Question Bank ''Firms: Aims, objectives and actions'' with interactive revision questions on a variety of economics topics.

Question Bank - Economics

Firms: Aims, objectives and actions

Q1. If marginal cost exceeds marginal revenue at a firm's current level of output, the firm can increase profit if it increases its level of output. (Select one answer) (a) True (b) False

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Q2. The competitive firm maximizes profit when it produces output up to the point where (Select one answer) (a) price equals average variable cost (b) marginal revenue equals average revenue (c) marginal cost equals total revenue (d) marginal cost equals marginal revenue

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Q3. If a competitive firm is producing a level of output where marginal revenue exceeds marginal cost, the firm could increase profits if it (Select one answer) (a) decreased production (b) maintained production at the current level (c) temporarily shut down (d) increased production

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Q4. When firms cooperate with one another, it is generally good for society as a whole. (Select one answer) (a) True (b) False

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Q5. There is a constant tension in an oligopoly between cooperation and self-interest because after an agreement to reduce production is reached, it is profitable for each individual firm to cheat and produce more. (Select one answer) (a) True (b) False

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Q6. When oligopolists collude and form a cartel, the outcome in the market is similar to that generated by a perfectly competitive market. (Select one answer) (a) True (b) False

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Q7. In long-run equilibrium in a competitive market, firms are operating at (Select one answer) (a) the minimum of their average-total-cost curves (b) all of these answers are correct (c) their efficient scale (d) zero economic profit (e) the intersection of marginal cost and marginal revenue

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Q8. Which of the following is true regarding the similarities and differences in monopolistic competition and monopoly? (Select one answer) (a) The monopolist faces a downward-sloping demand curve while the monopolistic competitor faces an elastic demand curve (b) The monopolist charges a price above marginal cost while the monopolistic competitor charges a price equal to marginal cost (c) The monopolist makes economic profits in the long run while the monopolistic competitor makes zero economic profits in the long run (d) Both the monopolist and the monopolistic competitor operate at the efficient scale

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Q9. Which of the following firms is most likely to spend a large percentage of their revenue on advertising? (Select one answer) (a) the producer of a highly differentiated consumer product (b) the manufacturer of an undifferentiated commodity (c) a perfect competitor (d) the manufacturer of an industrial product (e) the producer of a low quality product that costs the same to produce as a similar high quality product

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Q10. The use of the word "competition" in the name of the market structure called "monopolistic competition" refers to the fact that (Select one answer) (a) there are many sellers in a monopolistically competitive market and there is free entry and exit in the market just like a competitive market (b) monopolistically competitive firms face a downward-sloping demand curve just like competitive firms (c) monopolistically competitive firms charge prices equal to the minimum of their average total cost just like competitive firms (d) the products are differentiated in a monopolistically competitive market just like in a competitive market

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Q11. Look at the image below This image depicts a monopolistic competitor (Select one answer) (a) It is impossible to determine from this graph whether the firm is generating profits or losses. (b) generating profits in the short run (c) generating zero profits in the long run (d) generating losses in the short run

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