A corporation seeking to expand, and looking for the least risky financing option would
choose:
a. stocks
b. bonds
c. retained earnings
d. a bank loan
If a competitive firm’s short run average cost curve lies above the price of the product,
we can conclude that the firm
a. is earning a huge profit.
b. is incurring losses.
c. is earning zero economic profits.
d. is earning a normal profit.
A firm can always increase its output by one unit at a marginal cost of $10. Its marginal
cost curve is
a. a horizontal line.
b. a vertical line.
c. a ray with slope equal to 10.
d. exactly one-tenth as steep as its total cost curve.
On Naomi’s pig farm, Naomi hires all the labor used, grows all the grain fed to the pigs,
and owns the barn. The costs used to calculate the total cost curve include
a. only the cost of labor.
b. only the cost of labor and the cost of grain, which is completely consumed in the
period in which it is grown.
c. only the variable cost of growing grain.
d. the cost of labor, the cost of growing grain, and the opportunity cost of the barn.
Efficient resource allocation is defined as MC = AC.
a. True
b. False
In a free market where a firm’s activity causes detrimental externalities,
a. marginal benefits will be less than marginal social costs.
b. smaller outputs than those that maximize profits will be socially desirable.
c. marginal social cost will be greater than marginal private cost.
d. All of the above are correct.
Total utility always decreases when additional amounts of a commodity are consumed.
a. True
b. False
No economist today would claim that
a. marginal productivity analysis is either just or unjust.
b. the marginal productivity theory of distribution is a theory of the demand side of the
pertinent market.
c. payments are made not to factors of production but to the people who happen to own
them.
d. a productive input’s MRP depends in part on how much of it is employed.
Sales maximization by a firm most often serves the interests of the firm’s
a. stockholders.
b. creditors.
c. managers.
d. unskilled laborers.
Keeping landing fees low at airports during the “peak” hours
a. perpetuates congestion during those hours.
b. is politically unpopular.
c. contributes to efficient allocation of airport facilities.
d. would lessen the problem of delayed flight landings.
The cause of the “greenhouse effect” is the
a. increasing use of glass in construction.
b. growth of desertification.
c. burning of “fossil fuels.”
d. decline in carbon dioxide in the atmosphere.
A small business owner who is earning a positive economic profit, no matter how small,
is doing better than if she sold her business and went to work for another firm.
a. True
b. False
An economic model is a realistic depiction of the operation of the economy.
a. True
b. False
When employers discriminate, they
a. believe they have a sound economic reason for doing so.
b. may pay the price in lost earnings and productivity.
c. subject themselves to civil action.
d. All of the above are correct.
A situation in which both players can adopt moves such that each player’s move is its
most profitable response to the move of the other is the
a. prisoner’s dilemma.
b. Nash equilibrium.
c. maximin criterion.
d. tacit collusion.
The marginal cost curve shows the per-unit cost associated with various levels of
output.
a. True
b. False
Capital is to investment as
a. hard is to soft.
b. a flow is to a stock.
c. a stock is to a flow.
d. paper is to metal.
In a laissez-faire system, the price mechanism dictates the production planning
decisions.
a. True
b. False
If a commodity is inexpensive and its total utility great,
a. it is an inferior good.
b. it is plentiful.
c. its marginal utility is high.
d. the ratio of price to marginal utility is very high.
The least costly combination of inputs is influenced by the relative prices of inputs.
a. True
b. False
The more firms that are attracted to an industry, the greater will be the quantity of
product supplied at any given price.
a. True
b. False
Figure 3-2
In Figure 3-2, the production possibilities frontier has a bowed-out shape because of the
law of
a. decreasing costs.
b. increasing costs.
c. demand.
d. comparative advantage.