Question 1

The most profitable output level can be found by looking at which two curves?

Accepted Answer

A)  P and MR. 
B)  MR and MC. 
C)  MC and TC. 
D)  P and AVC. 
E)  AVC and ATC. 
A)  P and MR. 
B)  MR and MC. 
C)  MC and TC. 
D)  P and AVC. 
E)  AVC and ATC.

Question 2

Exhibit 7-12 Marginal revenue and cost per unit curves
  
-If price is equal to OD for the firm shown in Exhibit 7-12,total profit is maximized when:

Accepted Answer

A)  output is X. 
B)  output is Y. 
C)  output is Z. 
D)  output is greater than Z. 
A)  output is X. 
B)  output is Y. 
C)  output is Z. 
D)  output is greater than Z.

Question 3

In the short run,a perfectly competitive firm's most profitable level of output is where:

Accepted Answer

A)  marginal cost exceeds marginal revenue. 
B)  total revenue is at a maximum. 
C)  marginal cost equals marginal revenue. 
D)  All of the above. 
A)  marginal cost exceeds marginal revenue. 
B)  total revenue is at a maximum. 
C)  marginal cost equals marginal revenue. 
D)  All of the above.

Question 4

Exhibit 7-3 Cost per unit curves
  
-As shown in Exhibit 7-3,if the product price is either $1.00,$1.50,$2.00,or $4.00,the firm's economic profit is maximum at an output of:

Accepted Answer

A)  5 units per day. 
B)  10 units per day. 
C)  15 units per day. 
D)  20 units per day. 
A)  5 units per day. 
B)  10 units per day. 
C)  15 units per day. 
D)  20 units per day.

Question 5

When the marginal cost of a price-taker firm is more than the market price of its product,the firm should:

Accepted Answer

A)  expand output. 
B)  reduce output. 
C)  maintain output. 
D)  charge more than the market price. 
A)  expand output. 
B)  reduce output. 
C)  maintain output. 
D)  charge more than the market price.

Question 6

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 7

When choosing the production level for tomorrow you find that at an output of 100 units,the total variable costs are $20,000 and the average fixed cost is only $50.If the market price is $200,you should:

Accepted Answer

A) b or e. 
B) shut down. 
C) produce more than 100 units. 
D) produce fewer than 100 units. 
E) produce where MC = MR. 
A) b or e. 
B) shut down. 
C) produce more than 100 units. 
D) produce fewer than 100 units. 
E) produce where MC = MR.

Question 8

Exhibit 7-5 A firm's MR and MC curves
  
-In Exhibit 7-5,suppose a firm is currently producing 45 units of output.What would you advise this firm to do?

Accepted Answer

A)  Shut down. 
B)  Increase output. 
C)  Stay at its current output 
D)  Decrease output 
E)  Decrease price. 
A)  Shut down. 
B)  Increase output. 
C)  Stay at its current output 
D)  Decrease output 
E)  Decrease price.

Question 9

In long-run equilibrium,the perfectly competitive firm sets its price equal to which of the following?

Accepted Answer

A)  Short-run average total cost. 
B)  Short-run marginal cost. 
C)  Long-run average cost. 
D)  All of the above. 
A)  Short-run average total cost. 
B)  Short-run marginal cost. 
C)  Long-run average cost. 
D)  All of the above.

Question 10

If a competitive firm is losing money then it should:

Accepted Answer

A)  always shut down. 
B)  shut down if its losses are greater than total fixed costs. 
C)  shut down if its total fixed costs are greater than losses. 
D)  raise its price. 
A)  always shut down. 
B)  shut down if its losses are greater than total fixed costs. 
C)  shut down if its total fixed costs are greater than losses. 
D)  raise its price.

Question 11

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 12

A firm that is a price taker can:

Accepted Answer

A)  substantially change the market price of its product by changing its level of production. 
B)  sell all of its output at the market price. 
C)  sell some of its output at a price higher than the market price. 
D)  decide what price to charge for its product. 
A)  substantially change the market price of its product by changing its level of production. 
B)  sell all of its output at the market price. 
C)  sell some of its output at a price higher than the market price. 
D)  decide what price to charge for its product.

Question 13

Which of the following is not a characteristic of the structure of perfectly competitive markets?

Accepted Answer

A)  Each individual firm is small in size relative to the overall market. 
B)  Few sellers. 
C)  Homogeneous product. 
D)  Easy, low cost entry and exit. 
A)  Each individual firm is small in size relative to the overall market. 
B)  Few sellers. 
C)  Homogeneous product. 
D)  Easy, low cost entry and exit.

Question 14

In the short run,the profit maximizing (or minimizing)quantity of output for any firm to produce exists at that output level at which marginal revenue equals marginal cost.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following is a key characteristic of the long-run competitive equilibrium that distinguishes it from the short-run competitive equilibrium?

Accepted Answer

A)  Free entry to reduce short-run profits, or free exit to reduce short-run losses. 
B)  Economic profits are positive, but cannot be negative. 
C)  Marginal revenue is greater than marginal cost. 
D)  Average revenue is less than average cost. 
A)  Free entry to reduce short-run profits, or free exit to reduce short-run losses. 
B)  Economic profits are positive, but cannot be negative. 
C)  Marginal revenue is greater than marginal cost. 
D)  Average revenue is less than average cost.

Question 16

Because a competitive firm is a price taker,it faces a demand curve that is:

Accepted Answer

A)  perfectly inelastic. 
B)  relatively inelastic. 
C)  relatively elastic. 
D)  perfectly elastic. 
A)  perfectly inelastic. 
B)  relatively inelastic. 
C)  relatively elastic. 
D)  perfectly elastic.

Question 17

Suppose the price of a product is less than its average variable cost.When the firm's fixed obligations are completely ended,it will now most likely:

Accepted Answer

A)  make an economic profit. 
B)  go out of business. 
C)  expand to a bigger operation. 
D)  continue to be shut down. 
E)  break even. 
A)  make an economic profit. 
B)  go out of business. 
C)  expand to a bigger operation. 
D)  continue to be shut down. 
E)  break even.

Question 18

Exhibit 7-3 Cost per unit curves
  
-If the price of the firm's product in Exhibit 7-3 is $1.50 per unit,which intersects AVC at point B,the firm should:

Accepted Answer

A)  continue to operate because it is earning a positive economic profit. 
B)  stay in operation for the time being even though it is making a pure economic loss. 
C)  shut down temporarily. 
D)  shut down permanently. 
A)  continue to operate because it is earning a positive economic profit. 
B)  stay in operation for the time being even though it is making a pure economic loss. 
C)  shut down temporarily. 
D)  shut down permanently.

Question 19

Exhibit 7-11 A firm's cost and marginal revenue curves
  
-In Exhibit 7-11,when the price is $2,the profit-maximizing (or loss-minimizing)firm:

Accepted Answer

A)  should shut down and produce zero. 
B)  should produce output equal to 4. 
C)  is making an economic profit of $8. 
D)  should try to produce more output. 
E)  has total revenue equal to $20. 
A)  should shut down and produce zero. 
B)  should produce output equal to 4. 
C)  is making an economic profit of $8. 
D)  should try to produce more output. 
E)  has total revenue equal to $20.

Question 20

If a firm is operating at a loss in the short run and finds that its price is greater than average variable cost,then in the short run:

Accepted Answer

A)  it should produce where MR = MC. 
B)  it should produce zero output. 
C)  it should go out of business. 
D)  total revenue is less than total variable costs. 
E)  total revenue is greater than total costs. 
A)  it should produce where MR = MC. 
B)  it should produce zero output. 
C)  it should go out of business. 
D)  total revenue is less than total variable costs. 
E)  total revenue is greater than total costs.

Exam 7: Perfect Competition

The most profitable output level can be found by looking at which two curves?

Exhibit 7-12 Marginal revenue and cost per unit curves -If price is equal to OD for the firm shown in Exhibit 7-12,total profit is maximized when:

In the short run,a perfectly competitive firm's most profitable level of output is where:

Exhibit 7-3 Cost per unit curves -As shown in Exhibit 7-3,if the product price is either $1.00,$1.50,$2.00,or $4.00,the firm's economic profit is maximum at an output of:

When the marginal cost of a price-taker firm is more than the market price of its product,the firm should:

Maximizing profit means finding the maximum difference between:

When choosing the production level for tomorrow you find that at an output of 100 units,the total variable costs are $20,000 and the average fixed cost is only $50.If the market price is $200,you should:

Exhibit 7-5 A firm's MR and MC curves -In Exhibit 7-5,suppose a firm is currently producing 45 units of output.What would you advise this firm to do?

In long-run equilibrium,the perfectly competitive firm sets its price equal to which of the following?

If a competitive firm is losing money then it should:

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.

A firm that is a price taker can:

Which of the following is not a characteristic of the structure of perfectly competitive markets?

In the short run,the profit maximizing (or minimizing)quantity of output for any firm to produce exists at that output level at which marginal revenue equals marginal cost.

Which of the following is a key characteristic of the long-run competitive equilibrium that distinguishes it from the short-run competitive equilibrium?

Because a competitive firm is a price taker,it faces a demand curve that is:

Suppose the price of a product is less than its average variable cost.When the firm's fixed obligations are completely ended,it will now most likely:

Exhibit 7-3 Cost per unit curves -If the price of the firm's product in Exhibit 7-3 is $1.50 per unit,which intersects AVC at point B,the firm should:

Exhibit 7-11 A firm's cost and marginal revenue curves -In Exhibit 7-11,when the price is $2,the profit-maximizing (or loss-minimizing)firm:

If a firm is operating at a loss in the short run and finds that its price is greater than average variable cost,then in the short run:

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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