Question 1

A firm is currently operating where the MC of the last unit produced = $64, 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 current output. 
D)  Decrease output. 
E)  Decrease price. 
A)  Shut down. 
B)  Increase output. 
C)  Stay at current output. 
D)  Decrease output. 
E)  Decrease price.

Question 2

Above the shutdown point, a competitive firm's supply curve coincides with its:

Accepted Answer

A)  ​marginal revenue curve. 
B)  ​marginal cost curve. 
C)  ​average variable cost curve. 
D)  ​average total cost curve. ​ 
A)  ​marginal revenue curve. 
B)  ​marginal cost curve. 
C)  ​average variable cost curve. 
D)  ​average total cost curve. ​

Question 3

Under perfect competition, a firm is a price taker because:

Accepted Answer

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

Question 4

In long-run equilibrium, a perfectly competitive firm's short-run marginal cost curve crosses the long-run average cost curve at its lowest point.

Accepted Answer

A) True 
 B)False

Question 5

In the long-run equilibrium for a perfectly competitive firm, price equals which of the following?

Accepted Answer

A)  price. 
B)  minimum short-run average total cost. 
C)  short-run marginal cost. 
D)  All of the above. 
A)  price. 
B)  minimum short-run average total cost. 
C)  short-run marginal cost. 
D)  All of the above.

Question 6

Exhibit 7-15  Short-run cost curves for E-Z Care lawn mowing company   In Exhibit 7-15, suppose the market price of mowing lawns falls to $10 per lawn. In this situation, E-Z-Care will:

Accepted Answer

A)  permanently exit the industry. 
B)  shut down its operations, at least in the short run. 
C)  continue to mow lawns despite its economic losses. 
D)  earn a normal profit. 
A)  permanently exit the industry. 
B)  shut down its operations, at least in the short run. 
C)  continue to mow lawns despite its economic losses. 
D)  earn a normal profit.

Question 7

In the short run, a firm should shut down its business if price is less than:

Accepted Answer

A)  ATC. 
B)  AR. 
C)  MC. 
D)  AVC. 
E)  AFC. 
A)  ATC. 
B)  AR. 
C)  MC. 
D)  AVC. 
E)  AFC.

Question 8

Exhibit 7-8  A firm's cost and marginal revenue curves   In Exhibit 7-8, product price in this market is fixed at $35. This firm is currently operating where MR = MC. Which of the following is true ?

Accepted Answer

A)  Price 
B)  This firm is earning a profit of zero. 
C)  This firm could increase profits by increasing output. 
D)  Price > ATC and the firm is earning a positive profit. 
E)  Price > AVC, and the firm should stay at its current output. 
A)  Price 
B)  This firm is earning a profit of zero. 
C)  This firm could increase profits by increasing output. 
D)  Price > ATC and the firm is earning a positive profit. 
E)  Price > AVC, and the firm should stay at its current output.

Question 9

If a firm decreases output when MR > MC, then:

Accepted Answer

A)  profit will equal zero. 
B)  profit will increase. 
C)  profit will decrease. 
D)  profit will remain the same. 
E)  the firm is minimizing losses. 
A)  profit will equal zero. 
B)  profit will increase. 
C)  profit will decrease. 
D)  profit will remain the same. 
E)  the firm is minimizing losses.

Question 10

In the short run, why would a firm in a perfectly competitive market shut down production if the prevailing market price falls below the lowest possible average variable cost?

Accepted Answer

A)  At that point (economic) profit is zero. 
B)  Below that point average revenue becomes less than marginal revenue. 
C)  Below that point marginal revenue becomes insufficient to pay for avoidable average variable cost. 
D)  Below that point other firms with similar cost will find it profitable to enter the market and take away demand from the existing firms. 
A)  At that point (economic) profit is zero. 
B)  Below that point average revenue becomes less than marginal revenue. 
C)  Below that point marginal revenue becomes insufficient to pay for avoidable average variable cost. 
D)  Below that point other firms with similar cost will find it profitable to enter the market and take away demand from the existing firms.

Question 11

Suppose that in a perfectly competitive market, firms are making economic profits. In the long run, we can expect to see:

Accepted Answer

A)  some firms leave. 
B)  the market price rise. 
C)  market supply shift to the left. 
D)  economic profits become zero. 
E)  production levels remaining the same as in the short-run. 
A)  some firms leave. 
B)  the market price rise. 
C)  market supply shift to the left. 
D)  economic profits become zero. 
E)  production levels remaining the same as in the short-run.

Question 12

A profit-maximizing firm will continue to expand output:

Accepted Answer

A)  as long as the revenues from the production and sale of an additional unit exceeds the average cost of the unit. 
B)  until the average cost of producing the good or service is at a minimum. 
C)  as long as the revenues from the production and sale of an additional unit exceeds the marginal cost of the unit. 
D)  until the marginal cost of producing a good or service is at a minimum. 
A)  as long as the revenues from the production and sale of an additional unit exceeds the average cost of the unit. 
B)  until the average cost of producing the good or service is at a minimum. 
C)  as long as the revenues from the production and sale of an additional unit exceeds the marginal cost of the unit. 
D)  until the marginal cost of producing a good or service is at a minimum.

Question 13

Exhibit 7-8  A firm's cost and marginal revenue curves   In Exhibit 7-8, product price in this market is fixed at $35. This firm is currently operating where MR = MC. What do you advise this firm to do?

Accepted Answer

A)  This firm should shut down. 
B)  This firm could increase profits by increasing output. 
C)  This firm could increase profits by decreasing output. 
D)  This firm should continue to operate at its current output. 
E)  This firm should decrease price. 
A)  This firm should shut down. 
B)  This firm could increase profits by increasing output. 
C)  This firm could increase profits by decreasing output. 
D)  This firm should continue to operate at its current output. 
E)  This firm should decrease price.

Question 14

Perfect competition is a market structure in which there is:

Accepted Answer

A)  a contest among firms to provide good service after the sale. 
B)  competition in product quality. 
C)  rivalry in product design. 
D)  none of the above. 
A)  a contest among firms to provide good service after the sale. 
B)  competition in product quality. 
C)  rivalry in product design. 
D)  none of the above.

Question 15

Maximizing profit means finding the maximum difference between:

Accepted Answer

A)  TR and TC. 
B)  MR and MC. 
C)  price and ATC. 
D)  price and AR. 
E)  ATC and MC. 
A)  TR and TC. 
B)  MR and MC. 
C)  price and ATC. 
D)  price and AR. 
E)  ATC and MC.

Question 16

If a potato farmer expands output, he finds that the increase in total revenue is less than the increase in total costs. This means that:

Accepted Answer

A)  profit is being maximized. 
B)  he should not have expanded output. 
C)  he should produce even more output. 
D)  the firm is wasting resources. 
E)  the farmer should go out of business. 
A)  profit is being maximized. 
B)  he should not have expanded output. 
C)  he should produce even more output. 
D)  the firm is wasting resources. 
E)  the farmer should go out of business.

Question 17

Exhibit 7-12  Marginal revenue and cost per unit curves   As shown in Exhibit 7-12, suppose the firm's price is OB. The firm's total economic profit at this price is equal to the area of:

Accepted Answer

A)  CJID. 
B)  BFHD. 
C)  AEXD. 
D)  CGHD. 
E)  zero. 
A)  CJID. 
B)  BFHD. 
C)  AEXD. 
D)  CGHD. 
E)  zero.

Question 18

In long-run equilibrium, the typical perfectly competitive firm has no incentive to:

Accepted Answer

A)  change output. 
B)  change plant size. 
C)  enter or leave the industry. 
D)  do any of the above. 
A)  change output. 
B)  change plant size. 
C)  enter or leave the industry. 
D)  do any of the above.

Question 19

Exhibit 7-6  A firm's cost and MC curves   In Exhibit 7-6, 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 20

Exhibit 7-3  Cost per unit curves   As shown in Exhibit 7-3, 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) .

Exam 7: Perfect Competition

A firm is currently operating where the MC of the last unit produced = $64, and the MR of this unit = $70. What would you advise this firm to do?

Above the shutdown point, a competitive firm's supply curve coincides with its:

Under perfect competition, a firm is a price taker because:

In long-run equilibrium, a perfectly competitive firm's short-run marginal cost curve crosses the long-run average cost curve at its lowest point.

In the long-run equilibrium for a perfectly competitive firm, price equals which of the following?

Exhibit 7-15 Short-run cost curves for E-Z Care lawn mowing company In Exhibit 7-15, suppose the market price of mowing lawns falls to $10 per lawn. In this situation, E-Z-Care will:

In the short run, a firm should shut down its business if price is less than:

Exhibit 7-8 A firm's cost and marginal revenue curves In Exhibit 7-8, product price in this market is fixed at $35. This firm is currently operating where MR = MC. Which of the following is true ?

If a firm decreases output when MR > MC, then:

In the short run, why would a firm in a perfectly competitive market shut down production if the prevailing market price falls below the lowest possible average variable cost?

Suppose that in a perfectly competitive market, firms are making economic profits. In the long run, we can expect to see:

A profit-maximizing firm will continue to expand output:

Exhibit 7-8 A firm's cost and marginal revenue curves In Exhibit 7-8, product price in this market is fixed at $35. This firm is currently operating where MR = MC. What do you advise this firm to do?

Perfect competition is a market structure in which there is:

Maximizing profit means finding the maximum difference between:

If a potato farmer expands output, he finds that the increase in total revenue is less than the increase in total costs. This means that:

Exhibit 7-12 Marginal revenue and cost per unit curves As shown in Exhibit 7-12, suppose the firm's price is OB. The firm's total economic profit at this price is equal to the area of:

In long-run equilibrium, the typical perfectly competitive firm has no incentive to:

Exhibit 7-6 A firm's cost and MC curves In Exhibit 7-6, if this firm is currently producing 20 units of output, this firm:

Exhibit 7-3 Cost per unit curves As shown in Exhibit 7-3, the firm will produce in the short run if the price is at least equal to:

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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