The Firm: Sample Quiz

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1. If a firm faces an inelastic demand curve, it:

can increase its profits by selling less and raising price.
can sell all it wants at the going rate.
should cut its price and sell more.
should stop production and leave the industry.

2. A line showing all combinations of resources that cost the same is called:

a production-possibilities frontier.
an isoutility line.
an isoquant.
an isocost line.

3. The additional cost needed to produce and sell another unit of output is called:

marginal cost.
average cost.
marginal resource cost.
marginal revenue product.

4. The constraint placed on the firm by technology is represented in the:

demand curve facing the firm.
the production function.
the supply curve for resources.
the utility function.

5. One cannot grow the world's wheat supply in a flowerpot, no matter how much labor, fertilizer, water, and seed one has. The reason for this is:

the law of diminishing returns.
increasing returns to scale.
decreasing returns to scale.
diminishing marginal utility.

6. If an economist says that a firm practices price discrimination, that firm is:

exploiting the poor.
charging different prices for the same good or service.
making great efforts to keep its costs as low as possible.
producing two products, one with decreasing returns to scale and the other with increasing returns.

7. Which of the following illustrate the concept of marginal product?

Burger Barns receives and extra $1.59 by selling another hamburger.
Costs at Daryl's Dairy rise by $.87 when it produces another gallon of milk.
Fred's Farms pays $.90 for each gallon of fuel it needs to run equipment.
When the post office hires another letter sorter, it can sort an extra 3000 letters per hour.
None of the above.

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Copyright Robert Schenk