Question 1

Which of the following is not a potential source of economies of scale?

Accepted Answer

A)   negotiating cheaper inputs with suppliers
B)   labour specialisation
C)   reduced input requirements
D)   specialisation in capitalE) B) and D)
F) All of the above

Question 2

Which of the following statements is FALSE?

Accepted Answer

A)   The length of time that the short run lasts will vary from firm to firm and industry to industry.
B)   In the short run there is at least one fixed factor of production.
C)   In the short run at least one input is variable.
D)   Labour can never be fixed in the short run.E) B) and C)
F) None of the above

Question 3

A firm that is a price taker:

Accepted Answer

A)   has a downward negatively sloped average revenue curve
B)   has a downward negatively sloped marginal revenue curve
C)   has a horizontal marginal revenue curve
D)   has a horizontal total revenue curveE) A) and B)
F) B) and D)

Question 4

Which of the following defines profit satisficing?

Accepted Answer

A)   when profits are the only objective of a firm
B)   where satisfactory profits are insufficient
C)   when a firm is unable to maximise profits and so simply accepts whatever profit level it can achieve
D)   where decision makers in a firm aim to for a target level of profit rather than the absolute maximum levelE) B) and C)
F) C) and D)

Question 5

Where jobs are broken down into simple tasks this is called:

Accepted Answer

A)   container principle
B)   diminishing returns
C)   specialisation and division of labour
D)   indivisibilitiesE) C) and D)
F) A) and B)

Question 6

Diminishing marginal returns implies:

Accepted Answer

A)   decreasing average fixed costs
B)   decreasing average variable costs
C)   increasing marginal costs
D)   decreasing marginal costsE) A) and D)
F) None of the above

Question 7

A firm that is making normal profits in the long run will have an incentive to:

Accepted Answer

A)   remain in production
B)   produce a different product
C)   expand output
D)   shut downE) A) and C)
F) A) and B)

Question 8

Spreading overheads means increasing output in order to reduce AVC.

Accepted Answer

A) True 
 B)False

Question 9

The shape of the marginal cost curve directly relates to the law of diminishing returns.

Accepted Answer

A) True 
 B)False

Question 10

The formula for total cost is:

Accepted Answer

A)   TC = TFC + AVC
B)   TC = ATC + TVC
C)   TC = AFC + AVC
D)   TC = TFC + TVCE) A) and B)
F) None of the above

Question 11

A firm is producing 100 units, which is its profit- maximising quantity. The price is $3, the total fixed costs are $40 and the average variable cost for each unit is $1.20. The firm's opportunity costs of being in business are included in both the fixed and variable costs. The firm's supernormal profit is:

Accepted Answer

A)   $140
B)   $0
C)   - $60
D)   $180E) C) and D)
F) B) and D)

Question 12

Using an average total cost curve, show all possible average cost outcomes when a firm increases its scale of production, explaining the causes of these possible outcomes.

Accepted Answer

The long- run ATC curve initially declin...

Question 13

Diminishing marginal returns relates to the:

Accepted Answer

A)   rate at which output increases in the short run
B)   way output decreases when we add more variable inputs in the short run
C)   rate of substitution of one input for another
D)   way output increases less than proportionately to all inputsE) A) and B)
F) B) and D)

Question 14

Suppose Bill's Bike Works experiences economies of scale up to a certain output and diseconomies of scale beyond that output. Its long- run average cost curve is likely to:

Accepted Answer

A)   slope downwards to the right
B)   be horizontal
C)   be U- shaped
D)   slope upwards to the rightE) C) and D)
F) B) and D)

Question 15

Why should a firm increase output when marginal revenue is greater than marginal cost?

Accepted Answer

When marginal revenue (MR) is greater th...

Question 16

If a firm faces a downward- sloping demand curve the marginal revenue curve will be__________ and lay ___________ the demand curve.

Accepted Answer

A)   downward sloping; above
B)   horizontal; above
C)   horizontal; below
D)   downward sloping; belowE) None of the above
F) B) and C)

Question 17

If marginal revenue is greater than marginal cost, profit will be maximised.

Accepted Answer

A) True 
 B)False

Question 18

In the long run, a firm will continue to produce:

Accepted Answer

A)   if it earns abnormal profit
B)   if it earns normal profit
C)   if it earns supernormal profit
D)   if it earns above normal profitE) B) and D)
F) All of the above

Question 19

Firms must make enough profits to survive, but this does not make them profit maximisers.

Accepted Answer

A) True 
 B)False

Question 20

Where the firm is a price taker, both marginal revenue and average revenue are equal to price.

Accepted Answer

A) True 
 B)False

Exam 4: Background to Supply

Which of the following statements is FALSE?

Correct Answer
verified

A firm that is making normal profits in the long run will have an incentive to:

Correct Answer
verified

Firms must make enough profits to survive, but this does not make them profit maximisers.

Correct Answer
verified

Using an average total cost curve, show all possible average cost outcomes when a firm increases its scale of production, explaining the causes of these possible outcomes.

Correct Answer
verified
The long- run ATC curve initially declin...
View Answer

If a firm faces a downward- sloping demand curve the marginal revenue curve will be and lay _ the demand curve.

Correct Answer
verified

Where jobs are broken down into simple tasks this is called:

Correct Answer
verified

Diminishing marginal returns relates to the:

Correct Answer
verified

Spreading overheads means increasing output in order to reduce AVC.

Correct Answer
verified

Diminishing marginal returns implies:

Correct Answer
verified

A firm that is a price taker:

Correct Answer
verified

If marginal revenue is greater than marginal cost, profit will be maximised.

Correct Answer
verified

Suppose Bill's Bike Works experiences economies of scale up to a certain output and diseconomies of scale beyond that output. Its long- run average cost curve is likely to:

Correct Answer
verified

Where the firm is a price taker, both marginal revenue and average revenue are equal to price.

Correct Answer
verified

Correct Answer
verified

Which of the following defines profit satisficing?

Correct Answer
verified

Why should a firm increase output when marginal revenue is greater than marginal cost?

Correct Answer
verified
When marginal revenue (MR) is greater th...
View Answer

The shape of the marginal cost curve directly relates to the law of diminishing returns.

Correct Answer
verified

The formula for total cost is:

Correct Answer
verified

In the long run, a firm will continue to produce:

Correct Answer
verified

Which of the following is not a potential source of economies of scale?

Correct Answer
verified

Exam 4: Background to Supply

Which of the following statements is FALSE?

Correct AnswerverifiedShow Answer

A firm that is making normal profits in the long run will have an incentive to:

Correct AnswerverifiedShow Answer

Firms must make enough profits to survive, but this does not make them profit maximisers.

Correct AnswerverifiedShow Answer

Using an average total cost curve, show all possible average cost outcomes when a firm increases its scale of production, explaining the causes of these possible outcomes.

Correct AnswerverifiedThe long- run ATC curve initially declin...View AnswerShow Answer

If a firm faces a downward- sloping demand curve the marginal revenue curve will be__________ and lay ___________ the demand curve.

Correct AnswerverifiedShow Answer

Where jobs are broken down into simple tasks this is called:

Correct AnswerverifiedShow Answer

Diminishing marginal returns relates to the:

Correct AnswerverifiedShow Answer

Spreading overheads means increasing output in order to reduce AVC.

Correct AnswerverifiedShow Answer

Diminishing marginal returns implies:

Correct AnswerverifiedShow Answer

A firm that is a price taker:

Correct AnswerverifiedShow Answer

If marginal revenue is greater than marginal cost, profit will be maximised.

Correct AnswerverifiedShow Answer

Suppose Bill's Bike Works experiences economies of scale up to a certain output and diseconomies of scale beyond that output. Its long- run average cost curve is likely to:

Correct AnswerverifiedShow Answer

Where the firm is a price taker, both marginal revenue and average revenue are equal to price.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following defines profit satisficing?

Correct AnswerverifiedShow Answer

Why should a firm increase output when marginal revenue is greater than marginal cost?

Correct AnswerverifiedWhen marginal revenue (MR) is greater th...View AnswerShow Answer

The shape of the marginal cost curve directly relates to the law of diminishing returns.

Correct AnswerverifiedShow Answer

The formula for total cost is:

Correct AnswerverifiedShow Answer

In the long run, a firm will continue to produce:

Correct AnswerverifiedShow Answer

Which of the following is not a potential source of economies of scale?

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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The long- run ATC curve initially declin...
View Answer

If a firm faces a downward- sloping demand curve the marginal revenue curve will be and lay _ the demand curve.

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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When marginal revenue (MR) is greater th...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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