Question 1

If a firm shuts down in the short run it will

Accepted Answer

A) break even. 
B) declare bankruptcy. 
C) suffer a loss equal to its variable costs. 
D) suffer a loss equal to its fixed costs. 
A) break even. 
B) declare bankruptcy. 
C) suffer a loss equal to its variable costs. 
D) suffer a loss equal to its fixed costs.

Question 2

How are sunk costs and fixed costs related?

Accepted Answer

A) They are not related in any way. 
B) Sunk costs cannot be recovered and fixed costs can be avoided by shutting down. 
C) In the short run they are equal to each other. 
D) In the long run they are equal to each other. 
A) They are not related in any way. 
B) Sunk costs cannot be recovered and fixed costs can be avoided by shutting down. 
C) In the short run they are equal to each other. 
D) In the long run they are equal to each other.

Question 3

In the short run, a firm that is operating at a loss has two options.These options are

Accepted Answer

A) to reduce output or reduce its variable costs. 
B) to go out of business or declare bankruptcy. 
C) to shut down temporarily or continue to produce. 
D) to adopt new technology or change the size of its physical plant. 
A) to reduce output or reduce its variable costs. 
B) to go out of business or declare bankruptcy. 
C) to shut down temporarily or continue to produce. 
D) to adopt new technology or change the size of its physical plant.

Question 4

Firms in perfect competition are price takers because

Accepted Answer

A) one firm determines the price that all other firms in the industry will charge. 
B) consumers have enough market power to set prices. 
C) firms accept the price determined by the government. 
D) each firm is too small relative to the market to be able to influence the price. 
A) one firm determines the price that all other firms in the industry will charge. 
B) consumers have enough market power to set prices. 
C) firms accept the price determined by the government. 
D) each firm is too small relative to the market to be able to influence the price.

Question 5

If a firm's fixed cost exceeds its total revenue, the firm should stop production by shutting down temporarily.

Accepted Answer

A) True 
 B)False

Question 6

A teenaged babysitter is similar to a firm in a perfectly competitive industry in that, for both

Accepted Answer

A) fixed costs are lower than variable costs. 
B) there are many other suppliers of similar goods or services. 
C) the implicit costs of production exceed the explicit costs of production. 
D) average costs of production do not change when their industry expands. 
A) fixed costs are lower than variable costs. 
B) there are many other suppliers of similar goods or services. 
C) the implicit costs of production exceed the explicit costs of production. 
D) average costs of production do not change when their industry expands.

Question 7

Suppose Veronica sells teapots in the perfectly competitive teapot market.Her output per day and her costs are as follows:
   
Suppose the current equilibrium price in the teapot market is $15.To maximize profit, how many teapots will Veronica produce, what price will she charge, and how much profit (or loss)will she make? Draw a graph to illustrate your answer.Your graph should include Veronica's demand, ATC, AVC, MC, and MR curves, the price she is charging, the quantity she is producing, and the area representing her profit (or loss).

Accepted Answer

Veronica will produce 5 teapot

Question 8

If, for the last bushel of apples produced and sold by an apple farm, marginal revenue exceeds marginal cost, then in producing that bushel, the farm

Accepted Answer

A) added more to total cost than it added to total revenue. 
B) added an equal amount to both total revenue and total cost. 
C) added more to total revenue than it added to total cost. 
D) maximized its profits or minimized its losses. 
A) added more to total cost than it added to total revenue. 
B) added an equal amount to both total revenue and total cost. 
C) added more to total revenue than it added to total cost. 
D) maximized its profits or minimized its losses.

Question 9

The marginal revenue curve for a perfectly competitive firm

Accepted Answer

A) is downward-sloping. 
B) is the same as its demand curve. 
C) is perfectly inelastic. 
D) is the same as its marginal cost curve. 
A) is downward-sloping. 
B) is the same as its demand curve. 
C) is perfectly inelastic. 
D) is the same as its marginal cost curve.

Question 10

If the market price is $40 in a perfectly competitive market, the marginal revenue from selling the fifth unit is

Accepted Answer

A) $8. 
B) $20. 
C) $40. 
D) $200. 
A) $8. 
B) $20. 
C) $40. 
D) $200.

Question 11

What characteristic of a competitive market has made the "long run pretty short" in the market for iPhone apps?

Accepted Answer

A) few firms in the market 
B) identical products 
C) ease of entry 
D) blocked entry 
A) few firms in the market 
B) identical products 
C) ease of entry 
D) blocked entry

Question 12

In long-run perfectly competitive equilibrium, which of the following is false?

Accepted Answer

A) There is efficient, low-cost production at the minimum efficient scale. 
B) Economic surplus is maximized. 
C) Firms earn economic profit. 
D) Economies of scale are exhausted. 
A) There is efficient, low-cost production at the minimum efficient scale. 
B) Economic surplus is maximized. 
C) Firms earn economic profit. 
D) Economies of scale are exhausted.

Question 13

Figure 12-8
  
-Refer to Figure 12-8.Suppose the firm produces 4,000 units.What does the shaded area labeled B represent?

Accepted Answer

A) the firm's economic loss 
B) total variable cost 
C) average variable cost 
D) total fixed cost 
A) the firm's economic loss 
B) total variable cost 
C) average variable cost 
D) total fixed cost

Question 14

Which of the following describes a situation in which a good or service is produced at the lowest possible cost?

Accepted Answer

A) productive efficiency 
B) allocative efficiency 
C) marginal efficiency 
D) profit maximization 
A) productive efficiency 
B) allocative efficiency 
C) marginal efficiency 
D) profit maximization

Question 15

A firm could continue to operate for years without ever earning a profit as long as it is producing an output where

Accepted Answer

A) MR AVC. C) MR > AVC. D) AFC < AVC. A) MR AVC. C) MR > AVC. D) AFC < AVC.

Question 16

Figure 12-7
   
Figure 12-7 illustrates the cost curves of a perfectly competitive firm.
-Refer to Figure 12-7.If the market price is P₂, the firm

Accepted Answer

A) will break even and produce a quantity of Q₂. 
B) will make a profit and produce a quantity of Q₂. 
C) will make a profit and produce a quantity of Q₁. 
D) will make a profit and produce a quantity of Q₃. 
A) will break even and produce a quantity of Q₂. 
B) will make a profit and produce a quantity of Q₂. 
C) will make a profit and produce a quantity of Q₁. 
D) will make a profit and produce a quantity of Q₃.

Question 17

Which of the following is a characteristic of a firm in a perfectly competitive market?

Accepted Answer

A) The firm cannot make a profit in the short run because it is too small a part of the total market. 
B) The firm can make a profit in the long run but not in the short run. 
C) The firm can sell as much as it wants without having to lower its price. 
D) The firm must lower its price in order to increase quantity demanded. 
A) The firm cannot make a profit in the short run because it is too small a part of the total market. 
B) The firm can make a profit in the long run but not in the short run. 
C) The firm can sell as much as it wants without having to lower its price. 
D) The firm must lower its price in order to increase quantity demanded.

Question 18

Assume that price is greater than average variable cost.If a perfectly competitive seller is producing at an output where price is $11 and the marginal cost is $14.54, then to maximize profits the firm should

Accepted Answer

A) continue producing at the current output. 
B) produce a larger level of output. 
C) produce a smaller level of output. 
D) There is not enough information given to answer the question. 
A) continue producing at the current output. 
B) produce a larger level of output. 
C) produce a smaller level of output. 
D) There is not enough information given to answer the question.

Question 19

At the profit-maximizing level of output for a perfectly competitive firm,

Accepted Answer

A) price equals marginal cost. 
B) average revenue equals average variable cost, and price equals marginal cost. 
C) marginal revenue equals marginal cost, and average total cost equals average fixed cost. 
D) price equals average revenue, and marginal cost equals average variable cost. 
A) price equals marginal cost. 
B) average revenue equals average variable cost, and price equals marginal cost. 
C) marginal revenue equals marginal cost, and average total cost equals average fixed cost. 
D) price equals average revenue, and marginal cost equals average variable cost.

Question 20

Explain two different ways to determine the profit-maximizing level of output for a firm in a perfectly competitive market.

Accepted Answer

One way is using total revenue and total

If a firm shuts down in the short run it will

How are sunk costs and fixed costs related?

In the short run, a firm that is operating at a loss has two options.These options are

Firms in perfect competition are price takers because

If a firm's fixed cost exceeds its total revenue, the firm should stop production by shutting down temporarily.

A teenaged babysitter is similar to a firm in a perfectly competitive industry in that, for both

If, for the last bushel of apples produced and sold by an apple farm, marginal revenue exceeds marginal cost, then in producing that bushel, the farm

The marginal revenue curve for a perfectly competitive firm

If the market price is $40 in a perfectly competitive market, the marginal revenue from selling the fifth unit is

What characteristic of a competitive market has made the "long run pretty short" in the market for iPhone apps?

In long-run perfectly competitive equilibrium, which of the following is false?

Figure 12-8 -Refer to Figure 12-8.Suppose the firm produces 4,000 units.What does the shaded area labeled B represent?

Which of the following describes a situation in which a good or service is produced at the lowest possible cost?

A firm could continue to operate for years without ever earning a profit as long as it is producing an output where

Figure 12-7 Figure 12-7 illustrates the cost curves of a perfectly competitive firm. -Refer to Figure 12-7.If the market price is P₂, the firm

Which of the following is a characteristic of a firm in a perfectly competitive market?

Assume that price is greater than average variable cost.If a perfectly competitive seller is producing at an output where price is $11 and the marginal cost is $14.54, then to maximize profits the firm should

At the profit-maximizing level of output for a perfectly competitive firm,

Explain two different ways to determine the profit-maximizing level of output for a firm in a perfectly competitive market.

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, Government Price Setting, and Taxes

Externalities, Environmental Policy, and Public Goods

Elasticity: the Responsiveness of Demand and Supply

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology, Production, and Costs

Monopolistic Competition: the Competitive Model in a

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

Pricing Strategy

The Markets for Labor and Other Factors of Production

Public Choice, Taxes, and the Distribution of Income

Filters

Exam 12: Firms in Perfectly Competitive Markets

If a firm shuts down in the short run it will

How are sunk costs and fixed costs related?

In the short run, a firm that is operating at a loss has two options.These options are

Firms in perfect competition are price takers because

If a firm's fixed cost exceeds its total revenue, the firm should stop production by shutting down temporarily.

A teenaged babysitter is similar to a firm in a perfectly competitive industry in that, for both

If, for the last bushel of apples produced and sold by an apple farm, marginal revenue exceeds marginal cost, then in producing that bushel, the farm

The marginal revenue curve for a perfectly competitive firm

If the market price is $40 in a perfectly competitive market, the marginal revenue from selling the fifth unit is

What characteristic of a competitive market has made the "long run pretty short" in the market for iPhone apps?

In long-run perfectly competitive equilibrium, which of the following is false?

Figure 12-8 -Refer to Figure 12-8.Suppose the firm produces 4,000 units.What does the shaded area labeled B represent?

Which of the following describes a situation in which a good or service is produced at the lowest possible cost?

A firm could continue to operate for years without ever earning a profit as long as it is producing an output where

Figure 12-7 Figure 12-7 illustrates the cost curves of a perfectly competitive firm. -Refer to Figure 12-7.If the market price is P₂, the firm

Which of the following is a characteristic of a firm in a perfectly competitive market?

Assume that price is greater than average variable cost.If a perfectly competitive seller is producing at an output where price is $11 and the marginal cost is $14.54, then to maximize profits the firm should

At the profit-maximizing level of output for a perfectly competitive firm,

Explain two different ways to determine the profit-maximizing level of output for a firm in a perfectly competitive market.

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, Government Price Setting, and Taxes

Externalities, Environmental Policy, and Public Goods

Elasticity: the Responsiveness of Demand and Supply

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology, Production, and Costs

Monopolistic Competition: the Competitive Model in a

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

Pricing Strategy

The Markets for Labor and Other Factors of Production

Public Choice, Taxes, and the Distribution of Income

Filters