Question 1

Exhibit 8-11 A firm's cost and marginal revenue curves  
-In Exhibit 8-11, when the price is $5, the firm:

Accepted Answer

A)  is making an economic profit of $21. 
B)  should produce output equal to 10. 
C)  is breaking even. 
D)  should shut down. 
E)  should produce output equal to 7. 
A)  is making an economic profit of $21. 
B)  should produce output equal to 10. 
C)  is breaking even. 
D)  should shut down. 
E)  should produce output equal to 7. E

Question 2

In the short run, when the prevailing market price falls below the average variable cost curve, a firm in perfect competition will shut down because: ​

Accepted Answer

A)  ​economic profit is zero. 
B)  ​price is less than marginal revenue. 
C)  ​marginal revenue is insufficient to pay average variable cost. 
D)  ​other firms will enter the market seeking profits. 
A)  ​economic profit is zero. 
B)  ​price is less than marginal revenue. 
C)  ​marginal revenue is insufficient to pay average variable cost. 
D)  ​other firms will enter the market seeking profits. C

Question 3

A firm is currently operating where the MC of the last unit produced = $64, and the MR of this unit = $70. What would you advise this firm to do?

Accepted Answer

A)  Shut down. 
B)  Increase output. 
C)  Stay at current output. 
D)  Decrease output. 
E)  Decrease price. 
A)  Shut down. 
B)  Increase output. 
C)  Stay at current output. 
D)  Decrease output. 
E)  Decrease price. B

Question 4

If marginal revenue exceeds marginal cost in the short run, the perfectly competitive firm earns an economic profit in the short-run.

Accepted Answer

A) True 
 B)False

Question 5

Exhibit 8-6 A firm's cost and MC curves  
-In Exhibit 8-6, if this firm is currently producing 20 units of output, this firm:

Accepted Answer

A)  is earning a profit of $10. 
B)  is earning a profit of $.50. 
C)  is losing $10. 
D)  should shut down. 
E)  is losing $.50 
A)  is earning a profit of $10. 
B)  is earning a profit of $.50. 
C)  is losing $10. 
D)  should shut down. 
E)  is losing $.50

Question 6

If a firm is producing an output level at which marginal revenue exceeds marginal cost in the short run, the firm will increase profits by reducing its output level.

Accepted Answer

A) True 
 B)False

Question 7

Exhibit 8-10 Price and cost data for a firm $$\begin{array} { | c | c | c | c | c | } 
\hline \text { Q } & \text { P } & \text { AVC } & \text { ATC } & \text { MC } \
\hline 0 & \$ 12 & - & - & - \
1 & 12 & 3 & 5 & 5 \
2 & 12 & 5 & 6 & 7 \
3 & 12 & 7.3 & 8 & 12 \
4 & 12 & 9.5 & 10 & 16 \
\hline
\end{array}$$
-In Exhibit 8-10, MR is the same as which column?

Accepted Answer

A)  Q. 
B)  P. 
C)  AVC. 
D)  ATC. 
E)  MC. 
A)  Q. 
B)  P. 
C)  AVC. 
D)  ATC. 
E)  MC.

Question 8

Under perfect competition, a business firm can accept losses:

Accepted Answer

A)  only in the short run. 
B)  only for 1 year. 
C)  only in the long run. 
D)  no longer than 10 years. 
E)  never. 
A)  only in the short run. 
B)  only for 1 year. 
C)  only in the long run. 
D)  no longer than 10 years. 
E)  never.

Question 9

In the short run, the profit maximizing (or minimizing) quantity of output for any firm to produce exists at that output level at which marginal revenue equals marginal cost.

Accepted Answer

A) True 
 B)False

Question 10

Suppose that in a perfectly competitive market, firms are making economic profits. In the long run, we can expect to see:

Accepted Answer

A)  some firms leave. 
B)  the market price rise. 
C)  market supply shift to the left. 
D)  economic profits become zero. 
E)  production levels remaining the same as in the short-run. 
A)  some firms leave. 
B)  the market price rise. 
C)  market supply shift to the left. 
D)  economic profits become zero. 
E)  production levels remaining the same as in the short-run.

Question 11

Exhibit 8-11 A firm's cost and marginal revenue curves  
-In Exhibit 8-11, the profit-maximizing output level at the price of $8 is:

Accepted Answer

A)  0. 
B)  4. 
C)  7. 
D)  8. 
E)  10. 
A)  0. 
B)  4. 
C)  7. 
D)  8. 
E)  10.

Question 12

Exhibit 8-11 A firm's cost and marginal revenue curves  
-In Exhibit 8-11, when the price rises from $5 to $8, the profit-maximizing (or loss-minimizing) firm goes from making a:

Accepted Answer

A)  loss to making a smaller loss. 
B)  loss to making a larger loss. 
C)  loss to making a profit. 
D)  profit to making a loss. 
E)  profit to making a larger profit. 
A)  loss to making a smaller loss. 
B)  loss to making a larger loss. 
C)  loss to making a profit. 
D)  profit to making a loss. 
E)  profit to making a larger profit.

Question 13

Exhibit 8-9 A firm's cost and marginal revenue curves  
-In Exhibit 8-9, product price in this market is fixed at $14. This firm is currently operating where MR = MC. What do you advise this firm to do?

Accepted Answer

A)  This firm should shut down. 
B)  This firm could increase profits by increasing output. 
C)  This firm could increase profits by decreasing output. 
D)  This firm should continue to operate at its current output. 
E)  This firm should decrease price. 
A)  This firm should shut down. 
B)  This firm could increase profits by increasing output. 
C)  This firm could increase profits by decreasing output. 
D)  This firm should continue to operate at its current output. 
E)  This firm should decrease price.

Question 14

Exhibit 8-15 Short-run cost curves for E-Z Care lawn mowing company  
-In Exhibit 8-15, suppose the market price of mowing lawns falls to $10 per lawn. In this situation, E-Z-Care will:

Accepted Answer

A)  permanently exit the industry. 
B)  shut down its operations, at least in the short run. 
C)  continue to mow lawns despite its economic losses. 
D)  earn a normal profit. 
A)  permanently exit the industry. 
B)  shut down its operations, at least in the short run. 
C)  continue to mow lawns despite its economic losses. 
D)  earn a normal profit.

Question 15

Exhibit 8-17 Marginal revenue and cost per unit curves  
-As shown in Exhibit 8-17, the firm will produce in the short run if the price is at least equal to:

Accepted Answer

A)  $10 per unit. 
B)  $15 per unit. 
C)  $20 per unit. 
D)  $30 per unit. 
E)  $40 per unit. 
A)  $10 per unit. 
B)  $15 per unit. 
C)  $20 per unit. 
D)  $30 per unit. 
E)  $40 per unit.

Question 16

In short-run perfectly competitive equilibrium, which of the following is always true?

Accepted Answer

A)  Profit equals zero. 
B)  Profit can be negative, zero, or positive. 
C)  Profit can be zero or positive, but not negative. 
D)  Profit is positive, otherwise firms would not produce. 
A)  Profit equals zero. 
B)  Profit can be negative, zero, or positive. 
C)  Profit can be zero or positive, but not negative. 
D)  Profit is positive, otherwise firms would not produce.

Question 17

Under long-run perfect competition, which of the following are the same (equal) at all levels of output?

Accepted Answer

A)  Price and marginal cost. 
B)  Price and marginal revenue. 
C)  Marginal cost and marginal revenue. 
D)  All of these. 
A)  Price and marginal cost. 
B)  Price and marginal revenue. 
C)  Marginal cost and marginal revenue. 
D)  All of these.

Question 18

A perfectly competitive firm in the short-run maximizes its profit by producing the output where:

Accepted Answer

A)  marginal cost equals price. 
B)  marginal cost equals marginal revenue. 
C)  total revenue minus total cost is at a maximum. 
D)  all of these. 
A)  marginal cost equals price. 
B)  marginal cost equals marginal revenue. 
C)  total revenue minus total cost is at a maximum. 
D)  all of these.

Question 19

Exhibit 8-8 A firm's cost and marginal revenue curves  
-In Exhibit 8-8, product price in this market is fixed at $35. This firm is currently operating where MR = MC. What do you advise this firm to do?

Accepted Answer

A)  This firm should shut down. 
B)  This firm could increase profits by increasing output. 
C)  This firm could increase profits by decreasing output. 
D)  This firm should continue to operate at its current output. 
E)  This firm should decrease price. 
A)  This firm should shut down. 
B)  This firm could increase profits by increasing output. 
C)  This firm could increase profits by decreasing output. 
D)  This firm should continue to operate at its current output. 
E)  This firm should decrease price.

Question 20

If a perfectly competitive firm cannot cover all of its costs, then it should shut down in the short run.

Accepted Answer

A) True 
 B)False

Exhibit 8-11 A firm's cost and marginal revenue curves -In Exhibit 8-11, when the price is $5, the firm:

In the short run, when the prevailing market price falls below the average variable cost curve, a firm in perfect competition will shut down because:

A firm is currently operating where the MC of the last unit produced = $64, and the MR of this unit = $70. What would you advise this firm to do?

If marginal revenue exceeds marginal cost in the short run, the perfectly competitive firm earns an economic profit in the short-run.

Exhibit 8-6 A firm's cost and MC curves -In Exhibit 8-6, if this firm is currently producing 20 units of output, this firm:

If a firm is producing an output level at which marginal revenue exceeds marginal cost in the short run, the firm will increase profits by reducing its output level.

Exhibit 8-10 Price and cost data for a firm Q P AVC ATC MC 0 \ 12 - - - 1 12 3 5 5 2 12 5 6 7 3 12 7.3 8 12 4 12 9.5 10 16 -In Exhibit 8-10, MR is the same as which column?

Under perfect competition, a business firm can accept losses:

In the short run, the profit maximizing (or minimizing) quantity of output for any firm to produce exists at that output level at which marginal revenue equals marginal cost.

Suppose that in a perfectly competitive market, firms are making economic profits. In the long run, we can expect to see:

Exhibit 8-11 A firm's cost and marginal revenue curves -In Exhibit 8-11, the profit-maximizing output level at the price of $8 is:

Exhibit 8-11 A firm's cost and marginal revenue curves -In Exhibit 8-11, when the price rises from $5 to $8, the profit-maximizing (or loss-minimizing) firm goes from making a:

Exhibit 8-9 A firm's cost and marginal revenue curves -In Exhibit 8-9, product price in this market is fixed at $14. This firm is currently operating where MR = MC. What do you advise this firm to do?

Exhibit 8-15 Short-run cost curves for E-Z Care lawn mowing company -In Exhibit 8-15, suppose the market price of mowing lawns falls to $10 per lawn. In this situation, E-Z-Care will:

Exhibit 8-17 Marginal revenue and cost per unit curves -As shown in Exhibit 8-17, the firm will produce in the short run if the price is at least equal to:

In short-run perfectly competitive equilibrium, which of the following is always true?

Under long-run perfect competition, which of the following are the same (equal) at all levels of output?

A perfectly competitive firm in the short-run maximizes its profit by producing the output where:

Exhibit 8-8 A firm's cost and marginal revenue curves -In Exhibit 8-8, product price in this market is fixed at $35. This firm is currently operating where MR = MC. What do you advise this firm to do?

If a perfectly competitive firm cannot cover all of its costs, then it should shut down in the short run.

Introducing the Economic Way of Thinking

Production Possibilities, Opportunity Cost, and Economic Growth

Market Demand and Supply

Markets in Action

Price Elasticity of Demand and Supply

Consumer Choice Theory

Production Costs

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets

Income Distribution, Poverty, and Discrimination

Antitrust and Regulation

Environmental Economics

International Trade and Finance

Economies in Transition

Growth and the

Filters

Exam 8: Perfect Competition

Exhibit 8-11 A firm's cost and marginal revenue curves -In Exhibit 8-11, when the price is $5, the firm:

In the short run, when the prevailing market price falls below the average variable cost curve, a firm in perfect competition will shut down because: ​

A firm is currently operating where the MC of the last unit produced = $64, and the MR of this unit = $70. What would you advise this firm to do?

If marginal revenue exceeds marginal cost in the short run, the perfectly competitive firm earns an economic profit in the short-run.

Exhibit 8-6 A firm's cost and MC curves -In Exhibit 8-6, if this firm is currently producing 20 units of output, this firm:

If a firm is producing an output level at which marginal revenue exceeds marginal cost in the short run, the firm will increase profits by reducing its output level.

Exhibit 8-10 Price and cost data for a firm Q P AVC ATC MC 0 \ 12 - - - 1 12 3 5 5 2 12 5 6 7 3 12 7.3 8 12 4 12 9.5 10 16 -In Exhibit 8-10, MR is the same as which column?

Under perfect competition, a business firm can accept losses:

In the short run, the profit maximizing (or minimizing) quantity of output for any firm to produce exists at that output level at which marginal revenue equals marginal cost.

Suppose that in a perfectly competitive market, firms are making economic profits. In the long run, we can expect to see:

Exhibit 8-11 A firm's cost and marginal revenue curves -In Exhibit 8-11, the profit-maximizing output level at the price of $8 is:

Exhibit 8-11 A firm's cost and marginal revenue curves -In Exhibit 8-11, when the price rises from $5 to $8, the profit-maximizing (or loss-minimizing) firm goes from making a:

Exhibit 8-9 A firm's cost and marginal revenue curves -In Exhibit 8-9, product price in this market is fixed at $14. This firm is currently operating where MR = MC. What do you advise this firm to do?

Exhibit 8-15 Short-run cost curves for E-Z Care lawn mowing company -In Exhibit 8-15, suppose the market price of mowing lawns falls to $10 per lawn. In this situation, E-Z-Care will:

Exhibit 8-17 Marginal revenue and cost per unit curves -As shown in Exhibit 8-17, the firm will produce in the short run if the price is at least equal to:

In short-run perfectly competitive equilibrium, which of the following is always true?

Under long-run perfect competition, which of the following are the same (equal) at all levels of output?

A perfectly competitive firm in the short-run maximizes its profit by producing the output where:

Exhibit 8-8 A firm's cost and marginal revenue curves -In Exhibit 8-8, product price in this market is fixed at $35. This firm is currently operating where MR = MC. What do you advise this firm to do?

If a perfectly competitive firm cannot cover all of its costs, then it should shut down in the short run.

Introducing the Economic Way of Thinking

Production Possibilities, Opportunity Cost, and Economic Growth

Market Demand and Supply

Markets in Action

Price Elasticity of Demand and Supply

Consumer Choice Theory

Production Costs

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets

Income Distribution, Poverty, and Discrimination

Antitrust and Regulation

Environmental Economics

International Trade and Finance

Economies in Transition

Growth and the

Filters

In the short run, when the prevailing market price falls below the average variable cost curve, a firm in perfect competition will shut down because: