Question 1

Economic profit is the difference between

Accepted Answer

A) Accounting profits and external costs. 
B) Total costs and total economic costs. 
C) Accounting profit and explicit costs. 
D) Total revenues and total economic costs. 
A) Accounting profits and external costs. 
B) Total costs and total economic costs. 
C) Accounting profit and explicit costs. 
D) Total revenues and total economic costs. D

Question 2

The demand curve confronting a competitive firm

Accepted Answer

A) Equals the marginal revenue curve. 
B) Is horizontal,as is the market demand curve. 
C) Slopes downward,while the market demand curve is horizontal. 
D) Slopes downward,and the marginal revenue curve is below it. 
A) Equals the marginal revenue curve. 
B) Is horizontal,as is the market demand curve. 
C) Slopes downward,while the market demand curve is horizontal. 
D) Slopes downward,and the marginal revenue curve is below it. A

Question 3

Refer to Figure 22.3 for a perfectly competitive firm.At a market price of $23,profit per unit is maximized at an output of

Accepted Answer

A) 13 units. 
B) 25 units. 
C) 31 units. 
D) 39 units. 
A) 13 units. 
B) 25 units. 
C) 31 units. 
D) 39 units. C

Question 4

The production decision is another term for the investment decision.

Accepted Answer

A) True 
 B)False

Question 5

Explain what is necessary if a business is to earn economic profits.

Accepted Answer

To earn economic profits,a bus

Question 6

Refer to Figure 22.3 for a perfectly competitive firm.If the market price is $15,

Accepted Answer

A) The firm should produce 39 units. 
B) The firm should shut down. 
C) The firm will have above-normal profits. 
D) Economic profits will be zero. 
A) The firm should produce 39 units. 
B) The firm should shut down. 
C) The firm will have above-normal profits. 
D) Economic profits will be zero.

Question 7

An In the News article discusses "Too Many Sellers: The Woes of T-Shirt Shops." If T-shirt shops are perfectly competitive firms,then

Accepted Answer

A) The barriers to entry are low. 
B) Shops can definitely earn an economic profit in the long run. 
C) There are few T-shirt shops. 
D) Each shop has market power. 
A) The barriers to entry are low. 
B) Shops can definitely earn an economic profit in the long run. 
C) There are few T-shirt shops. 
D) Each shop has market power.

Question 8

Implicit costs

Accepted Answer

A) Include only payments to workers and lenders. 
B) Represent actual monetary payments made for resources used to produce a good such as oil. 
C) Are the value of resources used for which no direct payment is made. 
D) Are the total opportunity costs of resources and inputs used to produce a good. 
A) Include only payments to workers and lenders. 
B) Represent actual monetary payments made for resources used to produce a good such as oil. 
C) Are the value of resources used for which no direct payment is made. 
D) Are the total opportunity costs of resources and inputs used to produce a good.

Question 9

Refer to Figure 22.3 for a perfectly competitive firm.Which of the following statements is true for this firm between the prices of $10 and $15?

Accepted Answer

A) The firm is experiencing zero economic profits. 
B) The firm is experiencing economic profits because the market price is greater than or equal to the minimum AVC. 
C) The firm is experiencing economic losses and should shut down. 
D) The firm is experiencing economic losses but should continue to produce. 
A) The firm is experiencing zero economic profits. 
B) The firm is experiencing economic profits because the market price is greater than or equal to the minimum AVC. 
C) The firm is experiencing economic losses and should shut down. 
D) The firm is experiencing economic losses but should continue to produce.

Question 10

A firm that makes zero economic profits

Accepted Answer

A) Must eventually go bankrupt and exit the industry. 
B) Does not cover its variable costs and should shut down in the short run. 
C) Incurs an accounting loss if fixed costs are greater than variable costs. 
D) Covers all its costs,including a provision for normal profit. 
A) Must eventually go bankrupt and exit the industry. 
B) Does not cover its variable costs and should shut down in the short run. 
C) Incurs an accounting loss if fixed costs are greater than variable costs. 
D) Covers all its costs,including a provision for normal profit.

Question 11

When businesses earn zero economic profit,they have no incentive to stay in business.

Accepted Answer

A) True 
 B)False

Question 12

Normal profit implies that

Accepted Answer

A) Economic profit must be positive. 
B) Economic profit must be negative. 
C) The factors employed are earning as much as they could in the best alternative employment. 
D) Firms will expand their scale of production. 
A) Economic profit must be positive. 
B) Economic profit must be negative. 
C) The factors employed are earning as much as they could in the best alternative employment. 
D) Firms will expand their scale of production.

Question 13

The perfectly competitive market structure includes all of the following except

Accepted Answer

A) Many firms. 
B) Identical products. 
C) Large advertising budgets. 
D) Low entry barriers. 
A) Many firms. 
B) Identical products. 
C) Large advertising budgets. 
D) Low entry barriers.

Question 14

Which of the following industries is perfectly competitive?

Accepted Answer

A) Heavy duty trucks. 
B) Cell phone service. 
C) Wholesale fresh flowers. 
D) Fast-food restaurants. 
A) Heavy duty trucks. 
B) Cell phone service. 
C) Wholesale fresh flowers. 
D) Fast-food restaurants.

Question 15

Economic profit is zero when a firm's revenues just cover its economic cost.

Accepted Answer

A) True 
 B)False

Question 16

Table 22.1 $$\begin{array}{l}
\text { Assume an apple farmer incurs the following costs and revenues }\
\begin{array} {| l | r| } 
\hline \text { Fertilizer } & \$ 200 \
\hline \text { Seeds } & \$ 75 \
\hline \text { Water } & \$ 250 \
\hline \text { Wages } & \$ 750 \
\hline \text { Property taxes } & \$ 600 \
\hline \text { Interest paynents on borrowed funds } & \$ 1,200 \
\hline \text { Bales of apples } & \$ 4,000 \
\hline
\end{array}
\end{array}$$ Suppose the entrepreneur could earn $1,000 as an employee elsewhere.This means the accounting profit is

Accepted Answer

A) $1,525. 
B) $925. 
C) -$75. 
D) -$1,000. 
A) $1,525. 
B) $925. 
C) -$75. 
D) -$1,000.

Question 17

Which of the following is a production decision?

Accepted Answer

A) How much output the firm should produce in the long run. 
B) Whether the firm should shut down or produce. 
C) Whether the firm should exit or enter the market. 
D) Whether the firm should merge with one of its rivals. 
A) How much output the firm should produce in the long run. 
B) Whether the firm should shut down or produce. 
C) Whether the firm should exit or enter the market. 
D) Whether the firm should merge with one of its rivals.

Question 18

Accounting costs and economic costs differ because

Accepted Answer

A) Accounting costs exceed economic costs whenever any factor is not paid an explicit wage. 
B) Accounting costs include implicit costs,and economic costs do not. 
C) Economic costs include the opportunity costs of all resources used,while accounting costs include actual dollar outlays. 
D) Accounting costs include explicit costs,and economic costs do not. 
A) Accounting costs exceed economic costs whenever any factor is not paid an explicit wage. 
B) Accounting costs include implicit costs,and economic costs do not. 
C) Economic costs include the opportunity costs of all resources used,while accounting costs include actual dollar outlays. 
D) Accounting costs include explicit costs,and economic costs do not.

Question 19

Suppose a firm has an annual budget of $200,000 in wages and salaries,$75,000 in materials,$30,000 in new equipment,$20,000 in rented property,and $35,000 in interest costs on capital.The owner/manager does not choose to pay himself,but he could receive income of $90,000 by working elsewhere.The firm earns revenues of $360,000 per year.What is the accounting profit for the firm described above?

Accepted Answer

A) -$90,000. 
B) $0. 
C) $90,000. 
D) $200,000. 
A) -$90,000. 
B) $0. 
C) $90,000. 
D) $200,000.

Question 20

An investment decision involves choosing

Accepted Answer

A) A rate of output and is a short-run decision. 
B) A rate of output and is a long-run decision. 
C) The amount of plants and equipment and is a short-run decision. 
D) The amount of plants and equipment and is a long-run decision. 
A) A rate of output and is a short-run decision. 
B) A rate of output and is a long-run decision. 
C) The amount of plants and equipment and is a short-run decision. 
D) The amount of plants and equipment and is a long-run decision.

Exam 22: The Competitive Firm

Economic profit is the difference between

The demand curve confronting a competitive firm

Refer to Figure 22.3 for a perfectly competitive firm.At a market price of $23,profit per unit is maximized at an output of

The production decision is another term for the investment decision.

Explain what is necessary if a business is to earn economic profits.

Refer to Figure 22.3 for a perfectly competitive firm.If the market price is $15,

An In the News article discusses "Too Many Sellers: The Woes of T-Shirt Shops." If T-shirt shops are perfectly competitive firms,then

Implicit costs

Refer to Figure 22.3 for a perfectly competitive firm.Which of the following statements is true for this firm between the prices of $10 and $15?

A firm that makes zero economic profits

When businesses earn zero economic profit,they have no incentive to stay in business.

Normal profit implies that

The perfectly competitive market structure includes all of the following except

Which of the following industries is perfectly competitive?

Economic profit is zero when a firm's revenues just cover its economic cost.

Which of the following is a production decision?

Accounting costs and economic costs differ because

An investment decision involves choosing

Economics: the Core Issues

The Useconomy: a Global View

Supply and Demand

The Role of Government

National Income Accounting

Unemployment

Inflation

The Business Cycle

Aggregate Demand

Self-Adjustment or Instability

Fiscal Policy

Deficits and Debt

Money and Banks

The Federal Reserve System

Monetary Policy

Supply-Side Policy: Short-Run Options

Growth and Productivity: Long-Run Possibilities

Theory Versus Reality

Consumer Choice

Elasticity

The Costs of Production

Competitive Markets

Monopoly

Oligopoly

Monopolistic Competition

Natural Monopolies: Deregulation

Environmental Protection

The Farm Problem

The Labor Market

Labor Unions

Financial Markets

Taxes: Equity Versus Efficiency

Transfer Payments: Welfare and Social Security

International Trade

International Finance

Global Poverty

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