Question 1

If a profit-maximizing firm finds that price exceeds average variable cost and marginal revenue is greater than marginal cost, what action should it take?

Accepted Answer

A)  not alter its production level, since it is earning a profit 
B)  reduce output, but continue producing in the short run 
C)  shut down 
D)  increase output 
A)  not alter its production level, since it is earning a profit 
B)  reduce output, but continue producing in the short run 
C)  shut down 
D)  increase output

Question 2

Darlene runs a fruit and vegetable stand in a medium-sized community where there are many such stands. Her weekly total revenue equals $2000. Her weekly total cost of running the stand equals $3500, consisting of $2500 of variable costs and $1000 of fixed costs. What would an economist likely advise Darlene to do?

Accepted Answer

A)  Keep the stand open for a while longer, because she is covering all of her variable costs and some of her fixed costs. 
B)  Keep the stand open, because it is generating an economic profit. 
C)  Keep the stand open for a while longer, because she is covering all of her fixed costs and some of her variable costs. 
D)  Shut down as quickly as possible in order to minimize her losses. 
A)  Keep the stand open for a while longer, because she is covering all of her variable costs and some of her fixed costs. 
B)  Keep the stand open, because it is generating an economic profit. 
C)  Keep the stand open for a while longer, because she is covering all of her fixed costs and some of her variable costs. 
D)  Shut down as quickly as possible in order to minimize her losses.

Question 3

Farmer Brady sells wheat in a market where sellers are price takers. Which of the following is Farmer Brady's ideal production and pricing strategy?

Accepted Answer

A)  It would be senseless for Farmer Brady to try to increase sales by lowering the price of his product since his entire output can be sold at the market price. 
B)  Since the market dictates the price of his product, Farmer Brad has no incentive to minimize per-unit production costs. 
C)  Since the market dictates the price of his product, Farmer Brady has no production decisions to make. 
D)  If Farmer Brady increases the price of his wheat, he will be able to increase the total production. 
A)  It would be senseless for Farmer Brady to try to increase sales by lowering the price of his product since his entire output can be sold at the market price. 
B)  Since the market dictates the price of his product, Farmer Brad has no incentive to minimize per-unit production costs. 
C)  Since the market dictates the price of his product, Farmer Brady has no production decisions to make. 
D)  If Farmer Brady increases the price of his wheat, he will be able to increase the total production.

Question 4

Which of the following statements concerning equilibrium in the long run is NOT correct?

Accepted Answer

A)  Firms are able to vary their plant sizes in the long run. 
B)  Firms will exit the industry if economic profits equal zero. 
C)  The market price equals both marginal cost and average total cost. 
D)  Economic profits are eliminated as new firms enter the industry. 
A)  Firms are able to vary their plant sizes in the long run. 
B)  Firms will exit the industry if economic profits equal zero. 
C)  The market price equals both marginal cost and average total cost. 
D)  Economic profits are eliminated as new firms enter the industry.

Question 5

In the perfectly competitive model, what are all firms assumed to be producing?

Accepted Answer

A)  identical products 
B)  differentiated products 
C)  products that are heavily advertised 
D)  complementary products 
A)  identical products 
B)  differentiated products 
C)  products that are heavily advertised 
D)  complementary products

Question 6

Under what circumstance will a firm in a perfectly competitive industry expand output?

Accepted Answer

A)  as long as marginal cost is less than marginal revenue 
B)  as long as marginal revenue is less than average revenue 
C)  as long as marginal revenue is less than average total cost 
D)  as long as marginal cost is less than average total cost 
A)  as long as marginal cost is less than marginal revenue 
B)  as long as marginal revenue is less than average revenue 
C)  as long as marginal revenue is less than average total cost 
D)  as long as marginal cost is less than average total cost

Question 7

Which of the following best describes constant cost industries?

Accepted Answer

A)  They significantly increase the demand for inputs when expanding output, and, as a result, input prices rise. 
B)  They do not use inputs in sufficient quantities that a change in industry output would affect the prices of the inputs. 
C)  They use large portions of the total supply of specialized resources. 
D)  They are those in which the cost curves of individual firms shift upwards as industry output expands. 
A)  They significantly increase the demand for inputs when expanding output, and, as a result, input prices rise. 
B)  They do not use inputs in sufficient quantities that a change in industry output would affect the prices of the inputs. 
C)  They use large portions of the total supply of specialized resources. 
D)  They are those in which the cost curves of individual firms shift upwards as industry output expands.

Question 8

FIGURE 8-8
  
-Refer to Figure 8-8. How many units of output will a profit-maximizing firm in a perfectly competitive industry produce if the market price equals $10?

Accepted Answer

A)  0 
B)  450 
C)  650 
D)  800 
A)  0 
B)  450 
C)  650 
D)  800

Question 9

At the level of output where marginal revenue equals marginal cost, price is less than average total cost but greater than average variable cost. In this instance, what action should a profit-maximizing firm take?

Accepted Answer

A)  Continue operating at that output level in the short term, since total revenue will cover all of the firm's fixed costs and a portion of its variable costs. 
B)  Decrease output to where marginal revenue exceeds marginal cost by the greatest dollar amount. 
C)  Continue operating at that output level in the short term, since total revenue will cover all of the firm's variable costs and some of its fixed costs. 
D)  Cease production, as it is incurring an economic loss. 
A)  Continue operating at that output level in the short term, since total revenue will cover all of the firm's fixed costs and a portion of its variable costs. 
B)  Decrease output to where marginal revenue exceeds marginal cost by the greatest dollar amount. 
C)  Continue operating at that output level in the short term, since total revenue will cover all of the firm's variable costs and some of its fixed costs. 
D)  Cease production, as it is incurring an economic loss.

Question 10

A perfectly competitive firm's supply curve is the upward-sloping portion of the marginal cost curve. What does this lie above?

Accepted Answer

A)  the marginal revenue 
B)  the average fixed cost 
C)  the average variable cost 
D)  the average total cost 
A)  the marginal revenue 
B)  the average fixed cost 
C)  the average variable cost 
D)  the average total cost

Question 11

FIGURE 8-3
  
-Refer to Figure 8-3. When the market price equals $54, what action should the firm take?

Accepted Answer

A)  Continue operating temporarily despite an economic loss, because the firm is able to cover all of its variable costs. 
B)  Continue operating, because the firm is making a profit. 
C)  Shut down. 
D)  Continue operating temporarily despite an economic loss, because the firm is able to cover a portion of its fixed costs. 
A)  Continue operating temporarily despite an economic loss, because the firm is able to cover all of its variable costs. 
B)  Continue operating, because the firm is making a profit. 
C)  Shut down. 
D)  Continue operating temporarily despite an economic loss, because the firm is able to cover a portion of its fixed costs.

Question 12

It is relatively easy for firms to enter and exit a perfectly competitive market.

Accepted Answer

A) True 
 B)False

Question 13

TABLE 8-1
  
-Refer to Table 8-1. What is the value of the variable X?

Accepted Answer

A)  $0 
B)  $50 
C)  $20 
D)  $40 
A)  $0 
B)  $50 
C)  $20 
D)  $40

Question 14

Under what circumstances will a perfectly competitive firm NOT produce in the short run?

Accepted Answer

A)  if its total revenues are less than total variable costs 
B)  if it makes only an economic profit 
C)  if it makes only an accounting profit 
D)  if its total revenues are less than total costs 
A)  if its total revenues are less than total variable costs 
B)  if it makes only an economic profit 
C)  if it makes only an accounting profit 
D)  if its total revenues are less than total costs

Question 15

Up until what point will firms continue to enter a competitive industry?

Accepted Answer

A)  until the supply curve is vertical 
B)  until the market price falls below average variable cost 
C)  until all resources are fully employed 
D)  until any economic profits have been competed away 
A)  until the supply curve is vertical 
B)  until the market price falls below average variable cost 
C)  until all resources are fully employed 
D)  until any economic profits have been competed away

Question 16

Which of the following is most likely a constant cost industry?

Accepted Answer

A)  coal 
B)  ice cream 
C)  lumber 
D)  oil 
A)  coal 
B)  ice cream 
C)  lumber 
D)  oil

Question 17

If input prices rise as industry output expands, what will happen to a perfectly competitive firm's marginal cost and average cost curves?

Accepted Answer

A)  They will not shift; as the firm increases production, however, costs decrease as the firm moves downward to the left along these curves. 
B)  They will not shift; as the firm increases production, however, costs increase as the firm moves upward to the right along these curves. 
C)  They will shift downward. 
D)  They will shift upward. 
A)  They will not shift; as the firm increases production, however, costs decrease as the firm moves downward to the left along these curves. 
B)  They will not shift; as the firm increases production, however, costs increase as the firm moves upward to the right along these curves. 
C)  They will shift downward. 
D)  They will shift upward.

Question 18

Firms should shut down in the short run whenever price is less than the average total cost.

Accepted Answer

A) True 
 B)False

Question 19

Why do short-run profits in a perfectly competitive industry tend to disappear over time?

Accepted Answer

Economic profits tend to exist only in t

Question 20

What is an individual, perfectly competitive firm?

Accepted Answer

A)  A firm that is a price maker. 
B)  A firm that may increase its price without losing sales. 
C)  A firm that sells a product that is differentiated from those of its competitors. 
D)  A firm that has no perceptible influence on the market price. 
A)  A firm that is a price maker. 
B)  A firm that may increase its price without losing sales. 
C)  A firm that sells a product that is differentiated from those of its competitors. 
D)  A firm that has no perceptible influence on the market price.

If a profit-maximizing firm finds that price exceeds average variable cost and marginal revenue is greater than marginal cost, what action should it take?

Farmer Brady sells wheat in a market where sellers are price takers. Which of the following is Farmer Brady's ideal production and pricing strategy?

Which of the following statements concerning equilibrium in the long run is NOT correct?

In the perfectly competitive model, what are all firms assumed to be producing?

Under what circumstance will a firm in a perfectly competitive industry expand output?

Which of the following best describes constant cost industries?

FIGURE 8-8 -Refer to Figure 8-8. How many units of output will a profit-maximizing firm in a perfectly competitive industry produce if the market price equals $10?

At the level of output where marginal revenue equals marginal cost, price is less than average total cost but greater than average variable cost. In this instance, what action should a profit-maximizing firm take?

A perfectly competitive firm's supply curve is the upward-sloping portion of the marginal cost curve. What does this lie above?

FIGURE 8-3 -Refer to Figure 8-3. When the market price equals $54, what action should the firm take?

It is relatively easy for firms to enter and exit a perfectly competitive market.

TABLE 8-1 -Refer to Table 8-1. What is the value of the variable X?

Under what circumstances will a perfectly competitive firm NOT produce in the short run?

Up until what point will firms continue to enter a competitive industry?

Which of the following is most likely a constant cost industry?

If input prices rise as industry output expands, what will happen to a perfectly competitive firm's marginal cost and average cost curves?

Firms should shut down in the short run whenever price is less than the average total cost.

Why do short-run profits in a perfectly competitive industry tend to disappear over time?

What is an individual, perfectly competitive firm?

The Role and Method of Economics

Scarcity, Trade-Offs, and Production Possibilities

Supply and Demand

Bringing Supply and Demand Together

Elasticity

Market Efficiency and Market Failure

Production and Costs

Monopoly

Monopolistic Competition and Oligopoly

Labour Markets and the Distribution of Income

The Environment

Filters

Exam 8: Perfect Competition

If a profit-maximizing firm finds that price exceeds average variable cost and marginal revenue is greater than marginal cost, what action should it take?

Farmer Brady sells wheat in a market where sellers are price takers. Which of the following is Farmer Brady's ideal production and pricing strategy?

Which of the following statements concerning equilibrium in the long run is NOT correct?

In the perfectly competitive model, what are all firms assumed to be producing?

Under what circumstance will a firm in a perfectly competitive industry expand output?

Which of the following best describes constant cost industries?

FIGURE 8-8 -Refer to Figure 8-8. How many units of output will a profit-maximizing firm in a perfectly competitive industry produce if the market price equals $10?

At the level of output where marginal revenue equals marginal cost, price is less than average total cost but greater than average variable cost. In this instance, what action should a profit-maximizing firm take?

A perfectly competitive firm's supply curve is the upward-sloping portion of the marginal cost curve. What does this lie above?

FIGURE 8-3 -Refer to Figure 8-3. When the market price equals $54, what action should the firm take?

It is relatively easy for firms to enter and exit a perfectly competitive market.

TABLE 8-1 -Refer to Table 8-1. What is the value of the variable X?

Under what circumstances will a perfectly competitive firm NOT produce in the short run?

Up until what point will firms continue to enter a competitive industry?

Which of the following is most likely a constant cost industry?

If input prices rise as industry output expands, what will happen to a perfectly competitive firm's marginal cost and average cost curves?

Firms should shut down in the short run whenever price is less than the average total cost.

Why do short-run profits in a perfectly competitive industry tend to disappear over time?

What is an individual, perfectly competitive firm?

The Role and Method of Economics

Scarcity, Trade-Offs, and Production Possibilities

Supply and Demand

Bringing Supply and Demand Together

Elasticity

Market Efficiency and Market Failure

Production and Costs

Monopoly

Monopolistic Competition and Oligopoly

Labour Markets and the Distribution of Income

The Environment

Filters