1. Increasing returns to scale occurs when a firm's:

A. average costs of production increase as its output increases.

B. average costs of production decrease as its output increases.

C. average fixed costs increase as its output increases.

D. marginal costs increase as its output increases.

2. Which of the following will NOT cause increasing returns to scale and declining average costs?

A. focusing on a single product line and specializing

B. exporting goods to other countries

C. selling more in their home market

D. hiring more workers at the existing plant

3. When average costs of production are falling, average cost:

A.is higher than marginal cost.

B.is equal to price.

C.is negative.

D.is less than marginal cost.

4. Consider the following cost information for a monopolist: its MR = $15, its MC = $23, and it is producing 9 units of output. Which of the following statements is correct?

A.The monopolist should produce and sell 9 units of output.

B.The monopolist should increase production of output.

C.We need more information to decide if the firm needs to produce.

D.The monopolist should not produce this output because MR < MC.

5. In a duopoly where products are differentiated and firms charge different prices, the demand curves are _______________ than if the firms sell identical products at the same price.

A.steeper

B.farther to the right

C.more elastic (flatter)

D.less elastic

6. Which of the following is NOT an assumption of monopolistic competition?

A. Each firm's product is slightly different from other firms in the industry.

B. There are many firms in the industry.

C. Production occurs with increasing returns to scale technology.

D. Each firm faces a perfectly elastic (horizontal) demand curve.

9.When trade occurs among nations with similar tastes, technology, products, and costs, monopolistically competitive firms will have an incentive:

A.to lower prices to get new customers and increase market share.

B.to raise prices to take advantage of a lucrative situation.

C.to cut corners in manufacturing to boost profits.

D.to raise quality, so they can charge a higher price than the competition.

10. Which of the following is likely under free trade and monopolistic competition as the industry adjusts to its long run equilibrium?

A.Domestic firms will always be provided cash subsidies.

B.Some domestic firms will go bankrupt and exit from the industry.

C.Consumers will not benefit at all from trade.

D.Foreign firms will sell the product at a higher price in the export market.

11. Consumers gain from trade within a monopolistically competitive industry because:

A.prices fall and product varieties decrease.

B.prices rise and product varieties increase.

C.prices rise and product varieties decrease.

D.prices fall and product varieties increase.

12. Which of the following is NOT a reason for Canada to join NAFTA?

A.Canadian firms can expand their markets by selling to the United States and Mexico

B.Canadian firms can enjoy lower average costs by producing more.

C.Canada did not want U.S. products to dominate its domestic market.

D.Canada will see an increase in income and employment by joining NAFTA.

13. Which of the following probably slowed NAFTA's effect on the wages of Mexican workers?

A.the Mexican peso crisis in which Mexico's currency fell greatly in value

B.the reluctance of the U.S. government to allow guest workers

C.the Iraq war

D.so much illegal immigration

14. Using data from Trade Adjustment Assistance claims, we can make an accurate estimate of:

A.the variety of products U.S. consumers import from Mexico.

B.U.S. exports to Mexico that give Mexican consumers more product variety.

C.the barriers to trade erected by affected firms.

D.the unemployment caused by NAFTA.

15. Which of the following is the calculation that tells us the proportion of trade in each product involving both imports and exports?

A.the index of overlapping production

B.the index of effective trade

C.the index of intra-industry trade

D.the index of displacement

16.The gravity equation predicts that, other things equal, the amount of trade between two countries will increase as their GDP:

A.falls.

B.rises.

C.stays the same.

D.becomes less equal.