Question 1

In the short run,a firm should shut down if its economic loss from operating exceeds its total fixed cost.

Accepted Answer

A) True 
 B)False

Question 2

Market structure describes which of the following characteristics?

Accepted Answer

A)  The ease of entry into and exit from the market. 
B)  The similarity of the product sold. 
C)  The number of firms in each industry. 
D)  All of the above are true. 
A)  The ease of entry into and exit from the market. 
B)  The similarity of the product sold. 
C)  The number of firms in each industry. 
D)  All of the above are true.

Question 3

Which of the following best explains why a firm in a perfectly competitive market must take the price determined in the market?

Accepted Answer

A)  The short-run average total costs of firms that are price takers will be constant. 
B)  If a price taker increased its price, consumers would buy from other suppliers. 
C)  Firms in a price-taker market will have to advertise in order to increase sales. 
D)  There are no good substitutes for the product supplied by a firm that is a price taker. 
A)  The short-run average total costs of firms that are price takers will be constant. 
B)  If a price taker increased its price, consumers would buy from other suppliers. 
C)  Firms in a price-taker market will have to advertise in order to increase sales. 
D)  There are no good substitutes for the product supplied by a firm that is a price taker.

Question 4

Under perfect competition,a firm is a price taker because:

Accepted Answer

A)  setting a price higher than the going price results in profits. 
B)  each firm's product is perceived as different. 
C)  each firm has a significant market share. 
D)  setting a price higher than the going price results in zero sales. 
A)  setting a price higher than the going price results in profits. 
B)  each firm's product is perceived as different. 
C)  each firm has a significant market share. 
D)  setting a price higher than the going price results in zero sales.

Question 5

A firm is currently operating where the MC of the last unit produced = $64,and the MR of this unit = $70.What would you advise this firm to do?

Accepted Answer

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

Question 6

A profit-maximizing firm will continue to expand output:

Accepted Answer

A)  as long as the revenues from the production and sale of an additional unit exceeds the average cost of the unit. 
B)  until the average cost of producing the good or service is at a minimum. 
C)  as long as the revenues from the production and sale of an additional unit exceeds the marginal cost of the unit. 
D)  until the marginal cost of producing a good or service is at a minimum. 
A)  as long as the revenues from the production and sale of an additional unit exceeds the average cost of the unit. 
B)  until the average cost of producing the good or service is at a minimum. 
C)  as long as the revenues from the production and sale of an additional unit exceeds the marginal cost of the unit. 
D)  until the marginal cost of producing a good or service is at a minimum.

Question 7

Exhibit 7-9 A firm's cost and marginal revenue curves
  
-In Exhibit 7-9,product price in this market is fixed at $14.This firm is currently operating where MR = MC.What do you advise this firm to do?

Accepted Answer

A)  This firm should shut down. 
B)  This firm could increase profits by increasing output. 
C)  This firm could increase profits by decreasing output. 
D)  This firm should continue to operate at its current output. 
E)  This firm should decrease price. 
A)  This firm should shut down. 
B)  This firm could increase profits by increasing output. 
C)  This firm could increase profits by decreasing output. 
D)  This firm should continue to operate at its current output. 
E)  This firm should decrease price.

Question 8

Exhibit 7-12 Marginal revenue and cost per unit curves
  
-As shown in Exhibit 7-12,the firm's supply curve is the:

Accepted Answer

A)  entire marginal cost curve. 
B)  rising part of marginal cost beginning at E. 
C)  rising part of marginal cost beginning at F. 
D)  entire marginal revenue curve. 
A)  entire marginal cost curve. 
B)  rising part of marginal cost beginning at E. 
C)  rising part of marginal cost beginning at F. 
D)  entire marginal revenue curve.

Question 9

Profit is maximized when which of the following conditions occurs?

Accepted Answer

A) Total revenue equals total cost. 
B) Average revenue equals average cost. 
C) Marginal revenue equals marginal cost. 
D) Both b.and c.above are correct. 
A) Total revenue equals total cost. 
B) Average revenue equals average cost. 
C) Marginal revenue equals marginal cost. 
D) Both b.and c.above are correct.

Question 10

The neighborhood ice cream shop finds that when it charges $3 per ice cream cone,its total revenues are $90,000.It has total variable costs of $30,000 and total fixed costs of $40,000.From this we can infer the:

Accepted Answer

A)  shop should be moved because the rent is too high. 
B)  price is less than average total cost. 
C)  economic profits are $20,000. 
D)  shop will be closed in the long run. 
E)  shop sells 10,000 ice cream cones. 
A)  shop should be moved because the rent is too high. 
B)  price is less than average total cost. 
C)  economic profits are $20,000. 
D)  shop will be closed in the long run. 
E)  shop sells 10,000 ice cream cones.

Question 11

A perfectly competitive firm's short-run supply curve is the:

Accepted Answer

A)  segment of the marginal cost curve above average fixed cost. 
B)  segment of the marginal cost curve above the minimum level of average variable cost. 
C)  upward-sloping segment of the marginal cost curve. 
D)  both a and 
A)  segment of the marginal cost curve above average fixed cost. 
B)  segment of the marginal cost curve above the minimum level of average variable cost. 
C)  upward-sloping segment of the marginal cost curve. 
D)  both a and

Question 12

Exhibit 7-8 A firm's cost and marginal revenue curves
  
-In Exhibit 7-8,product price in this market is fixed at $35.This firm is currently operating where MR = MC.What do you advise this firm to do?

Accepted Answer

A)  This firm should shut down. 
B)  This firm could increase profits by increasing output. 
C)  This firm could increase profits by decreasing output. 
D)  This firm should continue to operate at its current output. 
E)  This firm should decrease price. 
A)  This firm should shut down. 
B)  This firm could increase profits by increasing output. 
C)  This firm could increase profits by decreasing output. 
D)  This firm should continue to operate at its current output. 
E)  This firm should decrease price.

Question 13

Exhibit 7-8 A firm's cost and marginal revenue curves
  
-In Exhibit 7-8,product price in this market is fixed at $35.This firm is currently operating where MR = MC.Which of the following is true?

Accepted Answer

A)  Price  ATC and the firm is earning a positive profit. 
E)  Price > AVC, and the firm should stay at its current output. 
A)  Price  ATC and the firm is earning a positive profit. 
E)  Price > AVC, and the firm should stay at its current output.

Question 14

Exhibit 7-3 Cost per unit curves
  
-As shown in Exhibit 7-3,the price at which the firm earns zero economic profit in the short-run is:

Accepted Answer

A)  $1.00 per unit. 
B)  $1.50 per unit. 
C)  $4.00 per unit. 
D)  more than $2.00 per unit. 
E)  $2.00 per unit. 
A)  $1.00 per unit. 
B)  $1.50 per unit. 
C)  $4.00 per unit. 
D)  more than $2.00 per unit. 
E)  $2.00 per unit.

Question 15

In the short run,a firm should shut down its business if price is less than:

Accepted Answer

A)  ATC. 
B)  AR. 
C)  MC. 
D)  AVC. 
E)  AFC. 
A)  ATC. 
B)  AR. 
C)  MC. 
D)  AVC. 
E)  AFC.

Question 16

Exhibit 7-10 Price and cost data for a firm
  
-In Exhibit 7-10,MR is the same as which column?

Accepted Answer

A)  Q. 
B)  P. 
C)  AVC. 
D)  ATC. 
E)  MC. 
A)  Q. 
B)  P. 
C)  AVC. 
D)  ATC. 
E)  MC.

Question 17

Exhibit 7-6 A firm's cost and MC curves
  
-In Exhibit 7-6,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 18

Under perfect competition,no matter how much output is produced,the total revenue curve is:

Accepted Answer

A)  a positively-sloped line. 
B)  a negatively-sloped line. 
C)  a horizontal straight line. 
D)  a U-shaped curve. 
E)  a hill-shaped curve. 
A)  a positively-sloped line. 
B)  a negatively-sloped line. 
C)  a horizontal straight line. 
D)  a U-shaped curve. 
E)  a hill-shaped curve.

Question 19

In the long run,a competitive firm will earn zero economic profit.

Accepted Answer

A) True 
 B)False

Question 20

Imagine you own a machine that produces perfectly authentic and legal $100 bills.You would use this machine until:

Accepted Answer

A)  the bills became worthless. 
B)  the total cost began to fall. 
C)  the marginal cost was $100. 
D)  the variable cost began to rise. 
E)  the marginal revenue began to fall. 
A)  the bills became worthless. 
B)  the total cost began to fall. 
C)  the marginal cost was $100. 
D)  the variable cost began to rise. 
E)  the marginal revenue began to fall.

Exam 7: Perfect Competition

In the short run,a firm should shut down if its economic loss from operating exceeds its total fixed cost.

Market structure describes which of the following characteristics?

Which of the following best explains why a firm in a perfectly competitive market must take the price determined in the market?

Under perfect competition,a firm is a price taker because:

A firm is currently operating where the MC of the last unit produced = $64,and the MR of this unit = $70.What would you advise this firm to do?

A profit-maximizing firm will continue to expand output:

Exhibit 7-9 A firm's cost and marginal revenue curves -In Exhibit 7-9,product price in this market is fixed at $14.This firm is currently operating where MR = MC.What do you advise this firm to do?

Exhibit 7-12 Marginal revenue and cost per unit curves -As shown in Exhibit 7-12,the firm's supply curve is the:

Profit is maximized when which of the following conditions occurs?

The neighborhood ice cream shop finds that when it charges $3 per ice cream cone,its total revenues are $90,000.It has total variable costs of $30,000 and total fixed costs of $40,000.From this we can infer the:

A perfectly competitive firm's short-run supply curve is the:

Exhibit 7-8 A firm's cost and marginal revenue curves -In Exhibit 7-8,product price in this market is fixed at $35.This firm is currently operating where MR = MC.What do you advise this firm to do?

Exhibit 7-8 A firm's cost and marginal revenue curves -In Exhibit 7-8,product price in this market is fixed at $35.This firm is currently operating where MR = MC.Which of the following is true?

Exhibit 7-3 Cost per unit curves -As shown in Exhibit 7-3,the price at which the firm earns zero economic profit in the short-run is:

In the short run,a firm should shut down its business if price is less than:

Exhibit 7-10 Price and cost data for a firm -In Exhibit 7-10,MR is the same as which column?

Exhibit 7-6 A firm's cost and MC curves -In Exhibit 7-6,if this firm is currently producing 20 units of output,this firm:

Under perfect competition,no matter how much output is produced,the total revenue curve is:

In the long run,a competitive firm will earn zero economic profit.

Imagine you own a machine that produces perfectly authentic and legal $100 bills.You would use this machine until:

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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