Question 1

Exhibit 7-17 Marginal revenue and cost per unit curves
  
-In Exhibit 7-17,if the price of the firm's product is $20 per unit,the firm will produce:

Accepted Answer

A)  20 units per day. 
B)  40 units per day. 
C)  60 units per day. 
D)  80 units per day. 
A)  20 units per day. 
B)  40 units per day. 
C)  60 units per day. 
D)  80 units per day.

Question 2

If a firm increases output when MR < MC,then:

Accepted Answer

A)  profit will equal zero. 
B)  profit will increase. 
C)  profit will decrease. 
D)  profit will remain the same. 
E)  the firm is minimizing losses. 
A)  profit will equal zero. 
B)  profit will increase. 
C)  profit will decrease. 
D)  profit will remain the same. 
E)  the firm is minimizing losses.

Question 3

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)  is earning a $3 profit on each item sold. 
C)  is losing $3 on each item sold. 
D)  should shut down. 
E)  is earning a total profit of $3. 
A)  is at its profit-maximizing point. 
B)  is earning a $3 profit on each item sold. 
C)  is losing $3 on each item sold. 
D)  should shut down. 
E)  is earning a total profit of $3.

Question 4

Perfectly competitive markets are characterized by:

Accepted Answer

A)  a small number of very large producers. 
B)  very strong barriers to entry and exit. 
C)  firms selling a homogeneous product. 
D)  all of the above. 
A)  a small number of very large producers. 
B)  very strong barriers to entry and exit. 
C)  firms selling a homogeneous product. 
D)  all of the above.

Question 5

In long-run equilibrium,the typical perfectly competitive firm will:

Accepted Answer

A)  earn zero economic profit. 
B)  change plant size in the long run. 
C)  change output in the short run. 
D)  do any of the above. 
A)  earn zero economic profit. 
B)  change plant size in the long run. 
C)  change output in the short run. 
D)  do any of the above.

Question 6

Suppose a company increases production from a point where marginal cost equals average total cost to a point where marginal revenue and marginal cost are equal.Is it a good idea for the company to do this? Why?

Accepted Answer

A)  No, average total costs have increased which means the company is not minimizing losses. 
B)  Yes, because average variable costs are always less than average total costs. 
C)  No, because the marginal cost of producing the last unit is the same as the marginal revenue. 
D)  Yes, even though the previous level of output had minimized the average total cost, there was still profit to be earned by producing additional units. 
E)  No, the previous level of output was the most efficient because it had the lowest average total cost. 
A)  No, average total costs have increased which means the company is not minimizing losses. 
B)  Yes, because average variable costs are always less than average total costs. 
C)  No, because the marginal cost of producing the last unit is the same as the marginal revenue. 
D)  Yes, even though the previous level of output had minimized the average total cost, there was still profit to be earned by producing additional units. 
E)  No, the previous level of output was the most efficient because it had the lowest average total cost.

Question 7

Which of the following is characteristic of a perfectly competitive market?

Accepted Answer

A)  There is free entry into and exit from the market. 
B)  Individual firms can exert a perceptible influence on the market price. 
C)  The firms in the market produce differentiated products. 
D)  All of the above are true. 
A)  There is free entry into and exit from the market. 
B)  Individual firms can exert a perceptible influence on the market price. 
C)  The firms in the market produce differentiated products. 
D)  All of the above are true.

Question 8

Total profit can be calculated by:

Accepted Answer

A) c and e. 
B) subtracting total revenue from total costs. 
C) subtracting total costs from total revenue. 
D) finding the product of the difference between average profit and average total cost and the quantity produced. 
E) quantity produced times the difference between average revenue and average total cost. 
A) c and e. 
B) subtracting total revenue from total costs. 
C) subtracting total costs from total revenue. 
D) finding the product of the difference between average profit and average total cost and the quantity produced. 
E) quantity produced times the difference between average revenue and average total cost.

Question 9

A perfectly competitive firm in the short-run can earn:

Accepted Answer

A)  positive economic profits. 
B)  negative economic profits. 
C)  zero economic profits. 
D)  all of the above are possible 
A)  positive economic profits. 
B)  negative economic profits. 
C)  zero economic profits. 
D)  all of the above are possible

Question 10

Exhibit 16 Short-run cost curves for a competitive firm
  
-In Exhibit 7-16,the firm should shut down in the short run if the market price of its product falls below:

Accepted Answer

A)  $20 per unit. 
B)  $30 per unit. 
C)  $50 per unit. 
D)  $80 per unit. 
A)  $20 per unit. 
B)  $30 per unit. 
C)  $50 per unit. 
D)  $80 per unit.

Question 11

Suppose that you have returned from your fishing expedition with 20,000 fish.The market price is $3 per fish.Your average fixed cost was $1 and your total variable cost was $5,000.If the price jumps to $3.50 before you sell your first fish,how much extra profit,if any,do you earn?

Accepted Answer

A) c and d. 
B) Extra profit is zero. 
C) Extra profit is enough to cover half of the fixed cost of your next trip. 
D) Extra profit is enough to cover all of the variable costs of your next two trips. 
E) Extra profit is $45,000. 
A) c and d. 
B) Extra profit is zero. 
C) Extra profit is enough to cover half of the fixed cost of your next trip. 
D) Extra profit is enough to cover all of the variable costs of your next two trips. 
E) Extra profit is $45,000.

Question 12

A perfectly competitive market is characterized by the free entry and exit of firms.

Accepted Answer

A) True 
 B)False

Question 13

A perfectly competitive firm will shut down in the short run when marginal revenue equals marginal cost at a price less than minimum average variable cost.

Accepted Answer

A) True 
 B)False

Question 14

Perfect competition is a market structure in which there is:

Accepted Answer

A)  a contest among firms to provide good service after the sale. 
B)  competition in product quality. 
C)  rivalry in product design. 
D)  none of the above. 
A)  a contest among firms to provide good service after the sale. 
B)  competition in product quality. 
C)  rivalry in product design. 
D)  none of the above.

Question 15

Exhibit 16 Short-run cost curves for a competitive firm
  
-In Exhibit 7-16,if the market price of its product is $50 per unit,then the firm will:

Accepted Answer

A)  break even. 
B)  shut down. 
C)  exit the industry. 
D)  earn a positive economic profit. 
A)  break even. 
B)  shut down. 
C)  exit the industry. 
D)  earn a positive economic profit.

Question 16

Suppose product price is fixed at $24; MR = MC at Q = 200; AFC = $6; AVC = $25.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 $1,400. 
E)  Stay at the current output; the firm is losing $1,400. 
A)  Increase output. 
B)  Decrease output. 
C)  Shut down operations. 
D)  Stay at the current output; the firm is earning a profit of $1,400. 
E)  Stay at the current output; the firm is losing $1,400.

Question 17

A perfectly competitive firm's short-run supply curve is the part of its marginal cost curve that is:

Accepted Answer

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

Question 18

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

Accepted Answer

A)  total revenue minus total cost is at a maximum. 
B)  marginal cost equals marginal revenue. 
C)  Both of the above. 
D)  Neither of the above. 
A)  total revenue minus total cost is at a maximum. 
B)  marginal cost equals marginal revenue. 
C)  Both of the above. 
D)  Neither of the above.

Question 19

Exhibit 7-17 Marginal revenue and cost per unit curves
  
-As shown in Exhibit 7-17,the short-run supply curve for the firm corresponds to which segment of its marginal cost curve?

Accepted Answer

A)  C and all points above. 
B)  B and all points above. 
C)  A and all points above. 
D)  A to C only. 
E)  B to D only. 
A)  C and all points above. 
B)  B and all points above. 
C)  A and all points above. 
D)  A to C only. 
E)  B to D only.

Question 20

Suppose that price is below the minimum average total cost (ATC)but above the minimum average variable cost (AVC),and the market price is expected to rise at least to ATC in the near future.In the short run,a firm that is a price taker would:

Accepted Answer

A)  immediately shut down and get out of the industry. 
B)  continue to produce a quantity such that marginal revenue equals marginal cost. 
C)  shut down temporarily, in hopes of restarting in the near future. 
D)  cut price and expand output in hopes of achieving economies of scale 
A)  immediately shut down and get out of the industry. 
B)  continue to produce a quantity such that marginal revenue equals marginal cost. 
C)  shut down temporarily, in hopes of restarting in the near future. 
D)  cut price and expand output in hopes of achieving economies of scale

Exam 7: Perfect Competition

Exhibit 7-17 Marginal revenue and cost per unit curves -In Exhibit 7-17,if the price of the firm's product is $20 per unit,the firm will produce:

If a firm increases output when MR < MC,then:

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:

Perfectly competitive markets are characterized by:

In long-run equilibrium,the typical perfectly competitive firm will:

Suppose a company increases production from a point where marginal cost equals average total cost to a point where marginal revenue and marginal cost are equal.Is it a good idea for the company to do this? Why?

Which of the following is characteristic of a perfectly competitive market?

Total profit can be calculated by:

A perfectly competitive firm in the short-run can earn:

Exhibit 16 Short-run cost curves for a competitive firm -In Exhibit 7-16,the firm should shut down in the short run if the market price of its product falls below:

Suppose that you have returned from your fishing expedition with 20,000 fish.The market price is $3 per fish.Your average fixed cost was $1 and your total variable cost was $5,000.If the price jumps to $3.50 before you sell your first fish,how much extra profit,if any,do you earn?

A perfectly competitive market is characterized by the free entry and exit of firms.

A perfectly competitive firm will shut down in the short run when marginal revenue equals marginal cost at a price less than minimum average variable cost.

Perfect competition is a market structure in which there is:

Exhibit 16 Short-run cost curves for a competitive firm -In Exhibit 7-16,if the market price of its product is $50 per unit,then the firm will:

Suppose product price is fixed at $24; MR = MC at Q = 200; AFC = $6; AVC = $25.What do you advise this firm to do?

A perfectly competitive firm's short-run supply curve is the part of its marginal cost curve that is:

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

Exhibit 7-17 Marginal revenue and cost per unit curves -As shown in Exhibit 7-17,the short-run supply curve for the firm corresponds to which segment of its marginal cost curve?

Suppose that price is below the minimum average total cost (ATC)but above the minimum average variable cost (AVC),and the market price is expected to rise at least to ATC in the near future.In the short run,a firm that is a price taker would:

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

Filters