Question 1

A perfectly competitive firm is a price taker because

Accepted Answer

A) The price of the product is determined by many buyers and sellers. 
B) It has market power. 
C) Market supply is upward-sloping. 
D) Its products are differentiated. 
A) The price of the product is determined by many buyers and sellers. 
B) It has market power. 
C) Market supply is upward-sloping. 
D) Its products are differentiated.

Question 2

Refer to Figure 22.3 for a perfectly competitive firm.The law of diminishing returns takes effect at an output of

Accepted Answer

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

Question 3

Refer to the data in Figure 22.1.The profit-maximizing output for this firm is

Accepted Answer

A) 100 units. 
B) Above 280 units. 
C) 280 units. 
D) 200 units. 
A) 100 units. 
B) Above 280 units. 
C) 280 units. 
D) 200 units.

Question 4

When price does not cover average total cost at any rate of output,the firm should shut down in the short run.

Accepted Answer

A) True 
 B)False

Question 5

The long run is

Accepted Answer

A) A period longer than one year. 
B) The period required to produce a unit of the firm's output. 
C) A period long enough for all inputs to be variable. 
D) Approximately one year. 
A) A period longer than one year. 
B) The period required to produce a unit of the firm's output. 
C) A period long enough for all inputs to be variable. 
D) Approximately one year.

Question 6

Explicit costs

Accepted Answer

A) Include only payments to entrepreneurship. 
B) Are the sum of actual monetary payments made for the use of resources. 
C) Include the market value of all resources used to produce a good. 
D) Are the total opportunity costs of resources used to produce a good. 
A) Include only payments to entrepreneurship. 
B) Are the sum of actual monetary payments made for the use of resources. 
C) Include the market value of all resources used to produce a good. 
D) Are the total opportunity costs of resources used to produce a good.

Question 7

Economic profit is

Accepted Answer

A) Greater than accounting profit by the amount of implicit cost. 
B) Greater than accounting profit by the amount of explicit cost. 
C) Less than accounting profit by the amount of implicit cost. 
D) Less than accounting profit by the amount of explicit cost. 
A) Greater than accounting profit by the amount of implicit cost. 
B) Greater than accounting profit by the amount of explicit cost. 
C) Less than accounting profit by the amount of implicit cost. 
D) Less than accounting profit by the amount of explicit cost.

Question 8

Maximizing revenue maximizes profits.

Accepted Answer

A) True 
 B)False

Question 9

The primary objective of the producer is to find the rate of output that maximizes profit.

Accepted Answer

A) True 
 B)False

Question 10

The demand curve confronting a competitive firm is

Accepted Answer

A) Horizontal,as is market demand. 
B) Horizontal,while market demand is downward-sloping. 
C) Downward-sloping,while market demand is flat. 
D) Downward-sloping,as is market demand. 
A) Horizontal,as is market demand. 
B) Horizontal,while market demand is downward-sloping. 
C) Downward-sloping,while market demand is flat. 
D) Downward-sloping,as is market demand.

Question 11

Megan used to work at the local pizzeria for $15,000 per year but quit to start her own deli.To buy the necessary equipment,she withdrew $20,000 from her inheritance (which paid 8 percent interest).Last year she paid $25,000 for ingredients and $500 per month rent but had revenue of $50,000.She asked her dad the accountant and her mom the economist to calculate her annual profit for her.

Accepted Answer

A) Dad says she lost $11,000 and Mom says she lost $26,000. 
B) Dad says her profit is $31,000 and Mom says her profit is $16,600. 
C) Dad says her profit is $9,000 and Mom says she lost $6,000. 
D) Dad says her profit is $19,000 and Mom says her profit is $2,400. 
A) Dad says she lost $11,000 and Mom says she lost $26,000. 
B) Dad says her profit is $31,000 and Mom says her profit is $16,600. 
C) Dad says her profit is $9,000 and Mom says she lost $6,000. 
D) Dad says her profit is $19,000 and Mom says her profit is $2,400.

Question 12

Refer to Figure 22.3 for a perfectly competitive firm.This firm should shut down at any price below

Accepted Answer

A) $4. 
B) $10. 
C) $15. 
D) $23. 
A) $4. 
B) $10. 
C) $15. 
D) $23.

Question 13

A firm experiencing economic losses will still continue to produce output in the short run as long as

Accepted Answer

A) Revenues are greater than total fixed cost. 
B) MR = MC. 
C) Price is above average variable cost. 
D) Price is above average fixed cost. 
A) Revenues are greater than total fixed cost. 
B) MR = MC. 
C) Price is above average variable cost. 
D) Price is above average fixed cost.

Question 14

A monopoly occurs when

Accepted Answer

A) There is only one producer of a good or service. 
B) There is only one buyer of a good or service. 
C) Owners take on additional risk and earn huge profits. 
D) Companies become greedy and raise the price of a good or service. 
A) There is only one producer of a good or service. 
B) There is only one buyer of a good or service. 
C) Owners take on additional risk and earn huge profits. 
D) Companies become greedy and raise the price of a good or service.

Question 15

Lashondra is the owner/operator of an interior design firm.Last year she earned $400,000 in total revenue.Her explicit costs were $200,000 (assume that this amount represents the total opportunity cost of these resources).During the year she received offers to work for other design firms.One offer would have paid her $120,000 per year and the other would have paid her $130,000 per year.Lashondra's economic profit is equal to

Accepted Answer

A) -$50,000. 
B) $70,000. 
C) $0. 
D) $200,000. 
A) -$50,000. 
B) $70,000. 
C) $0. 
D) $200,000.

Question 16

Suppose the cost of insecticide (a variable input)decreases for broccoli farmers.In order to maximize profits,ceteris paribus,broccoli farmers should

Accepted Answer

A) Decrease output. 
B) Keep output the same since the market price did not change. 
C) Increase output. 
D) Increase prices. 
A) Decrease output. 
B) Keep output the same since the market price did not change. 
C) Increase output. 
D) Increase prices.

Question 17

For a competitive firm,the supply curve is that part of the average variable cost curve that is above the short-run marginal cost curve.

Accepted Answer

A) True 
 B)False

Question 18

The rule established for short-run profit maximization guarantees that a firm that follows it will earn economic profits.

Accepted Answer

A) True 
 B)False

Question 19

A perfectly competitive firm will maximize profits by choosing an output level where

Accepted Answer

A) Price is greater than marginal cost. 
B) Price equals marginal cost. 
C) Price equals total cost. 
D) Price is greater than total cost. 
A) Price is greater than marginal cost. 
B) Price equals marginal cost. 
C) Price equals total cost. 
D) Price is greater than total cost.

Question 20

The difference between the total revenue and total cost curves at a given output is equal to

Accepted Answer

A) Either profit or losses depending on the curves relative position. 
B) Profit per unit. 
C) Average revenue. 
D) Average total cost. 
A) Either profit or losses depending on the curves relative position. 
B) Profit per unit. 
C) Average revenue. 
D) Average total cost.

Exam 22: The Competitive Firm

A perfectly competitive firm is a price taker because

Refer to Figure 22.3 for a perfectly competitive firm.The law of diminishing returns takes effect at an output of

Refer to the data in Figure 22.1.The profit-maximizing output for this firm is

When price does not cover average total cost at any rate of output,the firm should shut down in the short run.

The long run is

Explicit costs

Economic profit is

Maximizing revenue maximizes profits.

The primary objective of the producer is to find the rate of output that maximizes profit.

The demand curve confronting a competitive firm is

Refer to Figure 22.3 for a perfectly competitive firm.This firm should shut down at any price below

A firm experiencing economic losses will still continue to produce output in the short run as long as

A monopoly occurs when

Suppose the cost of insecticide (a variable input)decreases for broccoli farmers.In order to maximize profits,ceteris paribus,broccoli farmers should

For a competitive firm,the supply curve is that part of the average variable cost curve that is above the short-run marginal cost curve.

The rule established for short-run profit maximization guarantees that a firm that follows it will earn economic profits.

A perfectly competitive firm will maximize profits by choosing an output level where

The difference between the total revenue and total cost curves at a given output is equal to

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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