Multiple Choice Questions Bank for Assessment 1

MBA 703 The Economic Environment

1. In a world characterized by scarcity

A. We are not limited by time.

B. Opportunity cost is zero.
C. People must make choices among alternatives.
D. We should depend on politicians to solve all our problems.

2. Which of the following is a macroeconomic decision or concept?

A. The price of oil.

B. How many television sets to produce.
C. The unemployment rate for the entire economy.
D. The unemployment rate for each firm.

3. In which of the following cases is the slope of a line positive

A. As x increases, y increases.
B. As x increases, y decreases.
C. As x increases, y remains the same.
D. As x increases, y equals a positive number.

4. The tangent to a curve at a point is

A. Vertical line passes through the line at the point.

B. A line with the positive slope if the curve is decreasing at that point.
C. A line that intersects the curve only at that point and it is always either above or
below the curve..
D. A line that intersects at that point and it is either above or below the curve near that
point.
 Multiple Choice Questions Bank for Assessment 1
MBA 703 The Economic Environment

Use Table 1 to answer question 5

Table 1

x y
0 0
2 6
4 12
6 18
8 24
10 30

5. In Table 1, y is measured along the y-axis and x along the x-axis. The slope of the relationship
between x = 0 and x = 2 is

A. -3.
B. 1/3.
C. 3.
D. 6.
 Multiple Choice Questions Bank for Assessment 1
MBA 703 The Economic Environment
Use Table 2, which shows the demand schedule and supply schedule for almond oil, to answer
questions 6 to 8:

Table 2
Price Quantity Quantity
(dollars per supplied demanded
litre) (litres) (litres)
3 1 7
4 2 5
5 4 4
6 5 2
7 6 1

6. What is the equilibrium quantity and equilibrium price for almond oil?

A. 4 litres, $4.00 per litre

B. 2 litres, $3.00 per litre
C. 2 litres, $6.00 per litre
D. 4 litres, $5.00 per litre

7. If the price is $4.00 per litre, there is a

A. Shortage of 2 litres of almond oil.

B. Shortage of 3 litres of almond oil.
C. Shortage of 5 litres of almond oil.
D. Surplus of 3 litres of almond oil.

8. An increase in consumers' income results in an increase in the demand for almond oil by
an amount of 3 litres at every price. What are the new equilibrium quantity and equilibrium
price?

A. 5 litres, $4.00 per litre

B. 5 litres, $6.00 per litre
C. 5 litres, $5.00 per litre
D. 4 litres, $5.00 per litre
 Multiple Choice Questions Bank for Assessment 1
MBA 703 The Economic Environment

9. If the demand for a good is perfectly elastic, the price elasticity of demand is ________
and the demand curve is ________.

A. Infinite; vertical. 

B. Zero; vertical. 

C. Zero; horizontal. 

D. Infinite; horizontal. 


Use Table 3, which gives the demand schedule for peas, to answer question 10.

Table 3

Price Quantity
(dollars per demanded
kg) (kg)
A 10 0
B 8 4
C 6 8
D 4 12
E 2 16

10. Between point A and point B, the price elasticity of demand equals

A. 0.11.
B. 0.50.
C. 0.22.
D. 9.
 Multiple Choice Questions Bank for Assessment 1
MBA 703 The Economic Environment
Use Figure 1 to answer question 11.

Figure 1

11. Figure 1 represents the behaviour of total revenue as price falls along a straight-line
demand curve. What is the price elasticity of demand if total revenue is given by point f?

A. Demand is inelastic.
B. Demand is unit elastic.
C. Demand is elastic.
D. It is impossible to determine.
 Multiple Choice Questions Bank for Assessment 1
MBA 703 The Economic Environment

Use Table 4, which shows the demand schedules for pizza for Abby and Barry who are the
only buyers in the market, to answer question 12.

Table 4

Abby's quantity Barry's quantity

Price demanded demanded
(dollars per slice) (slices per month) (slices per month)
2.50 25 50
3.00 20 40
3.50 15 30
4.00 10 20
4.50 5 10
5.00 0 0

12. What is Abby's marginal benefit from the 10th slice of pizza?

A. $4.
B. $13.
C. $0.50.
D. $40.

13. A used car was recently priced at $20,000. Seeing the car, Bobby thought, "It's nice, but
if I have to pay more than $19,500 for this car, then I would rather do without it." After
negotiations, Bobby purchased the car for $19,250. His consumer surplus was equal to

A. $19,500.
B. $1,750.
C. $250.
D. $0.
 Multiple Choice Questions Bank for Assessment 1
MBA 703 The Economic Environment

Use Figure 2 to answer question 14.

Figure 2

14. The above figure tells us about the market for red roses. The consumer surplus is
________ a day.

A. $800.
B. $200.
C. $1,000.
D. $20.
 Multiple Choice Questions Bank for Assessment 1
MBA 703 The Economic Environment

Use Figure 3 to answer question 15.

Figure 3

15. When the market is in equilibrium, total consumer surplus on all the CDs is

A. Greater than $30 million.

B. $25 million.
C. $20 million.
D. Less than $15 million.
 Multiple Choice Questions Bank for Assessment 1
MBA 703 The Economic Environment

Use Figure 4 to answer questions 16 and 17.

Figure 4

16. When production is 3 units with a price of $3, the producer surplus in this market equals

A. b + g.
B. f + g.
C. a + b + f + g.
D. a + b + f + g + h + i.

17. In the figure above, if the quantity is restricted to 2, then the deadweight loss in this
market equals
A. b + g.
B. c + d.
C. e + k.
D. h + i.
 Multiple Choice Questions Bank for Assessment 1
MBA 703 The Economic Environment

Use Table 5, which gives the demand schedule for movies, to answer question 18.

Table 5

Quantity
Price demanded
(dollars per (movies per
movie) week)
18 0
15 100
12 200
9 300
6 400
3 500

18. Roxie's Movie Theatre is the only one in town. If Roxie's is a single-price monopoly and
the marginal cost of a movie is $6, Roxie's will charge ________ a movie and will sell ________
movie tickets per week.

A. $15; 100
B. $12; 200
C. $6; 400
D. $9; 300
 Multiple Choice Questions Bank for Assessment 1
MBA 703 The Economic Environment

Use Figure 5 to answer questions 19 and 20

Figure 5

19. The unregulated, single-price monopoly will sell

A. Less than 30 tickets.

B. 30 tickets.
C. 50 tickets.
D. 100 tickets.

20. The monopoly is unregulated and charges a single price. The deadweight loss created by
the monopoly is

A. $0.
 Multiple Choice Questions Bank for Assessment 1
MBA 703 The Economic Environment
B. $22.50.
C. $45.00
D. $90.00

21. In comparison with perfect competition, a single-price monopolist with the same costs
creates a ________ consumer surplus and makes a ________ economic profit.

A. smaller; larger.
B. smaller; smaller.
C. larger; larger.
D. larger; smaller.

22. Price discrimination by a monopolist is less effective if the

A. Good can be resold.

B. Good has no substitutes.
C. Monopolist can identify buyers by willingness to pay.
D. Good cannot be resold.

23. Which of the following is true for a perfect price-discriminating monopoly?

A. P = MR for each unit sold.

B. P = ATC for each unit sold.
C. P = MC for each unit sold.
D. P > MC for each unit sold.

24. If a monopolist can perfectly price discriminate, then

A. It will charge just two different prices in two different markets.

B. It will not give a discount to those who buy in bulk.
C. The deadweight loss is larger than if it cannot price discriminate.
D. There will be no consumer surplus.
 Multiple Choice Questions Bank for Assessment 1
MBA 703 The Economic Environment

Use Table 6, which provides the demand schedule facing a perfectly price-discriminating
monopolist.to answer questions 25 and 26.

Table 6

Price (dollars) Quantity Sold

8 0
7 1
6 2
5 3
4 4
3 5
2 6
1 7

25. If the firm's marginal cost is constant at $3.00, output for the perfectly price-
discriminating monopolist is

A. 2 units.
B. 3 units.
C. 4 units.
D. 5 units.

26. The marginal revenue for the perfectly price-discriminating monopolist from the sale of
the third unit of output is

A. $3.
B. $4.
C. $5.
D. $6.

27. If a natural monopoly has an average cost pricing rule imposed, the rule will

A. Maximize total surplus in the regulated industry.

B. Generate an economic loss for the regulated firm.
C. Reduce the consumer surplus and generate a deadweight loss when compared to a
marginal cost pricing rule.
D. Set price below marginal cost.
 Multiple Choice Questions Bank for Assessment 1
MBA 703 The Economic Environment

Use Figure 6 to answer question 28.

Figure 6

28. By increasing its output from Q1 to Q2, the firm

A. Reduces its marginal revenue.

B. Increases its marginal revenue.
C. Decreases its profit.
D. Increases its profit.

29. If a perfectly competitive firm finds that it is producing an amount of output such that
MR > MC and P > AVC, it will

A. Leave the industry.

B. Decrease its output.
C. Increase its output.
D. Not change its behaviour.
 Multiple Choice Questions Bank for Assessment 1
MBA 703 The Economic Environment

Use Table 7, which shows some of the costs for a perfectly competitive firm, to answer
questions 30 to 32.

Table 7

Total fixed Total variable

cost, TFC cost, TVC
Quantity (dollars) (dollars)
0 500 0
1 500 100
2 500 180
3 500 220
4 500 300
5 500 390
6 500 500
7 500 640
8 500 800
9 500 1000
10 500 1250

30. The firm will produce 9 units of output if the price per unit is

A. $1750.
B. $200.
C. $300.
D. $500.

31. If the price is $160 per unit, how many units of output will the firm produce?

A. 8.
B. 9.
C. 10.
D. More than 10.

32. If the market price is $70 and the firm is a profit maximiser, the firm can earn a maximum
economic profit of ________.

A. a loss of $500.
B. a loss of $10.
C. a loss of $510.
D. $210.
 Multiple Choice Questions Bank for Assessment 1
MBA 703 The Economic Environment

33. The short-run supply curve for a perfectly competitive firm is its marginal cost curve above
the minimum point on the

A. Average fixed cost curve.

B. Average variable cost curve.
C. Average total cost curve.
D. Demand curve.

Use Figure 7, which depicts the cost curves of a perfectly competitive firm, to answer
questions 34 and 35.

Figure 7

34. At the profit-maximising level of output, the firm is

A. Incurring an economic loss equal to $119.00.

B. Incurring an economic loss equal to $123.50.
C. Incurring an economic loss equal to $187.00.
D. Making zero economic profit.

35. The shutdown point occurs at a price of

A. $11.00.
B. $12.00.
C. $16.00.
D. $22.00.
 Multiple Choice Questions Bank for Assessment 1
MBA 703 The Economic Environment
36. A person has a comparative advantage in producing a particular good if that person

A. Has higher productivity in producing it than anyone else has.

B. Can produce it at lower opportunity cost than anyone else can.
C. Has less desire to consume that good than anyone else has.
D. Has more human capital related to that good than anyone else has.

Use Table 8, which shows the number of pencils or pens that could be produced by Don and
Bob in an hour, to answer question 37.

Table 8

Don's production Bob's production

possibilities possibilities
Pens 10 5
Pencils 20 15

37. This schedule shows that

A. Don has an absolute advantage in the production of pencils, and Bob has an absolute
advantage in the production of pens.
B. Bob has an absolute advantage in the production of pencils, and Don has an absolute
advantage in the production of pens.
C. Don has a comparative advantage in the production of both pencils and pens.
D. Bob has a comparative advantage in the production of pencils.

38. Consumer surplus ________.

A. Equals total revenue minus marginal cost.

B. Is maximized when the market outcome is efficient.
C. Equals total revenue minus opportunity cost.
D. Plus producer surplus is maximized when resources are used efficiently.
 Multiple Choice Questions Bank for Assessment 1
MBA 703 The Economic Environment

Use Table 9, which shows the payoff matrix for a prisoners' dilemma game, to answer
questions 39 and 40.

Table 9

Prisoner A
Confess Don't confess
A: 3 years A: 10 years
Confess B: 3 years B: 1 year
A: 1 year A: 2 years
Prisoner B Don't confess B: 10 years B: 2 years

39. The Nash equilibrium is that

A. Each prisoner chooses Don’t Confess.

B. Each prisoner chooses Confess.
C. Prisoner A chooses Confess and prisoner B chooses Don’t Confess.
D. Prisoner A chooses Don’t Confess and prisoner B chooses Confess.

40. In the Nash equilibrium,

A. Both prisoners get 3 years in jail.

B. Both prisoners get 2 years in jail.
C. Both prisoners get 1 year in jail.
D. Both prisoners get 10 years in jail.