Question 1

If a perfectly competitive firm sells 50 units of output at a market price of $10 per unit, its marginal revenue is:

Accepted Answer

A)  more than $10. 
B)  less than $10. 
C)  $10. 
D)  $5300. 
A)  more than $10. 
B)  less than $10. 
C)  $10. 
D)  $5300.

Question 2

Exhibit 7-15  Short-run cost curves for E-Z Care lawn mowing company   In Exhibit 7-15, if the market price of mowing lawns is $16 per lawn, then E-Z-Care will earn the biggest profit by mowing:

Accepted Answer

A)  5 lawns per day. 
B)  7 lawns per day. 
C)  8 lawns per day. 
D)  as many lawns per day as is physically possible. 
A)  5 lawns per day. 
B)  7 lawns per day. 
C)  8 lawns per day. 
D)  as many lawns per day as is physically possible.

Question 3

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. 
E)  $1. 
A)  $200. 
B)  $100. 
C)  $20. 
D)  $2. 
E)  $1.

Question 4

Marginal revenue is the change in:

Accepted Answer

A)  total revenue resulting from a one unit change in output. 
B)  total revenue resulting from a change in marginal cost. 
C)  price resulting from a one unit change in output. 
D)  none of the above. 
A)  total revenue resulting from a one unit change in output. 
B)  total revenue resulting from a change in marginal cost. 
C)  price resulting from a one unit change in output. 
D)  none of the above.

Question 5

In long-run equilibrium, a perfectly competitive firm will produce an output level at which its long-run average cost curve is upward sloping.

Accepted Answer

A) True 
 B)False

Question 6

In long-run equilibrium, the perfectly competitive firm sets its price equal to which of the following?

Accepted Answer

A)  Short-run average total cost. 
B)  Short-run marginal cost. 
C)  Long-run average cost. 
D)  All of the above. 
A)  Short-run average total cost. 
B)  Short-run marginal cost. 
C)  Long-run average cost. 
D)  All of the above.

Question 7

If the price of a product falls below average total cost in the short run, the firm

Accepted Answer

A)  has an economic profit. 
B)  cannot cover total fixed costs. 
C)  experiences a loss. 
D)  must always shut down. 
E)  should expand output until MC = MR. 
A)  has an economic profit. 
B)  cannot cover total fixed costs. 
C)  experiences a loss. 
D)  must always shut down. 
E)  should expand output until MC = MR.

Question 8

A perfectly competitive firm maximizes profits or minimizes losses in the short-run by producing at the output level at which:

Accepted Answer

A)  marginal revenue equals marginal cost. 
B)  total revenue equals total cost. 
C)  total revenue is at a maximum. 
D)  none of the above. 
A)  marginal revenue equals marginal cost. 
B)  total revenue equals total cost. 
C)  total revenue is at a maximum. 
D)  none of the above.

Question 9

Under perfect competition, no matter how much output is produced, the total revenue curve is:

Accepted Answer

A)  a positively-sloped line. 
B)  a negatively-sloped line. 
C)  a horizontal straight line. 
D)  a U-shaped curve. 
E)  a hill-shaped curve. 
A)  a positively-sloped line. 
B)  a negatively-sloped line. 
C)  a horizontal straight line. 
D)  a U-shaped curve. 
E)  a hill-shaped curve.

Question 10

Exhibit 7-3  Cost per unit curves   If the price of the firm's product in Exhibit 7-3 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 a pure economic loss. 
C)  shut down temporarily. 
D)  shut down permanently. 
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 a pure economic loss. 
C)  shut down temporarily. 
D)  shut down permanently.

Question 11

If there is a permanent increase in demand for the product of a perfectly competitive industry, the process of transition to a new long-run equilibrium will include:

Accepted Answer

A)  the entry of new firms. 
B)  temporarily higher profits. 
C)  both a and b. 
D)  neither a nor b. 
A)  the entry of new firms. 
B)  temporarily higher profits. 
C)  both a and b. 
D)  neither a nor b.

Question 12

In the short run, a firm should shut down its operation if:

Accepted Answer

A)  its losses are less than TFC at the MR = MC point. 
B)  its losses equal TFC at the MR = MC point. 
C)  its losses are greater than TFC at the MR = MC point. 
D)  TR is less than TC. 
E)  TR exceeds TVC. 
A)  its losses are less than TFC at the MR = MC point. 
B)  its losses equal TFC at the MR = MC point. 
C)  its losses are greater than TFC at the MR = MC point. 
D)  TR is less than TC. 
E)  TR exceeds TVC.

Question 13

If a fishing boat owner brings 10,000 fish to market and the market price is $7 per fish, she will have $70,000 in total revenue. If the average variable cost of 10,000 fish is $4 and the fixed cost of the boat is $20,000, what is her profit?

Accepted Answer

A)  $1. 
B)  $3. 
C)  $1,000. 
D)  $3,000. 
E)  $10,000. 
A)  $1. 
B)  $3. 
C)  $1,000. 
D)  $3,000. 
E)  $10,000.

Question 14

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 15

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

Question 16

In the perfectly competitive market, individual firms exert no effect on the market price. Therefore, the firm's marginal revenue curve is:

Accepted Answer

A)  indeterminate. 
B)  an upward-sloping curve. 
C)  a downward-sloping curve. 
D)  the same as the firm's demand curve. 
A)  indeterminate. 
B)  an upward-sloping curve. 
C)  a downward-sloping curve. 
D)  the same as the firm's demand curve.

Question 17

When the price of a good is a constant, the marginal revenue per unit of output is the same as:

Accepted Answer

A)  total revenue. 
B)  average total cost. 
C)  price. 
D)  quantity of output. 
E)  profit per unit. 
A)  total revenue. 
B)  average total cost. 
C)  price. 
D)  quantity of output. 
E)  profit per unit.

Question 18

Exhibit 7-3  Cost per unit curves   As shown in Exhibit 7-3, 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)  $4.00 per unit. 
D)  more than $2.00 per unit. 
E)  $2.00 per unit. 
A)  $1.00 per unit. 
B)  $1.50 per unit. 
C)  $4.00 per unit. 
D)  more than $2.00 per unit. 
E)  $2.00 per unit.

Question 19

If, at the point where MR = MC, the firm incurs losses, in the short run the firm should:

Accepted Answer

A)  shut down. 
B)  increase output. 
C)  decrease output. 
D)  continue at its current output if P > AVC. 
E)  continue at its current output if P > ATC. 
A)  shut down. 
B)  increase output. 
C)  decrease output. 
D)  continue at its current output if P > AVC. 
E)  continue at its current output if P > ATC.

Question 20

In the short run, a perfectly competitive firm's most profitable level of output is where:

Accepted Answer

A)  total revenue minus total cost is at a maximum. 
B)  marginal cost equals marginal revenue. 
C)  Both of the above. 
D)  Neither of the above. 
A)  total revenue minus total cost is at a maximum. 
B)  marginal cost equals marginal revenue. 
C)  Both of the above. 
D)  Neither of the above.

Exam 7: Perfect Competition

If a perfectly competitive firm sells 50 units of output at a market price of $10 per unit, its marginal revenue is:

Exhibit 7-15 Short-run cost curves for E-Z Care lawn mowing company In Exhibit 7-15, if the market price of mowing lawns is $16 per lawn, then E-Z-Care will earn the biggest profit by mowing:

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:

Marginal revenue is the change in:

In long-run equilibrium, a perfectly competitive firm will produce an output level at which its long-run average cost curve is upward sloping.

In long-run equilibrium, the perfectly competitive firm sets its price equal to which of the following?

If the price of a product falls below average total cost in the short run, the firm

A perfectly competitive firm maximizes profits or minimizes losses in the short-run by producing at the output level at which:

Under perfect competition, no matter how much output is produced, the total revenue curve is:

Exhibit 7-3 Cost per unit curves If the price of the firm's product in Exhibit 7-3 is $1.50 per unit, which intersects AVC at point B, the firm should:

If there is a permanent increase in demand for the product of a perfectly competitive industry, the process of transition to a new long-run equilibrium will include:

In the short run, a firm should shut down its operation if:

If a fishing boat owner brings 10,000 fish to market and the market price is $7 per fish, she will have $70,000 in total revenue. If the average variable cost of 10,000 fish is $4 and the fixed cost of the boat is $20,000, what is her profit?

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

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?

In the perfectly competitive market, individual firms exert no effect on the market price. Therefore, the firm's marginal revenue curve is:

When the price of a good is a constant, the marginal revenue per unit of output is the same as:

Exhibit 7-3 Cost per unit curves As shown in Exhibit 7-3, the price at which the firm earns zero economic profit in the short-run is:

If, at the point where MR = MC, the firm incurs losses, in the short run the firm should:

In the short run, a perfectly competitive firm's most profitable level of output is where:

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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