MULTIPLE CHOICE QUESTIONS CONSUMPTION

1. The Indifference curve approach was introduced by

a) Alfred Marshall

b) Lionel Robbins

c) J.R. Hicks and R.G.D. Allen

d) Adam Smith

ANS (c )

2. Marginal revenue is the latest addition made to the

a) average revenue

b) Total production

c) Total revenue

d) none

Ans (c )

3. Utility is a

a) Social Concept

b) Subjective / Psychological concept

c) Political Concept

d) Scientific concept

Ans (b)

4. Average fixed cost is obtained by dividing

a) TC/Q

b) TFC/Q

c) TVC/Q

D) None

Ans (a)

5. Marginal revenue is the latest addition made to the

a) average revenue

b) Total production

c) Total revenue

d) none

Ans (c )

6. Economic cost includes explicit cost and

a) implicit cost

b) social cost

c) fixed cost

d) money cost

Ans (a)

7. Social costs are those costs

a) not borne by the firms

b) incurred by the society

c) health hazards

d) all of these

Ans (b )

8. Single commodity consumption mode is

a) Production possibility curve

b) Law of Equi-marginal utility

c) Law of supply

d) Law of Diminishing Marginal utility

Ans (d )

9. Above the equilibrium price

a) S < D

b) S > D

c) S = D

d) none

Ans ( c)

10. Factors determining supply are

a) Production technology

b) Prices of factors of production

c) Taxes and subsidies

d) All the above

Ans (d )

11. Law of demand establishes

a) inverse relationship between price and quantity

b) Positive relationship between price and quantity

c) Both

d) None

Ans (a)

12. Increase in demand is shown by

a) Movement along the same demand curve

b) Shifts of the demand curve

c) The highest point on the demand curve

d) Lowest point of the demand curve

Ans (b)

13. At the point of equilibrium

a) Only one price prevails

b) Quantity demand = Quantity supplied

c) The demand curve intersects the supply curve

d) All the above

Ans (d )

14. The degree of response of demand to change in price is

a) Income elasticity of demand

b) Cross-elasticity of demand

c) Price elasticity of demand

d) All the above Ans (c )

15. If A>B then B>A this assumption is called

a) Transitive

(b) Consistency

(c) Cardinal

(d) Ordinal

Ans (b)

16. If A>B then B>C then A>C this assumption is called

(a) Cardinal

(b) Ordinal

(c) Transitive

(d) Consistency

Ans (c)

17. If demand curve is horizontal then ep is equal to

(a) 0

(b) 1

(c) 2

(d) ∞

Ans (d)

18. If as a result of increase in price total outlay on the commodity remains

same, then the ep is equal to

(a) 0

(b) 1

(c) 2

(d) ∞

Ans (a)

19. Relationship between the income level and the quantity of commodity

purchased by the consumer is represented by which curve?

a) Lorenz curve

(b) demand curve

(c) Engel curve

(d) None of these

Ans (c)

20. A consumer’s demand curve can be obtained from

(a) ICC - Income Consumption Curve

(b) Lorenz curve

(c) PCC – Price Consumption Curve

(d) Engel curve

Ans (c)

21. A consumer’s income curve can be obtained from

(a) ICC

(b) Lorenz curve

(c) PCC

(d) Engel curve

Ans (a)

22. A consumer’s income curve can be obtained from

(a) ICC

(b) Lorenz curve

(c) PCC

(d) Engel curve

Ans (a)

23. A consumer’s income curve can be obtained from

(a) ICC

(b) Lorenz curve

(c) PCC

(d) Engel curve

Ans (a)

MARKET STRUCTURE

24. Under perfect competition, the demand curve is

a) Upward sloping

b) horizontal

c) downward sloping

d) vertical

ANS(b)

25. Most important form of selling cost is

a) Advertisement

b) Sales

c) Homogeneous product

d) None

Ans( a)

26. Consumer surplus is

a) Potential price – Actual price

b) MVn=TVn-1

c) Demand = Supply

d) None

Ans(a)

27. Changes in quantity demand occur

a) Only when price changes

b) Due to change of taste

c) both

d) None

Ans (a)

28. Demand for a commodity depends on

a) Price of that commodity

b) Price of related goods

c) Income

d) All the above.

Ans(d)

29. The time element in price analysis was introduced by

a) J.R. Hicks

b) J. M. Keynes

c) Alfred Marshall

d) J.S. Mill

Ans ( c)

30. The initial supply price of land is

a) Zero

b) Greater than one

c) Less than one

d) Equal to one.

Ans ( a)

31. Labour cannot be separated from

a) Capital

b) labourer

c) Profit

d) organization

Ans (b)

32. In the long period

a) All factors change

b) Only variable factor changes

c) Only fixed factor change

d)Variable and fixed factors remain constant.

Ans( a)

33. Production refers to

a) destruction of utility

b) creation of utilities

c) exchange value

d) None

Ans ( b)

34. Reward paid to capital is

a) interest

b) profit

c) wages

d) rent

Ans ( a)

35. A successful entrepreneur is one who is ready to accept

a) Innovations

b) Risks

c) deciding the location of the production unit

d) none

Ans (b)

36. A firm can achieve equilibrium when its

a) MC =MR

b) MC = AC

c) MR = AR

d) MR = AC

Ans( a)

37. The firm and industry are one and the same under

a) Perfect competition

b) duopoly

c) oligopoly

d) monopoly

Ans(d)

38 Which of the following is a characteristic of a perfectly competitive market?

a. Firms are price setters.

b. There are few sellers in the market.

c. Firms can exit and enter the market freely.

d. All of these

Ans.( c)

39 If a perfectly competitive firm currently produces where price is greater

than marginalcost it

a. will increase its profits by producing more.

b. will increase its profits by producing less.

c. is making positive economic profits.

d. is making negative economic profits.

Ans. ( a )

40 When a perfectly competitive firm makes a decision to shut down, it is most

likely that

a. Price is below the minimum of average variable cost.

b. Fixed costs exceed variable costs.

c. Average fixed costs are rising.

d. Marginal cost is above average variable cost.

Ans. ( a)

41 In the long run, a profit-maximizing firm will choose to exit a market when

a. Fixed costs exceed sunk costs.

b. Average fixed cost is rising.

c. Revenue from production is less than total costs.

d. marginal cost exceeds marginal revenue at the current level of production.

Ans. (c)

42 When firms have an incentive to exit a competitive market, their exit will

a. Drive down market prices.

b. Drive down profits of existing firms in the market.

c. Decrease the quantity of goods supplied in the market.

d. All of the above are correct.

Ans. ( c )

43 In a perfectly competitive market, the process of entry or exit ends when

a. Firms are operating with excess capacity.

b. Firms are making zero economic profit.

c. Firms experience decreasing marginal revenue.

d. Price is equal to marginal cost.

Ans. ( b)

44 Equilibrium quantities in markets characterized by oligopoly is

a. Lower than in monopoly markets and higher than in perfectly competitive

markets.

b. Lower than in monopoly markets and lower than in perfectly competitive

markets.

c. Higher than in monopoly markets and higher than in perfectly competitive

markets.

d. Higher than in monopoly markets and lower than in perfectly competitive

markets. (

Ans. d)

45 In economics the central problem is:

a. Allocation.

b. Consumption.

c. Scarcity.

d. Money.

e. Production.

Ans. ( c)

46 Indicate below what is NOT a factor of production.

a. Land.

b. A bank loan.

c. Labor.

d. Capital.

Ans. (b)

47 Macroeconomics deals with:

a. The behavior of firms.

b. Economic aggregates.

c. The activities of individual units.

d. The behavior of the electronics industry.

Ans. ( b)

48 Microeconomics is not concerned with the behavior of:

a. Aggregate demand.

b. Consumers.

c. Industries.

d. Firms.

Ans. ( a)

49 The study of inflation is part of:

a. Normative economics.

b. Macroeconomics.

c. Microeconomics.

d. Descriptive economics.

Ans. ( b )

50 Aggregate supplies is the total amount:

a. Produced by the government.

b. Of products produced by a given industry.

c. Of labor supplied by all households.

d. Of goods and services produced in an economy.

Ans. ( d)

51 The total demand for goods and services in an economy is known as:

a. National demand.

b. Economy-wide demand.

c. Gross national product.

d. Aggregate demand.

Ans. ( d )

52 If marginal benefit is greater than marginal cost, a rational choice involves:

a. More of the activity.

b. Less of the activity.

c. No more of the activity.

d. More or less, depending on the benefits of other activities.

Ans. ( a)

53 A student chooses to study because the marginal benefit is greater than the

________cost.

a. average

b. total

c. marginal

d. expected

Ans. ( c)

54 Periods of less than full employment correspond to:

a. Points outside the production possibility curve.

b. Points inside the production possibility curve.

c. Points on the production possibility curve.

d. Either points inside or outside the production possibility curve.

Ans. ( b )

55 The circular flow of goods and incomes shows the relationship between:

a. Income and money.

b. Wages and salaries.

c. Goods and services.

d. Firms and households.

Ans. ( d )

56 In a free market system, the amount of goods and services that any one

householdgets depends upon its:

a. Income.

b. Wage and interest income.

c. Wealth.

d. Income and wealth.

Ans. ( d )

57 In a planned or command economy, all the economic decisions are taken by

the:

a. Consumers.

b. Workers.

c. Government.

d. Voters.

Ans. ( c)

58 The quantity demanded of Pepsi has decreased. The best explanation for

this is that:

a. The price of Pepsi increased.

b. Pepsi consumers had an increase in income.

c. Pepsi's advertising is not as effective as in the past.

d. The price of Coca Cola has increased.

Ans.( a)

59 Demand curves are derived while holding constant:

a. Income, tastes, and the price of other goods.

b. Tastes and the price of other goods.

c. Income and tastes.

d. Income, tastes, and the price of the good.

Ans.(d)

60 When the decrease in the price of one good causes the demand for another

good todecrease, the goods are:

a. Normal

b. Inferior

c. Substitutes

d. Complements

Ans.( c )

61 Suppose the demand for good Z goes up when the price of good Y goes

down. We cansay that goods Z and Y are:

a. Substitutes.

b. Complements.

c. Unrelated goods.

d. Perfect substitutes.

Ans.( b )

62 If the demand for coffee decreases as income decreases, coffee is:

a. An inferior good.

b. A normal good.

c. A complementary good.

d. A substitute good.

Ans.( b)

63 Which of the following will NOT cause a shift in the demand curve for

compact discs?

a. A change in the price of pre-recorded cassette tapes.

b. A change in income.

c. A change in the price of compact discs.

d. A change in wealth.

Ans.( c )

63 When excess demand occurs in an unregulated market, there is a tendency for:

a. Quantity supplied to decrease.

b. Quantity demanded to increase.

c. Price to rise.

d. Price to fall.

Ans.( c )

64 Market equilibrium exists when _____________ at the prevailing price.

a. quantity demanded is less than quantity supplied

b. quantity supplied is greater than quantity demanded

c. quantity demanded equals quantity supplied

d. quantity demanded is greater than quantity supplied

Ans.( c )

65 A movement along the demand curve to the left may be caused by:

a. A decrease in supply.

b. A rise in the price of inputs.

c. A fall in the number of substitute goods.

d. A rise in income.

Ans.( a)

66 The quantity demanded of a product rises whenever

(a) The product’s price falls.

(b) Incomes increase.

(c) Population increases.

(d) The prices of substitute goods rise.

( e).Consumer tastes and preferences change.

Ans.( a)

67 The equilibrium quantity must fall when

(a) There is a decrease in demand.

(b) There is a decrease in supply.

(c) There is an increase in price.

(d) There is an increase in demand and supply.

(e) There is a decrease in demand and supply

Ans.( d)

68 The demand curve will shift to the left for most consumer goods when

(a) Incomes decrease.

(b) The prices of substitutes fall.

(c) The prices of complements increase

(d) All of the above.

Ans.( d )

69 Producer goods, also called intermediate goods, in economics, goods

manufacturedand used in further manufacturing, processing, or resale.

(a)True (b) False

Ans.( a)

70 Consumer goods are alternately called final goods, and the second term

makes moresense in understanding the concept.

(a)True (b) False

Ans.( a)

71 GDP stands for

a. Gross Domestic Product

b. Gross Deistic Product

c. Gross dynamic product

d. All of these Ans.( a)

72 GNP stands for

a. Gross national product

b. Gross natural product

c. Both (a)and (b)

d. None of these Ans.( a)

73 When the demand for a product is tied to the purchase of some parent

product, itsdemand is called induced or derived.

(a)True (b) False Ans.( a)

74 An industry is the aggregate of firms

(a)True (b) False Ans.( a)

75 The 'law of demand' implies that:

a. As prices fall, quantity demanded increases.

b. As prices rise, quantity demanded increases.

c. As prices fall, demand increases.

d. As prices rise, demand decreases. Ans.( a)

76 When the market operates without interference, price increases will

distribute what isavailable to those who are willing and able to pay the most. This

process is known as:

a. Price rationing.

b. Price fixing.

c. Quantity adjustment.

d. Quantity setting Ans.( a)

DETERMINATION OF DEMAND

76 The demand for a product or a service depends on a host of factors.

(a)True (b) False Ans. ( a)

78 Demand curves may also be shifted by changes in expectations.

(a)True (b) False Ans. ( a)

79 Quantity demand is a specific quantity that buyers are willing and able to

buy at aspecific demand price.

(a)True (b) False Ans. ( a)

80 If the price of a complement increases, all else equal,

a. Quantity demanded will increase.

b. Quantity supplied will increase.

c. Demand will increase.

d. Demand will decrease.

Ans. ( d)

81 Which of the following would lead to an INCREASE in the demand for golf

balls?

a. An decrease in the price of golf balls.

b. An increase in the price of golf clubs.

c. A decrease in the cost of producing golf balls.

d. An increase in average household income when golf balls are a normal good.

Ans. ( d)

82 If input prices increase, all else equal,

a. Quantity supplied will decrease.

b. Supply will increase.

c. Supply will decrease.

d. Demand will decrease.

Ans. ( c )

83 Which of the following would decrease the supply of wheat?

a. A decrease in the price of pesticides.

b. An increase in the demand for wheat.

c. A rise in the price of wheat.

d. An increase in the price of corn.

Ans. ( d)

84 When Sonoma Vineyards increases the price of its Chardonnay from $15

per bottle to$20 per bottle, the result is a decrease in…

a. The quantity of this wine demanded.

b. The quantity of this wine supplied.

c. The demand for this wine.

d. The supply of this wine.

Ans. ( a)

85 Which of the following will cause a change in quantity supplied?

a. Technological change.

b. A change in input prices.

c. A change in the market price of the good.

d. A change in the number of firms in the market.

Ans. ( c )

86 In which of the following cases will the effect on equilibrium output be

indeterminate(i.e., depend on the magnitudes of the shifts in supply and demand)?

a. Demand decreases and supply decreases.

b. Demand remains constant and supply increases.

c. Demand decreases and supply increases.

d. Demand increases and supply increases.

Ans. ( c)

87 An increase in the number of firms selling pizza will cause, ceteris paribus,

(a) an increase in supply.

(b) an increase in demand.

(c) a decrease in quantity demanded.

(d) a decrease in the quantity supplied.

Ans. ( a)

88 A change in demand is a change in the ENTIRE demand relation.

(a)True (b) False

Ans. ( a)

89 The demand for a given product will rise if:

a. Incomes rise for a normal good or fall for an inferior good

b. The price of a complement falls

c. The price of a substitute rises

d. All of these

Ans. ( d )

90 Two explanations for the law of demand are

(a) Price and quantity effects.

(b) Substitution and income effects.

(c) Opportunity cost and substitution effects.

(d) Substitutes and inferior goods.

(e) None of the above.

Ans. ( b)

91 An increase in demand, ceteris paribus, will usually cause

(a) A decrease in quantity demanded.

(b) an increase in quantity supplied.

(c) an increase in supply.

(d) a higher quantity and a lower price.

Ans. ( b)

92 . The quantity demanded of a product rises whenever

(a) the product’s price falls.

(b) incomes increase.

(c) population increases.

(d) the prices of substitute goods rise

Ans. ( a)

93 The demand curve is downward-sloping because at a higher price for a good

(ceterisparibus)

(a) people buy fewer substitutes.

(b) people buy more complements.

(c) people search for substitutes.

(d) income rises.

(e) substitutes become complements.

Ans. ( c)

94 The supply curve is upward-sloping because at higher prices for a good

(a) consumers search out more substitutes.

(b) consumer income increases.

(c) demand is lower.

(d) None of the above.

Ans. ( d )

95 If the factors held constant along a supply or demand curve change,

(a) the equilibrium may change.

(b) the demand and supply equilibrium may be disrupted.

(c) the supply or demand curve may shift.

(d) All of the above.

Ans. ( a)

96 If the price of crackers goes up when the price of cheese goes down,

crackers andcheese are

(a) inferior goods.

(b) substitutes.

(c) both substitutes and complements.

(d) complements

Ans. ( d)

PRICE ELASTICITY OF DEMAND

1 If the price elasticity of demand for a good is .75, the demand for the good can be

described as:

a. normal

b. elastic

c. inferior

d. inelastic.

Ans. ( d )

2. When the price of a product is increased 10 percent, the quantity demanded

decreases15 percent. In this range of prices, demand for this product is:

a. elastic

b. inelastic

c. cross-elastic.

d. unitary elastic.

Ans. ( a)

3. If the price elasticity of demand for a product is equal to 0.5, then a 10 percent

decreasein price will:

a. increase quantity demanded by 5 percent.

b. increase quantity demanded by 0.5 percent.

c. decrease quantity demanded by 5 percent.

d. decrease quantity demanded by 0.5 percent.

Ans. ( a)

4 If an increase in the supply of a product results in a decrease in the price, but no

changein the actual quantity of the product exchanged, then:

a. the price elasticity of supply is zero.

b. the price elasticity of supply is infinite.

c. the price elasticity of demand is unitary.

d. the price elasticity of demand is zero.

Ans. ( d )

5. If 100 units of product K are sold at a unit price of $10 and 75 units of product K

aresold at a unit price of $15, one can conclude that in this price range:

a. demand for product K is elastic.

b. demand for product K is inelastic.

c. demand for product K has shifted to the right.

d. consumers are sensitive to price changes of product K.

Ans. ( a)

6 Total revenue falls as the price of a good increases if price elasticity of demand

is:

a. elastic.

b. inelastic

c. unitary elastic

d. perfectly elastic.

Ans. ( a)

7 The demand for Cheerios cereal is more price-elastic than the demand for cereals

as awhole. This is best explained by the fact that:

a. Cheerios are a luxury.

b. cereals are a necessity.

c. there are more substitutes for Cheerios than for cereals as a whole.

d. consumption of cereals as a whole is greater than consumption of Cheerios.

Ans. ( c )

8 What is the most likely effect of the development of television, videocassette

players,and rental movies on the movie theater industry?

a. decreased costs of producing movies

b. increased demand for movie theater tickets

c. movie theater tickets become an inferior good

d. increased price elasticity of demand for movie theater tickets

Ans. ( d )

9 The price elasticity of demand will increase with the length of the period to

which thedemand curve pertains because:

a. consumers' incomes will increase.

b. the demand curve will shift outward.

c. all prices will increase over time.

d. consumers will be better able to find substitutes.

Ans. ( d )

10. A state government wants to increase the taxes on cigarettes to increase tax

revenue.

(a)True (b) False

Ans. ( a)

11 This tax would only be effective in raising new tax revenues if the price

elasticity ofdemand is:

a. unity

b. elastic

c. inelastic

d. perfectly elastic.

Ans. ( d )

12. Sony is considering a 10 percent price reduction on its color television sets. If

thedemand for sets in this price range is inelastic:

A) revenues from color sets will remain constant.

B) revenues derived from color sets will decrease.

C) revenues derived from color sets will increase.

D) the number of television sets sold will decrease

Ans. ( c )

13 Elasticity of demand for a commodity with respect to change in its price,

(a)True (b) False

Ans. ( a)

14 An elasticity alternative in which infinitesimally small changes in price cause

infinitelylarge changes in quantity.

(a)True (b) False

Ans. ( a)

15 Three factors that affect the numerical value of the price elasticity of demand

are the

a. availability of substitutes

b. time period of analysis

c. proportion of budget

d. All of these

Ans. ( d )

16 The price elasticity of demand is one of four common elasticity’s used in the

analysisof the market.

(a)True (b) False

Ans. ( a)

17 Cross elasticity of demand is:

a. negative for complementary goods

b. unitary for inferior goods.

c. negative for substitute goods

d. positive for inferior goods.

Ans. ( a)

18. A positive cross elasticity of demand coefficient indicates that:

a. a product is an inferior good.

b. a product is a normal good.

c. two products are substitute goods.

d. two products are complementary goods.

Ans. ( c )

19 A market without legal prices is in equilibrium when:

a. quantity demanded equals price.

b. the demand curve remains constant.

c. quantity demanded equals quantity supplied.

d. quantity demanded is greater than quantity supplied.

Ans. ( c )

20 A relatively small change, say 1% on an INR 100,000 house, can make a BIG

differencein the buyer’s decision to buy.

(a)True (b) False

Ans. ( a)

TYPES OF ELASTICITIES OF DEMAND

1 If it is observed that, in a particular market, price has risen and quantity

exchanged hasincreased, it is likely that:

a. supply has increased.

b. supply has decreased.

c. demand has increased.

d. demand has decreased.

Ans. ( c)

2 The quantity of a good demanded rises from 1000 to 1500 units when the price

fallsfrom $1.50 to $1.00 per unit. The price elasticity of demand for this product is

approximately:

a. 1.0

b. 16

c. 2.5

d. 4.0

Ans. ( a)

3 If the elasticity of demand for a commodity is estimated to be 1.5, then a

decrease inprice from $2.10 to $1.90 would be expected to increase daily sales by:

a. 50%

b. 1.5%

c. 5%

d. 15%

Ans. ( d

)

4 A long-run demand curve, as compared to a short-run demand curve for the same

commodity, is generally:

a. more elastic

b. less elastic

c. of the same elasticity

d. none of the above.

Ans. ( a)

5 The price elasticity of demand is 5.0 if a 10 percent increase in the price results

in a

a. 2%decrease in quantity demanded.

b. 5%decrease in quantity demanded.

c. 10% decrease in quantity demanded

d. 50% decrease in quantity demanded.

Ans. ( d )

6 Demand for a good will likely be more elastic,

a. The higher the level of income.

b. The larger the proportion of monthly income spent on it.

c. The fewer the good substitutes available.

d. The higher the price of complementary goods.

Ans. ( b )

7 Demand will be more elastic,

a. The higher the income.

b. The lower the price.

c. The shorter the passage of time after a permanent price increase.

d. The more substitutes available for the good.

Ans. ( d )

8 The price elasticity of demand measures the sensitivity of demand to price

changes.

(a)True (b) False

Ans. ( a)

9 If a good has no close substitutes and is regarded as a necessity by many

consumers,then demand for the good will be quite elastic.

(a)True (b) False

Ans. ( b )

10 Cross elasticity of demand is the ratio of the percentage change in demand for a

goodto the percentage change in price for another.

(a)True (b) False

Ans. ( a)

11 A 50 percent increase in price that result in a 90 percent decrease in the quantity

demanded indicates that demand is elastic in this price range.

(a)True (b)False

Ans. ( a)

12 Demands for most goods tend to become more elastic with the passage of time.

(a)True (b) False

Ans. ( a)

13 If two goods are substitutes, then an increase in the price of one good will leads

to anincrease in the demand for the other good.

(a)True (b) False

Ans. ( a)

14 If two goods are complements, then a decrease in the price of one good will

results in

a decrease in the demand of the other good.

(a)True (b) False

Ans. ( b)

15 The price elasticity of demand is the same as the slope of the demand curve.

(a)True (b) False

Ans. ( b )

16 If demand is price elastic, then:

a. a rise in price will raise total revenue.

b. a fall in price will raise total revenue.

c. a fall in price will lower the quantity demanded.

d. a rise in price won't have any effect on total revenues.

Ans. ( c)

17 Complementary goods have:

a. The same elasticity’s of demand.

b. very low price elasticity of demand.

c. negative cross price elasticity of demand with respect to each other.

d. positive income elasticity of demand.

Ans. ( c )

18 The price elasticity of demand generally tends to be:

a. smaller in the long run than in the short run.

b. smaller in the short run than in the long run.

c. larger in the short run than in the long run.

d. unrelated to the length of time.

Ans. ( b )

19 If the price elasticity of supply of doodads is 0.60 and the price increases by 3

percent,then the quantity supplied of doodads will rise by

a. 0.60 percent.

b. 0.20 percent

c. 1.8 percent

d. 18 percent.

Ans. ( c )

20 If the cross-price elasticity between two commodities is 1.5,

a. The two goods are luxury goods.

b. The two goods are complements.

c. The two goods are substitutes.

d. The two goods are normal goods.

Ans. ( c )

SUPPLY ANALYSIS

1 The cost of factor inputs like land, labor, and capital has a major influence on

supply.

(a)True (b) False

Ans. ( a)

2 Which of the following factors will make the demand for a product more elastic?

(Assume the product has a straight-line, downward sloping demand.)

a. The product has no close substitutes.

b. A very small proportion of income is spent on the good.

c. A long time period has elapsed since the product’s price changed.

d. A lower price

Ans. ( c )

3 For a given normal supply curve; the amount of a tax paid by the buyer will be

larger

a. the more elastic the demand.

b. the more inelastic the demand.

c. the income elasticity is equal to zero

d. when the price is high.

Ans. (b)

4 With a perfectly elastic demand and a normal supply (upward-slopping)

a. consumers will bear the entire tax burden.

b. consumers will not bear any tax burden.

c. consumers and producer will split the tax burden in half.

d. producers will not bear any tax burden.

Ans. ( b)

5 Which of the following leads to the producers paying all of a tax?

a. The supply is perfectly elastic.

b. The supply is perfectly inelastic.

c. The demand is unit elastic.

d. The demand is perfectly inelastic.

Ans. ( b)

6 The incidence (split) of sales tax is determined by the

a. level of government which imposes the tax.

b. federal government in all cases.

c. greed of the seller.

d. price elasticity of supply and demand.

Ans. ( d )

7 The market supply curve is the horizontal sum of the individual supply curve.

(a)True (b) False

Ans. ( a)

8 Supply determinants are five ceteris paribus factors that are held constant when a

supply curve is constructed.

(a)True (b) False

Ans. ( a)

9 Supply is the willingness and ability of producers to make a specific quantity of

outputavailable to consumers at a particular price over a given period of time.

(a)True (b) False

Ans. ( a)

10 Individuals supply factors of production to firms.

(a)True (b) False

Ans. ( a)

11 The supply curve for tomatoes is not thus more elastic in the short run than in

themomentary period.

(a)True (b)False

Ans. ( b)

12 Macroeconomic studies are based on empirical evidence.

(a)True (b)False

Ans. ( a)

13 Demand curve slopes upwards from left to right.

(a) True (b)False

Ans. ( b)

14 In the market, anyone who agrees to pay the requisite price of a product would

beexcluded from their consumption.

(a) True (b)False

Ans. ( b)

15 Aglets are the metal or plastic tips on shoelaces that make it easier to lace your

shoes.

The demand for aglets is probably

a. perfectly elastic.

b. inelastic.

c. elastic but not perfectly elastic.

d. unit elastic.

Ans. ( b)

16 The cross elasticity of demand measures the responsiveness of the quantity

demandedof a particular good to changes in the prices of

a. Its complements but not its substitutes.

b. its substitutes but not its complements.

c. its substitutes and its complements

d. neither its substitutes nor its complements.

Ans. ( c )

17 If goods are complements, definitely their

a. income elasticity’s are negative

b. income elasticity’s are positive.

c. cross elasticity’s are positive.

d. cross elasticity’s are negative.

Ans. ( d)

18 If a rise in the price of good 1 decreases the quantity of good 2 demanded,

a. the cross elasticity of demand is negative

b. good 1 is an inferior good.

c. good 2 is an inferior good

d. the cross elasticity of demand is positive.

Ans. ( a)

19 The price elasticity of demand generally tends to be:

a. smaller in the long run than in the short run.

b. smaller in the short run than in the long run.

c. larger in the short run than in the long run.

d. unrelated to the length of time.

Ans. ( b)

20 The demand for your services becomes more elastic.

(a)True (b)False

Ans. ( a)

PRODUCTION DECISION

1 Which of the following functions is not a core function of an organization?

a. The product/service development function

b. The operations function

c. The accounting and finance function

d. The marketing (including sales) function

Ans. ( c)

2 Most operations produce a mixture of both products and services. Which of the

following businesses is closest to producing “pure” services?

a. IT company

b. A Restaurant

c. Counsellor/therapist

d. Steel company

Ans. ( c )

3 Operations can be classified according to their volume and variety of production

aswell as the degree of variation and visibility. Which of the following operations

would beclassified as high volume, low variety?

a. A family doctor

b. A carpenter

c. A front office bank

d. A fast food restaurant

Ans. ( d)

4 Which of the following activities is not a direct responsibility of operations

management?

a. Designing the operation’s products, services and processes

b. Planning and controlling the operation

c. Developing an operations strategy for the operation

d. Determining the exact mix of products and services that customers will want

Ans. ( d )

5 Operations can be classified according to the degree of variation in demand and

visibility of the operation as well as their volume and variety of production. Which

of thefollowing operations would be classified as high variation and high

visibility?

a. A front office bank

b. A family doctor

c. A fast food restaurant

d. A carpenter

Ans. ( b)

6 The production function incorporates the technically efficient method of

………….

a. production.

b. process

c. function

d. All of these

Ans. ( a)

7 A fixed input is one whose quantity cannot be varied during the time under

Consideration

(a)True (b)False

Ans. ( a)

8 Economists find it convenient to distinguish between the ………….and the long

run.

a. short run

b. large run

c. big run

d. None of these

Ans. ( a)

9 The law of variable proportions states that as the quantity of one factor is

increased,keeping the other factors fixed, the marginal product of that factor will

eventuallydecline.

(a)True (b)False

Ans. ( a)

10 MRP stands for

a. Marginal Revenue Product

b. Marginal Revenue process

c. Both (a) and (b)

d. None of these

Ans. ( a)

11 The book value of old equipment is not a relevant cost in a decision.

(a)True (b)False

Ans. ( a)

12. One of the dangers of allocating common fixed costs to a product line is that

suchallocations can make the line appear less profitable than it really is.

(a)True (b)False

Ans. ( a)

13. A differential cost is a variable cost.

(a)True (b)False

Ans. ( b)

14. All future costs are relevant in decision making.

(a)True (b)False

Ans. ( b )

15. Variable costs are always relevant costs.

(a)True (b)False

Ans. ( b)

16 Only the variable costs identified with a product are relevant in a decision

concerningwhether to eliminate the product.

(a)True (b)False

Ans. ( b)

17 Managers should pay little attention to bottleneck operations because they have

limited capacity for producing output.

(a)True (b)False

Ans. ( b)

18 A cost that does not affect a decision is called an

a. opportunity cost

b. incremental cost

c. avoidable cost

d. irrelevant cost

Ans. ( d)

19. Costs that change between alternatives are called

a. fixed costs.

b. opportunity costs.

c. relevant costs.

d. sunk costs.

Ans. ( c)

20. A cost incurred in the past that cannot be changed by any future action is a(n)

a. opportunity cost

b. sunk cost

c. relevant cost

d. avoidable cost

Ans. ( b)

ISOQUANT AND PRODUCTION FUNCTION

1 Economists typically assume that the owners of firms wish to

a. produce efficiently.

b. maximize sales revenues.

c. maximize profits.

d. All of these.

Ans. ( d)

2 Efficient productions occurs if a firm

a. cannot produce its current level of output with fewer inputs.

b. given the quantity of inputs, cannot produce more output.

c. maximizes profit.

d. All of the above.

Ans. ( d)

3 Limited liability is a benefit to

a. sole proprietorships.

b. partnerships.

c. corporations.

d. all of the above.

Ans. ( c )

4 Which of the following statements best describes a production function?

a. the maximum profit generated from given levels of inputs

b. the maximum level of output generated from given levels of inputs

c. all levels of output that can be generated from given levels of inputs

d. all levels of inputs that could produce a given level of output

Ans. ( b )

5 With respect to production, the short run is best defined as a time period

a. lasting about six months.

b. lasting about two years.

c. in which all inputs are fixed.

d. in which at least one input is fixed.

Ans. ( d)

6 In the long run, all factors of production are

a. variable.

b. fixed.

c. materials.

d. rented.

Ans. ( a)

7 The short-run production functions for Albert’s Pretzels. The marginal

productivity oflabor equals the average productivity of labor

a. for all levels of labor.

b. at none of the levels of labor.

c. only for the first worker.

d. only for the fifth worker.

Ans. ( c )

8. If the average productivity of labor equals the marginal productivity of labor,

then

a. the average productivity of labor is at a maximum.

b. the marginal productivity of labor is at a maximum.

c. Both A and B above.

d. Neither A nor B above.

Ans. ( a)

9. Average productivity will fall as long as

a. marginal productivity is falling.

b. it exceeds marginal productivity.

c. it is less than marginal productivity.

d. the number of workers is increasing.

Ans. ( b)

10. Factors of production are

a) inputs and outputs.

b) outputs only

c) inputs only

d) the minimum set of inputs that can produce a certain fixed quantity of output.

Ans. ( c )

11. The set of all pairs (z1, z2) of inputs that yield the output y is the y-is quant.

(a)True (b)False

Ans. ( a)

12. L-shaped isoquants imply that production requires that the inputs

are perfect substitutes.

a. are imperfect substitutes.

b. cannot be used together.

c. must be used together in a certain proportion.

d. None of these

Ans. ( c )

13. Isoquants that are downward-sloping straight lines imply that the inputs

a. are perfect substitutes.

b. are imperfect substitutes.

c. cannot be used together.

d. must be used together in a certain proportion.

Ans. ( a)

14. Isoquants that are downward-sloping straight lines exhibit

a. an increasing marginal rate of technical substitution.

b. a decreasing marginal rate of technical substitution.

c. a constant marginal rate of technical substitution.

d. a marginal rate of technical substitution that cannot be determined.

Ans. ( c )

15. The profit maximization firm will choose the least cost combination of factors

toproduce at any given level of output.

(a)True (b) False

Ans. ( a)

16. The production function is useful in deciding on the additional value of

employing avariable input in the production process.

(a)True (b) False

Ans. ( a)

17. The additional use of an input factor should be stopped when its marginal

revenueproductivity just equals its price.

(a)True (b) False

Ans. ( a)

18. The least cost combination of-factors or producer’s equilibrium is now

explained withthe help of …………..curves and iso costs.

a. iso product

b. iso process

c. Both(a) and (b)

d. None of these

Ans. ( a)

19. MRTS stands for……..

a. Marginal rate of technical structure

b. Marginal rate of technical substitution

c. Both(a) and (b)

d. None of these

Ans. ( b)

THEORY OF COST/ FACTOR PRICING

1 The cost of capital is critically important in finance.

(a)True (b)False

Ans. ( a)

2. An implicit cost is

a. the cost of giving up an alternative

b. the cost of a chosen alternative

c. calculated by subtracting the monetary cost.

d. none of the above

Ans. ( a)

3 The historical cost of an asset refers to the actual cost incurred at the time the

asset wasacquired.

(a)True (b) False

Ans. ( a)

4 An Explicit cost is a business expense accounted cost that can be easily identified

suchas wage, rent and materials.

(a)True (b) False

Ans. ( a)

5 Private is the cost that has to be paid by an individual who is directly involved in

theproduction or consumption of a particular good.

(a)True (b) False

Ans. ( a)

6 Social cost or external cost is not the cost burden carried by individuals who are

notdirectly involved in the production or consumption of that particular good

(a)True (b) False

Ans. ( b)

7 Average cost is the sum total of Average variable it and average fixed cost.

(a)True (b) False

Ans. ( a)

8 Cost-output relationship facilitates many managerial relationships such as:

a. Formulating the standards of operations.

b. Formulating the rational policy on plant size.

c. Formulating a policy of profit prediction.

d. All of these

Ans. ( d)

9 Cost in the short-run can be classified into………and variable cost.

a. fixed cost

b. asset

c. both (a) and (b)

d. None of these

Ans. ( a)

10 Total fixed costs remained fixed irrespective of increase or decrease in

production ofactivity.

(a)True (b) False

Ans. ( a)

11 Marginal costs is the change in total cost resulting from unit change in……..

a. output

b. input

c. both(a) and (b)

d. None of these

Ans. ( a)

12 The ………. implies that the cost of production continues to be low till the firm

reachesthe optimum scale (Marginal cost = Average cost).

a. V-shape

b. Q-shape

c. U-shape

d. All of these

Ans. ( c)

13 Scale economies and returns to scale generally produce a U-shaped long-run

averagecost curve, such as the one displayed to the right.

(a) True (b) False

Ans. ( a)

14 __________ is concerned with the branch of economics relating the behavior of

principals and their agents.

a. Financial management

b. Profit maximization

c. Agency theory

d. Social responsibility

Ans. ( c)

15 A concept that implies that the firm should consider issues such as protecting

theconsumer, paying fair wages, maintaining fair hiring practices, supporting

education,and considering environmental issues.

a. Financial management

b. Profit maximization

c. Agency theory

d. Social responsibility

Ans. ( d)

16 Which of the following is not normally a responsibility of the treasurer of the

moderncorporation but rather the controller?

a. Budgets and forecasts

b. Asset management

c. Investment management

d. Financing management

Ans. ( a)

17 The __________ decision involves determining the appropriate make-up of the

righthandside of the balance sheet.

a. asset management

b. financing

c. investment

d. capital budgeting

Ans. ( b)

18 A long-run is also expressed as a series of short-runs.

(a)True (b)False

Ans. ( a)

19 Which of the following are used in calculating opportunity costs?

a. monetary costs

b. the cost of time

c. preference

d. all of the above

Ans. ( d)

20 An explicit cost is

a. the cost of giving up an alternative

b. the cost of a chosen alternative

c. calculated by subtracting the monetary cost of an alternative by the time invested

d. none of the above

Ans. ( b)

MARKET STRUCTURE, AND PRICING

1 Which of the following cannot be classed as a market structure?

a. Oligopoly.

b. Perfect competition.

c. Communism.

d. Monopolistic competition.

Ans. ( c)

2 Income and population are two variables that can be used in ______

segmentation:

a. psychographic

b. demographic

c. lifestyle

d. behavioural

Ans. ( b)

3 Strong exchange rates can:

a. help estimate consumer purchasing power.

b. help predict change in lifestyle across Europe.

c. predict the evolution of sales for particular brands.

d. drive imports to become cheaper.

Ans. ( d)

4 BERI stands for:

a. Business Economic Risk Index.

b. Business Economic Rating International.

c. Business Education Rating Indicator.

d. Business Environment Risk Index.

Ans. ( d)

5 The size and liquidity requirements are based on the minimum invest ability

requirements for the MSCI Global Standard Indices.

(a) True (b) False

Ans. ( a)

6 Oligopoly is a market structure in which a small number of firms account for the

wholeindustry’s output.

(a) True (b) False

Ans. ( a)

7 The number of firms and product differentiation are extremely crucial in

determiningthe nature of competition in a market.

(a) True (b) False

Ans. ( a)

8 type of market structure represented by the constant returns to scale (CRS)

technologyincludes

a. Monopolistic competition

b. Oligopoly

c. Duopoly

d. Perfect competition

Ans. ( d)

9 In industries in which there are scale economies, the variety of goods that a

country canproduce is constrained by

a. the fixed cost

b. the size of the labor force

c. the marginal cost

d. the size of the market

Ans. ( d)

10 A monopoly firm engaged in international trade but enjoying a protected home

market will

a. equate marginal costs with foreign marginal revenues.

b. equate marginal costs with marginal revenues in both domestic and foreign

markets

c. equate average costs in local and foreign markets

d. none of the above

Ans. ( b)

11 Minimum efficient scale of production in relation to the overall industry output

andmarket requirement sometimes play a major role in shaping the market

structure.

(a)True (b) False

Ans. ( a)

12 Price and output decisions of firms that want to maximize profits always depend

oncosts.

(a) True (b) False

Ans. ( a)

13 Which of the following is NOT a financial objective of pricing?

a. Corporate growth.

b. Return on investment.

c. Profit maximization.

d. None of these

Ans. ( a)

14 Which of the following is NOT a marketing objective?

a. Cash flow.

b. Positioning.

c. Volume sales.

d. None of these

Ans. ( a)

15 Setting a price below that of the competition is called:

a. Skimming.

b. Penetration pricing.

c. Competitive pricing.

d. None of these

Ans. ( a)

16 Which of the following is NOT a reason for cutting prices?

a. Capacity utilisation.

b. Increasing profit margins.

c. Market defence.

d. None of these

Ans. ( b)

17 Which of the following is NOT a reason for increasing prices?

a. Cost pressures.

b. Price comparison.

c. Curbing demand.

d. None of these

Ans. ( b)

18 The costs that depend on output in the short run are:

a. both total variable costs and total costs.

b. total costs only.

c. total fixed cost only.

d. total variable costs only

Ans. ( a)

19 A firm will shut down in the short run if:

a. fixed costs exceed revenues.

b. total costs exceed revenues.

c. it is suffering a loss.

d. variable costs exceed revenues.

Ans. ( d)

20 In the long run, every cost is variable cost. In this period, all costs ever incurred

by thefirm must be recovered.

(a)True (b) False

Ans. ( a)

PERFECT COMPETITION

1. A perfectly competitive firm will maximize profit at the quantity at which the

firm'smarginal revenue equals

a. price

b. average revenue

c. total cost

d. marginal cost

Ans. ( d)

2 Which of the following is not a valid option for a perfectly competitive firm?

a. Increasing its output.

b. Decreasing its output.

c. Increasing its price.

d. Increasing its resources.

Ans. ( c)

3 In the long run, a perfectly competitive firm will achieve all but which of the

following:

a. Economic profit

b. Allocative Efficiency

c. Productive Efficiency

d. Normal profit

Ans. ( a)

4 If the price a firm receives for its product is equal to the marginal cost of

producing thatproduct, the firm is:

a. Always earning an economic profit

b. Always productively efficient.

c. Always allocatively efficient.

d. Always experiencing an economic loss.

Ans. ( c)

5 A firm that is producing at the lowest possible average cost is always:

a. Earning an economic profit.

b. Productively efficient.

c. Dominating the other firms in the market.

d. Not producing enough output.

Ans. ( b)

6 Which of the following is the best example of a perfectly competitive market?

a. diamonds

b. athletic shoes

c. soft drinks

d. farming

Ans. ( d)

7 Perfect competition is an industry with

a. a few firms producing identical goods.

b. many firms producing goods that differ somewhat.

c. a few firms producing goods that differ somewhat in quality.

d. many firms producing identical goods.

Ans. ( d)

8 In a perfectly competitive industry, there are

a. many buyers and many sellers.

b. many sellers, but there might be only one or two buyers.

c. many buyers, but there might be only one or two sellers.

d. one firm that sets the price for the others to follow.

Ans. ( a)

9 In perfect competition, the product of a single firm

a. is sold to different customers at different prices.

b. has many perfect complements produced by other firms.

c. has many perfect substitutes produced by other firms.

d. is sold under many differing brand names.

Ans. ( c)

10 In perfect competition, restrictions on entry into an industry

a. do not exist.

b. apply to labor but not to capital.

c. apply to both capital and labor.

d. apply to capital but not to labor.

Ans. ( a)

11 Price for a firm under monopolistic competition is ______.

a. equal to marginal revenue

b. greater than marginal revenue

c. less than marginal revenue

d. greater than total revenue

Ans. ( a)

12 In the long run, monopolistically competitive firms tend to experience ______.

a. high economic profits

b. zero economic profits

c. negative economic profits

d. substantial economic losses

Ans. ( b)

13 Marginal revenue for a monopolist is ______

a. equal to price

b. greater than price

c. less than price

d. equal to average revenue

Ans. ( a)

14 Perfect competitions describes a market structure whose assumptions are

extremelystrong and highly unlikely to exist in most real-time and real-world

markets.

(a)True (b) False

Ans. ( a)

15 Monopolistic competitions is a market structure characterized by a large

number ofrelatively small firms.

(a)True (b) False

Ans. ( a)

16 A monopolist can sell more of his output only at a lower price and can reduce

the saleat a high price.

(a)True (b) False

Ans. ( b)

17 A monopoly is a market structure in which there is not only one producer/seller

for aproduct.

(a)True (b) False

Ans. ( b)

18 A perfectly competitive firm produces the profit-maximizing quantity of output

thatequates marginal revenue and marginal cost.

(a)True (b) False

Ans. ( a)

19 A perfectly competitive firm faces ………..production alternatives based on a

comparison of price, average total cost, and average variable cost.

a. four short-run

b. three short-run

c. five short-run

d. All of these

Ans. ( b)

20 A perfectly competitive firm’s marginal cost curve that lies above the

………..of theaverage variable cost curve is its supply curve.

a. minimum

b. maximum

c. both(a) and (b)

d. None of these

Ans. ( a)

PROFIT ANALYSIS

1. A variable cost is a cost that

a. varies per unit at every level of activity

b. occurs at various times during the year

c. varies in total in proportion to changes in the level of activity

d. may not be incurred, depending on management's discretion

Ans. ( c)

2. A cost which remains constant per unit at various levels of activity is a

a. variable cost

b. fixed cost

c. mixed cost

d. manufacturing cost

Ans. ( a)

3. A fixed cost is a cost which

a. varies in total with changes in the level of activity

b. remains constant per unit with changes in the level of activity

c. varies inversely in total with changes in the level of activity

d. remains constant in total with changes in the level of activity

Ans. ( d)

4. Cost behavior analysis is a study of how a firm's costs

a. relate to competitors' costs

b. relate to general price level changes

c. respond to changes in activity levels within the company

d. respond to changes in the gross national product

Ans. ( c)

5. Cost behavior analysis applies to

a. retailers

b. wholesalers

c. manufacturers

d. all entities

Ans. ( d)

6. The relevant range of activity refers to the

a. geographical areas where the company plans to operate

b. activity level where all costs are curvilinear

c. levels of activity over which the company expects to operate

d. level of activity where all costs are constant

Ans. ( c)

7. Which of the following is not a plausible explanation of why variable costs

often behave in a curvilinear fashion?

a. Labor specialization

b. Overtime wages

c. Total variable costs are constant within the relevant range

d. Availability of quantity discounts

Ans. ( c)

8. Firms operating constantly at 100% capacity

a. are common

b. are the exception rather than the rule

c. have no fixed costs

d. have no variable costs

Ans. ( b)

9. Which one of the following is a name for the range over which a

company expects to operate?

a. Mixed range

b. Fixed range

c. Variable range

d. Relevant range

Ans. ( d)

10 The graph of variable costs that behave in a curvilinear fashion will

a. approximate a straight line within the relevant range

b. be sharply kinked on both sides of the relevant range

c. be downward sloping

d. be a stair-step pattern

Ans. ( a)

11. A mixed cost contains

a. a variable cost element and a fixed cost element

b. both selling and administrative costs

c. both retailing and manufacturing costs

d. both operating and non-operating costs

Ans. ( a)

12. The variable costing method is also known as the

a. direct costing method

b. indirect costing approach

c. absorption costing method

d. period costing approach

Ans. ( a)

13. The costing approach that charges all manufacturing costs to the product

is referred to as

a. variable costing

b. contribution margin costing

c. direct costing

d. absorption costing

Ans. ( d)

14. Variable costing is acceptable for

a. financial statement purposes

b. profit tax purposes

c. internal use by management only

d. profit tax purposes and for internal use by management

Ans. ( c)

15. CVP analysis does not consider

a. level of activity

b. fixed cost per unit

c. variable cost per unit

d. sales mix

Ans. ( b)

16. Which of the following is not an underlying assumption of CVP analysis?

a. Changes in activity are the only factors that affect costs

b. Cost classifications are reasonably accurate

c. Beginning inventory is larger than ending inventory

d. Sales mix is constant

Ans. ( b)

17. Which of the following would not be an acceptable way to express

contribution margin?

a. Sales minus variable costs

b. Sales minus unit costs

c. Unit selling price minus unit variable costs

d. Contribution margin per unit divided by unit selling price

Ans. ( b)

18. The level of activity at which total revenues equal total costs is the

a. variable point

b. fixed point

c. semi-variable point

d. break-even point

Ans. ( d)

19. The break-even point is where

a. total sales equals total variable costs

b. contribution margin equals total fixed costs

c. total variable costs equal total fixed costs

d. total sales equals total fixed costs

Ans. ( b)

20. Gross profit also includes rent that arises from the entrepreneur’s own

land used in his production of output.

a. True

b. False

Ans. ( a)

INVESTMENT

1. There are ……. methods which can be used to appraise any investment project:

(a) 1 (b) 2 (c) 3 (d) 4

Ans. ( c)

2. National income is the total of the value of the goods and the services which are

produced in an economy.

(a) True (b) False

Ans. ( a)

3. Which two of the following are likely to raise the equilibrium value of National

Income?

(a) Rise in savings.

(b) Rise in imports.

(c) Rise in government spending.

(d) Rise in exports.

Ans. ( c)

4. Which two of the following are excluded when measuring National Income?

(a) Value added in the output method.

(b) Value of intermediate inputs in the output method.

(c) Consumer spending in the expenditure method.

(d) Transfer payments in the income method.

Ans. ( b)

5. The return on an investment comes in the form of a stream of earnings in the

future.

(a) True (b) False

Ans. ( a)

6. Cost-benefit analysis is a process for evaluating the merits of a particular project

or course of action in a systematic and rigorous way.

(a) True ` (b) False

Ans. ( a)

7. ‘Real’ investment is not

(a) the amount that shareholders are willing to provide for shares in a company

(b) the cost of development of a new product

(c) expenditure on public relations, staff training or research and development

(d) expenditure on non-current assets such as plant, machinery, land and buildings

Ans. ( a)

8. Which of the following statements about IRR and NPV is not correct?

(a) NPV always gives the correct investment decision.

(b) IRR gives an unreliable answer with non-conventional projects.

(c) IRR can accommodate changes in the cost of capital.

(d) IRR is a useful relative measure if comparing projects of differing sizes.

Ans. ( c)

9. Gross Domestic Product (GDP) is the total market value of all final goods and

services currently produced within the domestic territory of a country in a year.

(a) True (b) False

Ans. ( a)

10. Which of the following will not be a relevant factor when using the payback

method of capital investment appraisal?

(a) The timing of the first cash inflow

(b) The total cash flows generated by the asset

(c) The cash flows generated by the asset up to the payback period

(d) The cost of the asset

Ans. ( b)

11. Why the payback method is often considered inferior to discounted cash flow

in capital investment appraisal?

(a) I is more difficult to calculate

(b) It does not calculate how long it will take to recoup the money invested

(c) It does not take account of the time value of money

(d) It only takes into account the future income of a project

Ans. ( c)

12. Gross National Product is the total market value of all final goods and services

produced in a year.

(a) True (b) False

Ans. ( a)

13. In 2005………. was the least significant liability of U. S. non financial

businesses in terms of total value.

(a) bonds and mortgages

(b) bank loans

(c) inventories

(d) trade debt

Ans. ( b)

14. …………..are examples of financial intermediaries.

(a) Commercial banks

(b) Insurance companies

(c) Investment companies

(d) All of the above

Ans. ( d)

15. Financial assets ………..

(a) directly contribute to the country's productive capacity

(b) indirectly contribute to the country's productive capacity

(c) contribute to the country's productive capacity both directly and indirectly

(d) do not contribute to the country's productive capacity either directly or

indirectly

Ans. ( b)

16. The means by which individuals hold their claims on real assets in a well-

developed economy are

(a) investment assets.

(b) depository assets.

(c) derivative assets

(d) financial assets

Ans. ( d)

17. Capital budgeting is the process of evaluating and selecting long-term

investments that are consistent with the goal of the firm.

(a) True (b) False

Ans. ( a)

18. Although derivatives can be used as speculative instruments, businesses most

often use them to

(a) attract customers.

(b) appease stockholders.

(c) offset debt.

(d) hedge

Ans. ( d)

19. The investment in fixed assets increases the fixed cost of the firm which must

be recovered from the benefit of the same project.

(a)True (b) False

Ans. ( a)

20. National Income is defined as the sum total of all the goods and services

produced in a country, in a particular period of time.

(a) True (b) False

Ans. ( a)

INFLATION

1. In period of inflation, phantom or paper profits may be reports as a result of

using the:

(a) FIFO costing assumption

(b) Perpetual inventory method

(c) LIDO costing assumption

(d) Periodic inventory method

Ans. ( b)

2. Inflation is:

(a) an increase in the overall price level.

(b) an increase in the overall level of economic activity.

(c) a decrease in the overall level of economic activity.

(d) a decrease in the overall price level.

Ans. ( a)

3. Aggregate supply is the total amount:

(a) produced by the government.

(b) of goods and services produced in an economy.

(c) of labour supplied by all households.

(d) of products produced by a given industry.

Ans. ( b)

4. The value of a rupee does not stay constant when there is inflation.

(a) True (b) False

Ans. ( a)

5. The inflation rate in India was recorded at 7.23% in……………...

(a) April of 2009

(b) April of 2010

(c) April of 2011

(d) April of 2012

Ans. ( d)

6. The function of money that helps assess the opportunity cost of an activity is

money's use as a

(a) medium of exchange.

(b) store of value.

(c) unit of account.

(d) store of debt.

Ans. ( c)

7. An official measure of money in the United States is M1, which consists of the

sum of

(a) currency plus traveler's checks.

(b) currency plus checkable deposits.

(c) currency plus traveler's checks plus checkable deposits.

(d) currency plus traveler's checks plus time deposits.

Ans. ( c)

8. Implies no trade-off between unemployment and inflation.

(a) GDP deflator

(b) Shoe leather’ costs

(c) Long-run Phillips curve

(d) ‘Menu’ costs

Ans. ( c)

9. The inflation rate is used to calculate the real interest rate, as well as real

increases inwages.

(a) True (b) False

Ans. ( a)

10……………… the quantity of money in the India.

(a) The State Department controls

(b) The Department of Treasury controls

(c) The Reserve Bank of India controls

(d) Commercial banks control

Ans. ( c)

11. There are broadly ….. ways of controlling inflation in an economy.

(a) 2

(b) 3

(c) 4

(d) 5

Ans. ( a)

12. The balance of payments of a country is said to be in equilibrium when the

demandfor foreign exchange in exactly equivalent to the supply of it.

(a) True (b) False

Ans. ( a)

13. A general decline in prices is often caused by a reduction in the supply

of………..

(a) money or debit

(b) money or credit

(c) money

(d) None of these

Ans. ( b)

14. The opportunity cost of holding money is the

(a) inflation rate minus the nominal interest rate.

(b) nominal interest rate.

(c) real interest rate.

(d) unemployment rate.

Ans. ( c)

15. If the Fed is worried about inflation and wants to raise the interest rate, it

(a) increases the demand for money.

(b) increases the supply of money.

(c) decreases the demand for money.

(d) decreases the supply of money.

Ans. ( d)

16. The circular flow of goods and incomes shows the relationship between:

(a) income and money.

(b) goods and services.

(c) firms and households.

(d) wages and salaries.

Ans. ( c)

17. Fiscal measures to control inflation include taxation, government expenditure

andpublic borrowings.

(a) True (b) False

Ans. ( a)

18. Hyperinflation

(a) occurs in the India during each business cycle.

(b) occurs only in theory, never in reality.

(c) has never occurred in India.

(d) happens in all countries at some time during their business cycle.

Ans. ( c)

19. Hyperinflation refers to a situation where the prices rise at an alarming high

rate.

(a) True (b) False

Ans. ( a)

20. The inflation rate is used to calculate the real interest rate, as well as real

increases inwages.

(a)True (b) False

Ans. ( a)

Which of the following inputs is NOT involved in entrepreneurship?

Opportunity

Proactive individual(s)

Risk

External locus of control

If someone starts a new business that is a service station, this is an example of a(n):

new concept/new business.

existing concept/new business.

existing concept/existing business.

new concept/existing business.

Experts:

agree that anyone can be taught to be an entrepreneur.

believe that entrepreneurship can be taught only to someone who is under 20 years of age.

believe that entrepreneurship can be taught only to those who are over 20 years of age.

disagree on whether entrepreneurship can be taught.

If an entrepreneur has an internal locus of control, this means that he/she:

has a high need for achievement.

feels comfortable in an unstructured situation.

believes that success or failure depends on his/her own actions.

believes fate is a powerful force.

Entrepreneurs would be best described as risk:

averse.

rewarders.

managers.

loving.

Which of the following is a common entrepreneurial trait?

Viewing changes as threatening

A need for structured environments

A high need for achievement

All of the above

A person's belief in his capability to perform a task is known as:

self-recognition, beliefs, and values.

beliefs and values.

self-efficacy.

self-determination.

Which of the following personality characteristics are included in the "Big Five?"

Introversion

Close-mindedness

Being disagreeable

Extraversion and conscientiousness

The process of gathering information about trends is called:

need for achievement.

tenacity.

neuroticism.

scanning the environment.

The opposite of "opportunity thinking" is:

self-efficacy.

obstacle thinking.

thought self-leadership.

adaptive response behavior.

1.In what order do managers typically perform the managerial functions?

a) organising, planning, controlling, leading

b) organising, leading, planning, controlling

c) planning, organising, leading, controlling

d) planning, organising, controlling, leading

Ans ( c)

2. Who of the following is the industrial philanthropist?

a) Frederick Taylor

b) Seebohm Rowntree

c) Henry Ford

d) Max Weber

Ans. ( b)

3. Which one of the following is not one of Drucker's five guiding principles of

management?

a) Making people's strengths effective and their weaknesses irrelevant.

b) Enhancing the ability of people to contribute.

c) To operate the organisation's status system.

d) Integrating people in a common venture by thinking through, setting and

exemplifying the organisational objectives, values and goals.

Ans. ( c)

4. What are the three interpersonal roles of managers?

a) Figurehead, leader and liaison

b) Spokesperson, leader, coordinator

c) Director, coordinator, disseminator

d) Communicator, organiser, spokesperson

Ans. ( a)

5. At what level of an organisation does a corporate manager operate?

a) Functional

b) Operational

c) Middle level

d) Top level

Ans. ( d)

6. What is the guiding principle behind New Public Management?

a) Profit maximisation

b) Introducing private sector business principles into the public sector

c) Replacing public management with private sector management

d) Restructuring public organisations

Ans. ( b)

7. Which one is not a recognised key skill of management?

a) Conceptual skills

b) Human skills

c) Technical skills

d) Writing skills

Ans. ( d)

8. Which of these is not part of the recognised challenges for modern

managers?

a) Micro-managing the workforce

b) Managing communications

c) Managing change

d) Managing the learning organization

Ans. ( a)

9.Who of these is the entrepreneur?

a) Barack Obama

b) James Dyson

c) Damien Hirst

d) Mo Farah

Ans. ( b)

10. What is a social enterprise concerned with?

a) Profit maximisation

b) Maximising market share

c) Providing public service

d) Running a business to create social benefits

Ans. ( d)

1 In real life, entrepreneurs are those that…

a) Robbers that exploit their workers

b) Generate business success

c) Generate business success through hard and long hours of work

d) Robbers that exploit their workers and generate business success

Ans.1. c

2 The definition of entrepreneurship holds the promise of….

a) Financial difficulties and hardship

b) Limited expansion

c) Growth, unlimited expansion and long-term financial gain

d) Growth, expansion and long term financial gain

Ans.2. d

3 The terms entrepreneur and owner manager is used interchangeable and

describes a person that…

a) Manages a small business

b) That starts up a small business

c) That starts up and manages a small business

d) All above statements are incorrect

Ans.3. d

4 Entrepreneurship can be defined as…

a) The act of initiating, creating, building, expanding and sustaining a venture and

gathering The necessary resources to exploit an opportunity in the marketplace for

long-term wealth and capital gain

b) The act of creating, building, expanding and sustaining a venture, building an

entrepreneurial team and gathering the necessary resources to exploit an

opportunity

in the marketplace for long-term wealth and capital gain

c) The act of initiating, creating, building, expanding and sustaining a venture,

building

an entrepreneurial team and gathering the necessary resources to exploit an

opportunity in the marketplace for long-term wealth and capital gain

d) The act of initiating, creating, building, building an entrepreneurial team and

gathering the necessary resources to exploit an opportunity in the marketplace for

long-term wealth and capital gain

Ans.4. c

5 A basic survivalist is…

a) This person operates as an entrepreneur to survive for the first three months after

setting up a business.

b) This person operates as an entrepreneur to survive until he or she obtains an

entrepreneurial opportunity

c) This person operates as an entrepreneur to survive until he or she obtains a

formalsector

job or entrepreneurial opportunity

d) This person operates as a small business manager until he or she obtains a

formalsector

job or entrepreneurial opportunity.

Ans.5. c

6 A Pre-entrepreneur is…

a) Involved in welfare-based entrepreneurship where profit maximization is less

important than the collective

b) Involved where profit maximization is less important than the collective

c) Involved in welfare-based entrepreneurship

d) Involved in welfare-based entrepreneurship for profit maximization only

Ans.6. a

7 A subsistence entrepreneur is…

a) Involved in dependent income-generating activities operating as a small-scale

vendor

b) Involved in independent income-generating activities operating as a small-scale

vendor

c) Involved in independent income-spending activities operating as a small-scale

vendor

d) Involved in independent income-generating activities operating as a large-scale

vendor

Ans.7. b

8 A Micro entrepreneur is….

a) A formal-sector entrepreneur with zero to 10 employees

b) A formal-sector entrepreneur with 1 to 10 employees

c) A formal-sector entrepreneur with zero to 15 employees

d) A formal-sector entrepreneur with 1 to 15 employees

Ans.8. a

9 A small-scale entrepreneur is ….

a) A formal-sector entrepreneur with 11 to 50 employees

b) A formal-sector entrepreneur with 11 to 49 employees

c) A formal-sector entrepreneur with 16 to 49 employees

d) A formal-sector entrepreneur with 16 to 50 employees

Ans.9. b

10 Entrepreneurial companies are different from small business companies in that

they…

a) Are innovative and growth driven

b) Are not creating jobs for themselves but are wealth driven

c) Create wealth that is sustainable for future generation to come

d) All of the above

Ans.10. d

1 Entrepreneurship is about….

a) People and guess what they need, it motivates the entrepreneur to start, set up

and

grow a business.

b) People and knowing what they need, it motivates the entrepreneur to start a

business.

c) People and knowing what they need, it motivates the entrepreneur to start, set up

and grow a business.

d) People and knowing what they need, it motivates the entrepreneur to take an

unknown risk.

Ans. 1. ( c)

2 The most important reason amongst others why people start their own

business is to….

a) Survive financially

b) Serve their community

c) Live their entrepreneurial destiny

d) To sell their innovative products

Ans. 2. ( a)

3 Five personality dimensions of entrepreneurs are…

a) Achievement; autonomy; external locus of control; risk taking propensity and

entrepreneurial self-efficacy

b) Achievement; autonomy; external locus of control; risk taking propensity and

entrepreneurial self-efficacy

c) Achievement; autonomy; external locus of control; high risk taking propensity

and entrepreneurial self-efficacy

d) Achievement; autonomy; internal locus of control; risk taking propensity and

entrepreneurial self-efficacy

Ans. 3. ( b)

4 A need to achieve can emerge in various ways…

a) High energy levels to chase goals; confidence that success will be achieved

soon; and non-measurement of success

b) High energy levels to chase goals; confidence that success will be achieved

soon; and measurement of success

c) Low energy levels to chase goals; confidence that success will be achieved; and

measurement of success

d) High energy levels to chase goals; confidence that success will be achieved; and

measurement of success.

Ans. 4 ( d)

5 Autonomy refers to…

a) The need to make decisions, having to abide by someone’s policies, rules and

regulations

b) The need to make decisions on an ad hoc basis and without having to abide by

someone’s policies, rules and regulations

c) The need to make decisions, without having to abide by someone’s policies,

rules and regulations

d) The need to make ad hoc decisions, without having to abide by someone’s

policies, rules and regulations

Ans. ( c)

MONOPOLY

MULTIPLE CHOICES: Choose the one alternative that best completes the

statement or answers the question.

1) Unregulated monopolies

A) Cannot change the market quantity.

B) Can influence the market quantity and price.

C) Cannot incorporate.

D) Take the market price as given.

Ans. B

2) The following are key features of a monopoly EXCEPT

A) Diseconomies of scale. B) No close substitutes.

C) Influence over price. D) Barriers to entry.

Ans. A

3) Which of the following statements about a monopoly is FALSE?

A) A monopoly is the only supplier of the good.

B) Monopolies have no barriers to entry or exit.

C) The good produced by a monopoly has no close substitutes.

D) None of the above; that is, all of the above answers are true statements about a

monopoly.

Ans. B

4) Which of the following is LEAST likely to be a monopoly?

A) The sole owner of an occupational license

B) A pharmaceutical company with a patent on a drug

C) A store in a large shopping mall

D) The holder of a public franchise

Ans. C

5) A public franchise is

A) An exclusive right granted to an inventor of a product.

B) A government issued license required to practice a profession.

C) A unique source of raw materials.

D) An exclusive right granted to a firm to supply a good or service.

Ans. D

6) Public franchises create monopolies by restricting

A) Entry. B) Demand. C) Prices. D) Profit.

Ans. A

7) A patent grants

A) A guarantee of quality to consumers.

B) An exclusive right to an inventor of a product.

C) The right to practice a profession.

D) Control over a unique source or supply of raw materials.

Ans. B

8) Patents create monopolies by restricting

A) Prices. B) Profit. C) Entry. D) Demand.

Ans. C

9) Patents are ________ barriers to entry and public franchises are ________

barriers to entry.

A) legal; legal B) legal; natural C) natural; natural D) natural; legal

Ans. A

10) A defining characteristic of a natural monopoly is that

A) It exists because of legal barriers to entry.

B) It has no close substitutes.

C) Its average total cost curve slopes downward as it intersects the demand curve.

D) Its demand curve slopes downward.

Ans. C

11) An industry in which one firm can supply the entire market at a lower price

than two or more firms can is called a

A) Legal monopoly. B) single-price monopoly.C) Natural monopoly. D) price-

discriminating monopoly.

Ans. C

12) Which of the following is true of a natural monopoly?

A) The firm can supply the entire market at a lower cost than could two or more

firms.

B) Its average total cost curve slopes upward as it intersects the demand curve.

C) The firm is not protected by any barrier to entry.

D) Economies of scale exist to only a very low level of output.

Ans. A

13) A market in which competition and entry are restricted by the granting of a

public franchise, government license, patent, or copyright is called a

A) price-discriminating monopoly. B) single-price monopoly.

C) natural monopoly. D) legal monopoly.

Ans. D

14) A single-price monopoly charges the same price

A) even if the demand curve shifts.

B) To all customers.

C) Even if its cost curves shift.

D) The price equals the firm's marginal revenue.

Ans. B

15) All of the following are examples of price discrimination EXCEPT

A) Lower ticket prices for matinee performances.

B) buy-one-get-one-free offers.

C) "Early bird specials" at a restaurant.

D) "Buy now, pay later" payment options.

Ans. D

16) Total revenue equals

A) Total cost minus profit.

B) Pricetime’s quantity sold.

C) Marginal revenue time’s quantity sold.

D) The area between the demand curve and the marginal revenue curve.

Ans. B

17) For a monopoly, the industry demand curve is the firm's

A) Profit function. B) Marginal revenue curve.

C) Supply curve. D) Demand curve.

Ans. D

18) Monopolists

A) Face downward sloping demand curves. B) Are price takers.

C) Have no short-run fixed costs. D) Maximize revenue, not profits.

Ans. A

19) The marginal revenue curve for a single-price monopoly

A) Lies below its demand curve. B) is horizontal.

C) Lies above its demand curve. D) Coincides with its demand curve.

Ans. A

20) For a single-price monopoly, marginal revenue is ________ when demand is

elastic and is ________when demand is inelastic.

A) Negative; positive B) positive; positiveC) positive; negative D) negative;

negative

Ans. C

21) If the price elasticity of demand is greater than 1, a monopoly's

A) Marginal revenue is zero.

B) Total revenue decreases when the firm lowers its price.

C) Marginal revenue is negative.

D) Total revenue increases when the firm lowers its price.

Ans. D

22) If the price elasticity of demand is less than 1, a monopoly's

A) Marginal revenue is undefined.

B) Total revenue decreases when the firm lowers its price.

C) Total revenue increases when the firm lowers its price.

D) Marginal revenue is zero.

Ans. B

23) If the demand for its product is elastic, a monopoly's

A) Total revenue is unchanged when the firm lowers its price.

B) Total revenue decreases when the firm lowers its price.

C) Marginal revenue is zero.

D) Marginal revenue is positive.

Ans. D

24) If the demand for its product is inelastic, a monopoly's

A) Marginal revenue is negative.

B) Total revenue is unchanged when the firm lowers its price.

C) Total revenue increases when the firm lowers its price.

D) Marginal revenue is equal to zero.

Ans. A

25) A monopoly firm expands its output and lowers its price. The firm finds that its

total revenue falls.Hence, the firm is producing in the

A) Inelastic range of its supply curve. B) Elastic range of its supply curve.

C) Elastic range of its demand curve. D) Inelastic range of its demand curve.

Ans. D

26) The figure above shows a monopoly firm's demand curve. If the price and

quantity of haircutsmove from point t to point r, the monopoly's

A) marginal revenue will decrease. B) total revenue will fall.

C) total revenue will remain the same. D) total revenue will rise.

Ans. B

27) The figure above shows a monopoly firm's demand curve. If the price and

quantity of haircutsmove from point t to point u, the monopoly's

A) total revenue will remain the same. B) total revenue will fall.

C) marginal revenue will increase. D) total revenue will rise.

Ans.B

28) The figure above shows a monopoly firm's demand curve. At point t

A) demand is inelastic. B) demand is elastic.

C) demand is unit elastic. D) total revenue is at a minimum.

Ans. C

29) The figure above shows a monopoly firm's demand curve. The monopoly's

total revenue is at itsmaximum when the firm produces at point

A) t. B) u. C) x. D) r.

Ans. A

30) The figure above shows a monopoly firm's demand curve. The monopoly's

total revenue is zero atpoint

A) x. B) t. C) u. D) r.

Ans. A

31) The figure above shows a monopoly firm's demand curve. At point u in the

figure, the demandfacing the monopoly is

A) less than the supply. B) inelastic.C) unit elastic. D) elastic.

Ans.B

32) An unregulated monopoly will

A) produce in the elastic range of its demand curve.

B) flood the market with goods to deter entry.

C) produce only where marginal revenue is zero.

D) produce in the inelastic range of its demand curve.

Ans. A

33) An unregulated monopoly finds that its marginal cost exceeds its marginal

revenue. In order toincrease its profit, the firm will

A) lower its price and increase its output.

B) raise its price and increase its output.

C) raise its price and decrease its output.

D) continue to produce this level of output because any change will lower its

profit.

Ans.C

34) The figure above shows a monopoly's total revenue and total cost curves. The

monopoly'seconomic profit is positive if it produces between

A) 0 and 20 units. B) 5 and 20 units. C) 0 and 15 units. D) 0 and 5 units.

Ans. B

35) The figure above shows a monopoly's total revenue and total cost curves. The

monopoly'seconomic profit is zero if it produces

A) 15 units of output. B) 5 or 20 units of output.

C) 0 units of output. D) none of the above

Ans. B

36) The figure above shows a monopoly's total revenue and total cost curves. The

monopoly'seconomic profit is maximized when it produces

A) 5 units of output. B) 20 units of output.

C) 0 units of output. D) 15 units of output.

Ans. D

37) The figure above shows a monopoly's total revenue and total cost curves. The

monopoly's marginalrevenue equals its marginal cost when it produces

A) 5 units of output. B) 15 units of output.

C) 20 units of output. D) 0 units of output.

Ans. B

38) The monopoly with the TR and TC curves shown in the figure above will

produce

A) 5 units of output. B) 20 units of output.

C) 15 units of output. D) 0 units of output.

Ans. C

39) For the unregulated, single-price monopoly shown in the figure above, when

its profit ismaximized, output will be

A) 4 units per year and the price will be $6. B) 6 units per year and the price will

be $4.

C) 4 units per year and the price will be $4. D) None of the above answers is

correct.

Ans. A

40) The unregulated, single-price monopoly shown in the figure above will

produce where its demand

A) Equals its ATC curve. B) is inelastic.

C) is elastic. D) Equals its MC curve.

Ans. C

41) The unregulated, single-price monopoly shown in the figure above has a total

economic profit of

A) $4. B) $16. C) $24. D) $8.

Ans. D

42) The unregulated, single-price monopoly shown in the figure above will sell

A) 50 tickets. B) 30 tickets.C) less than 30 tickets. D) 100 tickets.

Ans. B

43) An unregulated, single-price monopoly is shown in the figure above. If fixed

cost is $20, themonopoly's total costs when it is maximizing its profit will be

A) $30. B) $40. C) $140. D) $80

Ans. D

44) An unregulated, single-price monopoly is shown in the figure above. If fixed

cost is $20, themonopoly's total economic profit when it is maximizing its profit

will be

A) $0. B) $50. C) negative. D) $25.

Ans. D

45) The monopoly illustrated in the figure above is unregulated and charges a

single price. Thedeadweight loss created by the monopoly is

A) $90.00. B) $0. C) $22.50. D) $45.00.

Ans. C

46) Unregulated monopolies can often earn an economic profit in the long run

because

A) they have high costs.

B) barriers to entry prevent competing firms from entering the market.

C) they receive government subsidies.

D) the risks of running a monopoly are high.

Ans. B

47) Compared to a single-price monopoly, a perfectly competitive industry

produces

A) more output and has a higher price. B) more output and has a lower price.

C) less output and has a higher price. D) less output and has a lower price.

Ans. B

48) Which of the following statements is true?

A) A perfectly competitive industry produces more output and charges the same

price as asingle-price monopoly.

B) A perfectly competitive industry produces less output but charges a lower price

than asingle-price monopoly.

C) A perfectly competitive industry produces less output and charges the same

price as asingle-price monopoly.

D) A perfectly competitive industry produces more output and charges a lower

price than asingle-price monopoly.

Ans. D

49) The fundamental reason a single-price monopoly creates a deadweight loss is

that it

A) restricts output. B) raises variable cost.

C) raises fixed cost. D) reduces the elasticity of demand.

Ans. A

50) The unregulated, single-price monopolist illustrated in the figure above has a

total revenue of

A) $8.00 per day. B) $36.00 per day. C) $16.00 per day. D) $40.00 per day.

Ans. D

51) The unregulated, single-price monopolist illustrated in the figure above has a

total cost of

A) $16.00 per day. B) $40.00 per day. C) $32.00 per day. D) $8.00 per day.

Ans. C

52) The unregulated, single-price monopolist illustrated in the figure above earns

an economic profitof

A) $8.00 per day. B) zero. C) $10.00 per day. D) $40.00 per day.

Ans. A

53) The unregulated, single-price monopolist illustrated in the figure above will

produce

A) 6 units per day. B) 9 units per day. C) 0 units per day. D) 4 units per day.

Ans. D

54) In the figure above, compared to a perfectly competitive industry with the

same costs, asingle-price, unregulated monopoly will decrease production by

A) 2 units per day. B) 4 units per day. C) 6 units per day. D) zero.

Ans. A

55) The unregulated, single-price monopolist illustrated in the figure above will set

a price of

A) $6.00 per unit. B) $8.00 per unit. C) $10.00 per unit. D) $2.00 per unit.

Ans. C

56) In the figure above, compared to a perfectly competitive industry with the

same costs, asingle-price, unregulated monopoly will raise the price by

A) $8.00 per unit. B) $6.00 per unit. C) $4.00 per unit. D) $2.00 per unit.

Ans. C

57) In the figure above, the deadweight loss created if the industry changes from

perfectly competitiveto a single-price, unregulated monopoly is

A) zero. B) $36.00 per day. C) $8.00 per day. D) $24.00 per day.

Ans. C

58) In the figure above, the redistribution from the consumers to the producer if the

firm is asingle-price, unregulated monopoly rather than a perfectly competitive

industry is

A) $16.00 per day. B) $32.00 per day. C) $8.00 per day. D) zero.

Ans. A

59) In the figure above, the single-price, unregulated monopoly produces

A) less than 20 units per day. B) 40 or more units per day.

C) 20 units per day. D) between 20 and 40 units per day.

Ans. C

60) If the industry in the above figure was perfectly competitive, the level of output

would

A) exceed the single-price monopoly level of output by 20 units.

B) be less than the single-price monopoly level of output.

C) be the same as the single-price monopoly level of output.

D) exceed the single-price monopoly level of output by 60 units.

Ans. A

61) In the figure above, the efficient amount of output is

A) 40 units. B) 60 units. C) 20 units. D) 80 units.

Ans. A

62) The output produced by the single-price, unregulated monopoly in the above

figure is

A) efficient because marginal costs equals marginal revenue.

B) efficient because profit is maximized.

C) inefficient because too little is produced.

D) inefficient because too much is produced.

62 Ans. C

63) In the figure above, the single-price, unregulated monopoly sets a price of

A) $40 per unit. B) $60 per unit. C) $80 per unit. D) $0 per unit.

Ans. B

64) Consumer surplus is

A) equal to the price minus the marginal cost.

B) less in the case of a single-price monopoly than in the case of a perfectly

competitive industry.

C) zero for a single-price monopolist.

D) positive in the case of a monopolist practicing perfect price discrimination.

Ans. B

65) In comparison with a perfect competition, a single-price monopolist with the

same costs

A) generates a larger consumer surplus and a larger economic profit.

B) generates a smaller consumer surplus but a larger economic profit.

C) generates a larger consumer surplus and a smaller economic profit.

D) generates a smaller consumer surplus and a smaller economic profit.

Ans. B

66) Compared to a competitive industry, a monopoly transfers

A) consumer surplus to producers.

B) producer surplus to consumers.

C) deadweight loss away from producers to consumers.

D) deadweight loss away from consumers to producers.

Ans. A

67) Any attempt to capture a consumer surplus, a producer surplus, or an economic

profit is called

A) efficiency gain. B) profit-maximizing.

C) rent-seeking. D) price discriminating.

Ans. C

68) Efforts by a firm to obtain a monopoly

A) are called price taking. B) are called price discrimination.

C) raise consumer surplus. D) are called rent seeking.

Ans. D

69) Activity aimed at creating artificial barriers to entry to a particular market

A) improves competition. B) is rent seeking.

C) has no social cost. D) improves the economy's efficiency.

Ans. B

70) Rent seeking is devoted to the creation of

A) more elastic demand. B) monopolies.

C) human capital. D) competitive industries.

Ans. B

71) Rent seeking through lobbying

A) results in perfectly competitive industries. B) uses up resources.

C) results in perfect price discrimination. D) reduces deadweight loss.

Ans.B

72) The value of resources devoted to rent seeking will

A) reduce consumer surplus. B) equal the monopoly's economic profits.

C) raise output to an efficient level. D) reduce deadweight loss.

Ans.B

73) Price discrimination

A) is more likely for services than for goods that can be stored.

B) is common in perfectly competitive markets.

C) is illegal because it always violates antitrust laws.

D) Works only if all groups of demanders have the same price elasticity of demand

for theproduct.

Ans.A

74) A price discriminating monopolist charges lower prices to customers with

A) Higher average willingness-to-pay. B) Lower average willingness-to-pay.

C) Lower supply elasticity’s. D) Higher supply elasticity’s.

Ans.B

75) Monopolists are able to practice price discrimination because

A) They have constant marginal cost.

B) Of differing price elasticity’s of supply.

C) They have constant average cost.

D) Of differing average willingness-to-pay among consumers.

Ans.D

76) The more perfectly a monopoly can price discriminate, the

A) smaller its output and the higher its profits.

B) larger its output and the higher its profits.

C) larger its output and the lower its profits.

D) smaller its output and the lower its profits.

Ans.B

77) Which of the following occurs with both perfectly price discriminating and

single-price monopolies?

A) The level of output is inefficient.

B) Deadweight loss is created.

C) There is a redistribution of consumer surplus to the monopoly.

D) All consumer surplus goes to the monopoly.

Ans.C

78) In the case of a perfectly price-discriminating monopoly, there is no

A) transfer of consumer surplus to the producer.

B) deadweight loss.

C) long-run economic profit.

D) short-run economic profit.

Ans.B

Demand Schedule Facing aPerfectly Price Discriminating Firm

PRICE QUANTITY SOLD

7 1

6 2

5 3

4 4

3 5

2 6

1 7

79) Using the demand schedule in the above table, if the firm's marginal cost is

constant at $3.00,output for a perfect price discriminating monopolist is

A) 2 units. B) 4 units. C) 5 units. D) 3 units.

Ans. C

80) Using the demand schedule in the above table, the marginal revenue for the

perfectly pricediscriminating monopolist from the sale of the third unit of output is

A) $6. B) $5. C) $4. D) $3.

Ans. B

81) Using the demand schedule in the table above, the total revenue a perfectly

price discriminatingmonopolist receives from selling 5 units of output is

A) $18. B) $5. C) $15. D) $25

Ans. D

82) If the monopoly illustrated in the figure above could engage in perfect price

discrimination, theneach buyer would pay

A) $2.00. B) $3.50. C) $3.00. D) a different price.

Ans. D

83) If the monopoly illustrated in the figure above could engage in perfect price

discrimination, thenthe lowest ticket price would be

A) $3.50. B) $3.00. C) $1.00. D) $2.00.

Ans. D

84) If the monopoly illustrated in the figure above could engage in perfect price

discrimination, then it would sell

A) 60 tickets. B) 50 tickets. C) 30 tickets. D) 100 tickets.

Ans. A

85) If the monopoly illustrated in the figure above could engage in perfect price

discrimination, thentotal revenue collected by the firm would be

A) $110. B) $210. C) $120. D) $310.

Ans. B

86) In the figure above, what is the loss of consumer surplus if the firm is a

perfectlyprice-discriminating monopoly instead of a perfectly competitive

industry?

A) $22.50 B) $90.00 C) $0 D) $45.00

Ans. B

87) If the monopoly illustrated in the figure above could engage in perfect price

discrimination, the dead weight loss would be

A) $22.50. B) $250.00. C) $0. D) $90.00.

Ans. C

88) In the figure above, the elasticity of demand facing the monopoly equals one

when it produces________ output.

A) k B) h C) j D) none of the above

Ans. A

89) In the figure above, a single-price unregulated monopoly will set price

A) a. B) b . C) c. D) d.

Ans. B

90) In the figure above, a single-price unregulated monopoly will produce at output

A) k. B) j. C) h. D) none of the above

Ans. C

91) In the figure above, the transfer of consumer surplus from consumers to the

producer caused byproduction under a single-price monopoly instead of perfect

competition is the area of

A) trapezoid beic. B) rectangle begd. C) rectangle befc. D) triangle abe.

Ans. C

92) In the figure above, consumer surplus at the price that maximizes the profit for

an unregulated,single-price monopolist is the area of

A) triangle eig. B) triangle abe. C) rectangle 0hgd. D) rectangle 0heb.

Ans. B

93) In the figure above, the deadweight loss from production under a single-price

monopoly insteadof perfect competition is the area of

A) triangleaic. B) triangle aeb. C) triangleeig. D) triangleeif.

Ans. C

94) In the figure above, a perfectly price-discriminating monopoly will maximize

profit by producingat output

A) h. B) k.C) j. D) None of the above

Ans. C

95) In the figure above, the total revenue of a perfectly price-discriminating

monopolist at theprofit-maximizing output is equal to the area of

A) 0dgh. B) 0beij. C) aci. D) 0aij.

Ans. D

96) When an increase in a firm's output of a good or service brings a decrease in

the average total cost of producing it, the firm is experiencing

A) Diseconomies of scale. B) Economies of scale.

C) Economies of scope. D) Diminishing returns.

Ans. B

97) Economies of scope arise when

A) an increase in output causes average total cost to fall.

B) doubling inputs causes output to more than double.

C) high profit allows a company to undertake research and development.

D) an increase in the range of goods produced causes average total cost to fall.

Ans. D

98) When an increase in the range of goods produced brings a decrease in the

average total cost ofproduction, the firm is experiencing

A) diminishing returns. B) economies of scale.

C) economies of scope. D) diseconomies of scale.

Ans. C

99) Which of the following is NOT a possible gain to society from a monopoly?

A) The monopoly may induce innovation.

B) The monopoly may achieve economies of scope.

C) The monopoly may create rent seeking.

D) The monopoly may achieve economies of scale.

Ans. C

100) Which of the following statements regarding a marginal-cost pricing rule is

incorrect?

A) It is efficient.

B) It allows the firm to earn a normal profit.

C) It maximizes total surplus in a regulated industry.

D) It sets price equal to marginal cost.

Ans. B

101) Which of the following statements regarding average-cost pricing rule is

incorrect?

A) The firm earns a normal profit.

B) It is efficient.

C) More output is produced than if the firm maximized profit.

D) It sets price equal to average total cost.

Ans. B

102) In a small town, Marilyn's Christmas Tree Lot has a monopoly on sales of

Christmas trees. In order to increase her sales from 100 trees to 101 trees, she must

drop the price of all of her trees from $20 to $19. What is the marginal revenue?

A) $20 B) $19 C) negative $18 D) $2000

Ans. C

103) A single-price monopoly

A) eliminates all the consumer surplus.

B) charges all consumers the lowest price that they want to pay for each unit

purchased.

C) produces less output than it would if it could discriminate.

D) creates a smaller deadweight loss than it would if it could discriminate.

Ans. C

104) Because of a decrease in labor costs, a monopoly finds that its marginal cost

and average total cost have decreased. The monopoly will

A) raise its price and decrease the quantity it produces.

B) raise its price and increase the quantity it produces.

C) lower its price and increase the quantity it produces.

D) lower its price and decrease the quantity it produces.

Ans. C

105) If a monopoly is producing at an output level at which marginal revenue

exceeds marginal cost, inorder to increase its profit it will

A) raise its price and decrease its output. B) lower its price and increase its output.

C) raise its price and increase its output. D) lower its price and decrease its output.

Ans. B

106) Compared to a single-price monopoly, the output of a perfectly competitive

industry with thesame costs

A) is more than the monopoly's output.

B) is less than the monopoly's output.

C) could be more than, less than, or equal to the monopoly's output.

D) is the same as the monopoly's output.

Ans. A

107) Compared to a single-price monopoly, the price charged by a competitive

industry with the samecosts

A) could be higher than, lower than, or the same as the monopoly's price.

B) is higher than the monopoly's price.

C) is the same as the monopoly's price.

D) is lower than the monopoly's price.

Ans. D

108) If a perfectly competitive industry becomes a monopoly and the costs do not

change, which of thefollowing allocation of costs and benefits applies?

A) The producer and society benefit, but consumers are harmed.

B) The producer and society are harmed, but consumers benefit.

C) The producer is harmed, but consumers and society benefit.

D) The producer benefits, but consumers and society are harmed.

Ans. D

109) Consumer surplus is largest for

A) a single-price monopoly.

B) a perfectly competitive industry.

C) any price-discriminating monopoly.

D) a perfectly price-discriminating monopoly.

Ans. B

110) Which of the following may be a gain to society from monopoly?

A) Monopolies may be able to generate economies of scale.

B) Monopolies may earn an economic profit in the long run.

C) Monopolies may be able to price discriminate, thereby boosting consumer

surplus.

D) Monopolists do not waste resources trying to innovate.

Ans. A

111) La Bella Pizza is the only pizza place on Pepper Island. The figure above

shows La Bella Pizza'sdemand curve, marginal revenue curve, and marginal cost

curve. At La Bella Pizza'sprofit-maximizing output, its annual total revenue is

A) $312,000. B) $624,000. C) $168,000. D) $336,000.

Ans. A

112) The figure above shows the demand curve facing Sue's Surfboards, the sole

renter of surfboards onBig Wave Island. Sue's Surfboards currently rents 15

surfboards an hour. Sue'stotal revenue fromthe 15 surfboards is

A) $10. B) $225. C) $300. D) $150.

Ans. D

113) Sue's Surfboards is the sole renter of surfboards on Big Wave Island. Sue's

demand and marginalrevenue curves are illustrated in the figure above. The change

in the total revenue from renting the15th surfboard is

A) $20. B) $0. C) $10. D) $15.

Ans. B

114) The figure above shows the demand and marginal revenue curves facing Sue's

Surfboards, the solerenter of surfboards on Big Wave Island. If Sue is renting 25

surfboards an hour so that themarginal revenue is negative, then Sue's Surfboards

A) must face a unit elastic demand for surfboard rentals.

B) can increase its profit by increasing the number of rentals.

C) must face an elastic demand for surfboard rentals.

D) must face an inelastic demand for surfboard rentals.

Ans. D

115) Bob's Books is the only bookstore in town. The figure above shows the

demand curve for booksand Bob's Books' marginal revenue curve and marginal

cost curve. Bob's Books maximizes itsprofit and sets the price of a book equal to

________ and has total annual revenue of ________.

A) $20, $60,000 B) $30; $60,000 C) $10; $40,000 D) $40; $40,000

Ans. B