Question 1

Refer to the data in Figure 22.1.The price of this good

Accepted Answer

A) Is $50 per unit. 
B) Is $1 per unit. 
C) Is $100 per unit. 
D) Varies as output changes. 
A) Is $50 per unit. 
B) Is $1 per unit. 
C) Is $100 per unit. 
D) Varies as output changes.

Question 2

One In the News feature reports that General Motors planned to essentially quit making cars and trucks in the United States for nine weeks from mid-May through July 2009 and Omaha Power planned to close one of its nuclear plants permanently.Based on these particular news clips,what is the difference between GM's and Omaha Power's decisions?

Accepted Answer

A) Omaha Power was trying to get rid of excess inventory,and GM was trying to become more efficient. 
B) GM was trying to maximize profits while Omaha Power was trying to minimize losses. 
C) GM's decision to idle plants was a short-run shutdown decision.Omaha Power,by contrast,made a long-run decision to exit a specific market. 
D) There is no difference between GM's and Omaha Power's decisions;both were trying to get rid of excess inventory. 
A) Omaha Power was trying to get rid of excess inventory,and GM was trying to become more efficient. 
B) GM was trying to maximize profits while Omaha Power was trying to minimize losses. 
C) GM's decision to idle plants was a short-run shutdown decision.Omaha Power,by contrast,made a long-run decision to exit a specific market. 
D) There is no difference between GM's and Omaha Power's decisions;both were trying to get rid of excess inventory.

Question 3

In making a production decision,an entrepreneur

Accepted Answer

A) Decides whether to enter or exit the market. 
B) Decides what level of output will maximize profits. 
C) Determines plants and equipment. 
D) Can change both fixed and variable inputs. 
A) Decides whether to enter or exit the market. 
B) Decides what level of output will maximize profits. 
C) Determines plants and equipment. 
D) Can change both fixed and variable inputs.

Question 4

Perfect competition is a market in which no buyer or seller has market power.

Accepted Answer

A) True 
 B)False

Question 5

Assuming an entrepreneur does not pay herself,the $1,000 she could earn as an employee elsewhere is considered

Accepted Answer

A) An implicit cost. 
B) An explicit cost. 
C) A fixed cost. 
D) A variable cost. 
A) An implicit cost. 
B) An explicit cost. 
C) A fixed cost. 
D) A variable cost.

Question 6

For the perfectly competitive firm,the marginal revenue is always

Accepted Answer

A) Increasing. 
B) Constant. 
C) Equal to average total cost. 
D) Decreasing. 
A) Increasing. 
B) Constant. 
C) Equal to average total cost. 
D) Decreasing.

Question 7

Economists assume the principal motivation of producers is

Accepted Answer

A) Psychological gratification. 
B) Social status. 
C) Profit. 
D) Their preference for being "their own person." 
A) Psychological gratification. 
B) Social status. 
C) Profit. 
D) Their preference for being "their own person."

Question 8

Entrepreneurship

Accepted Answer

A) Always involves greater rewards than risks. 
B) Can result in economic losses. 
C) Cannot earn an economic profit. 
D) Occurs in small businesses,but not large corporations. 
A) Always involves greater rewards than risks. 
B) Can result in economic losses. 
C) Cannot earn an economic profit. 
D) Occurs in small businesses,but not large corporations.

Question 9

The demand curve for each perfectly competitive firm is

Accepted Answer

A) Downward-sloping. 
B) Horizontal. 
C) Vertical. 
D) Upward-sloping. 
A) Downward-sloping. 
B) Horizontal. 
C) Vertical. 
D) Upward-sloping.

Question 10

Refer to Figure 22.3 for a perfectly competitive firm.If the market price is $23,

Accepted Answer

A) The firm should produce 31 units. 
B) Economic profits are zero. 
C) The firm should produce 25 units. 
D) The firm will have above-normal profits. 
A) The firm should produce 31 units. 
B) Economic profits are zero. 
C) The firm should produce 25 units. 
D) The firm will have above-normal profits.

Question 11

A catfish farmer will shut down production when

Accepted Answer

A) He is losing money. 
B) Price falls below AVC. 
C) Total revenue falls below total costs. 
D) The best he can do is break even. 
A) He is losing money. 
B) Price falls below AVC. 
C) Total revenue falls below total costs. 
D) The best he can do is break even.

Question 12

Normal profit

Accepted Answer

A) Covers the full opportunity cost of the resources used by the firm. 
B) Is an above-average rate of return. 
C) Is the accounting profit earned when economic profits are greater than zero. 
D) Is sufficient to induce entry into the industry. 
A) Covers the full opportunity cost of the resources used by the firm. 
B) Is an above-average rate of return. 
C) Is the accounting profit earned when economic profits are greater than zero. 
D) Is sufficient to induce entry into the industry.

Question 13

Explain how a firm's cost curves and optimal rate of output are affected by (a)property taxes; (b)payroll taxes;and (c)taxes on profits.

Accepted Answer

(a)Property taxes are levied on land and

Question 14

If price is less than marginal cost,a perfectly competitive firm should decrease output because

Accepted Answer

A) Marginal costs are increasing. 
B) Total revenues are decreasing. 
C) The firm is producing units that cost more to produce than the firm receives in revenue,thus reducing profits (or increasing losses). 
D) Marginal revenue is decreasing. 
A) Marginal costs are increasing. 
B) Total revenues are decreasing. 
C) The firm is producing units that cost more to produce than the firm receives in revenue,thus reducing profits (or increasing losses). 
D) Marginal revenue is decreasing.

Question 15

Perfect competition is a situation in which

Accepted Answer

A) Every year,owners are likely to earn economic profits. 
B) Every year,owners are likely to earn economic losses. 
C) There are many firms and several buyers or sellers have market power. 
D) There are many firms and no buyer or seller has market power. 
A) Every year,owners are likely to earn economic profits. 
B) Every year,owners are likely to earn economic losses. 
C) There are many firms and several buyers or sellers have market power. 
D) There are many firms and no buyer or seller has market power.

Question 16

If price is greater than marginal cost,a perfectly competitive firm should increase output because

Accepted Answer

A) Marginal costs are increasing. 
B) Additional units of output will add to the firm's profits (or reduce losses). 
C) The price it receives for its product is increasing. 
D) Total revenues would increase. 
A) Marginal costs are increasing. 
B) Additional units of output will add to the firm's profits (or reduce losses). 
C) The price it receives for its product is increasing. 
D) Total revenues would increase.

Question 17

The short run is the time period

Accepted Answer

A) Over which an investment decision can be made. 
B) Necessary so that profits can be earned from production. 
C) In which some costs are fixed. 
D) In which only the amount of capital may be altered. 
A) Over which an investment decision can be made. 
B) Necessary so that profits can be earned from production. 
C) In which some costs are fixed. 
D) In which only the amount of capital may be altered.

Question 18

A production decision involves choosing

Accepted Answer

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

Question 19

Refer to Figure 22.3 for a perfectly competitive firm.If the market price is $10,

Accepted Answer

A) The firm should produce 31 units. 
B) The firm will shut down in the short run. 
C) An economic loss will occur. 
D) The firm will earn normal profits. 
A) The firm should produce 31 units. 
B) The firm will shut down in the short run. 
C) An economic loss will occur. 
D) The firm will earn normal profits.

Question 20

In reference to table 22.1,the $600 paid in property taxes counts as

Accepted Answer

A) An implicit cost. 
B) A normal cost. 
C) A variable cost. 
D) An explicit cost. 
A) An implicit cost. 
B) A normal cost. 
C) A variable cost. 
D) An explicit cost.

Exam 22: The Competitive Firm

Refer to the data in Figure 22.1.The price of this good

In making a production decision,an entrepreneur

Perfect competition is a market in which no buyer or seller has market power.

Assuming an entrepreneur does not pay herself,the $1,000 she could earn as an employee elsewhere is considered

For the perfectly competitive firm,the marginal revenue is always

Economists assume the principal motivation of producers is

Entrepreneurship

The demand curve for each perfectly competitive firm is

Refer to Figure 22.3 for a perfectly competitive firm.If the market price is $23,

A catfish farmer will shut down production when

Normal profit

Explain how a firm's cost curves and optimal rate of output are affected by (a)property taxes; (b)payroll taxes;and (c)taxes on profits.

If price is less than marginal cost,a perfectly competitive firm should decrease output because

Perfect competition is a situation in which

If price is greater than marginal cost,a perfectly competitive firm should increase output because

The short run is the time period

A production decision involves choosing

Refer to Figure 22.3 for a perfectly competitive firm.If the market price is $10,

In reference to table 22.1,the $600 paid in property taxes counts as

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

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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

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Taxes: Equity Versus Efficiency

Transfer Payments: Welfare and Social Security

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