Question 1

Exhibit 8-10 Price and cost data for a firm
 
In Exhibit 8-10, following the rule regarding MR and MC, the most profitable output level is:

Accepted Answer

A)  1. 
B)  2. 
C)  3. 
D)  4. 
A)  1. 
B)  2. 
C)  3. 
D)  4.

Question 2

In the short run, if a perfectly competitive firm is producing at a price below average total cost, its economic profit is:

Accepted Answer

A)  positive. 
B)  zero. 
C)  negative. 
D)  normal. 
A)  positive. 
B)  zero. 
C)  negative. 
D)  normal.

Question 3

Exhibit 8-16 Short-run cost curves for a competitive firm
 
In Exhibit 8-16, the firm should shut down in the short run if the market price of its product falls below:

Accepted Answer

A)  $20 per unit. 
B)  $30 per unit. 
C)  $50 per unit. 
D)  $80 per unit. 
A)  $20 per unit. 
B)  $30 per unit. 
C)  $50 per unit. 
D)  $80 per unit.

Question 4

The point of maximum profit for a business firm is where:

Accepted Answer

A)  P = AC. 
B)  TR = TC. 
C)  MR = AR. 
D)  MR = MC. 
A)  P = AC. 
B)  TR = TC. 
C)  MR = AR. 
D)  MR = MC.

Question 5

Suppose product price is fixed at $24; MR = MC at Q = 200; AFC = $6; AVC = $16. What do you advise this firm to do?

Accepted Answer

A)  Increase output. 
B)  Decrease output. 
C)  Stay at the current output; the firm is losing $200. 
D)  Stay at the current output; the firm is earning a profit of $400. 
A)  Increase output. 
B)  Decrease output. 
C)  Stay at the current output; the firm is losing $200. 
D)  Stay at the current output; the firm is earning a profit of $400.

Question 6

If a firm is operating at a loss in the short run and finds that its price is greater than average variable cost, then

Accepted Answer

A)  it should produce where MR = MC. 
B)  it should produce zero output. 
C)  total revenue is greater than total costs. 
D)  total revenue is less than total variable costs. 
A)  it should produce where MR = MC. 
B)  it should produce zero output. 
C)  total revenue is greater than total costs. 
D)  total revenue is less than total variable costs.

Question 7

A profit-maximizing firm will continue to expand output:

Accepted Answer

A)  as long as the revenues from the production and sale of an additional unit exceeds the average cost of the unit. 
B)  until the average cost of producing the good or service is at a minimum. 
C)  as long as the revenues from the production and sale of an additional unit exceeds the marginal cost of the unit. 
D)  until the marginal cost of producing a good or service is at a minimum. 
A)  as long as the revenues from the production and sale of an additional unit exceeds the average cost of the unit. 
B)  until the average cost of producing the good or service is at a minimum. 
C)  as long as the revenues from the production and sale of an additional unit exceeds the marginal cost of the unit. 
D)  until the marginal cost of producing a good or service is at a minimum.

Question 8

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. 
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.

Question 9

Exhibit 8-11 A firm's cost and marginal revenue curves
 
In Exhibit 8-11, when the price is $2, the profit-maximizing (or loss-minimizing) firm:

Accepted Answer

A)  should shut down and produce zero. 
B)  should produce output equal to 4. 
C)  is making an economic profit of $8. 
D)  should try to produce more output. 
A)  should shut down and produce zero. 
B)  should produce output equal to 4. 
C)  is making an economic profit of $8. 
D)  should try to produce more output.

Question 10

In the short run, why would a firm in a perfectly competitive market shut down production if the prevailing market price falls below the lowest possible average variable cost?

Accepted Answer

A)  At that point (economic) profit is zero. 
B)  Below that point average revenue becomes less than marginal revenue. 
C)  Below that point marginal revenue becomes insufficient to pay for avoidable average variable cost. 
D)  Below that point other firms with similar cost will find it profitable to enter the market and take away demand from the existing firms. 
A)  At that point (economic) profit is zero. 
B)  Below that point average revenue becomes less than marginal revenue. 
C)  Below that point marginal revenue becomes insufficient to pay for avoidable average variable cost. 
D)  Below that point other firms with similar cost will find it profitable to enter the market and take away demand from the existing firms.

Question 11

A portrait photographer produces output in packages of 100 photos each. If the output sold increases from 600 to 700 photos, total revenue increases from $1,200 to $1,400. The marginal revenue per photo is:

Accepted Answer

A)  $200. 
B)  $100. 
C)  $20. 
D)  $2. 
A)  $200. 
B)  $100. 
C)  $20. 
D)  $2.

Question 12

Consider a firm with the following cost and revenue information: ATC = $8, AVC = $7, and MR = MC = $6. If the firm produces Q = 60 in the short run, it:

Accepted Answer

A)  is minimizing losses. 
B)  makes a total loss of $60. 
C)  should produce more output. 
D)  should shut down. 
A)  is minimizing losses. 
B)  makes a total loss of $60. 
C)  should produce more output. 
D)  should shut down.

Question 13

Consider a firm with the following cost information: ATC = $15, AVC = $12, and MC = $14. If we know that this firm has decided to produce Q = 20 by following the rule to maximize profits or minimize losses, then the price of the output is:

Accepted Answer

A)  $12. 
B)  $14. 
C)  $15. 
D)  $20. 
A)  $12. 
B)  $14. 
C)  $15. 
D)  $20.

Question 14

Exhibit 8-13 Price and cost per unit curves
 
In Exhibit 8-13, the firm's short-run supply curve is the marginal cost curve above point

Accepted Answer

A)  A. 
B)  B. 
C)  C. 
D)  D. 
A)  A. 
B)  B. 
C)  C. 
D)  D.

Question 15

Which of the following is true of a perfectly competitive firm?

Accepted Answer

A)  The firm is a price maker. 
B)  If the firm wishes to maximize profits it will produce an output level in which marginal revenue exceeds marginal cost. 
C)  The firm will not earn an economic profit in the long run. 
D)  The firm's short-run supply curve is its MC curve below its AVC curve. 
A)  The firm is a price maker. 
B)  If the firm wishes to maximize profits it will produce an output level in which marginal revenue exceeds marginal cost. 
C)  The firm will not earn an economic profit in the long run. 
D)  The firm's short-run supply curve is its MC curve below its AVC curve.

Question 16

Exhibit 8-12 Marginal revenue and cost per unit curves
 
As shown in Exhibit 8-12, the firm's short-run supply curve is the:

Accepted Answer

A)  entire marginal cost curve. 
B)  rising part of marginal cost beginning at E. 
C)  rising part of marginal cost beginning at F. 
D)  entire marginal revenue curve. 
A)  entire marginal cost curve. 
B)  rising part of marginal cost beginning at E. 
C)  rising part of marginal cost beginning at F. 
D)  entire marginal revenue curve.

Question 17

In the perfectly competitive market, all firms in the market are 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 18

Exhibit 8-13 Price and cost per unit curves
 
In Exhibit 8-13, the firm will not produce when the price is between:

Accepted Answer

A)  zero and P2. 
B)  P2 and P3. 
C)  P3 and P4. 
D)  P4 and P5. 
A)  zero and P2. 
B)  P2 and P3. 
C)  P3 and P4. 
D)  P4 and P5.

Question 19

Assume a competitive market has firms earning large economic profits. What is expected to happen over time in this competitive market and to firm's profits?

Accepted Answer

Economic profits will attract new firms

Question 20

Which of the following best illustrates a perfectly competitive market?

Accepted Answer

A)  jeans 
B)  breakfast cereal 
C)  electric power 
D)  soybeans 
A)  jeans 
B)  breakfast cereal 
C)  electric power 
D)  soybeans

Exam 8: Perfect Competition

Exhibit 8-10 Price and cost data for a firm In Exhibit 8-10, following the rule regarding MR and MC, the most profitable output level is:

In the short run, if a perfectly competitive firm is producing at a price below average total cost, its economic profit is:

Exhibit 8-16 Short-run cost curves for a competitive firm In Exhibit 8-16, the firm should shut down in the short run if the market price of its product falls below:

The point of maximum profit for a business firm is where:

Suppose product price is fixed at $24; MR = MC at Q = 200; AFC = $6; AVC = $16. What do you advise this firm to do?

If a firm is operating at a loss in the short run and finds that its price is greater than average variable cost, then

A profit-maximizing firm will continue to expand output:

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?

Exhibit 8-11 A firm's cost and marginal revenue curves In Exhibit 8-11, when the price is $2, the profit-maximizing (or loss-minimizing) firm:

In the short run, why would a firm in a perfectly competitive market shut down production if the prevailing market price falls below the lowest possible average variable cost?

A portrait photographer produces output in packages of 100 photos each. If the output sold increases from 600 to 700 photos, total revenue increases from $1,200 to $1,400. The marginal revenue per photo is:

Consider a firm with the following cost and revenue information: ATC = $8, AVC = $7, and MR = MC = $6. If the firm produces Q = 60 in the short run, it:

Consider a firm with the following cost information: ATC = $15, AVC = $12, and MC = $14. If we know that this firm has decided to produce Q = 20 by following the rule to maximize profits or minimize losses, then the price of the output is:

Exhibit 8-13 Price and cost per unit curves In Exhibit 8-13, the firm's short-run supply curve is the marginal cost curve above point

Which of the following is true of a perfectly competitive firm?

Exhibit 8-12 Marginal revenue and cost per unit curves As shown in Exhibit 8-12, the firm's short-run supply curve is the:

In the perfectly competitive market, all firms in the market are assumed to be producing:

Exhibit 8-13 Price and cost per unit curves In Exhibit 8-13, the firm will not produce when the price is between:

Assume a competitive market has firms earning large economic profits. What is expected to happen over time in this competitive market and to firm's profits?

Which of the following best illustrates a perfectly competitive market?

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