Question 1. Economic profits are calculated by subtracting (Points : 1)

1. Economic profits are calculated by subtracting (Points : 1)
a. explicit costs from total revenue.
b. implicit costs from total revenue.
c. implicit costs from normal profits.
d. explicit and implicit costs from total revenue.
2. The long run is characterized by (Points : 1)
a. the relevance of the law of diminishing returns.
b. at least one fixed input.
c. insufficient time for firms to enter or leave the industry.
d. the ability of the firm to change its plant size.
3. An industry comprised of 40 firms, none of which has more than 3% of the total market for a differentiated product is an example of (Points : 1)
a. monopolistic competition.
b. oligopoly.
c. pure monopoly.
d. pure competition.
4. Which of the following statements applies to a purely competitive producer? (Points : 1)
a. It will not advertise its product.
b. In long-run equilibrium it will earn an economic profit.
c. Its product will have a brand name.
d. Its product is slightly different from those of its competitors.
5. Which of the following is correct?
a. Both purely competitive and monopolistic firms are “price takers.”
b. Both purely competitive and monopolistic firms are “price makers.”
c. A purely competitive firm is a “price taker,” while a monopolist is a “price maker.”
d. A purely competitive firm is a “price maker,” while a monopolist is a “price taker.”
6. A natural monopoly occurs when (Points : 1)
a. long-run average costs decline continuously through the range of demand.
b. a firm owns or controls some resource essential to production.
c. long-run average costs rise continuously as output is increased.
d. economies of scale are obtained at relatively low levels of output.
7. Monopolistic competition means (Points : 1)
a. a market situation where competition is based entirely on product differentiation and advertising.
b. a large number of firms producing a standardized or homogeneous product.
c. many firms producing differentiated products.
d. a few firms producing a standardized or homogeneous product.
8. Use your basic knowledge and your understanding of market structures to answer this question. Which of the following companies most closely approximates a monopolistic competitor? (Points : 1)
a. Subway Sandwiches
b. Pittsburgh Plate Glass
c. Ford Motor Company
d. Microsoft
9. Which of the following is the best example of oligopoly? (Points : 1)
a. Women’s dress manufacturing
b. Automobile manufacturing
c. Restaurants
d. Cotton farming
10. Concentration ratios measure the (Points : 1)
a. geographic location of the largest corporations in each industry.
b. degree to which product price exceeds marginal cost in various industries.
c. percentage of total industry sales accounted for by the largest firms in the industry.
d. number of firms in an industry.

11. What is the difference between ACCOUNTING PROFIT, ECONOMIC PROFIT, and NORMAL PROFIT? (Points : 5)

12. Identify the primary characteristics of perfect competition and monopolistic competition. Give examples of each.

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