# ECO/561 Week 2 Knowledge Check (100%) - 65355

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1 . Purely competitive firms increase total revenue by

• A. increasing production
• B. decreasing production
• C. increasing price
• D. decreasing price

2 . What are two ways for a competitive firm to determine the optimal level of production, that is, the level of production that will maximize profit or minimize losses?

• A. Comparing total revenue to total cost or marginal revenue to marginal costs
• B. Comparing average revenue to average costs or marginal revenue to marginal costs
• C. Comparing average variable costs to price or marginal revenue to price
• D. Comparing total revenue to average variable costs or price to average variable costs

3 . Suppose that a firm determines that its marginal revenue is greater than its marginal cost, it would be better to

• A. increase production
• B. decrease production
• C. keep production the same
• D. increase price

4 . It is profitable for a firm to continue employing additional resources as long as

• A. Marginal Revenue Product >= Marginal Resource Cost
• B. Marginal Revenue Product <= Marginal Resource Cost
• C. Marginal revenue >= Marginal cost
• D. Marginal Revenue Product >= Price

5 . As additional units are produced, the marginal revenue product falls for all firms because marginal product decreases. For firms operating in industries that are not perfectly competitive, marginal revenue product also falls because

• A. product price falls as output increases
• B. product price falls as output decreases
• C. product price increases as output increases
• D. product price increases as output decreases

6 . All things being equal, an increase in demand for a product,

• A. increases demand for the resources used in its production
• B. decreases demand for the resources used in its production
• C. increases the supply of a product
• D. decreases the supply of resources used in its production

7 . Marginal cost can be defined as the addition to _____ of one more unit of output.

• A. total variable costs
• B. average total costs
• C. average variable costs
• D. total fixed costs

8 . If a firm stars small and, over time, builds successively larger plant sizes or adds additional work space in an office, average total costs are most likely to

• A. initially decrease, then begin to rise
• B. initially rise, then begin to decrease
• C. remain constant over time
• D. continually increase

9 . Demand for resources, including labor, depend on its

• A. productivity
• B. profitability
• C. availability
• D. accessibility

10 . The primary difference between increasing- and decreasing-cost industries lies in

• A. fixed-cost components: only increasing-cost industries have significant fixed costs
• B. variable-cost components: only decreasing-cost industries have significant variable costs
• C. the fact that the average total cost (ATC) of firms in increasing-cost industries will first decline and then eventually increase with output, while decreasing-cost firms experience progressively lower ATC with increased output
• D. efficiency of production

11 . When adding labor or other factors of production, businesses may see their total product rise, but see their per-unit increase in return for each additional unit diminish. This phenomenon

• A. occurs only for firms that do not efficiently use their factors of production
• B. applies only to capital-intensive industries
• C. is known as diminishing marginal product and has general market application
• D. depends on how abundant or scarce labor is in existing factor-markets

12 . In the short run, firms should shut down if

• A. AVC > P
• B. ATC > P > AVC
• C. P > ATC
• D. P > MC

13 . When you are considering the value of a resource in its next best use, you are considering its

• A. opportunity cost
• B. production cost
• C. marginal cost
• D. price

14 . Of the four major market structures–perfectly competitive, monopolistic competition, oligopoly, monopoly–reducing variable costs of production

• A. is not a viable option for perfectly competitive firms— or price-takers—because the per-unit profit margin is fixed by the equilibrium price
• B. can enhance profit for all but the monopoly firm, which, because it has no competition, has little financial incentive to lower its per-unit costs
• C. will result in significant increases in profit-margin, regardless of market structure, if coupled with significant increases in product price
• D. enhance profit per-unit, because profit equals revenue minus cost

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ECO/561 Week 2

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