pg. 1 Ivy Software MBA Prep works Fundamentals of Economics Latest update 2024 – 2025 Practice Exam Questions with Correct Verified Answers / Rated A+
The production of a product has either economies of scale, constant economies of scale, or diseconomies of scale (t/F) - ANSWER - True
If a company's average total costs remain constant as output increases, then the company has constant economies of scale. (t/F) - ANSWER - TRUE
A sunk cost is a cost that has already been committed and can be recovered. - ANSWER - false. can never be recovered. in contrast, any product that can be re-sold for a positive dollar amount would not be considered a sunk cost.
A business always maximizes profits when it produces where total revenue equals total cost (t/f) - ANSWER - False. the profit maximizing rule states that a business maximizes profits when it produces a quantity where the MR from selling another unit equals the MC of producing an additional unit.
A business should shut down if production at the profit maximizing quantity generates total revenues that are less than total fixed costs. (t/f) - ANSWER - false. a business should shut down when the losses from operating are greater than the total fixed costs.
short run shutdown rule. - ANSWER - a business should shut down if production at the profit maximizing quantity
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pg. 2 The accountants hired by Costa law firm have calculated that at the profit maximizing quantity, total fixed costs equal $56,791, total variable costs equal $113,555 and total
revenue equals $112,000. Because of this info, Costa Law firm decides:
- to exit the industry
- to shut down
- decides to stay open because shutting down would be more expensive
- decides to stay open because they are making an economic profit - ANSWER - B. to
shut down. the shutdown rule states that a business should shut down in the short run only if total revenue is less than total variable costs. In this case, total revenue is $112,000 and total variable cost is $113,555. Because total variable cost exceeds total revenue, CLF should shut down.
How can you tell if a business is operating in a perfectly competitive market? - ANSWER - the marginal revenue from selling an additional unit does not change as output increases. They are also known as a price taker. You will notice the Marginal revenue column stays constant as output increases.
What is the per unit price in a perfectly competitive market? The market equilibrium price is equal to - ANSWER - marginal revenue
total cost equals - ANSWER - total revenue minus profit
if marginal revenues and marginal costs do not equal in a chart choose the closest option to determine marginal cost (t/f) - ANSWER - true
In the WSJ article it was reported that Mitsubishi is seeking a buyer for its U.S> operations, a move that may well signal the company's intent to exit the world's largest car market. The potential move by Mitsubishi is a matter of economies of scale or economies of scope? - ANSWER - Economies of scale. it is trying to sell its U.S> operations because they have been losing money for some time in the U.S. market. By contracting its scale of operation, Mitsubishi believes that it can turn its financial situation around.
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pg. 3
when the federal reserve bank sells government bonds, ceteris paribus, it decreases the supply of money circulating in the economy. In this example, the money supply would shift left from MS2 to MS1.
Money's basic function is:
a medium of exchange a store of value a unit of account all of the above - ANSWER - all of the above
An item that buyers give sellers when they want to purchase goods and services is
called:
a medium of exchange a unit of account liquidity - ANSWER - a medium of exchange
A decrease in the value of money from one period to the next is called:
deflation inflation an expansion unemployment - ANSWER - inflation
The profit maximizing rule states that a business maximizes profits when it produces where total revenue equals total cost (t/f) - ANSWER - False.
The accountants hired BBB law firm have calculated that at the profit maximizing quantity total fixed costs equal $56,272,000 total variable costs equal $213,235,000 and total revenue equals $213,236,000. Because of this information BBB law firm decides
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pg. 4
- to exit the industry
- to shut down
- decides to stay open because shutting down would be more expensive
- decides to stay open because they are making an economic profit - ANSWER - C.
decides to stay open because shutting down would be more expensive. Because total variable cost is less than total revenue, BBB Law Firm should stay open.
The accountants hired by Truscott and Associates have calculated that at the company's current production level, total fixed costs to equal $21,000, total variable costs to equal $42,000 and total revenue to equal $45,000. Because of this information Truscott & Associates decide
- to exit the industry
- to shut down
- to stay open because shutting down would be more expensive
- to stay open because they are making an economic profit - ANSWER - C. to stay
open because shutting down would be more expensive
The profit maximizing rule states that a business maximizes profits when it produces where marginal revenue equals average variable cost. T/F - ANSWER - False
Real Gross Domestic Product (GDP) - ANSWER - a measure of the market value of the production of the final goods and services after an adjustment has been made for changes in the price level = Nominal GDP / Price level index * 100
The National Income Identity - ANSWER - the accounting concept which states that, in a time period, aggregate expenditure on wages, interest, rents, and profits is equal to nominal GDP is equal to consumption spending, investment spending, government spending, and net exports. The cycle depicted in a circular flow diagram graphically depicts the national income identity.
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