1) The primary goal of a business firm is to

A) increase its production.

B) promote workforce job satisfaction.

C) promote fairness.

D) make a quality product.

E) maximise profit.

2) When an economist uses the term 'cost' referring to a firm, the economist refers to the

A) opportunity cost of producing a good or service, which includes both implicit and explicit cost.

B) price of the good to the consumer.

C) implicit cost of producing a good or service, but not the explicit cost of producing a good or service.

D) explicit cost of producing a good or service, but not the implicit cost of producing a good or service.

E) cost that can be actually verified and measured.

3) A normal profit is defined as

A) the same thing as accounting profit.

B) the economic profit minus the implicit costs.

C) the return to entrepreneurship.

D) total revenue minus implicit costs.

E) total revenue minus explicit costs.

4) Which of the following is correct?

A) The long run does not exist for some firms.

B) The short run is the same for all firms.

C) The long run is the time frame in which the quantities of all resources can be varied.

D) The short run for a firm can be longer than the long run for the same firm.

E) The long run is the time frame in which all resources are fixed.

5) In the short run, a firm cannot change the amount of capital it uses. Therefore the cost of capital is a

A) fixed cost.

B) short-run cost.

C) variable cost.

D) marginal cost.

E) productivity cost.

6) The total product curve shows the relationship between total product (output) and ; and the total cost curve shows the relationship between total cost and .

A) the quantity of labour; the quantity of labour

B) the quantity of output; the quantity of labour

C) the quantity of all inputs; the level of output

D) the quantity of labour; the level of output

E) the quantity of labour; the quantity of all inputs

7) The marginal product of labour is the change in ; and the marginal cost is the change in .

A) average product from employing one more worker; average cost from employing one more worker

B) total revenue from employing one more worker; total cost from employing one more worker

C) total output from employing one more unit of capital; total cost from employing one more unit of capital

D) total cost from employing one more worker; total cost from producing one more unit of output

E) total output from employing one more worker; total cost from producing one more unit of output

8) The law of decreasing returns states that as a firm uses more of a

A) variable input, output will begin to fall immediately.

B) variable input, with a given quantity of fixed inputs, the revenues eventually decrease.

C) variable input, with a given quantity of fixed inputs, the marginal product of the variable input eventually decreases.

D) fixed input and a variable input, the marginal product of the fixed input and the marginal product of the variable input both decrease.

E) fixed input, with a given quantity of variable inputs, the marginal product of the fixed input eventually decreases.

9) Average product is equal to ; and average cost is equal to .

A) total product ÷ quantity of labour; total cost ÷ quantity of labour

B) output ÷ quantity of labour; total cost ÷ output

C) marginal product × quantity of labour; total cost × quantity of labour

D) marginal product + total product; marginal cost + total cost

E) total product ÷ marginal product; total cost ÷ marginal cost

10) When a firm's long-run average total cost falls as its output increases, the firm is experiencing

A) constant returns to scale.

B) diseconomies of scale.

C) decreasing cost of marginal returns.

D) decreasing marginal returns.

E) economies of scale.

1) A market with a large number of sellers

A) can only be a monopolistically competitive market.

B) might be a monopolistically competitive or a perfectly competitive market.

C) can only be a perfectly competitive market.

D) might be a perfectly competitive, monopolistically competitive, oligopoly or monopoly market.

E) might be an oligopoly or a perfectly competitive market.

2) Perfect competition is characterised by all of the following EXCEPT

A) a large number of buyers and sellers.

B) firms can set their own prices.

C) no restrictions on entry into or exit from the industry.

D) buyers and sellers are well informed about prices.

E) firms produce an identical product.

3) The market demand curve in a perfectly competitive market is ________ and the demand curve for a perfectly competitive firm's output is ________.

A) horizontal; downward sloping

B) downward sloping; upward sloping

C) downward sloping; horizontal

D) downward sloping; downward sloping

E) horizontal; horizontal

4) A firm's marginal revenue is

A) the change in total revenue that results from employing one more worker.

B) the change in total revenue that results from an increase in the demand for the good or service.

C) the change in total revenue minus the change in total cost.

D) total revenue minus total cost.

E) the change in total revenue that results from a one-unit increase in the quantity sold.

5) For a perfectly competitive firm, the market price of a good is

A) a given which the firm cannot change.

B) determined by the firm in order to maximise its profit.

C) equal to the firm's marginal revenue.

D) Answers A and B are correct.

E) Answers A and C are correct.

6) A perfectly competitive firm will maximise profit when the quantity produced is such that the

A) price exceeds the firm's marginal cost by as much as possible.

B) firm's marginal revenue is equal to the price.

C) firm's marginal revenue is equal to its marginal cost.

D) firm's marginal revenue exceeds its marginal cost by the maximum amount possible.

E) firm's total revenue is equal to total cost.

7) A perfectly competitive firm should shut down in the short run if price falls below the minimum of

A) average variable costs.

B) marginal revenue.

C) average total cost.

D) fixed costs.

E) marginal cost.

8) A perfectly competitive firm's decision on shut-down _______; whereas its decision on exit _______.

A) occurs in long run; occurs in short run

B) determines the level of price; determines the level of output

C) determines the level of output; determines the level of price

D) occurs in short run; occurs in long run

E) none of above is correct.

9) In the short run, a firm in a perfectly competitive market

A) makes either positive, negative or zero economic profit depending on the level of market price.

B) always makes zero economic profit, so that its owners earn a normal profit.

C) remove all competitors and become a monopolistically competitive firm.

D) makes positive or zero profit, but never negative profit because firms can freely exit.

E) makes only positive profit by charging a high price to consumers.

10) In the long run, a firm in a perfectly competitive market will

A) remove all competitors and become a monopolistically competitive firm.

B) make zero normal profit but its owners will make an economic profit.

C) incur an economic normal loss but not earn a positive economic profit.

D) remove all competitors and become a monopoly.

E) make zero economic profit, so that its owners earn a normal profit.