Question 1

Exhibit 7-10  Price and cost data for a firm   In Exhibit 7-10, MR is the same as which column?

Accepted Answer

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

Question 2

Market structure is defined as the:

Accepted Answer

A)  number of firms in each industry. 
B)  similarity of the product sold. 
C)  ease of entry into and exit from the market. 
D)  all of the above. 
A)  number of firms in each industry. 
B)  similarity of the product sold. 
C)  ease of entry into and exit from the market. 
D)  all of the above.

Question 3

When faced with an economic loss, a competitive firm will shut down its operations in the short run.

Accepted Answer

A) True 
 B)False

Question 4

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 5

Exhibit 7-11  A firm's cost and marginal revenue curves   In Exhibit 7-11, the profit-maximizing output level at the price of $8 is:

Accepted Answer

A)  0. 
B)  4. 
C)  7. 
D)  8. 
E)  10. 
A)  0. 
B)  4. 
C)  7. 
D)  8. 
E)  10.

Question 6

In short-run competitive equilibrium, which of the following is always true ?

Accepted Answer

A)  ​Profit equals zero. 
B)  ​Profit can be negative, zero, or positive. 
C)  ​Profit can be zero or positive, but not negative. 
D)  ​Profit is positive, otherwise firms would not produce. 
A)  ​Profit equals zero. 
B)  ​Profit can be negative, zero, or positive. 
C)  ​Profit can be zero or positive, but not negative. 
D)  ​Profit is positive, otherwise firms would not produce.

Question 7

If a firm has no ability to select the price of its product, it:

Accepted Answer

A)  will go out of business due to losses. 
B)  is a price-maker. 
C)  cannot maximize profit. 
D)  has a horizontal individual demand curve. 
A)  will go out of business due to losses. 
B)  is a price-maker. 
C)  cannot maximize profit. 
D)  has a horizontal individual demand curve.

Question 8

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)  is making a mistake and should shut down. 
E)  is maximizing total profit. 
A)  is minimizing losses. 
B)  makes a total loss of $60. 
C)  should produce more output. 
D)  is making a mistake and should shut down. 
E)  is maximizing total profit.

Question 9

Exhibit 7-16  Short-run cost curves for a competitive firm ​
  In Exhibit 7-16, suppose the firm faces a price of $80 per unit. How much should the firm produce to earn the largest possible profit?

Accepted Answer

A)  2 units per hour. 
B)  4 units per hour. 
C)  5 units per hour. 
D)  6 units per hour. 
A)  2 units per hour. 
B)  4 units per hour. 
C)  5 units per hour. 
D)  6 units per hour.

Question 10

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 11

What is the largest possible loss that is consistent with a firm producing in a perfectly competitive market in long-run competitive equilibrium?

Accepted Answer

A)  An amount equal to (price less average variable cost). 
B)  An amount equal to total variable. 
C)  Zero. 
D)  An amount equal to total fixed cost. 
A)  An amount equal to (price less average variable cost). 
B)  An amount equal to total variable. 
C)  Zero. 
D)  An amount equal to total fixed cost.

Question 12

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

Accepted Answer

A)  marginal cost exceeds marginal revenue. 
B)  total revenue is at a maximum. 
C)  marginal cost equals marginal revenue. 
D)  All of the above. 
A)  marginal cost exceeds marginal revenue. 
B)  total revenue is at a maximum. 
C)  marginal cost equals marginal revenue. 
D)  All of the above.

Question 13

Exhibit 7-16  Short-run cost curves for a competitive firm ​
  In Exhibit 7-16, if the market price of its product is $50 per unit, then the firm will:

Accepted Answer

A)  break even. 
B)  shut down. 
C)  exit the industry. 
D)  earn a positive economic profit. 
A)  break even. 
B)  shut down. 
C)  exit the industry. 
D)  earn a positive economic profit.

Question 14

A perfectly competitive firm in the short-run maximizes its profit by producing the output where:

Accepted Answer

A)  marginal cost equals price. 
B)  marginal cost equals marginal revenue. 
C)  total revenue minus total cost is at a maximum. 
D)  all of the above. 
A)  marginal cost equals price. 
B)  marginal cost equals marginal revenue. 
C)  total revenue minus total cost is at a maximum. 
D)  all of the above.

Question 15

Exhibit 7-12  Marginal revenue and cost per unit curves   As shown in Exhibit 7-12, if the price is OB, the firm's total cost of producing at its most profitable level of output is:

Accepted Answer

A)  YF. 
B)  XL. 
C)  OYFB. 
D)  OXEA. 
A)  YF. 
B)  XL. 
C)  OYFB. 
D)  OXEA.

Question 16

Exhibit 7-14  Total cost and total revenue curves   If the firm in Exhibit 7-14 minimizes its loss at 200 units of output, marginal cost is:

Accepted Answer

A)  $75 per unit. 
B)  equal to marginal revenue. 
C)  $100 per unit. 
D)  $175 per unit. 
A)  $75 per unit. 
B)  equal to marginal revenue. 
C)  $100 per unit. 
D)  $175 per unit.

Question 17

Suppose a company increases production from a point where marginal cost equals average total cost to a point where marginal revenue and marginal cost are equal. Is it a good idea for the company to do this? Why?

Accepted Answer

A)  No, average total costs have increased which means the company is not minimizing losses. 
B)  Yes, because average variable costs are always less than average total costs. 
C)  No, because the marginal cost of producing the last unit is the same as the marginal revenue. 
D)  Yes, even though the previous level of output had minimized the average total cost, there was still profit to be earned by producing additional units. 
E)  No, the previous level of output was the most efficient because it had the lowest average total cost. 
A)  No, average total costs have increased which means the company is not minimizing losses. 
B)  Yes, because average variable costs are always less than average total costs. 
C)  No, because the marginal cost of producing the last unit is the same as the marginal revenue. 
D)  Yes, even though the previous level of output had minimized the average total cost, there was still profit to be earned by producing additional units. 
E)  No, the previous level of output was the most efficient because it had the lowest average total cost.

Question 18

Exhibit 7-4  Marginal cost and revenue for a firm   In Exhibit 7-4, this firm is currently operating at its profit-maximizing level of output. How much profit is the firm earning?

Accepted Answer

A)  Zero. 
B)  $1. 
C)  $16. 
D)  -$16. 
E)  Unable to determine with this information. 
A)  Zero. 
B)  $1. 
C)  $16. 
D)  -$16. 
E)  Unable to determine with this information.

Question 19

Market structure describes which of the following characteristics?

Accepted Answer

A)  The ease of entry into and exit from the market. 
B)  The similarity of the product sold. 
C)  The number of firms in each industry. 
D)  All of the above are true. 
A)  The ease of entry into and exit from the market. 
B)  The similarity of the product sold. 
C)  The number of firms in each industry. 
D)  All of the above are true.

Question 20

Exhibit 7-18  A typical firm in a perfectly competitive market   As shown in Exhibit 7-18, the perfectly competitive firm is in long-run equilibrium at an output of:

Accepted Answer

A)  zero units per week. 
B)  200 units per week. 
C)  400 units per week. 
D)  600 units per week. 
A)  zero units per week. 
B)  200 units per week. 
C)  400 units per week. 
D)  600 units per week.

Exam 7: Perfect Competition

Exhibit 7-10 Price and cost data for a firm In Exhibit 7-10, MR is the same as which column?

Market structure is defined as the:

When faced with an economic loss, a competitive firm will shut down its operations in the short run.

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 7-11 A firm's cost and marginal revenue curves In Exhibit 7-11, the profit-maximizing output level at the price of $8 is:

In short-run competitive equilibrium, which of the following is always true ?

If a firm has no ability to select the price of its product, it:

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:

Exhibit 7-16 Short-run cost curves for a competitive firm ​ In Exhibit 7-16, suppose the firm faces a price of $80 per unit. How much should the firm produce to earn the largest possible profit?

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:

What is the largest possible loss that is consistent with a firm producing in a perfectly competitive market in long-run competitive equilibrium?

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

Exhibit 7-16 Short-run cost curves for a competitive firm ​ In Exhibit 7-16, if the market price of its product is $50 per unit, then the firm will:

A perfectly competitive firm in the short-run maximizes its profit by producing the output where:

Exhibit 7-12 Marginal revenue and cost per unit curves As shown in Exhibit 7-12, if the price is OB, the firm's total cost of producing at its most profitable level of output is:

Exhibit 7-14 Total cost and total revenue curves If the firm in Exhibit 7-14 minimizes its loss at 200 units of output, marginal cost is:

Suppose a company increases production from a point where marginal cost equals average total cost to a point where marginal revenue and marginal cost are equal. Is it a good idea for the company to do this? Why?

Exhibit 7-4 Marginal cost and revenue for a firm In Exhibit 7-4, this firm is currently operating at its profit-maximizing level of output. How much profit is the firm earning?

Market structure describes which of the following characteristics?

Exhibit 7-18 A typical firm in a perfectly competitive market As shown in Exhibit 7-18, the perfectly competitive firm is in long-run equilibrium at an output of:

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

Filters

Exhibit 7-16 Short-run cost curves for a competitive firm In Exhibit 7-16, suppose the firm faces a price of $80 per unit. How much should the firm produce to earn the largest possible profit?

Exhibit 7-16 Short-run cost curves for a competitive firm In Exhibit 7-16, if the market price of its product is $50 per unit, then the firm will: