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Foundations of Economics, 2/e
David Begg, Birkbeck College, University of London, UK

Costs, supply, and perfect competition

Multiple Choice Quiz


A production technique is technically efficient if
A)output is maximized
B)inputs are minimized
C)there is no way to make a given output using less of one input and no more of the other inputs
D)costs are minimized

A period of time long enough for the firm to adjust all production inputs is described as the long run

Decreasing returns to scale means that ___________ as ______________
A)short run marginal costs rises, output rises
B)long run marginal cost rises, output rises
C)short run average cost rises, output rises
D)long run average cost rises, output rises

If a long run average cost curve is falling from left to right this is an example of
A)increasing returns to scale
B)decreasing returns to scale
C)constant returns to scale
D)the minimum efficient scale

If a firm is not operating at the output necessary to achieve all scale economies, it has not achieved its
A)Efficient scale
B)Average efficient scale
C)Maximum efficient scale
D)Minimum efficient scale

When average cost is falling marginal cost is __________ and when average cost is rising marginal cost is __________
A)greater than average cost, greater than average cost
B)less than average cost, greater than average cost
C)less than average cost, less than average cost
D)greater than average cost, less than average cost

The firms long run output decision will be where
A)long run average cost is lowest
B)marginal revenue equals output
C)marginal revenue equals long run marginal cost
D)marginal cost equals output

Short run average total costs are equal to the sum of _________ and __________
A)short run opportunity costs, profit
B)short run variable costs, profit
C)short run average variable costs, profit
D)short run average variable costs, short run average fixed costs

The short run marginal cost curve cuts the short run total cost curve and short run average variable cost curve ______________
A)At their lowest points
B)When they are declining
C)When they are increasing
D)When marginal revenue is zero

Given a long run average cost curve, every point represents a tangency with the lowest point of a short run average cost curve for a fixed plant size

Holding all factors constant except one and increasing a variable factor is expected to lead to steadily decreasing marginal product of that factor. This is an example of
A)decreasing returns to scale
B)the law of diminishing returns
C)constant returns to scale
D)an inefficient production technique

In the short run a firm will produce zero output if __________
A)price is greater than short run average total cost
B)price is between short run average total cost and short run average variable cost
C)price is less than short run average variable cost
D)profit is zero

In a competitive industry each buyer and seller _____________
A)Is a price taker
B)Produce different products
C)Believes that can influence price
D)Prevents the entry of competitors

For a competitive firm, its short run supply curve is ________ and its long run supply curve is __________
B)SMC above SAVC, LMC above LAC
C)SMC below SAVC, LMC above LAC
D)SMC below SAVC, LMC below LAC

For perfect competition to work there must be
A)many buyers and sellers
B)a standard product
C)free entry and exit
D)perfect information
E)all of the above

If there are short run excess profits in a competitive industry, in the long run they will disappear because of new entrants

A competitive firms demand curve is
C)downward sloping
D)fairly elastic

A competitive firm produces a level of output at which _________
A)price is greater than marginal cost
B)price equals marginal cost
C)price is less than marginal cost
D)none of the above