Question 1

Suppose product price is fixed at $24; MR = MC at Q = 200; AFC = $6; AVC = $25. What do you advise this firm to do?

Accepted Answer

A)  Increase output. 
B)  Decrease output. 
C)  Shut down operations. 
D)  Stay at the current output; the firm is earning a profit of $1,400. 
E)  Stay at the current output; the firm is losing $1,400. 
A)  Increase output. 
B)  Decrease output. 
C)  Shut down operations. 
D)  Stay at the current output; the firm is earning a profit of $1,400. 
E)  Stay at the current output; the firm is losing $1,400.

Question 2

In the short run, the profit maximizing (or minimizing) quantity of output for any firm to produce exists at that output level at which marginal revenue equals marginal cost.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following is not a characteristic of the structure of perfectly competitive markets?

Accepted Answer

A)  Each individual firm is small in size relative to the overall market. 
B)  Few sellers. 
C)  Homogeneous product. 
D)  Easy, low cost entry and exit. 
A)  Each individual firm is small in size relative to the overall market. 
B)  Few sellers. 
C)  Homogeneous product. 
D)  Easy, low cost entry and exit.

Question 4

If a firm is currently equating MR and MC and product price = $24, AVC = $22, and ATC = $26, then in the long run this firm:

Accepted Answer

A)  will continue to operate at a loss. 
B)  will earn a positive profit. 
C)  will go out of business. 
D)  should increase output. 
E)  should decrease price. 
A)  will continue to operate at a loss. 
B)  will earn a positive profit. 
C)  will go out of business. 
D)  should increase output. 
E)  should decrease price.

Question 5

Which of the following best illustrates perfect competition?

Accepted Answer

A)  Wheat farming. 
B)  Orange growers setting quotas under the Sunkist cooperative. 
C)  General Motors advertising campaign for its cars. 
D)  All of the above. 
A)  Wheat farming. 
B)  Orange growers setting quotas under the Sunkist cooperative. 
C)  General Motors advertising campaign for its cars. 
D)  All of the above.

Question 6

Exhibit 7-2  Total revenue and total cost graph   At an output of 250 units, as shown in Exhibit 7-2, marginal cost is:

Accepted Answer

A)  greater than marginal revenue. 
B)  equal to marginal revenue. 
C)  less than marginal revenue. 
D)  none of the above. 
A)  greater than marginal revenue. 
B)  equal to marginal revenue. 
C)  less than marginal revenue. 
D)  none of the above.

Question 7

The long-run equilibrium condition for perfect competition is:

Accepted Answer

A)  P = AVC = MR = MC. 
B)  P = ATC = MR = MC. 
C)  Q = AVC = MR = MC. 
D)  Q = ATC = MR = MC. 
E)  TR = ATC = MR = MC. 
A)  P = AVC = MR = MC. 
B)  P = ATC = MR = MC. 
C)  Q = AVC = MR = MC. 
D)  Q = ATC = MR = MC. 
E)  TR = ATC = MR = MC.

Question 8

Exhibit 7-7  A firm's cost and MR curves   In Exhibit 7-7, if this firm is currently producing 20 units of output, this firm:

Accepted Answer

A)  is at its profit-maximizing point. 
B)  could increase profits by increasing output. 
C)  could increase profits by decreasing output. 
D)  should shut down. 
E)  should decrease price. 
A)  is at its profit-maximizing point. 
B)  could increase profits by increasing output. 
C)  could increase profits by decreasing output. 
D)  should shut down. 
E)  should decrease price.

Question 9

If a competitive firm is losing money then it should:

Accepted Answer

A)  always shut down. 
B)  shut down if its losses are greater than total fixed costs. 
C)  shut down if its total fixed costs are greater than losses. 
D)  raise its price. 
A)  always shut down. 
B)  shut down if its losses are greater than total fixed costs. 
C)  shut down if its total fixed costs are greater than losses. 
D)  raise its price.

Question 10

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

Accepted Answer

The pros include price equals minimum av

Question 11

A perfectly competitive firm's short-run supply curve is its marginal cost curve below its average variable cost curve.

Accepted Answer

A) True 
 B)False

Question 12

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. 
E)  average revenue brought about by selling one more unit of output. 
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. 
E)  average revenue brought about by selling one more unit of output.

Question 13

Exhibit 7-12  Marginal revenue and cost per unit curves   As shown in Exhibit 7-12, the firm's 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 14

A perfectly competitive firm will shut down in the short run when marginal revenue equals marginal cost at a price less than minimum average variable cost.

Accepted Answer

A) True 
 B)False

Question 15

If a perfectly competitive firm sells 10 units of output at a market price of $5 per unit, its marginal revenue per unit is:

Accepted Answer

A)  $5. 
B)  $50. 
C)  more than $5 but less than $50. 
D)  less than $5. 
A)  $5. 
B)  $50. 
C)  more than $5 but less than $50. 
D)  less than $5.

Question 16

Exhibit 7-4  Marginal cost and revenue for a firm   In Exhibit 7-4, this firm is currently producing 16 units of output. What would you advise this firm to do?

Accepted Answer

A)  Decrease output to 13. 
B)  Increase output to 15. 
C)  Remain at 16 units of output. 
D)  Decrease output to 14. 
E)  Increase output to 17. 
A)  Decrease output to 13. 
B)  Increase output to 15. 
C)  Remain at 16 units of output. 
D)  Decrease output to 14. 
E)  Increase output to 17.

Question 17

A perfectly competitive firm's short-run supply curve is the:

Accepted Answer

A)  segment of the marginal cost curve above average fixed cost. 
B)  segment of the marginal cost curve above the minimum level of average variable cost. 
C)  upward-sloping segment of the marginal cost curve. 
D)  both a and b. 
A)  segment of the marginal cost curve above average fixed cost. 
B)  segment of the marginal cost curve above the minimum level of average variable cost. 
C)  upward-sloping segment of the marginal cost curve. 
D)  both a and b.

Question 18

Exhibit 7-13  Price and cost per unit curves   In Exhibit 7-13, 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

Exhibit 7-7  A firm's cost and MR curves   In Exhibit 7-7, if this firm is currently producing 20 units of output, this firm:

Accepted Answer

A)  is at its profit-maximizing point. 
B)  is earning a $3 profit on each item sold. 
C)  is losing $3 on each item sold. 
D)  should shut down. 
E)  is earning a total profit of $3. 
A)  is at its profit-maximizing point. 
B)  is earning a $3 profit on each item sold. 
C)  is losing $3 on each item sold. 
D)  should shut down. 
E)  is earning a total profit of $3.

Question 20

Because a competitive firm is a price taker, it faces a demand curve that is:

Accepted Answer

A)  perfectly inelastic. 
B)  relatively inelastic. 
C)  relatively elastic. 
D)  perfectly elastic. 
A)  perfectly inelastic. 
B)  relatively inelastic. 
C)  relatively elastic. 
D)  perfectly elastic.

Exam 7: Perfect Competition

Suppose product price is fixed at $24; MR = MC at Q = 200; AFC = $6; AVC = $25. What do you advise this firm to do?

In the short run, the profit maximizing (or minimizing) quantity of output for any firm to produce exists at that output level at which marginal revenue equals marginal cost.

Which of the following is not a characteristic of the structure of perfectly competitive markets?

If a firm is currently equating MR and MC and product price = $24, AVC = $22, and ATC = $26, then in the long run this firm:

Which of the following best illustrates perfect competition?

Exhibit 7-2 Total revenue and total cost graph At an output of 250 units, as shown in Exhibit 7-2, marginal cost is:

The long-run equilibrium condition for perfect competition is:

Exhibit 7-7 A firm's cost and MR curves In Exhibit 7-7, if this firm is currently producing 20 units of output, this firm:

If a competitive firm is losing money then it should:

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

A perfectly competitive firm's short-run supply curve is its marginal cost curve below its average variable cost curve.

Marginal revenue is the change in:

Exhibit 7-12 Marginal revenue and cost per unit curves As shown in Exhibit 7-12, the firm's supply curve is the:

A perfectly competitive firm will shut down in the short run when marginal revenue equals marginal cost at a price less than minimum average variable cost.

If a perfectly competitive firm sells 10 units of output at a market price of $5 per unit, its marginal revenue per unit is:

Exhibit 7-4 Marginal cost and revenue for a firm In Exhibit 7-4, this firm is currently producing 16 units of output. What would you advise this firm to do?

A perfectly competitive firm's short-run supply curve is the:

Exhibit 7-13 Price and cost per unit curves In Exhibit 7-13, the firm will not produce when the price is between:

Exhibit 7-7 A firm's cost and MR curves In Exhibit 7-7, if this firm is currently producing 20 units of output, this firm:

Because a competitive firm is a price taker, it faces a demand curve that 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

Production Costs

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets and Income Distribution

Gross Domestic Product

Business Cycles and Unemployment

Inflation

Aggregate Demand and Supply

Fiscal Policy

The Public Sector

Federal Deficits, Surpluses, and the National Debt

Money and the Federal Reserve System

Money Creation

Policy Disputes Using the Self-Correcting Aggregate Demand and Supply Model

International Trade and Finance

Economies in Transition

Growth and the Less-Developed Countries

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