Question 1

If a perfectly competitive firm produces an output level at which price is greater than marginal cost, then the firm should:

Accepted Answer

A) employ more fixed factors of production. 
B) reduce output to earn greater profits or smaller losses. 
C) expand output to earn greater profits or smaller losses. 
D) leave its output decision unchanged because it is earning a profit. 
A) employ more fixed factors of production. 
B) reduce output to earn greater profits or smaller losses. 
C) expand output to earn greater profits or smaller losses. 
D) leave its output decision unchanged because it is earning a profit. C

Question 2

A rational seller will sell another unit of output:

Accepted Answer

A) whenever the seller is earning a profit. 
B) if the cost of making another unit is less than the revenue gained from selling another unit. 
C) as long as the quantity demanded is greater than zero. 
D) if the seller can charge more than the equilibrium price. 
A) whenever the seller is earning a profit. 
B) if the cost of making another unit is less than the revenue gained from selling another unit. 
C) as long as the quantity demanded is greater than zero. 
D) if the seller can charge more than the equilibrium price. B

Question 3

Refer to the accompanying table. As the firm increases the number of employees per day each day from 1 to 2, output increases by:

Accepted Answer

A) 33 units. 
B) 66 units. 
C) 99 units. 
D) 132 units. 
A) 33 units. 
B) 66 units. 
C) 99 units. 
D) 132 units. A

Question 4

Refer to the accompanying graph. If this firm is a price taker, then when the price of each unit of output is $30, this firm's total revenue at its profit-maximizing level of output is ________.

Accepted Answer

A) $3,000 
B) $2,400 
C) $1,800 
D) $900 
A) $3,000 
B) $2,400 
C) $1,800 
D) $900

Question 5

An increase in consumers' demand for espresso will lead to an increase in ________, while an increase in the number of firms producing espresso will lead to a(n)________.

Accepted Answer

A) quantity supplied; decrease in supply 
B) supply; increase in quantity supplied 
C) quantity supplied; increase in supply 
D) supply; decrease in supply 
A) quantity supplied; decrease in supply 
B) supply; increase in quantity supplied 
C) quantity supplied; increase in supply 
D) supply; decrease in supply

Question 6

If a firm shuts down in the short run, then its:

Accepted Answer

A) total revenue and total cost will fall to zero. 
B) profit will equal zero. 
C) economic loss will equal its fixed costs. 
D) economic loss will equal its variable costs. 
A) total revenue and total cost will fall to zero. 
B) profit will equal zero. 
C) economic loss will equal its fixed costs. 
D) economic loss will equal its variable costs.

Question 7

Suppose a firm uses workers and office space to produce output. The firm is locked into a year-long lease on its office space, but it can easily vary the number of employee-hours it uses each day. The accompanying table describes the relationship between the number of employee-hours the firm uses each day and the firm's daily output. Each unit of output sells for $2, the hourly wage rate is $14, and the rent on the office space is $50 per day.    
When the firm uses 9 employee-hours per day, its total cost each day is:

Accepted Answer

A) $126. 
B) $64. 
C) $56. 
D) $176. 
A) $126. 
B) $64. 
C) $56. 
D) $176.

Question 8

Suppose Chris is a potter who makes mugs. His total costs depend on the number of mugs he makes each day, as shown in the accompanying table. $$\begin{array} { | c | c | } 
\hline \text { Number d Mugs Per Day } & \text { Tatal Cast Per Day } \
\hline 0 & \$ 10 \
\hline 1 & \$ 14 \
\hline 2 & \$ 19 \
\hline 3 & \$ 25 \
\hline 4 & \$ 32 \
\hline 5 & \$ 40 \
\hline 6 & \$ 49 \
\hline
\end{array}$$  
Chris's fixed cost is ________ per day.

Accepted Answer

A) $0 
B) $10 
C) $39 
D) $49 
A) $0 
B) $10 
C) $39 
D) $49

Question 9

Jenny sells lemonade in front of her house in the summer. Several other kids in Jenny's neighborhood also run lemonade stands in the summer. The lemonade market in Jenny's neighborhood is more likely to be perfectly competitive if:

Accepted Answer

A) all of the kids advertise heavily. 
B) each stand tries to get more customers by offering different varieties of lemonade and snacks. 
C) each lemonade stand sells the same kind of lemonade. 
D) some of the neighborhood parents build elaborate booths for their kids' stands while some kids sell from makeshift tables. 
A) all of the kids advertise heavily. 
B) each stand tries to get more customers by offering different varieties of lemonade and snacks. 
C) each lemonade stand sells the same kind of lemonade. 
D) some of the neighborhood parents build elaborate booths for their kids' stands while some kids sell from makeshift tables.

Question 10

For a given seller, the accompanying figure shows the relationship between the number of units produced and the opportunity cost of producing an additional unit of output. If the market consists of 50 identical sellers, each with the same opportunity cost as the seller depicted in the figure, then how many units would be supplied in the market at a price of $14 per unit?

Accepted Answer

A) 350 
B) 1,750 
C) 17,500 
D) 175,000 
A) 350 
B) 1,750 
C) 17,500 
D) 175,000

Question 11

The price equals marginal cost rule for profit maximization is a specific example of which core principle?

Accepted Answer

A) The Scarcity Principle 
B) The Cost-Benefit Principle 
C) The Principle of Comparative Advantage 
D) The Efficiency Principle 
A) The Scarcity Principle 
B) The Cost-Benefit Principle 
C) The Principle of Comparative Advantage 
D) The Efficiency Principle

Question 12

The accompanying table shows a pizzeria's fixed cost and variable cost at different levels of output. Pizzas sell for $20 each.    
When the pizzeria makes 50 pizzas a day, its average total cost is ________.

Accepted Answer

A) $5 
B) $10 
C) $15 
D) $20 
A) $5 
B) $10 
C) $15 
D) $20

Question 13

Suppose a firm uses workers and office space to produce output. The firm is locked into a year-long lease on its office space, but it can easily vary the number of employee-hours it uses each day. The accompanying table describes the relationship between the number of employee-hours the firm uses each day and the firm's daily output. Each unit of output sells for $2, the hourly wage rate is $14, and the rent on the office space is $50 per day.    
What is the marginal cost of production between 80 and 120 units of output each day?

Accepted Answer

A) $1.40 
B) $1.75 
C) $14 
D) $70 
A) $1.40 
B) $1.75 
C) $14 
D) $70

Question 14

Which of the following is the most likely to be a variable factor of production at a university?

Accepted Answer

A) The number of librarians 
B) The size of the football stadium 
C) The size of the student union 
D) The location of the university 
A) The number of librarians 
B) The size of the football stadium 
C) The size of the student union 
D) The location of the university

Question 15

The accompanying table shows a pizzeria's fixed cost and variable cost at different levels of output. Pizzas sell for $20 each.    
When the pizzeria makes 125 pizzas per day, its total revenue is ________.

Accepted Answer

A) $2,500 
B) $1,250 
C) $125 
D) $20 
A) $2,500 
B) $1,250 
C) $125 
D) $20

Question 16

Suppose a perfectly competitive firm is producing 1,000 units of output and the marginal cost of the 1,000ᵗʰ unit is $7. If the firm can sell each unit of output for $7 and the firm's revenue is sufficient to cover its variable cost, the firm should:

Accepted Answer

A) leave production unchanged. 
B) increase price to increase profits. 
C) increase production to increase profits. 
D) decrease production to lower losses. 
A) leave production unchanged. 
B) increase price to increase profits. 
C) increase production to increase profits. 
D) decrease production to lower losses.

Question 17

Suppose Sarah owns a small company that makes wedding cakes. The accompanying table shows how Sarah's total cost varies depending on the number of wedding cakes she makes each day. $$\begin{array} { | c | c | } 
\hline \text { Number of Cales Per Day } & \text { Tatal Cast Per Day } \
\hline 0 & \$ 100 \
\hline 1 & \$ 180 \
\hline 2 & \$ 220 \
\hline 3 & \$ 300 \
\hline 4 & \$ 400 \
\hline 5 & \$ 520 \
\hline 6 & \$ 660 \
\hline
\end{array}$$  
If the market for wedding cakes is perfectly competitive, and wedding cakes sell for $125 each, then Sarah should produce ________ cakes per day.

Accepted Answer

A) 0 
B) 3 
C) 5 
D) 6 
A) 0 
B) 3 
C) 5 
D) 6

Question 18

A price-taker faces a demand curve that is:

Accepted Answer

A) vertical at the market price. 
B) upward sloping. 
C) downward sloping. 
D) horizontal at the market price. 
A) vertical at the market price. 
B) upward sloping. 
C) downward sloping. 
D) horizontal at the market price.

Question 19

To produce 150 units of output, a firm must use 3 employees per day. To produce 300 units of output, the firm must use 8 employees per day. Apparently, the firm is:

Accepted Answer

A) producing in the long run. 
B) experiencing diminishing returns. 
C) not using any fixed factors of production. 
D) experiencing negative returns. 
A) producing in the long run. 
B) experiencing diminishing returns. 
C) not using any fixed factors of production. 
D) experiencing negative returns.

Question 20

The accompanying table shows a pizzeria's fixed cost and variable cost at different levels of output. Pizzas sell for $20 each.  
   
When the pizzeria makes 50 pizzas a day, its average variable cost is ________.

Accepted Answer

A) $5 
B) $10 
C) $15 
D) $20 
A) $5 
B) $10 
C) $15 
D) $20

Exam 6: Perfectly Competitive Supply

If a perfectly competitive firm produces an output level at which price is greater than marginal cost, then the firm should:

A rational seller will sell another unit of output:

Refer to the accompanying table. As the firm increases the number of employees per day each day from 1 to 2, output increases by:

Refer to the accompanying graph. If this firm is a price taker, then when the price of each unit of output is $30, this firm's total revenue at its profit-maximizing level of output is ________.

An increase in consumers' demand for espresso will lead to an increase in ________, while an increase in the number of firms producing espresso will lead to a(n)________.

If a firm shuts down in the short run, then its:

Suppose Chris is a potter who makes mugs. His total costs depend on the number of mugs he makes each day, as shown in the accompanying table. Number d Mugs Per Day Tatal Cast Per Day 0 \ 10 1 \ 14 2 \ 19 3 \ 25 4 \ 32 5 \ 40 6 \ 49 Chris's fixed cost is ________ per day.

Jenny sells lemonade in front of her house in the summer. Several other kids in Jenny's neighborhood also run lemonade stands in the summer. The lemonade market in Jenny's neighborhood is more likely to be perfectly competitive if:

The price equals marginal cost rule for profit maximization is a specific example of which core principle?

The accompanying table shows a pizzeria's fixed cost and variable cost at different levels of output. Pizzas sell for $20 each. When the pizzeria makes 50 pizzas a day, its average total cost is ________.

Which of the following is the most likely to be a variable factor of production at a university?

The accompanying table shows a pizzeria's fixed cost and variable cost at different levels of output. Pizzas sell for $20 each. When the pizzeria makes 125 pizzas per day, its total revenue is ________.

Suppose a perfectly competitive firm is producing 1,000 units of output and the marginal cost of the 1,000ᵗʰ unit is $7. If the firm can sell each unit of output for $7 and the firm's revenue is sufficient to cover its variable cost, the firm should:

A price-taker faces a demand curve that is:

To produce 150 units of output, a firm must use 3 employees per day. To produce 300 units of output, the firm must use 8 employees per day. Apparently, the firm is:

The accompanying table shows a pizzeria's fixed cost and variable cost at different levels of output. Pizzas sell for $20 each. When the pizzeria makes 50 pizzas a day, its average variable cost is ________.

Thinking Like an Economist

Comparative Advantage

Supply and Demand

Elasticity

Demand

Efficiency, Exchange, and the Invisible Hand in Action

Monopoly, Oligopoly, and Monopolistic Competition

Games and Strategic Behavior

An Introduction to Behavioral Economics

Externalities, Property Rights, and the Environment

The Economics of Information

Labor Markets, Poverty, and Income Distribution

Public Goods and Tax Policy

International Trade and Trade Policy

Macroeconomics: The Birds Eye View of the Economy

Measuring Economic Activity: GDP and Unemployment

Measuring the Price Level and Inflation

Economic Growth, Productivity, and Living Standards

The Labor Market: Workers, Wages, and Unemployment

Saving and Capital Formation

Money Prices and the Federal Reserve

Financial Markets and International Capital Flows

Short-Term Economic Fluctuations: An Introduction

Spending and Output in the Short Run

Stabilizing the Economy: The Role of the Fed

Aggregate Demand, Aggregate Supply, and Inflation

Exchange Rates and the Open Economy

Filters

An increase in consumers' demand for espresso will lead to an increase in , while an increase in the number of firms producing espresso will lead to a(n).