Question 1

If marginal revenue equals marginal cost,the firm is maximizing profits as long as

Accepted Answer

A)  the resulting profits are positive. 
B)  marginal cost exceeds marginal revenue for greater levels of output. 
C)  the average cost curve lies above the demand curve. 
D)  All of the above are required. 
A)  the resulting profits are positive. 
B)  marginal cost exceeds marginal revenue for greater levels of output. 
C)  the average cost curve lies above the demand curve. 
D)  All of the above are required.

Question 2

For the following, please answer "True" or "False" and explain why.
-If transaction costs are high,then it is more likely a firm's demand curve is downward sloping.

Accepted Answer

A) True 
 B)False

Question 3

For the following, please answer "True" or "False" and explain why.
-If a firm in a competitive market is currently producing a quantity where price exceeds the marginal cost,the firm should lower its price.

Accepted Answer

A) True 
 B)False

Question 4

If a profit-maximizing firm finds that,at its current level of production,MR > MC,it will

Accepted Answer

A)  earn greater profits than if MR = MC. 
B)  increase output. 
C)  decrease output. 
D)  shut down. 
A)  earn greater profits than if MR = MC. 
B)  increase output. 
C)  decrease output. 
D)  shut down.

Question 5

If the shut down rule,p < AVC,is the same in the short run and the long run,explain why the shut down prices may be different.

Accepted Answer

In the long run all costs are

Question 6

A horizontal demand curve for a firm implies that

Accepted Answer

A)  the firm is a monopoly. 
B)  the market the firm is operating in is not competitive. 
C)  the firm is selling in a competitive market. 
D)  the products of that firm are very different from other firms' products. 
A)  the firm is a monopoly. 
B)  the market the firm is operating in is not competitive. 
C)  the firm is selling in a competitive market. 
D)  the products of that firm are very different from other firms' products.

Question 7

If firms in a competitive market are not identical,then the long-run market supply curve will be

Accepted Answer

A)  horizontal. 
B)  upward sloping. 
C)  downward sloping. 
D)  undetermined. 
A)  horizontal. 
B)  upward sloping. 
C)  downward sloping. 
D)  undetermined.

Question 8

A lawyer running his own business earns $18,000 in revenue monthly.He pays $8,000 as explicit costs including staff salary and utilities.He owns the office space so no rent is paid..The lawyer could work for other legal firms and earn $10,000 per month.His business profit is ________ and his economic profit is ________.

Accepted Answer

A)  $10,000, $10,000 
B)  $28,000, $10,000 
C)  $10,000, $0 
D)  $8,000, $0 
A)  $10,000, $10,000 
B)  $28,000, $10,000 
C)  $10,000, $0 
D)  $8,000, $0

Question 9

Long-run market supply curves are downward sloping if

Accepted Answer

A)  firms are identical. 
B)  the number of firms is restricted in the long run. 
C)  input prices fall as the industry expands. 
D)  All of the above. 
A)  firms are identical. 
B)  the number of firms is restricted in the long run. 
C)  input prices fall as the industry expands. 
D)  All of the above.

Question 10

If a firm is currently in short-run equilibrium earning a profit,what impact will a lump-sum tax have on its production decision?

Accepted Answer

A)  The firm will decrease output to earn a higher profit. 
B)  The firm will increase output but earn a lower profit. 
C)  The firm will not change output but earn a lower profit. 
D)  The firm will not change output and earn a higher profit. 
A)  The firm will decrease output to earn a higher profit. 
B)  The firm will increase output but earn a lower profit. 
C)  The firm will not change output but earn a lower profit. 
D)  The firm will not change output and earn a higher profit.

Question 11

If a profit-maximizing firm finds that,at its current level of production,MR < MC,it will

Accepted Answer

A)  decrease output. 
B)  increase output. 
C)  shut down. 
D)  operate at a loss. 
A)  decrease output. 
B)  increase output. 
C)  shut down. 
D)  operate at a loss.

Question 12

If a firm happened to be the only seller of a particular product,it might behave as a price taker as long as

Accepted Answer

A)  buyers have full information about the firm's price. 
B)  the transaction costs of doing business with this firm are low. 
C)  there are many buyers. 
D)  there is free entry and exit. 
A)  buyers have full information about the firm's price. 
B)  the transaction costs of doing business with this firm are low. 
C)  there are many buyers. 
D)  there is free entry and exit.

Question 13

The "Got Milk?" advertising campaign is a good example of

Accepted Answer

A)  advertising in a competitive market. 
B)  how advertising in a competitive market does not pay off for a single firm. 
C)  interest groups financed by the industry advertise for the whole industry. 
D)  All of the above. 
A)  advertising in a competitive market. 
B)  how advertising in a competitive market does not pay off for a single firm. 
C)  interest groups financed by the industry advertise for the whole industry. 
D)  All of the above.

Question 14

When the production of a good involves several inputs,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 15

A small business owner earns $60,000 in revenue annually.The explicit annual costs equal $40,000.The owner could work for someone else and earn $25,000 annually.The owner's business profit is ________ and the economic profit is ________.

Accepted Answer

A)  $20,000, $5,000 
B)  $20,000, -$5,000 
C)  $25,000, -$5,000 
D)  $45,000, -$5,000 
A)  $20,000, $5,000 
B)  $20,000, -$5,000 
C)  $25,000, -$5,000 
D)  $45,000, -$5,000

Question 16

A firm that only employs labor (L)has the following production function:
f(L)= 20L - L²
Let the price of output be normalized to one and the price of labor (relative to output price)is w.
a.Write out the profit function for this firm as a function of labor,L.
b.What is the necessary first-order condition for the firm to maximize profit when L > 0?
c.Compute the profit maximizing amount of labor as a function of the wage.What is the effect of an increase in wage on the firm's optimal employment level? Use calculus to solve this.

Accepted Answer

a.Profit is
π = pf(L)- wL = 20L - L² - w

Question 17

Markets with hit-and-run entry and exit experience

Accepted Answer

A)  barriers to entry. 
B)  firms entering whenever they can make a profit and exiting when they cannot make a profit. 
C)  steady long-run economic profit. 
D)  a very steady number of firms. 
A)  barriers to entry. 
B)  firms entering whenever they can make a profit and exiting when they cannot make a profit. 
C)  steady long-run economic profit. 
D)  a very steady number of firms.

Question 18

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 19

Suppose a firm has the following total cost function: TC = 100 + 4q².What is the minimum price necessary for the firm to earn profit? Below what price will the firm shut down in the short run?

Accepted Answer

AC = 100/q + 4q.This is minimized when d

Question 20

-The above figure shows the cost curves for a competitive firm.If the profit-maximizing level of output is 40 price is equal to

Accepted Answer

A)  $0. 
B)  $15. 
C)  $10. 
D)  $11. 
A)  $0. 
B)  $15. 
C)  $10. 
D)  $11.

If marginal revenue equals marginal cost,the firm is maximizing profits as long as

For the following, please answer "True" or "False" and explain why. -If transaction costs are high,then it is more likely a firm's demand curve is downward sloping.

For the following, please answer "True" or "False" and explain why. -If a firm in a competitive market is currently producing a quantity where price exceeds the marginal cost,the firm should lower its price.

If a profit-maximizing firm finds that,at its current level of production,MR > MC,it will

If the shut down rule,p < AVC,is the same in the short run and the long run,explain why the shut down prices may be different.

A horizontal demand curve for a firm implies that

If firms in a competitive market are not identical,then the long-run market supply curve will be

Long-run market supply curves are downward sloping if

If a firm is currently in short-run equilibrium earning a profit,what impact will a lump-sum tax have on its production decision?

If a profit-maximizing firm finds that,at its current level of production,MR < MC,it will

If a firm happened to be the only seller of a particular product,it might behave as a price taker as long as

The "Got Milk?" advertising campaign is a good example of

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

A small business owner earns $60,000 in revenue annually.The explicit annual costs equal $40,000.The owner could work for someone else and earn $25,000 annually.The owner's business profit is and the economic profit is .

Markets with hit-and-run entry and exit experience

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?

Suppose a firm has the following total cost function: TC = 100 + 4q².What is the minimum price necessary for the firm to earn profit? Below what price will the firm shut down in the short run?

-The above figure shows the cost curves for a competitive firm.If the profit-maximizing level of output is 40 price is equal to

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

If marginal revenue equals marginal cost,the firm is maximizing profits as long as

For the following, please answer "True" or "False" and explain why. -If transaction costs are high,then it is more likely a firm's demand curve is downward sloping.

For the following, please answer "True" or "False" and explain why. -If a firm in a competitive market is currently producing a quantity where price exceeds the marginal cost,the firm should lower its price.

If a profit-maximizing firm finds that,at its current level of production,MR > MC,it will

If the shut down rule,p < AVC,is the same in the short run and the long run,explain why the shut down prices may be different.

A horizontal demand curve for a firm implies that

If firms in a competitive market are not identical,then the long-run market supply curve will be

Long-run market supply curves are downward sloping if

If a firm is currently in short-run equilibrium earning a profit,what impact will a lump-sum tax have on its production decision?

If a profit-maximizing firm finds that,at its current level of production,MR < MC,it will

If a firm happened to be the only seller of a particular product,it might behave as a price taker as long as

The "Got Milk?" advertising campaign is a good example of

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

A small business owner earns $60,000 in revenue annually.The explicit annual costs equal $40,000.The owner could work for someone else and earn $25,000 annually.The owner's business profit is ________ and the economic profit is ________.

Markets with hit-and-run entry and exit experience

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?

Suppose a firm has the following total cost function: TC = 100 + 4q².What is the minimum price necessary for the firm to earn profit? Below what price will the firm shut down in the short run?

-The above figure shows the cost curves for a competitive firm.If the profit-maximizing level of output is 40 price is equal to

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

A small business owner earns $60,000 in revenue annually.The explicit annual costs equal $40,000.The owner could work for someone else and earn $25,000 annually.The owner's business profit is and the economic profit is .