Question 1

A firm will shut down in the short run if

Accepted Answer

A)  total fixed costs are too high. 
B)  total revenue from operating would not cover all costs. 
C)  total revenue from operating would not cover variable costs. 
D)  total revenue from operating would not cover fixed costs. 
A)  total fixed costs are too high. 
B)  total revenue from operating would not cover all costs. 
C)  total revenue from operating would not cover variable costs. 
D)  total revenue from operating would not cover fixed costs.

Question 2

In deciding whether to operate in the short run,the firm must be concerned with the relationship between price of the output and

Accepted Answer

A)  total cost. 
B)  average variable cost. 
C)  total fixed cost. 
D)  the number of buyers. 
A)  total cost. 
B)  average variable cost. 
C)  total fixed cost. 
D)  the number of buyers.

Question 3

Consider a competitive firm with the short-run cost function
C(q)= 20 + 6q + 5q²
The firm faces a market price of p for its output.
a.Derive the firm's profit maximizing condition.Is the sufficient second order condition satisfied?
b.Suppose a specific tax of t (t < p)is levied on only this firm in the industry.What is the profit maximizing level of output as a function of p and t? (Assume the price is high enough that the firm does not shut down)
c.How does the output change as the tax increases? Use calculus to determine the relevant comparative static.
d.How does the firm's profit chance as the tax increases? Again,use calculus to determine the relevant comparative static.Show that profit decreases as t increases.

Accepted Answer

a.Profit maximization occurs where p = M

Question 4

Suppose the Christmas trees market is perfectly competitive.A business owner is currently suffering from a loss of $1,000,the cost of producing and selling an additional Christmas tree is $20,and the current market price is $25.The owner

Accepted Answer

A)  should sell more trees. 
B)  should shut down his business now. 
C)  should advertise in the market. 
D)  is already minimizing his loss. 
A)  should sell more trees. 
B)  should shut down his business now. 
C)  should advertise in the market. 
D)  is already minimizing his loss.

Question 5

For the following, please answer "True" or "False" and explain why.
-If a firm doesn't make an economic profit,it will shut down.

Accepted Answer

A) True 
 B)False

Question 6

-The above figure shows the cost curves for a competitive firm.The firm will incur economic losses if the price is less than

Accepted Answer

A)  $0. 
B)  $5. 
C)  $10. 
D)  $11. 
A)  $0. 
B)  $5. 
C)  $10. 
D)  $11.

Question 7

If a competitive firm maximizes short-run profits by producing some quantity of output,which of the following must be true at that level of output?

Accepted Answer

A)  p > MC. 
B)  MR > MC. 
C)  p ≥ AVC. 
D)  All of the above. 
A)  p > MC. 
B)  MR > MC. 
C)  p ≥ AVC. 
D)  All of the above.

Question 8

As the number of firms in an industry increases,the residual demand curve becomes

Accepted Answer

A)  more elastic. 
B)  less elastic. 
C)  larger. 
D)  vertical. 
A)  more elastic. 
B)  less elastic. 
C)  larger. 
D)  vertical.

Question 9

Suppose there are 1000 identical wheat farmers.For each,TC = 10 + q².Derive the market supply curve.

Accepted Answer

For each MC = 2q and AVC = q.T

Question 10

Suppose the fixed cost of Christmas trees business is $7,000 and sunk.The variable cost for each tree is $20.According to the forecast,the market price for Christmas trees is $25 each and the owner could sell 1000 trees at most each year.The owner

Accepted Answer

A)  should shut down the business. 
B)  should keep operating. 
C)  should sell less. 
D)  None of the above. 
A)  should shut down the business. 
B)  should keep operating. 
C)  should sell less. 
D)  None of the above.

Question 11

If a firm is a price taker,then its marginal revenue will always equal

Accepted Answer

A)  price. 
B)  total cost. 
C)  zero. 
D)  one. 
A)  price. 
B)  total cost. 
C)  zero. 
D)  one.

Question 12

For the following, please answer "True" or "False" and explain why.
-The long-run supply curve in a competitive market is upward sloping.

Accepted Answer

A) True 
 B)False

Question 13

A special license is required to operate a taxi in many cities.The number of licenses is restricted.More drivers want licenses than are issued.This describes a non-perfectly competitive market because

Accepted Answer

A)  taxi services are very different. 
B)  firms cannot freely enter and exit the market. 
C)  transaction costs are high. 
D)  the government generates revenue from the licenses. 
A)  taxi services are very different. 
B)  firms cannot freely enter and exit the market. 
C)  transaction costs are high. 
D)  the government generates revenue from the licenses.

Question 14

Suppose that for each firm in the competitive market for potatoes,long-run average cost is minimized at 20¢ per pound when 500 pounds are grown.The demand for potatoes is Q = 10,000/p.If the long-run supply curve is horizontal,then how many firms will this industry sustain in the long run?

Accepted Answer

A)  0 
B)  100 
C)  50,000 
D)  There is not enough information to answer. 
A)  0 
B)  100 
C)  50,000 
D)  There is not enough information to answer.

Question 15

Many car owners and car dealers describe their different cars for sale in the local newspapers and list their asking price.Many people shopping for a used car consider the different choices listed in the paper.The market for used cars could be described as

Accepted Answer

A)  relatively competitive. 
B)  perfectly competitive. 
C)  non-competitive. 
D)  having high transaction costs. 
A)  relatively competitive. 
B)  perfectly competitive. 
C)  non-competitive. 
D)  having high transaction costs.

Question 16

When the production of a good involves several inputs and inputs are used in fixed proportions,an increase in the cost of one input will usually cause total costs to

Accepted Answer

A)  rise more than in proportion. 
B)  rise less than in proportion. 
C)  remain unchanged. 
D)  rise by the exact amount of the input price increase. 
A)  rise more than in proportion. 
B)  rise less than in proportion. 
C)  remain unchanged. 
D)  rise by the exact amount of the input price increase.

Question 17

In the absence of any government regulation on price,if a firm has no power to set price on its own,one can safely conclude

Accepted Answer

A)  the demand curve for the firm's product is horizontal. 
B)  there aren't many firms in the industry. 
C)  the market is in long-run equilibrium. 
D)  the firms in this industry are not profitable. 
A)  the demand curve for the firm's product is horizontal. 
B)  there aren't many firms in the industry. 
C)  the market is in long-run equilibrium. 
D)  the firms in this industry are not profitable.

Question 18

If a competitive firm cannot earn profit at any level of output during a given short-run period,then which of the following is LEAST likely to occur?

Accepted Answer

A)  It will shut down in the short run and wait until the price increases sufficiently. 
B)  It will exit the industry in the long run. 
C)  It will operate at a loss in the short run. 
D)  It will minimize its loss by decreasing output so that price exceeds marginal cost. 
A)  It will shut down in the short run and wait until the price increases sufficiently. 
B)  It will exit the industry in the long run. 
C)  It will operate at a loss in the short run. 
D)  It will minimize its loss by decreasing output so that price exceeds marginal cost.

Question 19

Firms that exhibit price-taking behavior

Accepted Answer

A)  wait for other firms to set price, take it as given, and charge a higher price. 
B)  have outputs that are too small to influence market price and thus take it as given. 
C)  take pricing behavior in their own hands. 
D)  are independently capable of setting price. 
A)  wait for other firms to set price, take it as given, and charge a higher price. 
B)  have outputs that are too small to influence market price and thus take it as given. 
C)  take pricing behavior in their own hands. 
D)  are independently capable of setting price.

Question 20

Suppose that for each firm in the competitive market for potatoes,long-run average cost is minimized at 20¢ per pound when 500 pounds are grown.If the long-run supply curve is horizontal,then

Accepted Answer

A)  some firms will enjoy long-run profits because they operate at minimum average cost. 
B)  the long-run price will be 20¢ per pound. 
C)  each consumer will purchase $100 worth of potatoes. 
D)  the long-run price will be set just above 20¢ per pound. 
A)  some firms will enjoy long-run profits because they operate at minimum average cost. 
B)  the long-run price will be 20¢ per pound. 
C)  each consumer will purchase $100 worth of potatoes. 
D)  the long-run price will be set just above 20¢ per pound.

A firm will shut down in the short run if

In deciding whether to operate in the short run,the firm must be concerned with the relationship between price of the output and

Suppose the Christmas trees market is perfectly competitive.A business owner is currently suffering from a loss of $1,000,the cost of producing and selling an additional Christmas tree is $20,and the current market price is $25.The owner

For the following, please answer "True" or "False" and explain why. -If a firm doesn't make an economic profit,it will shut down.

-The above figure shows the cost curves for a competitive firm.The firm will incur economic losses if the price is less than

If a competitive firm maximizes short-run profits by producing some quantity of output,which of the following must be true at that level of output?

As the number of firms in an industry increases,the residual demand curve becomes

Suppose there are 1000 identical wheat farmers.For each,TC = 10 + q².Derive the market supply curve.

Suppose the fixed cost of Christmas trees business is $7,000 and sunk.The variable cost for each tree is $20.According to the forecast,the market price for Christmas trees is $25 each and the owner could sell 1000 trees at most each year.The owner

If a firm is a price taker,then its marginal revenue will always equal

For the following, please answer "True" or "False" and explain why. -The long-run supply curve in a competitive market is upward sloping.

A special license is required to operate a taxi in many cities.The number of licenses is restricted.More drivers want licenses than are issued.This describes a non-perfectly competitive market because

Suppose that for each firm in the competitive market for potatoes,long-run average cost is minimized at 20¢ per pound when 500 pounds are grown.The demand for potatoes is Q = 10,000/p.If the long-run supply curve is horizontal,then how many firms will this industry sustain in the long run?

Many car owners and car dealers describe their different cars for sale in the local newspapers and list their asking price.Many people shopping for a used car consider the different choices listed in the paper.The market for used cars could be described as

When the production of a good involves several inputs and inputs are used in fixed proportions,an increase in the cost of one input will usually cause total costs to

In the absence of any government regulation on price,if a firm has no power to set price on its own,one can safely conclude

If a competitive firm cannot earn profit at any level of output during a given short-run period,then which of the following is LEAST likely to occur?

Firms that exhibit price-taking behavior

Suppose that for each firm in the competitive market for potatoes,long-run average cost is minimized at 20¢ per pound when 500 pounds are grown.If the long-run supply curve is horizontal,then

Introduction

Supply and Demand

A Consumers Constrained Choice

Demand

Consumer Welfare and Policy Analysis

Firms and Production

Costs

Properties and Applications of the Competitive Model

General Equilibrium and Economic Welfare

Monopoly and Monopsony

Pricing and Advertising

Game Theory

Oligopoly and Monopolistic Competition

Factor Markets

Uncertainty

Property Rights, externalities, rivalry, and Exclusion

Asymmetric Information

Contracts and Moral Hazards

Filters

Exam 8: Competitive Firms and Markets

A firm will shut down in the short run if

In deciding whether to operate in the short run,the firm must be concerned with the relationship between price of the output and

Suppose the Christmas trees market is perfectly competitive.A business owner is currently suffering from a loss of $1,000,the cost of producing and selling an additional Christmas tree is $20,and the current market price is $25.The owner

For the following, please answer "True" or "False" and explain why. -If a firm doesn't make an economic profit,it will shut down.

-The above figure shows the cost curves for a competitive firm.The firm will incur economic losses if the price is less than

If a competitive firm maximizes short-run profits by producing some quantity of output,which of the following must be true at that level of output?

As the number of firms in an industry increases,the residual demand curve becomes

Suppose there are 1000 identical wheat farmers.For each,TC = 10 + q².Derive the market supply curve.

Suppose the fixed cost of Christmas trees business is $7,000 and sunk.The variable cost for each tree is $20.According to the forecast,the market price for Christmas trees is $25 each and the owner could sell 1000 trees at most each year.The owner

If a firm is a price taker,then its marginal revenue will always equal

For the following, please answer "True" or "False" and explain why. -The long-run supply curve in a competitive market is upward sloping.

A special license is required to operate a taxi in many cities.The number of licenses is restricted.More drivers want licenses than are issued.This describes a non-perfectly competitive market because

Suppose that for each firm in the competitive market for potatoes,long-run average cost is minimized at 20¢ per pound when 500 pounds are grown.The demand for potatoes is Q = 10,000/p.If the long-run supply curve is horizontal,then how many firms will this industry sustain in the long run?

Many car owners and car dealers describe their different cars for sale in the local newspapers and list their asking price.Many people shopping for a used car consider the different choices listed in the paper.The market for used cars could be described as

When the production of a good involves several inputs and inputs are used in fixed proportions,an increase in the cost of one input will usually cause total costs to

In the absence of any government regulation on price,if a firm has no power to set price on its own,one can safely conclude

If a competitive firm cannot earn profit at any level of output during a given short-run period,then which of the following is LEAST likely to occur?

Firms that exhibit price-taking behavior

Suppose that for each firm in the competitive market for potatoes,long-run average cost is minimized at 20¢ per pound when 500 pounds are grown.If the long-run supply curve is horizontal,then

Introduction

Supply and Demand

A Consumers Constrained Choice

Demand

Consumer Welfare and Policy Analysis

Firms and Production

Costs

Properties and Applications of the Competitive Model

General Equilibrium and Economic Welfare

Monopoly and Monopsony

Pricing and Advertising

Game Theory

Oligopoly and Monopolistic Competition

Factor Markets

Uncertainty

Property Rights, externalities, rivalry, and Exclusion

Asymmetric Information

Contracts and Moral Hazards

Filters