Question 1

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 2

Suppose product price is fixed at $24; MR = MC at Q = 200; AFC = $6; AVC = $16.What do you advise this firm to do?

Accepted Answer

A)  Increase output. 
B)  Decrease output. 
C)  Shut down operations. 
D)  Stay at the current output; the firm is earning a profit of $400. 
E)  Stay at the current output; the firm is losing $200. 
A)  Increase output. 
B)  Decrease output. 
C)  Shut down operations. 
D)  Stay at the current output; the firm is earning a profit of $400. 
E)  Stay at the current output; the firm is losing $200.

Question 3

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 4

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

Accepted Answer

A) True 
 B)False

Question 5

Exhibit 7-12 Marginal revenue and cost per unit curves
  
-As shown in Exhibit 7-12,the firm will shut down in the short-run at a price below:

Accepted Answer

A)  OA. 
B)  OB. 
C)  OC. 
D)  OD. 
A)  OA. 
B)  OB. 
C)  OC. 
D)  OD.

Question 6

Assume that a firm's marginal revenue just barely exceeds marginal cost.Under these conditions the firm should:

Accepted Answer

A)  expand output. 
B)  contract output. 
C)  maintain output. 
D)  There is insufficient information to answer the question. 
A)  expand output. 
B)  contract output. 
C)  maintain output. 
D)  There is insufficient information to answer the question.

Question 7

In long-run equilibrium,a perfectly competitive firm will produce an output level at which its long-run average cost curve is upward sloping.

Accepted Answer

A) True 
 B)False

Question 8

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

Accepted Answer

A)  OZID. 
B)  OYHD. 
C)  OXLD. 
D)  OYFB. 
A)  OZID. 
B)  OYHD. 
C)  OXLD. 
D)  OYFB.

Question 9

Suppose that 1000 identical sellers each set their profit-maximizing output level at 18 units when price equals $10.Then what is market quantity supplied at a price of $10.

Accepted Answer

A)  100. 
B)  1,000. 
C)  10,000. 
D)  18,000. 
A)  100. 
B)  1,000. 
C)  10,000. 
D)  18,000.

Question 10

In the perfectly competitive market,individual firms exert no effect on the market price.Therefore,the firm's marginal revenue curve is:

Accepted Answer

A)  indeterminate. 
B)  an upward-sloping curve. 
C)  a downward-sloping curve. 
D)  the same as the firm's demand curve. 
A)  indeterminate. 
B)  an upward-sloping curve. 
C)  a downward-sloping curve. 
D)  the same as the firm's demand curve.

Question 11

Exhibit 7-11 A firm's cost and marginal revenue curves
  
-In Exhibit 7-11,when the price rises from $5 to $8,the profit-maximizing (or loss-minimizing)firm goes from making a:

Accepted Answer

A)  loss to making a smaller loss. 
B)  loss to making a larger loss. 
C)  loss to making a profit. 
D)  profit to making a loss. 
E)  profit to making a larger profit. 
A)  loss to making a smaller loss. 
B)  loss to making a larger loss. 
C)  loss to making a profit. 
D)  profit to making a loss. 
E)  profit to making a larger profit.

Question 12

Exhibit 7-13 Price and cost per unit curves
  
-In Exhibit 7-13,the firm will not produce when the price is between:

Accepted Answer

A)  zero and P₂. 
B)  P₂ and P₃. 
C)  P₃ and P₄. 
D)  P₄ and P₅. 
A)  zero and P₂. 
B)  P₂ and P₃. 
C)  P₃ and P₄. 
D)  P₄ and P₅.

Question 13

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 14

If,at the point where MR = MC,the firm incurs losses,in the short run the firm should:

Accepted Answer

A)  shut down. 
B)  increase output. 
C)  decrease output. 
D)  continue at its current output if P > AVC. 
E)  continue at its current output if P > ATC. 
A)  shut down. 
B)  increase output. 
C)  decrease output. 
D)  continue at its current output if P > AVC. 
E)  continue at its current output if P > ATC.

Question 15

The market price for wallets is $20.Your technology is such that at your most efficient production point,the average total cost of producing a wallet is $2.50.Your manager runs into your office and shouts,"Boss!!! Average costs are rising!! Average costs are rising!!" To make a profit-maximizing decision,you should:

Accepted Answer

A) d or e. 
B) immediately stop production. 
C) completely ignore your manager. 
D) ask the manager about the marginal cost. 
E) ask the manager about the average total cost. 
A) d or e. 
B) immediately stop production. 
C) completely ignore your manager. 
D) ask the manager about the marginal cost. 
E) ask the manager about the average total cost.

Question 16

Competitive firms frequently use advertising to differentiate their product from their competitors' products.

Accepted Answer

A) True 
 B)False

Question 17

What are the characteristics of the perfectly competitive market?

Accepted Answer

The perfectly competitive market is char

Question 18

If marginal revenue equals marginal cost in the short run,the perfectly competitive firm earns zero profits.

Accepted Answer

A) True 
 B)False

Question 19

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 20

A perfectly competitive firm maximizes profits or minimizes losses in the short-run by producing at the output level at which:

Accepted Answer

A)  marginal revenue equals marginal cost. 
B)  total revenue equals total cost. 
C)  total revenue is at a maximum. 
D)  none of the above. 
A)  marginal revenue equals marginal cost. 
B)  total revenue equals total cost. 
C)  total revenue is at a maximum. 
D)  none of the above.

Exam 7: Perfect Competition

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:

Suppose product price is fixed at $24; MR = MC at Q = 200; AFC = $6; AVC = $16.What do you advise this firm to do?

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

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

Exhibit 7-12 Marginal revenue and cost per unit curves -As shown in Exhibit 7-12,the firm will shut down in the short-run at a price below:

Assume that a firm's marginal revenue just barely exceeds marginal cost.Under these conditions the firm should:

In long-run equilibrium,a perfectly competitive firm will produce an output level at which its long-run average cost curve is upward sloping.

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

Suppose that 1000 identical sellers each set their profit-maximizing output level at 18 units when price equals $10.Then what is market quantity supplied at a price of $10.

In the perfectly competitive market,individual firms exert no effect on the market price.Therefore,the firm's marginal revenue curve is:

Exhibit 7-11 A firm's cost and marginal revenue curves -In Exhibit 7-11,when the price rises from $5 to $8,the profit-maximizing (or loss-minimizing)firm goes from making a:

Exhibit 7-13 Price and cost per unit curves -In Exhibit 7-13,the firm will not produce when the price is between:

Market structure is defined as the:

If,at the point where MR = MC,the firm incurs losses,in the short run the firm should:

Competitive firms frequently use advertising to differentiate their product from their competitors' products.

What are the characteristics of the perfectly competitive market?

If marginal revenue equals marginal cost in the short run,the perfectly competitive firm earns zero profits.

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

A perfectly competitive firm maximizes profits or minimizes losses in the short-run by producing at the output level at which:

Introducing the Economic Way of Thinking

A: Appendix: Applying Graphs to Economics

Production Possibilities,Opportunity Cost,and Economic Growth

Part 1: Market Demand and Supply

Part 2: 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

A: Appendix: The Self-Correcting Aggregate Demand and Supply Model

Fiscal Policy

The Public Sector

Federal Deficits,Surpluses,and the National Debt

Money and the Federal Reserve System

Money Creation

Monetary Policy

A: Appendix: 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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