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1) 1. If Ripco owns the building where it operates, then if a) a. the firm pays no rent, there is no opportunity cost b) b. the firm does not rent the building to anyone else, there is no opportunity cost c) c. If the building is worth more than competing buildings, there is an opportunity cost d) d. its usage of the building precludes it from renting to anyone else, there is an opportunity cost e) e. the firm could use the building for other things, there is no opportunity cost 2) 2. If all my savings are invested in my company, an increase in interest rates on my savings acct increases implicit costs. a) True b) False 3) 3. John moved his office he was renting downtown to the unit he owns in back of his house. How will his costs change? a) explicit and implicit costs rise b) explicit costs rise; implicit costs fall c) explicit and implicit costs fall d) explicit costs fall; implicit costs rise e) not enough information is given 4) 5. The law of diminishing returns (IMR and DMR) explains why a) monopolies have a guaranteed profit margin b) short-run MC and AVC curves are U-shaped c) the production possibilities curve is convex to the origin d) long run supply curves are downward sloping e) total product is a straight line 5) 6. When diminishing marginal returns set in, marginal product is a) positive and increasing b) positive and decreasing c) negative and increasing d) negative and decreasing e) zero 6) 7. What is the relationship between marginal cost and marginal product? a) The two are not related. b) When marginal product increases, marginal cost increases. c) When marginal product increases, marginal cost falls. d) When marginal product is negative, marginal costs are negative. e) When diminishing marginal returns set in, marginal costs fall. 7) 8. Which of the following is true in the short run at the output level where average total cost is at its minimum? a) Marginal cost equals average total cost. b) Average variable cost equals fixed cost. c) Marginal cost equals average variable cost. d) Average total cost equals average fixed cost e) Average total cost equals average variable cost. 8) 9. Perfectly competitive firms are sometimes called price makers because they have significant control over product price. a) True b) False 9) 10. Suppose Thelma and Louise both sell green tomatoes in a perfectly competitive market. If Louise increases output, a) Thelma must reduce output b) the price Thelma can charge falls c) the price Thelma can charge rises d) the price Thelma can charge is unaffected e) Thelma's profits must fall 10) 11. If a perfectly competitive firm raises its price, its sales decrease to zero. a) True b) False
Practice Exam 2 - Set 1
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