. monopoly.
e. price-taker.
23. Which of the following statements is true?

a. Price-taking behavior by competitive firms does not have an analogy in the theory of the
consumer.
b. The more competitive a market, the more prices are expected to vary between firms in the
market.
c. Buyers and sellers individually set prices.
d. A competitive firm is a price-taker.
e. A competitive firm is a price-maker.
NAT: Perfect competition TOP: The Firm as a Price-Taker
24. In a competitive market, price is taken as given by

a. both buyers and sellers.
b. neither buyers nor sellers.
c. buyers only.
d. sellers only.
e. the government.
ANS: A PTS: 1 DIF: moderate OBJ: conceptual
BLM: Bloom's: Knowledge | AACSB: Analytic
25. T or F. A price-taking firm is one that forces consumers to take whatever price the firm wishes.

26. T or F. A competitive market is one in which many firms compete for customers and end up charging
a common market price.

27. T or F. In a competitive market, no single consumer or producer can set the market price.

28. T or F. A firm in a competitive market can control the price it charges its buyers.

29. Why is an individual firm in a competitive market a price-taker?
ANS:
If a firm were producing at a price higher than all the other firms in the market, then nobody would
want to patronize the more expensive firm. If a firm were charging a price less than what all the other
firms charged, then consumers would patronize only this firm. It would be in the self-interest of all the
other firms to charge a lower price if they choose to remain in business.
PTS: 1 DIF: moderate OBJ: conceptual NAT: Perfect competition

TOP: The Firm as a Price-Taker BLM: Bloom's: Analysis | AACSB: Analytic
30. What is the major characteristic of a competitive market?

ANS:
A market is competitive if no single firm can affect the market price.
PTS: 1 DIF: basic OBJ: conceptual NAT: Perfect competition

TOP: Competitive Market BLM: Bloom's: Knowledge
31. A market that includes only a single firm is called a(n)

a. monopsony.
b. monopoly.
c. single-firm market.
d. competitive market.
e. oligopoly.
NAT: Monopoly TOP: Monopoly BLM: Bloom's: Knowledge
32. In contrast with a firm in a competitive market, a monopoly is able to control

a. input costs.
b. price.
c. profits.
d. demand.
e. all aspects of its operation.
NAT: Monopoly TOP: Monopoly BLM: Bloom's: Knowledge
33. T or F. If only one firm exists in a market, the firm has no power over the market price.

NAT: Monopoly TOP: Monopoly BLM: Bloom's: Analysis | AACSB: Analytic
34. T or F. A monopoly is a price-maker.

NAT: Monopoly TOP: Price-Maker BLM: Bloom's: Knowledge
35. Why is a monopoly a price-maker?
ANS:
A monopoly is a single producer of a good for which there are no close substitutes. For this reason, the
firm has control over the price that it charges the buyers of the good.
PTS: 1 DIF: moderate OBJ: factual NAT: Monopoly

TOP: Price-Maker BLM: Bloom's: Knowledge | AACSB: Analytic
36. In economics, firms are assumed to

a. maximize output prices.
b. minimize output prices.
c. maximize profits.
d. maximize consumer surplus.
e. maximize customer satisfaction.
NAT: Monopoly TOP: Profit Maximization BLM: Bloom's: Knowledge
37. Firms are assumed to maximize
a. inputs.
b. profits.
c. wages.
d. output price.
e. output quantity.
NAT: Supply and demand TOP: Profits BLM: Bloom's: Knowledge
38. By definition, profits are

a. total output minus total inputs.
b. total revenue plus total costs.
c. total revenue minus total costs.
d. total inputs minus total output.
e. total costs minus total revenue.
NAT: Supply and demand TOP: Profits BLM: Bloom's: Knowledge
39. If total revenue is less than total costs, then

a. economic profits are positive.
b. economic profits are zero.
c. economic profits are negative.
d. a firm breaks even.
e. profits can be positive or negative, depending on other factors.
ANS: C PTS: 1 DIF: basic OBJ: conceptual
NAT: Supply and demand TOP: Profits
40. T or F. In economics, the main objective of a firm is to maximize customer satisfaction.

NAT: Supply and demand TOP: Profit Maximization
41. T or F. Profit maximization is the basic assumption for all types of corporations, but not for sole
proprietorships.

42. T or F. By definition, a profit-maximizing firm is a monopoly.
ANS: F PTS: 1 DIF: moderate OBJ: factual

NAT: Monopoly TOP: Profit Maximization
43. T or F. Revenue is the only factor that affects profits.

44. When price and quantity sold by a firm are multiplied, the result is called
a. marginal cost.
b. total costs.
c. marginal revenue.
d. average revenue.
e. total revenue.
NAT: Supply and demand TOP: Total Revenue
45. Holding everything else equal, total revenue increases

a. only when quantity increases.
b. only when price increases.
c. whenever total costs increase.
d. when either price or quantity increase.
e. only when both price and quantity increase.
46. In moving down along a demand curve, total revenue

a. stays constant.
b. increases.
c. may increase, decrease, or stay constant.
d. decreases.
e. is always equal to zero.
47. In 2010, a firm produced 100 units of good X at $1. In 2011, the firm produced 200 units of good X at
$0.5. Between 2010 and 2011, the total revenue of producing good X
a. stayed constant
b. increased.
c. might increase, decrease, or stay constant.
d. decreased.
e. was equal to zero.
BLM: Bloom's: Application | AACSB: Analytic
48. T or F. Total revenue is the price of a good times its quantity.

49. T or F. Total revenue always increases if price increases.

50. Total costs include all of the following except

a. equipment purchase price.
b. rent.
c. salaries.
d. output purchase price.
e. materials.
NAT: Costs of production TOP: Total Cost BLM: Bloom's: Knowledge
51. Production in the short run requires

a. no factor of production.
b. both fixed and variable factors of production.
c. variable factors of production only.
d. fixed factors of production only.
e. the difference between fixed and variable factors of production.
NAT: Supply and demand TOP: Short Run BLM: Bloom's: Knowledge
52. A production function shows the relationship between

a. variable costs and total costs.
b. a fixed input and output.
c. total output and total costs.
d. fixed costs and total costs.
e. a variable input and output.
NAT: Supply and demand TOP: Production Function
53. A graph showing how much total output results for any given amount of input is called a(n)
a. labor function.
b. production function.
c. marginal product curve.
d. variable cost curve.
e. earnings schedule.
54. The change in total output that occurs with a one-unit change in labor is called the
a. average productivity of labor.
b. marginal product of labor.
c. total product of labor.
d. marginal benefit of labor.
e. marginal cost of labor.
NAT: Supply and demand TOP: Marginal Product of Labor
55. When the production function gets flatter as the quantity of labor increases, we know
a. that marginal product of labor is rising.
b. that marginal product of labor is falling.
c. nothing about the marginal product of labor.
d. that marginal product of labor is zero.
e. that marginal product of labor goes to infinity.
ANS: B PTS: 1 DIF: moderate OBJ: conceptual
NAT: Supply and demand TOP: Diminishing Returns to Labor
56. Diminishing returns occur when the

a. marginal product of an input is positive.
b. marginal product of an input is zero.
c. marginal product of an input is decreasing.
d. total product of an input is zero.
e. total product of an input is negative.
57. The term diminishing returns to labor means that

a. the wage rate falls as a person takes on more jobs.
b. total output decreases as one more unit of labor is applied to production.
c. the market value of labor decreases as more labor is supplied.
d. increases in output decline as additional units of labor are used in production.
e. the production of labor is becoming less profitable with decreasing real wages.
Exhibit 6-1
58. Refer to Exhibit 6-1. The marginal product of the fifth unit of labor is
a. 8.
b. 28.
c. 5.
d. 2.
e. 3.
ANS: D PTS: 1 DIF: moderate OBJ: conceptual
NAT: Supply and demand TOP: Marginal Product
59. Refer to Exhibit 6-1. Diminishing returns to labor is illustrated by

a. increasing output.
b. decreasing output.
c. output increasing at a decreasing rate.
d. output increasing at an increasing rate.
e. increasing input.
60. When total product is rising, marginal product

a. must be negative.
b. must be zero.
c. must be positive.
d. can be either negative or positive.
e. must be rising as well.
NAT: Supply and demand TOP: Total Product and Marginal Product
61. Total costs are

a. variable costs plus average cost.
b. marginal cost plus average cost.
c. fixed costs plus variable costs.
d. marginal cost minus average cost.
e. fixed costs minus variable costs.
62. Total costs are the ____ variable and fixed costs.
a. quotient of
b. difference between
c. product of
d. sum of
e. difference between total revenue and the total of
63. When production increases, total costs

a. can increase or decrease in the long run.
b. always increase in the short run.
c. are constant in the long run.
d. can increase or decrease in the short run.
e. become zero.
NAT: Costs of production TOP: Total Cost
64. Costs that do not vary with output are called
a. total costs.
b. short-run costs.
c. long-run costs.
d. variable costs.
e. fixed costs.
NAT: Costs of production TOP: Fixed Costs BLM: Bloom's: Knowledge
65. Variable costs are those that

a. vary with output.
b. are fixed when output changes.
c. decrease when output increases.
d. vary with input.
e. can change even when output is constant.
NAT: Costs of production TOP: Variable Costs
66. Variable costs are generally associated with the cost of

a. machinery.
b. loan payments.
c. capital.
d. labor.
e. rental income forgone by not renting facilities to someone else.
NAT: Costs of production TOP: Variable Costs
BLM: Bloom's: Application
67. Marginal cost is

a. the change in total cost that results from hiring one more unit of labor.
b. total cost divided by total output.
c. the change in total variable cost that results from hiring one more unit of capital.
d. the change in total cost that results from hiring one more unit of capital.
e. the change in total cost that results from increasing output by one unit.
NAT: Costs of production TOP: Marginal Cost
68. The change in variable costs that results from producing one more unit of output is called
a. marginal variable cost.
b. average variable cost.
c. total variable cost.
d. marginal cost.
e. marginal product.
69. The slope of the supply curve reflects a(n)

a. increasing variable cost.
b. decreasing variable cost.
c. increasing total cost.
d. increasing marginal cost.
e. decreasing marginal cost.
70. Marginal cost begins to increase when

a. total cost falls.
b. total product falls.
c. diminishing returns begin.
d. diminishing returns end.
e. variable inputs are no longer used.
NAT: Costs of production TOP: Marginal Cost and Diminishing Returns
71. Marginal cost increases with output because

a. capital becomes increasingly difficult to work with as more units of labor utilize it.
b. marginal product increases with output.
c. increasing amounts of input must be used to produce one more unit of output.
d. total costs increase with output.
e. more input must be used to produce more output.
72. Because marginal product decreases as input is increased,

a. nothing is implied about how much input is required to produce one more unit of output.
b. it takes decreasing amounts of input to produce one more unit of output.
c. it takes increasing amounts of input to produce one more unit of output.
d. the amount of input it takes to produce one more unit of output does not change.
e. it takes zero input to produce one more unit of output.
ANS: C PTS: 1 DIF: challenging OBJ: conceptual
73. Marginal cost increases because

a. marginal product decreases.
b. the price of labor decreases.
c. marginal product increases.
d. the price of labor increases.
e. marginal product is constant.
74. When fertilizer yields diminishing returns in the production of potatoes,

a. output increases only if fertilizer input is increased.
b. additional fertilizer causes decreased production.
c. doubling fertilizer input less than doubles output.
d. marginal cost decreases as more fertilizer is added.
e. doubling fertilizer input more than doubles output.
Exhibit 6-2
75. Refer to Exhibit 6-2. The marginal cost of the second pound of bananas is
a. $25.
b. $2.
c. $3.
d. $4.
e. $0.
76. Because marginal cost increases as output increases,

a. marginal product increases at an increasing rate.
b. the total cost curve gets steeper as output increases.
c. the fixed cost curve gets steeper as output increases.
d. the total product curve gets steeper as output increases.
e. the total cost curve becomes horizontal.
ANS: B PTS: 1 DIF: challenging OBJ: conceptual
NAT: Costs of production TOP: Marginal Cost and Total Cost
77. The total cost curve

a. has a positive slope throughout.
b. has a negative slope throughout.
c. is vertical.
d. is horizontal.
e. can have a positive or negative slope throughout.
ANS: A PTS: 1 DIF: basic OBJ: conceptual
78. The slope of the total cost curve is called

a. diminishing returns.
b. marginal cost.
c. marginal product.
d. marginal benefit.
e. total product.
NAT: Efficiency and equity TOP: Marginal Cost and Total Cost
79. The slope of the total cost curve as output increases reflects
a. decreasing marginal benefit.
b. increasing marginal benefit.
c. decreasing marginal cost.
d. increasing marginal cost.
e. increasing variable cost.
80. T or F. A production function is a straight line because of diminishing returns to labor.
ANS: F PTS: 1 DIF: basic OBJ: conceptual

81. T or F. The slope of the production function turns from positive to negative when the marginal product
of labor turns from positive to negative.
ANS: F PTS: 1 DIF: challenging OBJ: conceptual

82. T or F. Diminishing returns to labor is the term used to describe what happens when output falls as
more labor is employed in a firm.

NAT: Supply and demand TOP: Diminishing Returns
83. T or F. A cost curve shows the amount of output for any given amount of input.

84. T or F. When marginal cost is positive, total cost must be rising.
ANS: T PTS: 1 DIF: moderate OBJ: conceptual

85. T or F. Marginal product decreases as labor increases because marginal cost is rising.

NAT: Costs of production TOP: Marginal Product and Marginal Cost
86. T or F. The reason for increasing marginal cost is the diminishing marginal product of labor.

NAT: Costs of production TOP: Marginal Product and Marginal Cost
87. T or F. The reason for an upward-sloping supply curve is increasing marginal cost.

NAT: Costs of production TOP: Marginal Cost and Firm's Supply
88. Define diminishing returns in production and illustrate it with the graph of a production function.
ANS:
Diminishing returns occur when an additional unit of input causes less output to be added than the
previous unit of input. This assumes that everything else is held equal. The graph illustrates output
increasing at a decreasing rate as input is added. Note that output increases less when input is changed
from I1 to I2 than it does when input changes from I0 to I1.
PTS: 1 DIF: challenging OBJ: conceptual NAT: Supply and demand

TOP: Diminishing Returns BLM: Bloom's: Comprehension
89. Explain, in words, the relationship between marginal product and marginal cost.
ANS:
Marginal product is the change in output that results when one unit of an input is added. Marginal cost
is the change in total cost that results when output is increased by one unit. It is assumed in the short
run that only one input can change in order to change output. A decrease in marginal product implies
that the amount of input needed to produce one more unit of output is increasing, which in turn means
that each additional unit of output is becoming increasingly costly to produce.
PTS: 1 DIF: challenging OBJ: conceptual NAT: Costs of production

TOP: Marginal Product and Marginal Cost
90. What is the relationship between the slope of the total cost curve and marginal cost? Explain.
ANS:
The slope of the total cost curve and marginal cost are one and the same, by definition. Slope, in
general, is rise over run. With a total cost curve, the rise is the change in the total cost curve; the run is
the change in output. Marginal cost is the change in total cost over the change in output.
PTS: 1 DIF: moderate OBJ: conceptual NAT: Costs of production

TOP: Marginal Cost BLM: Bloom's: Analysis | AACSB: Analytic
Exhibit 6-3
91. Refer to Exhibit 6-3. Calculate the marginal cost for each of these units of output: third, fifth, and
eighth.
ANS:
Third unit: $53 − $47 = $6
Fifth unit: $75 − $62 = $13
Eighth unit: $148 − $117 = $31

TOP: Marginal Cost BLM: Bloom's: Application | AACSB: Analytic
92. Refer to Exhibit 6-3. If output is 6 units, what must the output price be in order for the firm to break
even? Round to the nearest penny.
ANS:
$93/6 = $15.50

TOP: Profits BLM: Bloom's: Application | AACSB: Analytic
93. Refer to Exhibit 6-3. What is the profit-maximizing output level if output price is $16?
ANS:
5 units
Calculate total revenue at each output level and subtract total cost at the same output level.
At 5 units, (5  $16) − $75 = $5.
At 4 units, (4  $16) − $62 = $2.
At 6 units, (6  $16) − $93 = $3.
TOP: Profits BLM: Bloom's: Application | AACSB: Analytic
94. To derive a firm's supply curve, we assume that a firm chooses to produce where
a. sales are at a maximum.
b. employment is at a maximum.
c. profits are at a maximum.
d. total revenue is at a maximum.
e. total cost is at a minimum.
95. How much a firm changes its output in response to a price change is captured by the firm's
a. production function.
b. cost function.
c. function of diminishing returns.
d. supply curve.
e. demand curve.
NAT: Supply and demand TOP: Firm's Supply
Exhibit 6-4
96. Refer to Exhibit 6-4. Suppose the firm has fixed costs of $30. What is the total cost if output is 5 units?
a. $80
b. $104
c. $30
d. $50
e. $62
ANS: A PTS: 1 DIF: challenging OBJ: conceptual
NAT: Costs of production TOP: Total Cost
97. Refer to Exhibit 6-4. If output price is $14, the profit-maximizing output level is ____ units.
a. 2
b. 5
c. 3
d. 4
e. 6
98. Refer to Exhibit 6-4. Assume that fixed costs equal $30. If the price is $20, the profit that results at the
profit-maximizing output level is
a. $50.
b. $38.
c. $20.
d. −$4.
e. $80.
NAT: Supply and demand TOP: Profits BLM: Bloom's: Application
99. For a competitive firm, if any level of production results in losses, the loss-minimizing output level is
when
a. marginal product equals marginal cost.
b. marginal revenue equals marginal cost.
c. price equals marginal revenue.
d. total revenue equals total cost.
e. average revenue equals average cost.
ANS: B PTS: 1 DIF: moderate OBJ: factual
NAT: Perfect competition TOP: Loss Minimization
Exhibit 6-5
100. Refer to Exhibit 6-5. Which of the following statements is not true?
a. Fixed costs equal total costs when output equals zero.
b. The output closest to the profit-maximizing level is Q3.
c. Profit is the same at Q1 as it is at Q4.
d. Profit is equal to zero when output equals zero.
e. Marginal cost is less than marginal revenue at Q2.
101. Refer to Exhibit 6-5. At Q4,
a. total revenue is equal to zero.
b. marginal revenue is negative.
c. total profit is equal to zero.
d. total profit is negative.
e. both marginal profit and marginal cost are negative.
102. Refer to Exhibit 6-5. Profits become negative when the firm produces
a. between Q1 and Q2.
b. between Q2 and Q3.
c. between Q3 and Q4.
d. more than Q4.
e. nothing at all.
103. Refer to Exhibit 6-5. The output level most likely to maximize profit is
a. zero.
b. Q1.
c. Q3.
d. Q2.
e. Q4.
104. Marginal revenue is the change in

a. total profit from changing output by one unit.
b. total revenue as a result of changing output by one unit.
c. average revenue as a result of changing output by one unit.
d. total revenue as a result of changing input by one unit.
e. total cost as a result of changing output by one unit.
NAT: Supply and demand TOP: Marginal Revenue
105. The added revenue that comes from producing and selling another unit of a good is called
a. marginal cost.
b. price.
c. marginal product.
d. average revenue.
e. marginal revenue.
106. For a single competitive firm, marginal revenue is equivalent to
a. marginal product.
b. marginal cost.
c. total revenue.
d. output price.
e. the sum of all input prices.
NAT: Supply and demand TOP: Marginal Revenue and Price
107. If price is greater than marginal cost and output is infinitely divisible, then
a. decreasing output decreases revenue less than it decreases cost.
b. increasing output increases revenue more than it increases cost.
c. increasing output increases revenue less than it increases cost.
d. decreasing output increases revenue more than it increases cost.
e. increasing output has no effect on revenue and cost.
ANS: B PTS: 1 DIF: challenging OBJ: conceptual
108. To maximize profits, a competitive firm increases its output as long as

a. total revenue is greater than total cost.
b. total revenue is less than total cost.
c. marginal revenue is less than marginal cost.
d. marginal revenue is greater than marginal cost.
e. marginal revenue is positive.
NAT: Perfect competition TOP: Profit Maximization
109. If a competitive firm continues to produce when marginal revenue is less than marginal cost, then each
additional unit of output
a. maximizes profits or minimizes losses.
b. minimizes losses.
c. reduces total profit.
d. increases total profit.
e. increases both total costs and total revenue.
110. When output changes, the profit-maximizing firm must consider

a. only whether output price is affected.
b. only how much total revenue is affected.
c. the change in marginal cost only.
d. only how much total cost is affected.
e. how much both total cost and total revenue are affected.
111. When marginal cost is greater than marginal revenue, then a profit-maximizing firm must
a. increase output.
b. hold output constant.
c. decrease output.
d. stop production.
e. reduce the price it charges.
112. T or F. A competitive firm's marginal revenue curve is the same as its demand curve.

113. For a competitive firm, profit maximization occurs when

a. price equals marginal revenue.
b. price equals marginal cost.
c. marginal revenue equals total cost.
d. marginal cost equals total cost.
e. total revenue equals total cost.
114. Which of the following statements is true for any profit-maximizing firm?
a. The firm will produce at the level of output where price equals marginal revenue.
b. The firm will produce at the level of output where price equals marginal cost.
c. The firm will produce at the level of output where marginal revenue equals marginal cost.
d. The firm will produce at the level of output where marginal revenue is maximized.
e. The firm will produce at the level of output where marginal cost is minimized.
115. Which of the following is true for a profit-maximizing firm in a competitive market?
a. Marginal cost is greater than marginal revenue and price.
b. Marginal cost is greater than marginal revenue but less than price.
c. Marginal cost is less than marginal revenue but higher than price.
d. Marginal cost equals price but is less than marginal revenue.
e. Marginal cost equals marginal revenue and price.
116. For a competitive firm, which of the following is false?

a. Marginal cost is constant as output changes.
b. Marginal revenue equals price.
c. Profit is maximized when price equals marginal cost.
d. Profit is maximized when marginal revenue equals marginal cost.
e. Producer surplus is zero.
117. T or F. A firm maximizes losses when its output level is where marginal product equals marginal cost.

NAT: Supply and demand TOP: Loss Minimization
118. T or F. The firm's supply curve is its marginal cost curve.

119. T or F. The competitive firm sets output to equal output price and marginal cost.

120. T or F. Profit maximization in a competitive market implies that output price equals marginal revenue
and marginal cost.

121. A competitive firm's supply curve is

a. output price.
b. its marginal cost curve.
c. its total revenue curve.
d. its total cost curve.
e. its marginal revenue curve.
122. The curve that indicates how much output a profit-maximizing competitive firm will produce at any
given price is the
a. marginal revenue curve.
b. total revenue curve.
c. marginal cost curve.
d. total cost curve.
e. fixed cost curve.
ANS: C PTS: 1 DIF: moderate OBJ: factual
NAT: Perfect competition TOP: Firm's Supply
123. If the market price of a good is $3, then a profit-maximizing competitive firm will produce
a. after its marginal cost exceeds $3.
b. until its marginal cost reaches $3.
c. after its marginal revenue exceeds $3.
d. until its marginal revenue reaches $3.
e. nothing at all.
ANS: B PTS: 1 DIF: basic OBJ: conceptual
NAT: Perfect competition TOP: Firm's Supply
124. The reason the firm's supply curve slopes upward is because its
a. total cost curve slopes upward.
b. market supply curve slopes upward.
c. total revenue curve slopes upward.
d. marginal cost curve slopes upward.
e. marginal product curve slopes upward.
ANS: D PTS: 1 DIF: basic OBJ: conceptual
125. T or F. The supply curve obtained from the relationship between profits and production is different
from the supply curve obtained from the relationship between price and marginal cost.

126. T or F. The approach based on the relationship between price and marginal cost brings about the same
supply curve as what is implied by the approach based on profit maximization.
ANS: T PTS: 1 DIF: moderate OBJ: conceptual | factual

127. Explain why the firm's supply curve is its marginal cost curve.
ANS:
A supply curve indicates how much a firm is willing to produce at any given price. To maximize
profit, the firm must equate marginal cost and output price, and it does this by adjusting output. Thus,
for any given price, the firm sets output so that price equals marginal cost, and for any given price, the
firm is producing a quantity consistent with the marginal cost curve.

TOP: Marginal Cost and Firm's Supply BLM: Bloom's: Analysis | AACSB: Analytic
128. What is the profit-maximization rule? Explain why profit is maximized when the rule is met.
ANS:
Setting output so that price equals marginal cost is the profit-maximization rule. Price is assumed to be
constant, whereas marginal cost is always increasing. If output is reduced from the level described by
the rule, revenue falls more than total cost and profit falls. If output is increased, revenue rises less
than total cost and profit falls. Therefore, profit is maximized.

TOP: Profit Maximization BLM: Bloom's: Analysis | AACSB: Analytic
129. Draw a graph of total revenue and total cost for a competitive firm that is maximizing profit but just
breaking even. Mark the profit-maximizing output level.
ANS:
PTS: 1 DIF: moderate OBJ: conceptual NAT: Supply and demand

TOP: Profit Maximization BLM: Bloom's: Knowledge | AACSB: Analytic
Exhibit 6-6
130. Refer to Exhibit 6-6. Let market price be $15 and fixed costs be $5. Calculate the profit at the
profit-maximizing output level.
ANS:
$23
The profit-maximizing output level is 4 units because price is greater than $13 and the fourth unit has a
marginal cost nearest to $15.
Profit at 4 units:
(4  $15) − ($4 + $6 + $9 + $13 + $5) = $60 − $37

TOP: Profit Maximization BLM: Bloom's: Application | AACSB: Analytic
131. Refer to Exhibit 6-6. Let market price be $10 and fixed costs be $13. Calculate the difference between
revenue and total costs at the output the profit-maximizing firm will produce.
ANS:
−$2
The loss-minimizing output level is 3 units.

TR − TC = (3  $10) − ($4 + $6 + $9 + $13) = $30 − $32

TOP: Loss Minimization BLM: Bloom's: Application | AACSB: Analytic
132. The market supply curve is obtained by summing

a. quantities produced by all firms at different prices.
b. total profits made by all firms at different quantities of output.
c. quantities produced by all firms at different prices and dividing by the number of firms.
d. prices charged by all firms for any given quantity.
e. marginal revenue curves of all firms in the market.
NAT: Supply and demand TOP: Market Supply
133. Due to the indivisibility of output,

a. market supply must be rougher than the individual firm's supply curve.
b. market supply can be smoother than the individual firm's supply curve.
c. an individual firm's supply curves cannot be summed.
d. it is impossible to obtain a valid market supply curve.
e. market supply is always equal to any individual firm's supply.
134. If the marginal cost curves of all the firms in an industry are horizontally summed, one obtains
a. market demand.
b. total industry cost.
c. nothing of value.
d. market supply.
e. total fixed costs.
135. Which of the following statements concerning the slope of market supply is false?
a. Market supply usually gets steeper as output increases.
b. The slope of a market supply curve depends on the slopes of individual marginal cost
curves.
c. The steeper marginal cost curves are for individual firms, the steeper market supply will
be.
d. The slope of market supply is somewhat dependent on the shape of the market demand
curve.
e. Individual marginal cost curves have positive slopes, and so does market supply.
ANS: D PTS: 1 DIF: basic OBJ: conceptual
NAT: Supply and demand TOP: Slope of Market Supply
136. An improvement in production technology shifts marginal cost

a. downward and does not affect market supply.
b. and market supply downward.
c. and market supply upward.
d. downward and shifts market supply upward.
e. upward and shifts market supply downward.
NAT: Supply and demand TOP: Supply Shifts
137. When more producers enter a competitive market, the market supply curve
a. shifts to the right.
b. shifts to the left.
c. does not shift.
d. always becomes steeper.
e. always becomes flatter.
138. If the market wage increases, marginal cost shifts ____ and market supply ____.
a. upward; decreases
b. downward; decreases
c. upward; increases
d. downward; increases
e. upward and then downward; remains unchanged
139. T or F. The market supply curve is obtained by summing the total costs of all firms in the market.

140. T or F. The market supply curve tends to get steeper as output increases.
ANS: T PTS: 1 DIF: moderate OBJ: factual

NAT: Supply and demand TOP: Slope of Market Supply
141. T or F. If a firm leaves an industry, all else held equal, the market supply curve shifts left.

NAT: Supply and demand TOP: Market Supply Shift
142. T or F. If marginal cost increases, then the market supply curve shifts to the left.

NAT: Supply and demand TOP: Market Supply Shift
143. Explain what happens to market supply when a new firm enters a market, holding everything else
equal.
ANS:
The market supply is the horizontal summation of individual firm supplies. When a new firm enters
the market, its supply is added to the former market supply and shifts market supply to the right. So a
new firm in a market increases supply, even if it's just by a little bit.

TOP: Market Supply BLM: Bloom's: Analysis | AACSB: Analytic
144. Why does it not make sense to sum individual firms' supply prices at every quantity rather than
summing individual firms' supply quantities at every price?
ANS:
The individual supply curve tells how much each firm is willing to produce for any given price. With
market supply, we want to know how much will be produced in the market at any given price.
Therefore, we sum how much each of the firms in the market will produce at a given price to get
market quantity supplied. Summing price at each quantity makes no sense given the nature of the
supply decision on the part of the firm.

TOP: Market Supply BLM: Bloom's: Analysis | AACSB: Analytic
145. Suppose a firm's supply curve can be expressed by the following equation: Q = .5P. Also suppose that
there are 30 identical firms in a market. Write the equation for the market supply curve.
ANS:
Q = 15P
Each of the 30 firms produces output of .5P at any given price. Therefore, the 30 firms together will
produce 30 times .5P at any given price; that is, Q = 30(.5P).

TOP: Market Supply BLM: Bloom's: Application | AACSB: Analytic
146. Suppose each firm in a market with 200 identical firms has a supply curve given by the following
equation: q = −3 + .25P. How much will each firm produce when price is $25? What will be the
market output at that price?
ANS:
3.25; 650
Firm production: q = −3 + .25(25) = −3 + 6.25

Production in the market: 200(−3 + 6.25)
TOP: Market Supply BLM: Bloom's: Application | AACSB: Analytic
147. Suppose a firm receives $10 for selling one additional unit of its product but that additional unit costs
the firm $1 to produce. The producer surplus for the additional unit of product is
a. $1.
b. $5.5.
c. $9.
d. $11.
e. $110.
NAT: Supply and demand TOP: Producer Surplus
148. Producer surplus is the

a. difference between the quantity supplied and the quantity demanded when price is above
equilibrium.
b. quantity of a good a producer cannot sell at the price he or she is asking.
c. difference between the quantity produced in the market at a given price and the amount
produced by a single firm at that price.
d. difference between the market price of an item and what people are willing to pay.
e. difference between the market price and the minimum amount of money a producer will
accept for his or her product.
ANS: E PTS: 1 DIF: moderate OBJ: factual
149. Other things being equal, when the market price increases, the producer surplus
a. increases.
b. decreases.
c. remains the same.
d. increases and then decreases.
e. cannot be determined given the available information.
150. The difference between the market price of a good and a producer's marginal cost of every unit of the
good is called
a. consumer surplus.
b. producer surplus.
c. marginal surplus.
d. excess supply.
e. market surplus.
Exhibit 6-7
151. Refer to Exhibit 6-7. If market price is $18, producer surplus for the profit-maximizing firm is
a. $14.
b. $15.
c. $13.
d. $8.
e. $11.
152. Refer to Exhibit 6-7. If market price increases from $18 to $20, then producer surplus for the
profit-maximizing firm
a. increases by $2.
b. decreases by $2.
c. increases by $7.
d. decreases by $1.
e. does not change.
153. Refer to Exhibit 6-7. Which of the following statements is false?

a. If market price is $20 and output is 6 units, producer surplus is −$7.
b. If market price is $10, producer surplus is the same whether output is zero or 1 unit.
c. If market price is $20 and 5 units are produced, producer surplus will increase if
production is decreased one unit.
d. If market price is $16, producer surplus is the same when 3 units are produced as when 2
units are produced.
e. If market price is $17 and 4 units are produced, producer surplus will increase if
production is decreased by 1 unit.
154. If supply is perfectly elastic,

a. producer surplus is equal to zero.
b. an increase in demand decreases producer surplus.
c. an upward shift of supply decreases producer surplus.
d. a downward shift of supply decreases producer surplus.
e. no output is produced.
155. Which of the following does not affect producer surplus in the short run?
a. Supply shifts to the left.
b. A price ceiling below equilibrium is imposed by government.
c. Wages paid to labor increase.
d. Demand shifts to the right.
e. Fixed costs for the typical firm increase.
ANS: E PTS: 1 DIF: challenging OBJ: conceptual
Exhibit 6-8
156. Refer to Exhibit 6-8. Producer surplus in the market is illustrated by area
a. A + B.
b. B.
c. A.
d. A + B − C.
e. C.
157. Refer to Exhibit 6-8. Total industry profits are illustrated by

a. area B.
b. nothing; nothing in the figure illustrates industry profits.
c. area C.
d. area A.
e. area A + B.
158. Refer to Exhibit 6-8. Total revenue in the market is illustrated by area
a. B.
b. B + C.
c. A.
d. A + B.
e. C.
159. T or F. Producer surplus is the difference between the marginal cost of an item and the price received
for it.
ANS: T PTS: 1 DIF: basic OBJ: conceptual

160. T or F. In a market diagram, producer surplus is shaped like a triangle bounded by the vertical axis, the
demand curve, and the supply curve.

161. T or F. Other things being equal, an increase in marginal cost reduces producer surplus.

162. T or F. An increase in market demand has no effect on producer surplus because producer surplus is
related to supply.

163. Profit is usually ____ producer surplus for a firm.

a. less than
b. double
c. greater than
d. half of
e. the same as
NAT: Supply and demand TOP: Producer Surplus and Profit
164. The difference between producer surplus and economic profit is

a. marginal cost.
b. average fixed cost.
c. variable costs.
d. fixed costs.
e. total costs.
165. Which of the following formulas is not a valid characterization of producer surplus?
a. Total revenue − the sum of marginal costs
b. Profit + fixed costs
c. Profit − marginal costs
d. Total revenue − (total costs − fixed costs)
e. (P − MC1) + (P − MC2) + (P − MC3) + J + (P − MCQ), where Q = quantity produced and
sold
166. Producer surplus equals profits

a. plus the sum of marginal costs.
b. minus the sum of marginal costs.
c. plus total fixed costs.
d. minus total fixed costs.
e. minus total costs.
167. T or F. The difference between producer surplus and profits for a single firm is fixed costs.
ANS: T PTS: 1 DIF: moderate OBJ: factual

168. T or F. Producer surplus equals total revenues minus total costs.

169. T or F. Producer surplus is just an economist's technical name for profit.

170. Where does producer surplus get its name? That is, why do economists call it a surplus?
ANS:
Producer surplus is the difference between the price received by a firm for an additional item sold and
the marginal cost of the item produced. It is the area below the market price and the market supply
curve. But the price is more than marginal cost, it is called a surplus.
TOP: Producer Surplus BLM: Bloom's: Knowledge | AACSB: Analytic
171. Explain the difference between profit and producer surplus.
ANS:
Profit is total revenue (TR + P  q) minus total cost (FC + VC). Producer surplus is total revenue
minus the sum of marginal cost for every unit produced. The sum of the marginal costs equals variable
costs (VC). To sum up:
Profit = TR − (FC + VC)

Producer surplus = TR − VC
The difference between these two equations is FC, which represents fixed costs.

TOP: Producer Surplus BLM: Bloom's: Analysis | AACSB: Analytic
172. Suppose a firm's supply curve can be expressed as −4 + 2P. Calculate the firm's producer surplus when
price is $25.
ANS:
$529
Firm output is −4 + 2(25) = 46.

Supply vertical intercept is 2 because the inverse demand is P = 4/2 + 1/2Q.
Producer surplus is 1/2(25 − 2)(46).

TOP: Producer Surplus BLM: Bloom's: Application | AACSB: Analytic
Exhibit 6-9
173. Refer to Exhibit 6-9. Calculate the producer surplus.
ANS:
$810
Producer surplus = 1/2(23 − 5)(90) = 9  90

TOP: Producer Surplus BLM: Bloom's: Application | AACSB: Analytic
174. Name one industry in which firms are price-takers. Name one industry in which firms are not
price-takers. Suppose you set up a business where you sell lemonade on a street. Would you be a
price-taker or a price-maker?
ANS:
One industry in which firms are price-takers is peanut production because peanuts are homogenous.
One industry in which firms are not price-takers is peanut butter, which is simply different among
different brands. Selling lemonade on a street would make you a price-taker if there were many other
sellers, but you would be a price-maker if you can differentiate your lemonade from the lemonade sold
by others.

TOP: Price-Taker BLM: Bloom's: Application | AACSB: Analytic
175. What is the assumption of a competitive market and what are the implications of this assumption?
Provide one example of this type of market.
ANS:
In a competitive market, there are many firms such that individual firms have no ability to affect the
price that prevails in the market. As a result, the firm becomes a price-taker, meaning it cannot charge
a price far from the price that other firms are charging in the market without losing all its customers. A
good example is the commodity market, such as wheat and corn, where the product is homogenous
and there is a large number of sellers so that no one seller can control the market price.

TOP: Price Takers BLM: Bloom's: Application | AACSB: Analytic
176. What are the two primary inputs in today's production? Which one of these inputs is variable and
which one is fixed?
ANS:
The primary inputs are labor and capital. Labor is commonly considered a variable input and capital is
a fixed input.
PTS: 1 DIF: basic OBJ: factual NAT: Costs of production

TOP: Variable Factor BLM: Bloom's: Knowledge
177. Compute the total revenue, total costs, and profits when the price of a crate of grapes is $80. How
many crates of grapes will maximize profits? How does the answer compare to the price equals
marginal cost condition?
ANS:
In this example, profit is being maximized when 3 or 4 crates of grapes are produced. Marginal
revenue (price) is equal to marginal cost when grape production equals 4 crates. Profits are being
maximized at this level of output.
178. The table below shows the total costs of producing cherries on a small plot of land.
(A) Calculate the marginal cost schedule.

(B) Draw the farmer's supply curve.
(C) Suppose the price of one pound of cherries is $2. How much would this farmer produce?
Show graphically the area of producer surplus. What are profits?
(D) Suppose the price of cherries goes up to $6 per pound. How much will the farmer
produce now? What are profits now?
ANS:
(A)
(B)
(C) At $2 per pound, the farmer will produce 2 pounds of cherries, resulting in a revenue of
$4. However, the cost of producing 2 pounds of cherries is $10. Therefore, profit is −$6.
(D) At $6 per pound, the farmer will produce 5 pounds of cherries, resulting in a revenue of
$30. The cost of producing 5 pounds of cherries is $25. In this case, profit is $5.

TOP: Supply Curve BLM: Bloom's: Application | AACSB: Analytic
179. Suppose a price-taking firm has the following total cost schedule:
(A) Calculate marginal cost. If the price in the market is $15, how many units will the firm
produce?
(B) Suppose the price in the market falls to $10 per unit. How many units of output will this
firm produce in order to maximize profits?
(C) Suppose there is an improvement in technology that shifts total costs down by $10 at
every level of production. How much will the firm produce, and what will profits be at a
price of $15 and at a price of $5?
ANS:
(A)
The firm will produce 3 units of output when the price is $15.
(B) The profit-maximizing level of output at $10 per unit is 2 units of output. At this level,
total revenue equals $20 and total costs equal $30. Notice that this is actually the
loss-minimizing level of output. The firm should stay in business, even though it is
losing $10. The amount lost at producing 2 units of output is less than the amount the
firm would lose if it were not producing at all or if it would produce at any other level of
output.
(C) Marginal cost would not be altered by this cost-lowering technological change; the firm's
output decision would not be altered. However, the level of profit will change. When the
price is $15, the amount of profit from producing 3 units equals $10. When the price is
$5, the loss equals $5.

TOP: Cost Structure of a Firm BLM: Bloom's: Application | AACSB: Analytic
180. The table below shows the cost schedule for Walworth Baker.
(A) Calculate the marginal cost schedule for Walworth Baker.

(B) Draw the firm's supply curve.
(C) Walworth Baker can sell as many muffins as it wants⎯at the market price $4 for a dozen
muffins. How many muffins will this bakery sell each day? Use your diagram to show
how much producer surplus the bakery receives.
ANS:
(A)
(B)
(C) Walworth Baker will sell 3 dozen muffins when the price per dozen is $4. The producer
surplus is shown in the shaded area in the diagram above.

TOP: Marginal Cost and Supply BLM: Bloom's: Application | AACSB: Analytic
181. Suppose you are able to babysit at $10 per hour. The only cost to you is the opportunity cost of your
time. For the first 2 hours, the opportunity cost of your time is $7 per hour. But after 2 hours, the
opportunity cost of your time rises to $13 because of other commitments. Draw the marginal cost to
you of babysitting. Draw in the price you receive for babysitting. For how long will you babysit?
Calculate your producer surplus.
ANS:

TOP: Marginal Cost and Producer Surplus
182. Consider the information in the table below:

Test Bank for Principles of Microeconomics, 7th Edition : Taylor
Plot the total revenue and total cost curves for this firm. What is the maximum economic profit this
firm can earn? How much will the entrepreneur earn when the firm is maximizing profits? Do the
slopes of the two curves appear to be the same at the maximum profit level?
ANS:
Profits are being maximized at 3 units of output. Notice that the economic profit at this level is 20. The
slopes of the two curves appear to be the closest at the maximum profit level.

183. Refer to the table below. Find the fixed costs and the producer surplus when the firm produces the
profit-maximizing quantity. What is the relationship between producer surplus and fixed costs?
ANS:
The fixed costs are $80, which equals the amount of total costs when the quantity of production is
zero. The profit-maximizing quantity of output is 3 units. The producer surplus is $100, which is the
sum of fixed cost ($80) and the maximum profit ($20).

TOP: Fixed Costs and Producer Surplus BLM: Bloom's: Application | AACSB: Analytic
Visit TestBankBell.com to get complete for all chapters

Test Bank For Principles of Microeconomics 7th Edition Taylor

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Test Bank For Principles of Microeconomics 7th Edition Taylor

Uploaded by

Copyright:

Available Formats

Test Bank for Principles of Microeconomics, 7th Edition : Taylor

Test Bank for Principles of Microeconomics, 7th

To download the complete and accurate content document, go to:

Visit TestBankBell.com to get complete for all chapters

1. Which of the following is an example of a firm?

3. The three basic types of businesses in the United States are

4. Partnerships differ from sole proprietorships because partnerships

5. The owner of a sole proprietorship

7. Stock shares are issued by

8. The owner often also acts as the manager in

9. A corporation differs from other forms of businesses because it

10. T or F. A firm is one of the terms for a business organization.

ANS: T PTS: 1 DIF: basic OBJ: factual

ANS: F PTS: 1 DIF: basic OBJ: factual

12. T or F. All types of firms suffer from managerial conflicts.

ANS: F PTS: 1 DIF: moderate OBJ: conceptual

13. T or F. Most firms in the United States are sole proprietorships.

ANS: T PTS: 1 DIF: basic OBJ: factual

15. Which of the following is typically a variable factor of production?

16. T or F. Land is commonly considered a fixed factor of production.

ANS: T PTS: 1 DIF: basic OBJ: factual

ANS: T PTS: 1 DIF: basic OBJ: factual

19. A competitive market is

21. An individual firm in a competitive market

23. Which of the following statements is true?

24. In a competitive market, price is taken as given by

ANS: F PTS: 1 DIF: moderate OBJ: conceptual

ANS: T PTS: 1 DIF: basic OBJ: factual

ANS: T PTS: 1 DIF: basic OBJ: factual

ANS: F PTS: 1 DIF: basic OBJ: factual

29. Why is an individual firm in a competitive market a price-taker?

PTS: 1 DIF: moderate OBJ: conceptual NAT: Perfect competition

30. What is the major characteristic of a competitive market?

PTS: 1 DIF: basic OBJ: conceptual NAT: Perfect competition

31. A market that includes only a single firm is called a(n)

32. In contrast with a firm in a competitive market, a monopoly is able to control

ANS: F PTS: 1 DIF: basic OBJ: factual

34. T or F. A monopoly is a price-maker.

ANS: T PTS: 1 DIF: basic OBJ: factual

35. Why is a monopoly a price-maker?

PTS: 1 DIF: moderate OBJ: factual NAT: Monopoly

36. In economics, firms are assumed to

38. By definition, profits are

39. If total revenue is less than total costs, then

40. T or F. In economics, the main objective of a firm is to maximize customer satisfaction.

ANS: F PTS: 1 DIF: basic OBJ: factual

ANS: F PTS: 1 DIF: basic OBJ: factual

42. T or F. By definition, a profit-maximizing firm is a monopoly.

ANS: F PTS: 1 DIF: moderate OBJ: factual

43. T or F. Revenue is the only factor that affects profits.

ANS: F PTS: 1 DIF: basic OBJ: factual

45. Holding everything else equal, total revenue increases

46. In moving down along a demand curve, total revenue

48. T or F. Total revenue is the price of a good times its quantity.

ANS: T PTS: 1 DIF: basic OBJ: factual

49. T or F. Total revenue always increases if price increases.

50. Total costs include all of the following except

51. Production in the short run requires

52. A production function shows the relationship between

56. Diminishing returns occur when the

57. The term diminishing returns to labor means that

59. Refer to Exhibit 6-1. Diminishing returns to labor is illustrated by

60. When total product is rising, marginal product