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Basic Microeconomic Concepts

Please refer attached file for diagrams.

1)The demand curve facing each wool producer is ________ starting at $3.00 per pound.
a.Downward sloping
b.Upward sloping
c.Vertical
d.Horizontal

2)If a firm in a perfectly competitive industry raises price above market price,
a.Its total revenue will increase
b.Its profit will increase
c.Its sales will drop to zero
d.Its demand curve will become downward sloping

3)The fast food industry is not considered perfectly competitive because:
a.entry and exit are strictly regulated by the government
b.the firm's products are differentiated
c.firms spend a large amount of money on advertising
d.there are very large number of firms

4)You are certain that a normal rate of profit is 18% for the fast-food industry. What is your estimate of a normal rate of profit in the computer software industry, which is considered to be much riskier than the computer industry?
a.18%
b.less than 18%
c.above 18%
d.the rate on government bonds

5)Situation 1:
You are the owner an only employee of a company that writes computer software that is used by doctors to bill patients. Last year you earned a total revenue of $90,000. Your costs for equipment, rent, and supplies were $60,000. To start this business you quit a job at another computer software firm that paid $40,000 a year.

A yearly normal profit for your computer software firm would be:
a. $20,000
b. $40,000
c. $60,000
d. $100,000

6)The marginal product of the second worker is.
a. 10
b. 16
c. 20
d. 44

7)Demand for the product of an industry in perfect competition is assumed to be inelastic.
a. True b. False

8)If the first worker produces five custom picture frames a day, and the second worker produces five additional custom picture frames a day, it is clear that diminishing marginal returns have set in.
a. True b. False

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Solution Preview

Please refer attached file for diagrams.

1)The demand curve facing each wool producer is ________ starting at $3.00 per pound.
a.Downward sloping
b.Upward sloping
c.Vertical
d.Horizontal

Answer is d. Horizontal

2)If a firm in a perfectly competitive industry raises price above market price,
a.Its total revenue will increase
b.Its profit will increase
c.Its sales will drop to zero
d.Its demand curve will become downward sloping

Answer c. Its sales will drop to zero

3)The fast food industry is not considered perfectly competitive ...

Solution Summary

There are eight MCQ type questions about basic concepts of economics. Working of solutions is shown where needed.

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