Question 1

For a firm producing at any level of output GREATER THAN the most profitable one, a reduction in output decreases total revenue _____ total cost.

Accepted Answer

A)  less than 
B)  more than 
C)  by the same amount as 
D)  but not 
A)  less than 
B)  more than 
C)  by the same amount as 
D)  but not

Question 2

A perfectly competitive firm is a:

Accepted Answer

A)  price taker. 
B)  price searcher. 
C)  cost maximizer. 
D)  quantity taker. 
A)  price taker. 
B)  price searcher. 
C)  cost maximizer. 
D)  quantity taker.

Question 3

Marginal revenue is a firm's:

Accepted Answer

A)  ratio of profit to quantity. 
B)  ratio of average revenue to quantity. 
C)  price per unit times the number of units sold. 
D)  increase in total revenue when it sells an additional unit of output. 
A)  ratio of profit to quantity. 
B)  ratio of average revenue to quantity. 
C)  price per unit times the number of units sold. 
D)  increase in total revenue when it sells an additional unit of output.

Question 4

According to the optimal output rule, profits are maximized when firms produce where the difference between marginal revenue and marginal cost is the largest.

Accepted Answer

A) True 
 B)False

Question 5

Use the following to answer questions:
Figure: Game-Day Shirts  
-(Figure: Game-Day Shirts) Rick is one of 10 vendors who sell game-day T-shirts at football games in a perfectly competitive market. His costs are identical to the costs of the other 9 vendors. If the price of a shirt is $11, the short-run industry supply will be _____ shirts.

Accepted Answer

A)  140 
B)  200 
C)  220 
D)  240 
A)  140 
B)  200 
C)  220 
D)  240

Question 6

A firm produces at the output level at which its average total costs are minimized. At this output level, its average total costs are equal to all of the following EXCEPT:

Accepted Answer

A)  price. 
B)  MC. 
C)  MR. 
D)  AVC. 
A)  price. 
B)  MC. 
C)  MR. 
D)  AVC.

Question 7

Use the following to answer questions:
Figure: The Profit-Maximizing Firm in the Short Run  
-(Figure: The Profit-Maximizing Firm in the Short Run) Look at the figure The Profit-Maximizing Firm in the Short Run. Curve M must cross curves N and O:

Accepted Answer

A)  at their maximum points. 
B)  to the left of their minimum points. 
C)  at their minimum points. 
D)  to the right of their minimum points. 
A)  at their maximum points. 
B)  to the left of their minimum points. 
C)  at their minimum points. 
D)  to the right of their minimum points.

Question 8

A perfectly competitive firm is definitely earning an economic profit when:

Accepted Answer

A) MR > MC. B) P > ATC. C) P > MC. D) P < ATC. A) MR > MC. B) P > ATC. C) P > MC. D) P < ATC.

Question 9

If the price is greater than the average variable cost and less than the average total cost at the profit-maximizing quantity of output in the short run, a perfectly competitive firm will:

Accepted Answer

A)  produce at an economic loss. 
B)  produce at an economic profit. 
C)  shut down production. 
D)  produce more than the profit-maximizing quantity. 
A)  produce at an economic loss. 
B)  produce at an economic profit. 
C)  shut down production. 
D)  produce more than the profit-maximizing quantity.

Question 10

Use the following to answer questions:  
-(Table: Cherry Farm) Look at the table Cherry Farm. If Hank and Helen have one of 100 identical farms in the perfectly competitive cherry industry, explain how Hank and Helen and the industry will react in the short run and the long run to a price of $8 per pound for cherries.

Accepted Answer

In the short run each farm will maximize

Question 11

Use the following to answer questions:  
-(Table: Total Cost for a Perfectly Competitive Firm) Look at the table Total Cost for a Perfectly Competitive Firm. If the market price is $4.50, the profit-maximizing output is _____ units.

Accepted Answer

A)  5 
B)  7 
C)  8 
D)  9 
A)  5 
B)  7 
C)  8 
D)  9

Question 12

The long-run industry supply curve is usually more elastic than the short-run industry supply curve, but if entering firms make intensive use of an input that is in limited supply, then it is possible for the long-run curve to be less elastic than the short-run curve.

Accepted Answer

A) True 
 B)False

Question 13

An assumption of the model of perfect competition is:

Accepted Answer

A)  identical goods. 
B)  difficult entry and exit. 
C)  few buyers and sellers. 
D)  cooperation and interdependence between sellers. 
A)  identical goods. 
B)  difficult entry and exit. 
C)  few buyers and sellers. 
D)  cooperation and interdependence between sellers.

Question 14

Bob runs a pedicure business in a perfectly competitive industry. He knows that he will break even if the price of pedicures is $15 but that he will have to shut down if the price is $11. If the market demand in the industry is P = 30 - (0.2)Q and the market supply is P = (0.2)Q, in the short run, Bob will:

Accepted Answer

A)  shut down, since he cannot cover any of his variable costs. 
B)  produce but just break even. 
C)  produce with a loss, since he is operating below his break-even level. 
D)  shut down, although he is making a positive economic profit. 
A)  shut down, since he cannot cover any of his variable costs. 
B)  produce but just break even. 
C)  produce with a loss, since he is operating below his break-even level. 
D)  shut down, although he is making a positive economic profit.

Question 15

Use the following to answer questions:
Figure: A Perfectly Competitive Firm in the Short Run  
-(Figure: A Perfectly Competitive Firm in the Short Run) Look at the figure A Perfectly Competitive Firm in the Short Run. The firm's short-run supply curve is the:

Accepted Answer

A)  entire MC curve. 
B)  rising part of the MC curve beginning at point W. 
C)  rising part of the MC curve beginning at the point at which the firm starts earning economic profit. 
D)  MC curve below point P. 
A)  entire MC curve. 
B)  rising part of the MC curve beginning at point W. 
C)  rising part of the MC curve beginning at the point at which the firm starts earning economic profit. 
D)  MC curve below point P.

Question 16

Use the following to answer questions:
Figure: Cost Curves for Corn Producers  
-(Figure: Cost Curves for Corn Producers) Look at the figure Cost Curves for Corn Producers. The market for corn is perfectly competitive. If the price of a bushel of corn is $14, in the short run, the farmer will produce _____ of corn and earn an economic _____ equal to _____.

Accepted Answer

A)  4 bushels; profit; $0 
B)  4 bushels; profit; just less than $80 per bushel 
C)  2 bushels; profit; $0 
D)  2 bushels; loss; just more than $80 per bushel 
A)  4 bushels; profit; $0 
B)  4 bushels; profit; just less than $80 per bushel 
C)  2 bushels; profit; $0 
D)  2 bushels; loss; just more than $80 per bushel

Question 17

When perfect competition prevails, which of the following characteristics of firms are we likely to observe?

Accepted Answer

A)  None of them ever has diminishing marginal returns. 
B)  They all try to operate where price equals average variable cost. 
C)  They all try to operate where price equals total cost. 
D)  They are all price takers. 
A)  None of them ever has diminishing marginal returns. 
B)  They all try to operate where price equals average variable cost. 
C)  They all try to operate where price equals total cost. 
D)  They are all price takers.

Question 18

In the short run, if AVC < P < ATC, a perfectly competitive firm:

Accepted Answer

A)  produces output and earns an economic profit. 
B)  produces output and incurs an economic loss. 
C)  does not produce output and earns an economic profit. 
D)  does not produce output and earns zero economic profit. 
A)  produces output and earns an economic profit. 
B)  produces output and incurs an economic loss. 
C)  does not produce output and earns an economic profit. 
D)  does not produce output and earns zero economic profit.

Question 19

Use the following to answer questions:  
-(Table: Cherry Farm) Look at the table Cherry Farm. Which of the following is a point on the industry short-run supply curve?

Accepted Answer

A)  $5; 100 pounds 
B)  $4; 200 pounds 
C)  $4; 400 pounds 
D)  $2; 500 pounds 
A)  $5; 100 pounds 
B)  $4; 200 pounds 
C)  $4; 400 pounds 
D)  $2; 500 pounds

Question 20

The short-run industry supply curve is the sum of the individual supply curves of all of the firms in the industry, given a fixed number of firms.

Accepted Answer

A) True 
 B)False

For a firm producing at any level of output GREATER THAN the most profitable one, a reduction in output decreases total revenue _____ total cost.

A perfectly competitive firm is a:

Marginal revenue is a firm's:

According to the optimal output rule, profits are maximized when firms produce where the difference between marginal revenue and marginal cost is the largest.

A firm produces at the output level at which its average total costs are minimized. At this output level, its average total costs are equal to all of the following EXCEPT:

Use the following to answer questions: Figure: The Profit-Maximizing Firm in the Short Run -(Figure: The Profit-Maximizing Firm in the Short Run) Look at the figure The Profit-Maximizing Firm in the Short Run. Curve M must cross curves N and O:

A perfectly competitive firm is definitely earning an economic profit when:

If the price is greater than the average variable cost and less than the average total cost at the profit-maximizing quantity of output in the short run, a perfectly competitive firm will:

Use the following to answer questions: -(Table: Total Cost for a Perfectly Competitive Firm) Look at the table Total Cost for a Perfectly Competitive Firm. If the market price is $4.50, the profit-maximizing output is _____ units.

The long-run industry supply curve is usually more elastic than the short-run industry supply curve, but if entering firms make intensive use of an input that is in limited supply, then it is possible for the long-run curve to be less elastic than the short-run curve.

An assumption of the model of perfect competition is:

Use the following to answer questions: Figure: A Perfectly Competitive Firm in the Short Run -(Figure: A Perfectly Competitive Firm in the Short Run) Look at the figure A Perfectly Competitive Firm in the Short Run. The firm's short-run supply curve is the:

When perfect competition prevails, which of the following characteristics of firms are we likely to observe?

In the short run, if AVC < P < ATC, a perfectly competitive firm:

Use the following to answer questions: -(Table: Cherry Farm) Look at the table Cherry Farm. Which of the following is a point on the industry short-run supply curve?

The short-run industry supply curve is the sum of the individual supply curves of all of the firms in the industry, given a fixed number of firms.

First Principles

Economic Models: Trade-Offs and Trade 25

Supply and Demand

Consumer and Producer Surplus

Price Controls and Quotas: Meddling With Markets

Elasticity

Taxes

International Trade

Decision Making by Individuals Firms

The Rational Consumer

Behind the Supply Curve: Inputs and Costs

Monopoly

Oligopoly

Monopolistic Competition and Product Differentiation

Externalities

Public Goods Common Resources

The Economics of the Welfare

Factor Markets and the Distribution of Income

Uncertainty, Risk, and Private Information

Filters

Exam 12: Perfect Competition and the Supply Curve

For a firm producing at any level of output GREATER THAN the most profitable one, a reduction in output decreases total revenue _____ total cost.

A perfectly competitive firm is a:

Marginal revenue is a firm's:

According to the optimal output rule, profits are maximized when firms produce where the difference between marginal revenue and marginal cost is the largest.

A firm produces at the output level at which its average total costs are minimized. At this output level, its average total costs are equal to all of the following EXCEPT:

Use the following to answer questions: Figure: The Profit-Maximizing Firm in the Short Run -(Figure: The Profit-Maximizing Firm in the Short Run) Look at the figure The Profit-Maximizing Firm in the Short Run. Curve M must cross curves N and O:

A perfectly competitive firm is definitely earning an economic profit when:

If the price is greater than the average variable cost and less than the average total cost at the profit-maximizing quantity of output in the short run, a perfectly competitive firm will:

Use the following to answer questions: -(Table: Total Cost for a Perfectly Competitive Firm) Look at the table Total Cost for a Perfectly Competitive Firm. If the market price is $4.50, the profit-maximizing output is _____ units.

The long-run industry supply curve is usually more elastic than the short-run industry supply curve, but if entering firms make intensive use of an input that is in limited supply, then it is possible for the long-run curve to be less elastic than the short-run curve.

An assumption of the model of perfect competition is:

Use the following to answer questions: Figure: A Perfectly Competitive Firm in the Short Run -(Figure: A Perfectly Competitive Firm in the Short Run) Look at the figure A Perfectly Competitive Firm in the Short Run. The firm's short-run supply curve is the:

When perfect competition prevails, which of the following characteristics of firms are we likely to observe?

In the short run, if AVC < P < ATC, a perfectly competitive firm:

Use the following to answer questions: -(Table: Cherry Farm) Look at the table Cherry Farm. Which of the following is a point on the industry short-run supply curve?

The short-run industry supply curve is the sum of the individual supply curves of all of the firms in the industry, given a fixed number of firms.

First Principles

Economic Models: Trade-Offs and Trade 25

Supply and Demand

Consumer and Producer Surplus

Price Controls and Quotas: Meddling With Markets

Elasticity

Taxes

International Trade

Decision Making by Individuals Firms

The Rational Consumer

Behind the Supply Curve: Inputs and Costs

Monopoly

Oligopoly

Monopolistic Competition and Product Differentiation

Externalities

Public Goods Common Resources

The Economics of the Welfare

Factor Markets and the Distribution of Income

Uncertainty, Risk, and Private Information

Filters