Management Accounting Review

Quizzer on Microeconomics

1. In the short run, a purely competitive firm operating at a loss will

a. Shut down.
b. Continue to operate as long as price exceeds average variable costs.
c. Raise the price of its product.
d. Reduce the size of its plant to lower fixed costs.

2. In an analysis of economic costs of Production, long run means

a. More than 1 year but less than 5 years.
b. Five or more years.
c. A period of time long enough to turn over top management.
d. A period of time long enough for the firm to make all resource costs variable in
nature.

3. The marginal utility of a good refers to

a. The point at which the consumer's total utility is maximized.
b. The point at which the consumer's total utility is minimized.
c. The change in the amount of the good consumed that increases total utility by one
unit.
d. The change in total utility when consumption of the good increases by one unit.

4. Economies and diseconomies of scale are important determinants of the

a. Type of product demand faced by individual firms.
b. Market demand curve.
c. Pattern of costs in the long run.
d. Law of diminishing returns.

5. If a rent control law in a competitive housing market establishes a maximum or ceiling rent that
is above the market or equilibrium rent,
a. The law has no effect on the rental market.
b. A surplus of rental housing units will result.
c. Supply will decrease as price increases.
d. Demand will increase as price increases.

6. The distribution of income among households in the Philippines is primarily determined by

a. Transfer payments to households.
b. Household purchases of goods and services.
c. The ownership of factors of production.
d. Government taxes.

7. Local electric utilities are considered to be natural monopolies because for these firms
a. Supply curves are upward sloping.
b. Demand curves are upward sloping.
c. Average total costs never fall.
d. Significant economies of scale are present.

8. If the demand for cigarettes in Cebu City is relatively elastic, and Cebu City imposes high taxes
on cigarettes that result in higher cigarette prices, then in Cebu City
a. The quantity of cigarettes demanded would increase.
b. The demand for cigarettes would increase.
c. The demand curve for cigarettes would become vertical.
d. Expenditures on cigarettes would fall.

9. The quantity of output a competitive firm can supply at any price is determined in part by
a. Average household income.
b. Consumer tastes and preferences.
c. Input prices.
d. The distribution of income among households.

10. In the economic theory of production and cost, the short run is defined to be a production
process
a. Which spans a time period of less than one year in length.
b. In which both fixed and variable inputs are employed.
c. That is subject to economies of scale.
d. That always produces economic profits.
 11. Natural monopoly conditions, which often lead to economic regulation, refer to
a. Rising marginal costs.
b. Elastic consumer demand for the product.
c. Declining average costs.
d. Consumer demand for the product that is strongly influenced by the business cycle.

Questions 12 –13. The theory of price elasticity of consumer demand is helpful when a firm is
determining price changes for a consumer good or service. The formula for the coefficient of elasticity,
E, is

(relative change in quantity demanded)

E = --------------------------------------
(relative change in price)

12. If the coefficient of elasticity is two, then the consumer demand for the product is said to be
a. Perfectly inelastic.
b. Elastic.
c. Inelastic.
d. Unit elastic.

13. If the coefficient of elasticity is zero, then the consumer demand for the product is said to be
a. Perfectly inelastic.
b. Elastic.
c. Inelastic.
d. Unit elastic.

14. All of the following are true about perfect competition except that
a. There is free market entry without large capital costs for entry.
b. There are many firms participating in the market.
c. In the long run, an increase in profit will have no effect on the number of firms in
the market.
d. Firms are price takers.

15. If the average household income increases and there is relatively little change in the price of a
normal good, then the
a. Supply curve will shift to the left.
b. Quantity demanded will move farther down the demand curve.
c. Demand will shift to the left.
d. Demand curve will shift to the right.

16. All of the following are characteristics of monopolistic competition except that
a. The firms sell a homogeneous product.
b. The firms tend not to recognize the reaction of competitors when determining prices.
c. Individual firms have some control over the price of the product.
d. The consumer demand curve is highly elastic.

17. The cyclical and seasonal fluctuations in consumer demand for the products produced by an
oligopoly are characteristic of
a. Differentiated products.
b. Sticky prices.
c. Kinked demand curves.
d. Homogeneous products.

18. The measurement that uses the factors of production as inputs in physical terms is
a. Economic efficiency.
b. Opportunity cost.
c. Technological efficiency.
d. Comparative advantage.

19. The measurement of using resources now in lieu of alternative uses of the resources is
a. Economic efficiency.
b. Opportunity cost.
c. Comparative advantage.
d. Absolute advantage.

20. The principle of substitution states that

a. The costs of two factors of production are equal.
 b. Profit maximization is maintained while choosing either factor of production.
c. The firm chooses more of the less expensive factor of production.
d. The firm chooses more of the more expensive factor of production.

21. When making a decision to increase the robotic automation equipment in an existing facility, a
firm takes all of the following into consideration except
a. Economies of scale.
b. Opportunity cost.
c. Technological efficiency.
d. The initial cost of the current facility.

22. A decrease in the price of a complementary good will

a. Shift the demand curve of the joint commodity to the left.
b. Increase the price paid for a substitute good.
c. Shift the supply curve of the joint commodity to the left.
d. Shift the demand curve of the joint commodity to the right.

23. If a product is part of the consumers' basket of goods, and the Consumer Price Index increased
7% for the year while the price of this normal good increased 3%, then
a. The supply curve will shift to the left.
b. Neither the demand curve nor the supply curve will be affected.
c. The demand curve will shift to the right.
d. The demand curve will shift to the left.

24. If the elasticity of demand for a normal good is estimated to be 1.5, a 10% reduction in its price
would cause
a. Total revenue to fall by 10%.
b. Total revenue to fall by 15%.
c. Quantity demanded to rise by 15%.
d. Demand to decrease by 10%.

25. An industry that is oligopolistic would be best characterized by

a. One firm selling a product with no close substitutes.
b. The absence of the profit-maximizing goal.
c. Significant barriers to entry.
d. Horizontal or flat demand curves for the output of individual firms.

26. If a normal good competes with three similar goods, and all four goods give the consumer equal
utils of satisfaction, the demand for the normal good
a. Is relatively elastic.
b. Is perfectly elastic.
c. Responds as an inferior good.
d. Is perfectly inelastic.

27. If oil producers and retailers were to increase the price of gasoline for cars during the summer
season by P.05 per gallon, these suppliers anticipate that the demand for gasoline
a. Is relatively elastic.
b. Is relatively inelastic.
c. Responds as an inferior good.
d. Is perfectly inelastic.

28. The Yang family typically ate hamburger as a staple in their diet. In the last few years, the
family's income has doubled, and they have now replaced hamburger with steak as a staple in
their diet. This is an example in which the demand for hamburger
a. Is relatively elastic.
b. Is perfectly elastic.
c. Is relatively inelastic.
d. Responds as an inferior good.

29. Utility companies can ordinarily price their product, a good that establishes a comfortable life-
style (i.e., electricity, gas for home heating), based on the assumption that the demand
a. Is relatively elastic.
b. Is perfectly elastic.
c. Is relatively inelastic.
d. Is perfectly inelastic.
 30. The demand curve for a normal good is
a. Upward sloping because firms produce more at higher prices.
b. Upward sloping because higher-priced goods are of higher quality.
c. Vertical.
d. Downward sloping because of the income and substitution effects of price changes.

31. Which one of the following changes will cause the demand curve for gasoline to shift to the left?
a. The price of gasoline increases.
b. The supply of gasoline decreases.
c. The price of cars increases.
d. The price of cars decreases.

32. Which one of the following examples best depicts the law of diminishing returns?
a. Small electric generating plants are less efficient than large plants.
b. A manufacturing company purchases its supplier of materials.
c. An automobile assembly plant has lower per-unit costs at 85% of capacity than at
95% of capacity.
d. Passenger airplanes operate at high costs per passenger when they fly half-empty.

33. A corporation's net income as presented on its income statement is usually

a. More than its economic profits because opportunity costs are not considered in
calculating net income.
b. More than its economic profits because economists do not consider interest payments
to be costs.
c. Equal to its economic profits.
d. Less than its economic profits because accountants include labor costs, while
economists
exclude labor costs.

34. The marginal cost curve is the supply curve for the firm in
a. Pure monopoly.
b. Monopolistic competition.
c. Pure competition.
d. Oligopoly.

35. An improvement in technology that in turn leads to improved worker productivity would most
likely result in
a. A shift to the right in the supply curve and a lowering of the price of the output.
b. A shift to the left in the supply curve and a lowering of the price of the output.
c. An increase in the price of the output if demand is unchanged.
d. Wage increases.

36. The existence of economic profit in pure monopoly will

a. Have no influence on the number of firms in the industry.
b. Lead to a decline in the number of firms in the industry.
c. Lead to an increase in product supply.
d. Lead to a decline in market prices for substitutes.

37. Tennis rackets and tennis balls are

a. Substitute goods.
b. Independent goods
c. Inferior goods.
d. Complementary goods.

38. Which one of the following is a characteristic of pure competition?

a. Mutual interdependence.
b. Significant research and development programs.
c. Product differentiation.
d. Standardized product.

39. Which one of the following statements about supply and demand is true?
a. If supply increases and demand remains constant, equilibrium price will rise.
b. If demand increases and supply decreases, equilibrium price will fall.
c. If demand increases and supply increases, equilibrium quantity will fall.
d. If demand increases and supply decreases, equilibrium price will increase.
40. A government price support program will
a. Lead to surpluses.
b. Lead to shortages.
c. Improve the rationing function of prices.
d. Encourage firms to leave the industry.

41. Price ceilings

a. Are illustrated by government price support programs in agriculture.
b. Create prices greater than equilibrium prices.
c. Create prices below equilibrium prices.
d. Result in persistent surpluses.

42. Entry into monopolistic competition is

a. Blocked.
b. Difficult, with significant obstacles.
c. Rare, as significant capital is required.
d. Relatively easy, with only a few obstacles.

43. The long-run average total cost curve

a. Is horizontal and parallel to the demand curve.
b. Is strongly influenced by diminishing returns.
c. Is the same as the rising portion of the marginal cost curve.
d. Is ordinarily U-shaped.

44. A normal profit is

a. The same as an economic profit.
b. The same as the accountant's bottom line.
c. An explicit or out-of-pocket cost.
d. A cost of resources from an economic perspective.

45. Which one of the following is not a factor contributing to economies of scale?
a. Labor specialization.
b. Use of by-products.
c. Efficient use of capital equipment.
d. Diminishing returns.

46. A natural monopoly is

a. Identified with a one-firm industry with significant economies of scale and in
which unit costs are minimized.
b. An important part of the analysis of monopolistic competition.
c. Identified with an industry in which economies of scale are rapidly exhausted.
d. Identified with an industry in which economies of scale are few and diseconomies are
quickly incurred.

47. A high concentration ratio is

a. An indicator of monopolistic power.
b. An indicator of a highly competitive industry.
c. Consistent with the law of demand.
d. Consistent with monopolistic competition.

48. A supply curve illustrates the relationship between

a. Price and quantity supplied.
b. Price and consumer tastes.
c. Price and quantity demanded.
d. Supply and demand.

49. A good example of monopolistic competition is the

a. Agriculture market.
b. Fast food industry.
c. Steel industry.
d. Auto industry.

50. Marginal revenue is

a. Equal to price in monopolistic competition.
b. The change in total revenue associated with increasing prices.
c. Greater than price in pure competition.
d. The change in total revenue associated with producing and selling one more unit.