Question 1

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 2

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 3

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

Question 4

Exhibit 7-17  Marginal revenue and cost per unit curves   As shown in Exhibit 7-17, the firm will produce in the short run if the price is at least equal to:

Accepted Answer

A)  $10 per unit. 
B)  $15 per unit. 
C)  $20 per unit. 
D)  $30 per unit. 
E)  $40 per unit. 
A)  $10 per unit. 
B)  $15 per unit. 
C)  $20 per unit. 
D)  $30 per unit. 
E)  $40 per unit.

Question 5

Exhibit 7-3  Cost per unit curves   In Exhibit 7-3, if the price of the firm's product is $2.00 per unit, the firm will produce:

Accepted Answer

A)  5 units per day. 
B)  10 units per day. 
C)  15 units per day. 
D)  20 units per day. 
A)  5 units per day. 
B)  10 units per day. 
C)  15 units per day. 
D)  20 units per day.

Question 6

Which of the following statements is true ?

Accepted Answer

A)  To maximize profits, a firm must maximize total revenue. 
B)  In long-run equilibrium, a competitive firm produces at the point of minimum average total cost. 
C)  In the short-run, a perfectly competitive firm produces where total cost is minimum. 
D)  In the short-run, a perfectly competitive firm will close down whenever price is less than average total cost. 
A)  To maximize profits, a firm must maximize total revenue. 
B)  In long-run equilibrium, a competitive firm produces at the point of minimum average total cost. 
C)  In the short-run, a perfectly competitive firm produces where total cost is minimum. 
D)  In the short-run, a perfectly competitive firm will close down whenever price is less than average total cost.

Question 7

A competitive firm maximizes its profits (or minimizes is losses) by producing the quantity where the market price equals the firm's:

Accepted Answer

A)  marginal cost. 
B)  average total cost. 
C)  average variable cost. 
D)  average fixed cost. 
A)  marginal cost. 
B)  average total cost. 
C)  average variable cost. 
D)  average fixed cost.

Question 8

Exhibit 7-12  Marginal revenue and cost per unit curves   The firm shown in Exhibit 7-12 will:

Accepted Answer

A)  produce where marginal cost equals marginal revenue. 
B)  be a price taker. 
C)  not produce below a price of OA. 
D)  all of the above. 
A)  produce where marginal cost equals marginal revenue. 
B)  be a price taker. 
C)  not produce below a price of OA. 
D)  all of the above.

Question 9

The marginal revenue of a price taker is:

Accepted Answer

A)  equal to price. 
B)  less than price. 
C)  more than price. 
D)  unrelated to price. 
A)  equal to price. 
B)  less than price. 
C)  more than price. 
D)  unrelated to price.

Question 10

If a firm is producing an output level at which marginal revenue exceeds marginal cost in the short run, the firm will increase profits by reducing its output level.

Accepted Answer

A) True 
 B)False

Question 11

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

Question 12

Exhibit 7-2  Total revenue and total cost graph   In Exhibit 7-2, economic profit for the firm is at a maximum when output per week equals:

Accepted Answer

A)  zero units. 
B)  100 units. 
C)  200 units. 
D)  250 units. 
E)  300 units. 
A)  zero units. 
B)  100 units. 
C)  200 units. 
D)  250 units. 
E)  300 units.

Question 13

A fishing boat owner brings 50,000 fish to market and the market price is $4 per fish. Her average variable cost of 50,000 fish is $1 and the fixed cost of the boat is $100,000, what is her profit per fish?

Accepted Answer

A)  $1. 
B)  $500. 
C)  $5,000. 
D)  $25,000. 
E)  $500,000. 
A)  $1. 
B)  $500. 
C)  $5,000. 
D)  $25,000. 
E)  $500,000.

Question 14

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

Accepted Answer

A)  no firm has a significant market share. 
B)  no firm's product is perceived as different. 
C)  setting a price higher than the going price results in zero sales. 
D)  all of the above. 
A)  no firm has a significant market share. 
B)  no firm's product is perceived as different. 
C)  setting a price higher than the going price results in zero sales. 
D)  all of the above.

Question 15

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 losing $20. 
C)  is earning a total profit of $60. 
D)  should shut down. 
E)  is earning a total profit of $3. 
A)  is at its profit-maximizing point. 
B)  is losing $20. 
C)  is earning a total profit of $60. 
D)  should shut down. 
E)  is earning a total profit of $3.

Question 16

Assume that a firm's marginal revenue just barely exceeds marginal cost. Under these conditions the firm should:

Accepted Answer

A)  expand output. 
B)  contract output. 
C)  maintain output. 
D)  There is insufficient information to answer the question. 
A)  expand output. 
B)  contract output. 
C)  maintain output. 
D)  There is insufficient information to answer the question.

Question 17

Which of the following statements are false ?

Accepted Answer

A)  b and d. 
B)  Marginal cost is always rising. 
C)  Marginal and average total costs are equal at the most efficient production level. 
D)  The AFC and AVC curves do not cross. 
E)  The AFC and ATC curves do not cross. 
A)  b and d. 
B)  Marginal cost is always rising. 
C)  Marginal and average total costs are equal at the most efficient production level. 
D)  The AFC and AVC curves do not cross. 
E)  The AFC and ATC curves do not cross.

Question 18

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 19

If a firm is producing an output level at which marginal revenue exceeds marginal cost, the firm will increase profits by reducing its output level.

Accepted Answer

A) True 
 B)False

Question 20

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

Accepted Answer

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

Exam 7: Perfect Competition

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:

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

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

Exhibit 7-17 Marginal revenue and cost per unit curves As shown in Exhibit 7-17, the firm will produce in the short run if the price is at least equal to:

Exhibit 7-3 Cost per unit curves In Exhibit 7-3, if the price of the firm's product is $2.00 per unit, the firm will produce:

Which of the following statements is true ?

A competitive firm maximizes its profits (or minimizes is losses) by producing the quantity where the market price equals the firm's:

Exhibit 7-12 Marginal revenue and cost per unit curves The firm shown in Exhibit 7-12 will:

The marginal revenue of a price taker is:

If a firm is producing an output level at which marginal revenue exceeds marginal cost in the short run, the firm will increase profits by reducing its output level.

Exhibit 7-2 Total revenue and total cost graph In Exhibit 7-2, economic profit for the firm is at a maximum when output per week equals:

A fishing boat owner brings 50,000 fish to market and the market price is $4 per fish. Her average variable cost of 50,000 fish is $1 and the fixed cost of the boat is $100,000, what is her profit per fish?

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

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:

Assume that a firm's marginal revenue just barely exceeds marginal cost. Under these conditions the firm should:

Which of the following statements are false ?

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.

If a firm is producing an output level at which marginal revenue exceeds marginal cost, the firm will increase profits by reducing its output level.

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

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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