Question 1

Exhibit 8-5 A firm's MR and MC curves
 
In Exhibit 8-5, a firm is currently producing 40 units of output. What would you advise this firm to do?

Accepted Answer

A)  Shut down. 
B)  Increase output. 
C)  Decrease price. 
D)  Decrease output. 
A)  Shut down. 
B)  Increase output. 
C)  Decrease price. 
D)  Decrease output. B

Question 2

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 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 produce output equal to 7. D

Question 3

Jerome, the florist, sold 500 bridesmaid's bouquets in June. He estimates his costs that month were ATC = $10, AVC = $6, and MC = $9. If he sold each bouquet at the constant market price of $9, Jerome:

Accepted Answer

A)  made an economic profit of $500. 
B)  made a loss of $500. 
C)  should have shut down in June. 
D)  made a loss of $1,500. 
A)  made an economic profit of $500. 
B)  made a loss of $500. 
C)  should have shut down in June. 
D)  made a loss of $1,500. B

Question 4

Exhibit 8-18 A typical firm in a perfectly competitive market
 
In Exhibit 8-18, assume the perfectly competitive firm is in long-run equilibrium and there is an increase in demand. As a result, the firm in the short run will increase output along its:

Accepted Answer

A)  short-run average total cost curve B. 
B)  short-run marginal cost curve B. 
C)  long-run average cost curve. 
D)  none of these because the firm shuts down. 
A)  short-run average total cost curve B. 
B)  short-run marginal cost curve B. 
C)  long-run average cost curve. 
D)  none of these because the firm shuts down.

Question 5

Exhibit 8-1 Quantity and total revenue data for a firm
 
Exhibit 8-1 indicates that this firm is operating in which type of market structure?

Accepted Answer

A)  The market structure cannot be determined from the information given. 
B)  monopoly 
C)  perfect competition 
D)  monopolistic competition 
A)  The market structure cannot be determined from the information given. 
B)  monopoly 
C)  perfect competition 
D)  monopolistic competition

Question 6

Exhibit 8-3 Cost per unit curves
 
If the price of the firm's product in Exhibit 8-3 is $1.50 per unit, which intersects AVC at point B, the firm should:

Accepted Answer

A)  continue to operate because it is earning a positive economic profit. 
B)  stay in operation for the time being even though it is making an economic loss. 
C)  shut down temporarily. 
D)  increase the price. 
A)  continue to operate because it is earning a positive economic profit. 
B)  stay in operation for the time being even though it is making an economic loss. 
C)  shut down temporarily. 
D)  increase the price.

Question 7

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.

Question 8

A firm is currently operating where the MC of the last unit produced = $84, 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 its current output. 
D)  Decrease output. 
A)  Shut down. 
B)  Increase output. 
C)  Stay at its current output. 
D)  Decrease output.

Question 9

What are the pros and cons of a competitive market in the long run?

Accepted Answer

The pros include price equals minimum av

Question 10

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 in the short run 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 in the short run despite its economic losses. 
D)  earn a normal profit.

Question 11

In a perfectly competitive market buyers want to buy 20,000 units and sellers want to sell 20,000 units of a product when the price is $50 per unit. ABC Corporation, one seller in this market,

Accepted Answer

A)  will sell a fixed number of units regardless of how the price changes. 
B)  faces a downward-sloping demand curve for its product. 
C)  will maximize profit by selling at a price less than $50. 
D)  faces a perfectly elastic demand curve at a price of $50. 
A)  will sell a fixed number of units regardless of how the price changes. 
B)  faces a downward-sloping demand curve for its product. 
C)  will maximize profit by selling at a price less than $50. 
D)  faces a perfectly elastic demand curve at a price of $50.

Question 12

If a firm has no ability to influence the market price of its product, it:

Accepted Answer

A)  will go out of business due to losses. 
B)  is a price-maker. 
C)  cannot maximize profit. 
D)  has a horizontal individual demand curve. 
A)  will go out of business due to losses. 
B)  is a price-maker. 
C)  cannot maximize profit. 
D)  has a horizontal individual demand curve.

Question 13

What are the characteristics of the perfectly competitive market?

Accepted Answer

The perfectly competitive market is char

Question 14

Which of the following is a characteristic of a competitive price-taker market?

Accepted Answer

A)  Profit maximizing firms in the market will expand output until price equals average variable cost. 
B)  The market demand curve for the product is a horizontal line. 
C)  There are many firms in the market, each producing a small share of total market output. 
D)  The product produced by each of the firms is differentiated. 
A)  Profit maximizing firms in the market will expand output until price equals average variable cost. 
B)  The market demand curve for the product is a horizontal line. 
C)  There are many firms in the market, each producing a small share of total market output. 
D)  The product produced by each of the firms is differentiated.

Question 15

Marginal revenue is the change in:

Accepted Answer

A)  total profit brought about by selling one more unit of output. 
B)  price brought about by selling one more unit of output. 
C)  total revenue brought about by selling one more unit of output. 
D)  output brought about by a $1 change in product price. 
A)  total profit brought about by selling one more unit of output. 
B)  price brought about by selling one more unit of output. 
C)  total revenue brought about by selling one more unit of output. 
D)  output brought about by a $1 change in product price.

Question 16

A sandwich shop owner has the following information: P = MR = $4, ATC = $2, AVC = $1, MC = 4, and Q = 500. From this, she can determine:

Accepted Answer

A)  her profits are not being maximized. 
B)  she has earned zero economic profits. 
C)  she has earned economic profits of $1,000. 
D)  she has earned economic profits of $1,500. 
A)  her profits are not being maximized. 
B)  she has earned zero economic profits. 
C)  she has earned economic profits of $1,000. 
D)  she has earned economic profits of $1,500.

Question 17

Bethany decides to get some build a chicken coop, get some chickens, and start selling fresh eggs in her neighborhood. This example describes which of the following characteristics of perfect competition?

Accepted Answer

A)  large number of small firms 
B)  homogeneous goods 
C)  very easy entry and exit 
D)  imperfect information 
A)  large number of small firms 
B)  homogeneous goods 
C)  very easy entry and exit 
D)  imperfect information

Question 18

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

Question 19

A firm that is a price taker can:

Accepted Answer

A)  substantially change the market price of its product by changing its level of production. 
B)  sell all of its output at the market price. 
C)  sell some of its output at a price higher than the market price. 
D)  decide what price to charge for its product. 
A)  substantially change the market price of its product by changing its level of production. 
B)  sell all of its output at the market price. 
C)  sell some of its output at a price higher than the market price. 
D)  decide what price to charge for its product.

Question 20

Exhibit 8-12 Marginal revenue and cost per unit curves
 
As shown in Exhibit 8-12, if the price is OD, the firm's total revenue at its most profitable level of output is:

Accepted Answer

A)  OZID. 
B)  OYHD. 
C)  OXLD. 
D)  OYFB. 
A)  OZID. 
B)  OYHD. 
C)  OXLD. 
D)  OYFB.

Exam 8: Perfect Competition

Exhibit 8-5 A firm's MR and MC curves In Exhibit 8-5, a firm is currently producing 40 units of output. What would you advise this firm to do?

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

Jerome, the florist, sold 500 bridesmaid's bouquets in June. He estimates his costs that month were ATC = $10, AVC = $6, and MC = $9. If he sold each bouquet at the constant market price of $9, Jerome:

Exhibit 8-18 A typical firm in a perfectly competitive market In Exhibit 8-18, assume the perfectly competitive firm is in long-run equilibrium and there is an increase in demand. As a result, the firm in the short run will increase output along its:

Exhibit 8-1 Quantity and total revenue data for a firm Exhibit 8-1 indicates that this firm is operating in which type of market structure?

Exhibit 8-3 Cost per unit curves If the price of the firm's product in Exhibit 8-3 is $1.50 per unit, which intersects AVC at point B, the firm should:

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 = $84, and the MR of this unit = $70. What would you advise this firm to do?

What are the pros and cons of a competitive market in the long run?

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:

In a perfectly competitive market buyers want to buy 20,000 units and sellers want to sell 20,000 units of a product when the price is $50 per unit. ABC Corporation, one seller in this market,

If a firm has no ability to influence the market price of its product, it:

What are the characteristics of the perfectly competitive market?

Which of the following is a characteristic of a competitive price-taker market?

Marginal revenue is the change in:

A sandwich shop owner has the following information: P = MR = $4, ATC = $2, AVC = $1, MC = 4, and Q = 500. From this, she can determine:

Bethany decides to get some build a chicken coop, get some chickens, and start selling fresh eggs in her neighborhood. This example describes which of the following characteristics of perfect competition?

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?

A firm that is a price taker can:

Exhibit 8-12 Marginal revenue and cost per unit curves As shown in Exhibit 8-12, if the price is OD, the firm's total revenue at its most profitable level of output is:

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

Gross Domestic Product

Business Cycles and Unemployment

Inflation

The Keynesian Model

The Keynesian Model in Action

Aggregate Demand and Supply

Fiscal Policy

The Public Sector

Federal Deficits Surpluses and the National Debt

Money and the Federal Reserve System

Money Creation

Monetary Policy

The Phillips Curve and Expectations Theory

International Trade and Finance

Economies in Transition

Growth and the Less Developed Countries

Understanding Direct and Inverse Relationships between Variables

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: