Question: If marginal cost is less than average total cost, then average total cost must be increasing.

Answer Options:

True
False

Answer: False

 

Question: All businesses will eventually experience decreasing returns to scale (DRTS), meaning that average total costs will increase as output is expanded in the long-run.

Answer Options:

True
False

Answer: False

 

Question: Which of the following best describes the profit-maximizing condition (rule) for a perfectly competitive firm?

Answer Options:

Produce at a point for which marginal revenue is greater than (or equal to) marginal costs.
Produce up to the point of diminishing marginal returns.
Produce where average total costs are minimized.
Produce all units for which marginal revenue is equal to market price.

Answer: Produce all units for which marginal revenue is equal to market price.

 

Question: Use the following information for a representative perfectly competitive firm to answer this question. Minimum ATC = $19 Minimum AVC = $15 Current market equilibrium price (P*) = $18 (* assume opportunity costs are included in fixed costs) This firm is earning…

Answer Options:

Positive (economic) profit.
Negative (economic) profit.
Zero (economic) profit.
Maximum (economic) profit.

Answer: Negative (economic) profit.

 

Question: Which of the following describes the transition toward “market saturation” (long-run competitive equilibrium) in competitive markets?

Answer Options:

As businesses expand, costs increase. This causes higher prices and lower demand.
As a market expands due to increased competition, prices naturally rise. This causes consumers to look for substitutes.
The demand for new products eventually fades, and the market stops attracting new businesses.
Positive profits draw new businesses into the market. Negative profits force some businesses out of the market.

Answer: Positive profits draw new businesses into the market. Negative profits force some businesses out of the market.

 

Question: Suppose that economic profits in the retail e-cigarette market are positive. In the long-run, we would expect firms to (enter, decrease) this market, which will cause market price to (rise, decrease). Assuming no change in demand, after this movement of firms, economic profits will be (zero, positive, negative) for firms in this market.

Answer Options:

enter, decrease, higher
enter, decrease, lower
exit, increase, higher
exit, decrease, lower

Answer: enter, decrease, zero

 

Question: Use the following information for a representative perfectly competitive firm to answer this question. Minimum ATC = $19 Minimum AVC = $17 This firm should “shut down” and produce zero output if market price is…

Answer Options:

greater than $19
greater than $17
less than $19
less than $17

Answer: less than $17

 

Question: Consider the following data for farmer John who sells tomatoes in a perfectly competitive market. Assume the current market price for tomatoes is $9.00 per bushel, and costs change with quantity as given below.

Answer Options:

Q (bushels) Fixed Costs Variable Costs
0 200 0
100 200 500
200 200 900
300 200 1200
400 200 1400
500 200 1800
600 200 1500
700 200 2500
800 200 3400
900 200 4400
How many bushels should John produce to maximize profit? Hint: Apply the profit-maximizing rule.

Answer: 800

 

Question: If the marginal cost of producing the 25th unit of output is $10 and the marginal cost of producing the 26th unit is $12, then the business is operating at a level of production that is past the point of diminishing marginal product.

Answer Options:

True
False

Answer: True

 

Question: In the long-run, a competitive firm should stay in the market if market price is above average total costs.

Answer Options:

True
False

Answer: True

 

Question: Suppose that when a business sells 300 units of output, total cost is equal to $1800 and total revenue is equal to $2100. When the business sells 301 units, total cost is equal to $1812 and total revenue is equal to $2110. This business (should, should not) produce the 301st unit of output because (marginal cost is greater than, marginal revenue is greater than, price is greater than, price is less than) marginal (cost, revenue).

Answer Options:

should not, marginal cost, marginal revenue
should not, marginal revenue, marginal cost
should, marginal cost, marginal revenue
should, marginal revenue, marginal cost
should, price, average total cost

Answer: should, marginal revenue, marginal cost

 

Question: Which of the following are reasons why a firm might experience increasing returns to scale (IRTS)? (choose all that are correct)

Answer Options:

Large firms use more labor and more management, which can lead to efficiency gains through specialization.
Large firms produce enough output to justify the use of high-tech capital equipment, which is often more efficient.
Large firms have fewer layers of management, which leads to faster decision-making.
Large firms have more consumers, which means they will be able to charge more than smaller firms.

Answer: Large firms use more labor and more management, which can lead to efficiency gains through specialization. Large firms produce enough output to justify the use of high-tech capital equipment, which is often more efficient.

 

Question: What is the endocrine system?

Answer Options:

A system in the brain that controls the senses that deal with vision and hearing.
A system of glands that controls the release of hormones into the bloodstream.
A system that controls the body’s response to stress.
A system that regulates the release of endorphins and other feel-good chemicals in the brain.

Answer: A system of glands that controls the release of hormones into the bloodstream.

 

Question: What are the two types of nervous systems?

Answer Options:

None of the above
Lateral and Anterior
Peripheral and Central
Upper and Lower

Answer: Peripheral and Central

 

Question: The ovaries and testes mediate sexual motivation, sexual behavior, and reproduction.

Answer Options:

True
False

Answer: True

 

Question: The brain, spinal cord, and nerves make up the central nervous system.

Answer Options:

True
False

Answer: False

 

Question: What are four classes of drug categories?

Answer Options:

Caffeine, Depressants, Cannabis, Stimulants
Stimulants, Sedative-Hypnotics (Depressants), Opiates, Hallucinogens
Stimulants, Downers, Medication, Meth
None of the above

Answer: Stimulants, Sedative-Hypnotics (Depressants), Opiates, Hallucinogens

 

Question: What class of drug suppresses the central nervous system activity?

Answer Options:

Hallucinogens
Stimulant
Opiates
Depressant

Answer: Depressant