A purely competitive firm's output is such that its marginal cost is $4 and marginal revenue is $5. Hint: remember that MR = P for Pure Competition and the Profit Maximizing rule. Assuming profit maximization, the firm should 

cut its price and raise its output.

raise its price and cut output.

leave price unchanged and raise output.

leave price unchanged and cut output.

Question 10. 10.(TCO 2) Which case below best represents a case of price discrimination? 

An insurance company offers discounts to safe drivers.

A major airline sells tickets to senior citizens at lower prices than to other passengers.

A professional baseball team pays two players with identical batting averages different salaries.

A utility company charges less for electricity used during "off-peak" hours, when it does not have to operate its less-efficient generating plants.

Question 11. 11.(TCO 3) A major reason that firms form a cartel is to 

reduce the elasticity of demand for the product.

enlarge the market share for each producer.

minimize the costs of production.

maximize joint profits.

Question 12. 12.(TCO 3) In the short run 

a firm cannot vary its output level.

all factors of production can be varied.

a firm can change its fixed inputs.

output is raised or reduced by changing the levels of variable inputs.

Question 13. 13.(TCO 4) A recession is a decline in 

the inflation rate that lasts six months or longer.

the unemployment rate that lasts six months or longer.

real GDP that lasts six months or longer.

potential GDP that lasts six months or longer.

Question 14. 14.(TCO 4) The unemployed are those people who 

do not have jobs.

are not employed but are seeking work.

are not working.

are not in the workforce.

Question 15. 15.(TCO 4) To avoid multiple counting in national income accounts 

only final goods and services should be counted.

intermediate goods and services should be counted.

both final and intermediate goods and services should be counted.

primary, intermediate, and final goods and services should be counted.

Question 16. 16.(TCO 4) Nominal GDP differs from real GDP because 

nominal GDP is based on constant prices.

real GDP is based on current prices.

real GDP is adjusted for changes in the price level.

nominal GDP is adjusted for changes in the price level.

Question 17. 17.(TCO 6) When the federal government uses taxation and spending actions to stimulate the economy it is conducting 

fiscal policy.

incomes policy.

monetary policy.

employment policy.

Question 18. 18.(TCO 6) Refer to the graph. What combination would most likely cause a shift from AD1 to AD2 

Graph Description

Increases in taxes and government spending

Decrease in taxes and increase in government spending

Increase in taxes and no change in government spending

Decreases in taxes and government spending

Question 19. 19.(TCO 6) Which of the following serves as an automatic stabilizer in the economy? 

Interest rates

Exchange rates

Inflation rate

Progressive income tax

Question 20. 20.(TCO 6) The lag between the time the need for fiscal action is recognized and the time action is taken is referred to as the 

crowding-out lag.

recognition lag.

operational lag.

administrative lag