Consumer equilibrium occurs at:
a. any point of intersection between the budget line and an indifference curve.
b. a point of tangency between the budget line and an indifference curve.
c. the point where the slope of the indifference curve equals the ratio of the quantities.
d. a point where the budget line cuts the curve from below.
QUESTION 2Which of the following statements best describes the price, output, and profit conditions of monopolistic competition?
a. Price will equal marginal cost at the profit-maximizing level of output; profits will be positive in the long-run.
b. Price will always equal average variable cost in the short run and either profits or losses may result in the long run.
c. Marginal revenue will equal marginal cost at the short run, profit-maximizing level of output; in the long run, economic profit will be zero.
d. Marginal revenue will equal average total cost in the short run; long-run economic profits will be zero.
QUESTION 3Consumer equilibrium occurs where the budget line is ____ to the ____ possible indifference curve.
a. tangent; highest
b. equal; lowest
c. marginal; maximum
d. differential; highest
QUESTION 4The theory of monopolistic competition predicts that in long-run equilibrium a monopolistically competitive firm will:
a. produce at the level in which price equals long-run average cost.
b. operate at minimum long-run average cost.
c. overutilize its insufficient capacity.
d. none of these.
QUESTION 5The slope of the budget line is equal to the ratio of:
a. marginal utilities.
b. money income to the price of the good on the horizontal axis.
c. money income to the price of the good on the vertical axis.
d. price of the good on the horizontal axis to the price of the good on the vertical axis.
QUESTION 6In the long-run, surviving firms in monopolistic competition earn:
a. higher pure economic profits.
b. zero pure economic profits.
c. below-normal profits.
d. substantial economic losses.
QUESTION 7Assume Px is the price of good X on the horizontal axis and Py is the price of good Y on the vertical axis. The slope of the budget line equals:
a. Py / PxY.
b. PyQy / Px Qx.
c. (1 Py / Px).
d. Px / Py.
QUESTION 8Monopolistic competitive firms in the long run earn:
a. positive economic profits.
b. zero pure economic profits.
c. negative economic profits.
d. none of these.
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