Question 1

If a firm equates MR and MC, then:

Accepted Answer

A)  TR is at a maximum, and TC is at a minimum. 
B)  output is at a maximum. 
C)  both TR and TC are at a maximum. 
D)  profits are at a maximum or losses are at a minimum. 
A)  TR is at a maximum, and TC is at a minimum. 
B)  output is at a maximum. 
C)  both TR and TC are at a maximum. 
D)  profits are at a maximum or losses are at a minimum.

Question 2

The neighborhood ice cream shop finds that when it charges $3 per ice cream cone, its total revenues are $90,000. It has total variable costs of $30,000 and total fixed costs of $40,000. From this we can infer the:

Accepted Answer

A)  shop sells 10,000 ice cream cones. 
B)  price is less than average total cost. 
C)  economic profits are $20,000. 
D)  shop will be closed in the long run. 
A)  shop sells 10,000 ice cream cones. 
B)  price is less than average total cost. 
C)  economic profits are $20,000. 
D)  shop will be closed in the long run.

Question 3

Exhibit 8-3 Cost per unit curves
 
As shown in Exhibit 8-3, the firm will produce in the short run if the price is at least equal to:

Accepted Answer

A)  $1.00 per unit (point 
A) . 
B)  $1.50 per unit (point 
B) . 
C)  $2.00 per unit (point 
C) . 
D)  $4.00 per unit (point 
D) . 
A)  $1.00 per unit (point 
A) . 
B)  $1.50 per unit (point 
B) . 
C)  $2.00 per unit (point 
C) . 
D)  $4.00 per unit (point 
D) .

Question 4

Exhibit 8-12 Marginal revenue and cost per unit curves
 
As shown in Exhibit 8-12, the firm will shut down in the short-run at a price below:

Accepted Answer

A)  OA. 
B)  OB. 
C)  OC. 
D)  OD. 
A)  OA. 
B)  OB. 
C)  OC. 
D)  OD.

Question 5

In the short run, a firm will stay in business as long as:

Accepted Answer

A)  price equals average revenue. 
B)  marginal revenue is greater than or equal to marginal cost. 
C)  price exceeds average variable cost. 
D)  price is less than average variable cost. 
A)  price equals average revenue. 
B)  marginal revenue is greater than or equal to marginal cost. 
C)  price exceeds average variable cost. 
D)  price is less than average variable cost.

Question 6

Exhibit 8-3 Cost per unit curves
 
As shown in Exhibit 8-3, the price at which the firm earns zero economic profit in the short-run is:

Accepted Answer

A)  $1.00 per unit. 
B)  $1.50 per unit. 
C)  $2.00 per unit. 
D)  $4.00 per unit. 
A)  $1.00 per unit. 
B)  $1.50 per unit. 
C)  $2.00 per unit. 
D)  $4.00 per unit.

Question 7

If the expansion of output in an industry leads to unchanged resource prices, the industry is most likely to be a(n):

Accepted Answer

A)  decreasing cost industry. 
B)  increasing cost industry. 
C)  constant cost industry. 
D)  industry characterized by economies of scale. 
A)  decreasing cost industry. 
B)  increasing cost industry. 
C)  constant cost industry. 
D)  industry characterized by economies of scale.

Question 8

Exhibit 8-12 Marginal revenue and cost per unit curves
 
As shown in Exhibit 8-12, the firm will not produce in the short-run if the price is below:

Accepted Answer

A)  OA. 
B)  OB. 
C)  OC. 
D)  OD. 
A)  OA. 
B)  OB. 
C)  OC. 
D)  OD.

Question 9

Consider a firm operating with the following: price = 10; MR = 10; MC = 10; ATC = 10. This firm is:

Accepted Answer

A)  making an economic profit of 10. 
B)  an example of monopolistic competition. 
C)  perfectly competitive in long-run equilibrium. 
D)  a monopolist for a product with a relatively inelastic demand. 
A)  making an economic profit of 10. 
B)  an example of monopolistic competition. 
C)  perfectly competitive in long-run equilibrium. 
D)  a monopolist for a product with a relatively inelastic demand.

Question 10

Exhibit 8-4 Marginal cost and revenue for a firm
 
In Exhibit 8-4, what is this firm's profit-maximizing rate of output?

Accepted Answer

A)  13. 
B)  14. 
C)  15. 
D)  16. 
A)  13. 
B)  14. 
C)  15. 
D)  16.

Question 11

A perfectly competitive firm sells its output for $100 per unit and marginal cost is $100 per unit. To maximize short-run profit, the firm should:

Accepted Answer

A)  increase output. 
B)  decrease output. 
C)  maintain its current output. 
D)  shut down. 
A)  increase output. 
B)  decrease output. 
C)  maintain its current output. 
D)  shut down.

Question 12

The price-taker firm should discontinue production immediately if:

Accepted Answer

A)  the market price exceeds the firm's average total costs. 
B)  the market price is less than the firm's average variable costs. 
C)  the market price is less than the firm's average total costs, but greater than its average variable cost. 
D)  its accounting statement indicates that it is suffering losses. 
A)  the market price exceeds the firm's average total costs. 
B)  the market price is less than the firm's average variable costs. 
C)  the market price is less than the firm's average total costs, but greater than its average variable cost. 
D)  its accounting statement indicates that it is suffering losses.

Question 13

In a perfectly competitive industry, assume the short-run average total cost increases as the output of the industry expands. In the long run, the industry supply curve will:

Accepted Answer

A)  have a positive slope. 
B)  have a negative slope. 
C)  be perfectly horizontal. 
D)  be perfectly vertical. 
A)  have a positive slope. 
B)  have a negative slope. 
C)  be perfectly horizontal. 
D)  be perfectly vertical.

Question 14

If a firm shuts down in the short run, it will:

Accepted Answer

A)  incur losses equal to its fixed costs. 
B)  have total revenue greater than total fixed costs. 
C)  reduce its losses to zero. 
D)  do this because P > AVC. 
A)  incur losses equal to its fixed costs. 
B)  have total revenue greater than total fixed costs. 
C)  reduce its losses to zero. 
D)  do this because P > AVC.

Question 15

The profit maximizing or loss minimizing quantity of output for any firm to produce exists at that output level in which:

Accepted Answer

A)  total revenue is maximized. 
B)  total cost is minimized. 
C)  marginal cost is minimized. 
D)  marginal revenue equals marginal cost. 
A)  total revenue is maximized. 
B)  total cost is minimized. 
C)  marginal cost is minimized. 
D)  marginal revenue equals marginal cost.

Question 16

Exhibit 8-19 Long-run perfectly competitive industry
 
As shown in Exhibit 8-19, assume that a perfectly competitive industry is in long-run equilibrium at point A and the demand curve shifts from D1 to D2. The result is a long-run supply curve drawn from point:

Accepted Answer

A)  A to point B. 
B)  B to point A. 
C)  A to point D. 
D)  A to point C. 
A)  A to point B. 
B)  B to point A. 
C)  A to point D. 
D)  A to point C.

Question 17

The demand for the product of a competitive price-taker firm is:

Accepted Answer

A)  perfectly inelastic. 
B)  perfectly elastic. 
C)  greater than zero but less than one. 
D)  dependent on the availability of substitutes for the firm's product. 
A)  perfectly inelastic. 
B)  perfectly elastic. 
C)  greater than zero but less than one. 
D)  dependent on the availability of substitutes for the firm's product.

Question 18

The market price for wallets is $20. Your technology is such that at your most efficient production point, the average total cost of producing a wallet is $2.50. Your manager runs into your office and shouts, "Boss!!! Average costs are rising!! Average costs are rising!!" To make a profit-maximizing decision, you should:

Accepted Answer

A)  ask the manager about the average total cost. 
B)  immediately stop production. 
C)  completely ignore your manager. 
D)  ask the manager about the marginal cost. 
A)  ask the manager about the average total cost. 
B)  immediately stop production. 
C)  completely ignore your manager. 
D)  ask the manager about the marginal cost.

Question 19

Which of the following best describes why a perfectly competitive firm will sometimes continue producing in the short run even if it incurs a loss?

Accepted Answer

A)  As long as price exceeds average variable cost, the loss from producing will be smaller than the loss from shutting down, which is equal to the amount of total fixed costs. 
B)  Short-run losses turn into long-run profits when there is entry into the market. 
C)  A perfectly competitive firm should never produce if it incurs a loss because it is unable to influence the market price. 
D)  If price exceeds average total cost, the loss from covering the fixed costs will be smaller than the loss from covering the variable costs. 
A)  As long as price exceeds average variable cost, the loss from producing will be smaller than the loss from shutting down, which is equal to the amount of total fixed costs. 
B)  Short-run losses turn into long-run profits when there is entry into the market. 
C)  A perfectly competitive firm should never produce if it incurs a loss because it is unable to influence the market price. 
D)  If price exceeds average total cost, the loss from covering the fixed costs will be smaller than the loss from covering the variable costs.

Question 20

A firm operating in a perfectly competitive market is a price taker because:

Accepted Answer

A)  each firm has a significant market share. 
B)  each firm's product is perceived as different. 
C)  setting a price higher than the market price results in zero sales. 
D)  the market demand curve is perfectly elastic. 
A)  each firm has a significant market share. 
B)  each firm's product is perceived as different. 
C)  setting a price higher than the market price results in zero sales. 
D)  the market demand curve is perfectly elastic.

Exam 8: Perfect Competition

If a firm equates MR and MC, then:

The neighborhood ice cream shop finds that when it charges $3 per ice cream cone, its total revenues are $90,000. It has total variable costs of $30,000 and total fixed costs of $40,000. From this we can infer the:

Exhibit 8-3 Cost per unit curves As shown in Exhibit 8-3, the firm will produce in the short run if the price is at least equal to:

Exhibit 8-12 Marginal revenue and cost per unit curves As shown in Exhibit 8-12, the firm will shut down in the short-run at a price below:

In the short run, a firm will stay in business as long as:

Exhibit 8-3 Cost per unit curves As shown in Exhibit 8-3, the price at which the firm earns zero economic profit in the short-run is:

If the expansion of output in an industry leads to unchanged resource prices, the industry is most likely to be a(n):

Exhibit 8-12 Marginal revenue and cost per unit curves As shown in Exhibit 8-12, the firm will not produce in the short-run if the price is below:

Consider a firm operating with the following: price = 10; MR = 10; MC = 10; ATC = 10. This firm is:

Exhibit 8-4 Marginal cost and revenue for a firm In Exhibit 8-4, what is this firm's profit-maximizing rate of output?

A perfectly competitive firm sells its output for $100 per unit and marginal cost is $100 per unit. To maximize short-run profit, the firm should:

The price-taker firm should discontinue production immediately if:

In a perfectly competitive industry, assume the short-run average total cost increases as the output of the industry expands. In the long run, the industry supply curve will:

If a firm shuts down in the short run, it will:

The profit maximizing or loss minimizing quantity of output for any firm to produce exists at that output level in which:

Exhibit 8-19 Long-run perfectly competitive industry As shown in Exhibit 8-19, assume that a perfectly competitive industry is in long-run equilibrium at point A and the demand curve shifts from D1 to D2. The result is a long-run supply curve drawn from point:

The demand for the product of a competitive price-taker firm is:

Which of the following best describes why a perfectly competitive firm will sometimes continue producing in the short run even if it incurs a loss?

A firm operating in a perfectly competitive market is a price taker because:

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

Exhibit 8-19 Long-run perfectly competitive industry As shown in Exhibit 8-19, assume that a perfectly competitive industry is in long-run equilibrium at point A and the demand curve shifts from D₁ to D₂. The result is a long-run supply curve drawn from point: