1. What do wages paid to blue-collar workers, interest paid on a bank loan, forgone interest, and the purchase of component parts have in common?
 A) None are either implicit or explicit costs.
 B) All are opportunity costs.
 C) All are implicit costs.
 D) All are explicit costs.

 2. An explicit cost is:
 A) omitted when accounting profits are calculated.
 B) a money payment made for resources not owned by the firm itself.
 C) an implicit cost to the resource owner who receives that payment.
 D) always in excess of a resource's opportunity cost.

 3. Suppose that a business incurred implicit costs of $200,000 and explicit costs of $1 million in a specific year. If the firm sold 4,000 units of its output at $300 per unit, its accounting profits were:
 A) $100,000 and its economic profits were zero.
 B) $200,000 and its economic profits were zero.
 C) $100,000 and its economic profits were $100,000.
 D) zero and its economic loss was $200,000.

 4. To economists the main difference between the short run and the long run is that:
 A) the law of diminishing returns applies in the long run, but not in the short run.
 B) in the long run all resources are variable, while in the short run at least one resource is fixed.
 C) fixed costs are more important to decision making in the long run than they are in the short run.
 D) in the short run all resources are fixed, while in the long run all resources are variable.

 5. The law of diminishing returns indicates that:
 A) as extra units of a variable resource are added to a fixed resource, marginal product will decline beyond some point.
 B) because of economies and diseconomies of scale a competitive firm's long-run average total cost curve will be U-shaped.
 C) the demand for goods produced by purely competitive industries is downsloping.
 D) beyond some point the extra utility derived from additional units of a product will yield the consumer smaller and smaller extra amounts of satisfaction.

 6. The first, second, and third workers employed by a firm add 24, 18, and 9 units to total product respectively. Therefore, the:
 A) marginal product of the third worker is 9.
 B) total product of the three workers is 54.
 C) average product of the three workers is 18.
 D) marginal product of the second worker is 18.

 7. Which of the following is correct?
 A) When total product is rising, both average product and marginal product must also be rising.
 B) When marginal product is falling, total product must be falling.
 C) When marginal product is falling, average product must also be falling.
 D) Marginal product rises faster than average product and also falls faster than average product.

 8. Which of the following is most likely to be a fixed cost?
 A) shipping charges
 B) property insurance premiums
 C) wages for unskilled labor
 D) expenditures for raw materials

 9. Marginal cost is the:
 A) rate of change in total fixed cost that results from producing one more unit of output.
 B) change in total cost that results from producing one more unit of output.
 C) change in average variable cost that results from producing one more unit of output.
 D) change in average total cost that results from producing one more unit of output.

 10. Which of the following statements is correct?
 A) Average total cost is the difference between average variable cost and average fixed cost.
 B) Marginal cost measures the cost per unit of output associated with any level of production.
 C) When marginal product rises, marginal cost must also rise.
 D) Marginal cost is the price or cost of an extra variable input (for example, an additional worker) divided by its marginal product.

 11. If a firm decides to produce no output in the short run, its costs will be:
 A) its marginal costs.
 B) its fixed plus its variable costs.
 C) its fixed costs.
 D) zero.

 12. If a technological advance reduces the amount of variable resources needed to produce any level of output, then the:
 A) AVC curve will shift upward.
 B) MC curve will shift downward.
 C) ATC curve will shift upward.
 D) AFC curve will shift downward.

 13. If a profitable firm's fixed costs somehow were zero:
 A) MC and ATC would be equal at all levels of output.
 B) AFC would become negative as output increases.
 C) AVC and ATC would coincide.
 D) ATC would be zero at all output levels.

 14. In the short run the Sure-Screen T-Shirt Company is producing 500 units of output. Its average variable costs are $2.00 and its average fixed costs are $.50. The firm's total costs:
 A) are $2.50.
 B) are $1250.
 C) are $750.
 D) are $1100.

 15. As a firm produces successive units of output in the short run we would expect:
 A) TVC to increase initially by declining amounts, but eventually increase by increasing amounts.
 B) TVC to increase initially by increasing amounts, but eventually by decreasing amounts.
 C) TFC to increase by constant amounts.
 D) the sum of TVC and TFC to increase initially by increasing amounts, but eventually by decreasing amounts.

 16. Economies and diseconomies of scale explain:
 A) the profit-maximizing level of production.
 B) why the firm's long-run average total cost curve is U-shaped.
 C) why the firm's short-run marginal cost curve cuts the short-run average variable cost curve at its minimum point.
 D) the distinction between fixed and variable costs.

 17. A natural monopoly exists when:
 A) unit costs are minimized by having one firm produce an industry's entire output.
 B) several formerly competing producers merge to become the only firm in an industry.
 C) short-run average total cost curves are tangent to long-run average total cost curves.
 D) minimum efficient scale is attained at a small level of output.

 18. Diseconomies of scale arise primarily because:
 A) the short-run average total cost curve rises when marginal product is increasing.
 B) of the difficulties involved in managing and coordinating a large business enterprise.
 C) firms must be large both absolutely and relative to the market to employ the most efficient productive techniques available.
 D) beyond some point marginal product declines as additional units of a variable resource (labor) are added to a fixed resource (capital).

 19. Assume that society places a higher value on the last unit of X produced than the value of the resources used to produce that unit. With no spillovers, this information means that:
 A) total cost is greater than total revenue.
 B) price is greater than marginal cost.
 C) marginal cost is greater than price.
 D) resources are being overallocated to X.

 20. Under pure competition in the long run:
 A) neither allocative efficiency nor productive efficiency are achieved.
 B) both allocative efficiency and productive efficiency are achieved.
 C) productive efficiency is achieved, but allocative efficiency is not.
 D) allocative efficiency is achieved, but productive efficiency is not.

 21. Allocative efficiency is achieved when the production of a good occurs where:
 A) P = minimum ATC.
 B) P = MC.
 C) P = minimum AVC.
 D) total revenue is equal to TFC.

 22. The MR = MC rule applies:
 A) in the short run, but not in the long run.
 B) in the long run, but not in the short run.
 C) in both the short run and the long run.
 D) only to a purely competitive firm.

 23. Suppose losses cause industry X to contract and, as a result, the prices of relevant inputs decline. Industry X is:
 A) a constant-cost industry.
 B) a decreasing-cost industry.
 C) an increasing-cost industry.
 D) encountering X-inefficiency.

 24. An increasing-cost industry is the result of:
 A) higher resource prices which occur as the industry expands.
 B) a change in the industry's minimum efficient scale.
 C) X-inefficiency.
 D) the law of diminishing returns.

 25. A constant-cost industry is one in which:
 A) resource prices fall as output is increased.
 B) resource prices rise as output is increased.
 C) resource prices remain unchanged as output is increased.
 D) small and large levels of output entail the same total costs.

 26. We would expect an industry to expand if firms in that industry are:
 A) earning normal profits.
 B) earning economic profits.
 C) incurring economic losses.
 D) earning accounting profits.

 27. In the short run, a purely competitive firm will earn a normal profit when:
 A) P = AVC.
 B) P > MC.
 C) that firm's MR = market equilibrium price.
 D) P = ATC.

 28. If total revenue is less than total variable costs at the MR = MC output, a purely competitive firm should:
 A) shut down.
 B) produce, but will necessarily realize a loss.
 C) produce and may or may not realize a profit.
 D) increase its output.

 29. The principle that a firm should produce up to the point where the marginal revenue from the sale of an extra unit of output is equal to the marginal cost of producing it is known as the:
 A) output-maximizing rule.
 B) profit-maximizing rule.
 C) shut-down rule.
 D) break-even rule.

 30. DASH Airlines is considering the addition of a flight from Red Cloud to David City. The total cost of the flight would be $1100 of which fixed costs are $800. Expected revenues from the flight are $600. DASH should:
 A) not add this flight because only flights which cover their full costs are profitable.
 B) not add this flight because it is not profitable at the margin.
 C) add this flight because marginal revenue exceeds marginal costs.
 D) not add this flight because total costs exceed total revenue.

 31. On a per unit basis economic profit can be determined as the difference between:
 A) marginal revenue and product price.
 B) product price and average total cost.
 C) marginal revenue and marginal cost.
 D) average fixed cost and product price.

 32. If a purely competitive firm shuts down in the short run:
 A) its loss will be zero.
 B) it will realize a loss equal to its total variable costs.
 C) it will realize a loss equal to its total fixed costs.
 D) it will realize a loss equal to its total costs.

 33. When a firm is maximizing profit it will necessarily be:
 A) maximizing profit per unit of output.
 B) maximizing the difference between total revenue and total cost.
 C) minimizing total cost.
 D) maximizing total revenue.

 34. Firms seek to maximize:
 A) per unit profit.
 B) total revenue.
 C) total profit.
 D) market share.

 35. A perfectly elastic demand curve implies that the firm:
 A) must lower price to sell more output.
 B) can sell as much output as it chooses at the existing price.
 C) realizes an increase in total revenue which is less than product price when it sells an extra unit.
 D) is selling a differentiated (heterogeneous) product.

 36. Which of the following statements applies to a purely competitive producer?
 A) It will not advertise its product.
 B) In long-run equilibrium it will earn an economic profit.
 C) Its product will have a brand name.
 D) Its product is slightly different from those of its competitors.

 37. If a regulatory commission imposes upon a nondiscriminating natural monopoly a price that is equal to marginal cost and below average total cost at the resulting output, then:
 A) the firm will realize an economic profit.
 B) the firm will earn only a normal profit.
 C) allocative efficiency will be worsened.
 D) the firm must be subsidized or it will go bankrupt.

 38. The dilemma of regulation refers to the idea that:
 A) the regulated price which achieves allocative efficiency is also likely to result in persistent economic profits.
 B) the regulated price which results in a "fair return" restricts output by more than would unregulated monopoly.
 C) regulated pricing always conflicts with the "due process" provision of the Constitution.
 D) the regulated price which achieves allocative efficiency is also likely to result in losses.

 39. If a monopolist engages in perfect price discrimination, it will:
 A) realize a smaller profit.
 B) charge a higher price where individual demand is inelastic and a lower price where individual demand is elastic.
 C) produce a smaller output than when it did not discriminate.
 D) charge a competitive price to all its customers.

 40. Price discrimination refers to:
 A) selling a given product for different prices at two different points in time.
 B) any price above that which is equal to a minimum average total cost.
 C) the selling of a given product at different prices that do not reflect cost differences.
 D) the difference between the prices a purely competitive seller and a purely monopolistic seller would charge.

 41. X-inefficiency refers to a situation in which a firm:
 A) is not as technologically progressive as it might be.
 B) encounters diseconomies of scale.
 C) fails to realize all existing economies of scale.
 D) fails to achieve the minimum average total costs attainable at each level of output.

 42. The profit-maximizing output of a pure monopoly is economically inefficient because in equilibrium:
 A) price equals minimum average total cost.
 B) marginal revenue equals marginal cost.
 C) marginal cost exceeds price.
 D) price exceeds marginal cost.

 43. Economic profit in the long run is:
 A) possible for both a pure monopoly and a pure competitor.
 B) possible for a pure monopoly, but not for a pure competitor.
 C) impossible for both a pure monopolist and a pure competitor.
 D) only possible when barriers to entry are nonexistent.

 44. The supply curve for a monopolist is:
 A) perfectly elastic.
 B) upsloping.
 C) that portion of the marginal cost curve lying above minimum average variable cost.
 D) nonexistent.

 45. If a pure monopolist is producing at that output where P = ATC, then:
 A) its economic profits will be zero.
 B) it will be realizing losses.
 C) it will be producing less than the profit-maximizing level of output.
 D) it will be realizing an economic profit.

 46. An unregulated pure monopolist will maximize profits by producing that output at which:
 A) P = MC.
 B) P = ATC.
 C) MR = MC.
 D) MC = AC.

 47. If a nondiscriminating pure monopolist decides to sell one more unit of output, the marginal revenue associated with that unit will be:
 A) equal to its price.
 B) the price at which that unit is sold less the price reductions which apply to all other units of output.
 C) the price at which that unit is sold plus the price increases which apply to all other units of output.
 D) indeterminate unless marginal cost data are known.

 48. A nondiscriminating monopolist:
 A) will never produce in the output range where marginal revenue is positive.
 B) will never produce in the output range where demand is inelastic.
 C) will never produce in the output range where demand is elastic.
 D) may produce where demand is either elastic or inelastic, depending on the level of production costs.

 49. For a nondiscriminating imperfectly competitive firm:
 A) the marginal revenue curve lies above the demand curve.
 B) the demand and marginal revenue curves coincide.
 C) the demand curve intersects the horizontal axis where total revenue is at a maximum.
 D) marginal revenue will become zero at that output where total revenue is at a maximum.

 50. A natural monopoly occurs when:
 A) long-run average costs decline continuously through the range of demand.
 B) a firm owns or controls some resource essential to production.
 C) long-run average costs rise continuously as output is increased.
 D) economies of scale are obtained at relatively low levels of output.