Question 1

The accompanying graph shows the cost curves for Moe's mushroom gathering business, which is perfectly competitive.   The curve labeled A is upward sloping because:

Accepted Answer

A) of high fixed costs. 
B) of diminishing returns to Moe's variable factors of production. 
C) an increase in the demand for mushrooms increases the supply of mushrooms. 
D) variable costs increase as output increases. 
A) of high fixed costs. 
B) of diminishing returns to Moe's variable factors of production. 
C) an increase in the demand for mushrooms increases the supply of mushrooms. 
D) variable costs increase as output increases.

Question 2

Suppose that when a perfectly competitive firm produces 1,000 units of output, its total variable cost is $1,900. If the marginal cost of producing the 1,000ᵗʰ unit is $1.70, and if the market price of each unit of output is $1.70, then the firm should:

Accepted Answer

A) shut down. 
B) raise its price. 
C) increase output. 
D) continue to produce 1000 units. 
A) shut down. 
B) raise its price. 
C) increase output. 
D) continue to produce 1000 units.

Question 3

Suppose that at a firm's profit-maximizing level of output, its total revenue is $1,250, the total cost of its variable factors of production is $1,000, and its total fixed cost is $500. This firm will ________ in the short run, and will ________ in the long run.

Accepted Answer

A) shut down; reopen for business 
B) earn a profit; earn a loss 
C) earn a loss; earn a profit 
D) not shut down; exit the industry 
A) shut down; reopen for business 
B) earn a profit; earn a loss 
C) earn a loss; earn a profit 
D) not shut down; exit the industry

Question 4

An imperfectly competitive firm is one that:

Accepted Answer

A) has at least some influence over the market price. 
B) charges any price it wants. 
C) seeks to maximize revenue. 
D) faces a perfectly inelastic demand curve. 
A) has at least some influence over the market price. 
B) charges any price it wants. 
C) seeks to maximize revenue. 
D) faces a perfectly inelastic demand curve.

Question 5

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 variable cost each day is:

Accepted Answer

A) $30. 
B) $56. 
C) $84. 
D) $126. 
A) $30. 
B) $56. 
C) $84. 
D) $126.

Question 6

Suppose a profit-maximizing firm in a perfectly competitive market is collecting $1,999 in total revenues. If the total cost of its fixed factors of production falls from $500 to $400, the firm will:

Accepted Answer

A) expand its output. 
B) lower its price. 
C) earn greater profits or smaller losses. 
D) earn smaller profits or larger losses. 
A) expand its output. 
B) lower its price. 
C) earn greater profits or smaller losses. 
D) earn smaller profits or larger losses.

Question 7

Refer to the accompanying figure. At quantities less than 50 doughnuts per day:

Accepted Answer

A) marginal cost is declining. 
B) the return to the firm's variable factors of production must be increasing. 
C) average cost is declining because marginal cost is increasing. 
D) average cost is declining because marginal cost is less than average cost. 
A) marginal cost is declining. 
B) the return to the firm's variable factors of production must be increasing. 
C) average cost is declining because marginal cost is increasing. 
D) average cost is declining because marginal cost is less than average cost.

Question 8

The most important challenge facing a firm in a perfectly competitive market is deciding:

Accepted Answer

A) whether to maximize its profits. 
B) how much to produce. 
C) what price to charge. 
D) whether to advertise. 
A) whether to maximize its profits. 
B) how much to produce. 
C) what price to charge. 
D) whether to advertise.

Question 9

When the price of a perfectly competitive firm's output rises:

Accepted Answer

A) the firm will produce more. 
B) the firm's marginal cost curve will shift to the right. 
C) the firm will produce less. 
D) the firm's marginal cost curve will shift to the left. 
A) the firm will produce more. 
B) the firm's marginal cost curve will shift to the right. 
C) the firm will produce less. 
D) the firm's marginal cost curve will shift to the left.

Question 10

According to the law of diminishing returns, when some factors of production are fixed, in order to increase production by a given amount, a firm will eventually need to add successively:

Accepted Answer

A) smaller and smaller quantities of the variable factors of production. 
B) constant quantities of the variable factors of production. 
C) larger and larger quantities of the variable factors of production. 
D) larger and larger quantities of the fixed factor of production. 
A) smaller and smaller quantities of the variable factors of production. 
B) constant quantities of the variable factors of production. 
C) larger and larger quantities of the variable factors of production. 
D) larger and larger quantities of the fixed factor of production.

Question 11

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 Sarah's fixed costs double, then in the short run, her profit-maximizing level of output:

Accepted Answer

A) will shrink to zero if she starts earning a loss. 
B) will increase. 
C) will decrease. 
D) will not change. 
A) will shrink to zero if she starts earning a loss. 
B) will increase. 
C) will decrease. 
D) will not change.

Question 12

A profit-maximizing firm will only produce a positive amount of output if:

Accepted Answer

A) its total revenue is greater than its total cost. 
B) its total revenue is greater than its fixed cost. 
C) its total revenue equals its total cost. 
D) its total revenue is greater than or equal to its variable cost. 
A) its total revenue is greater than its total cost. 
B) its total revenue is greater than its fixed cost. 
C) its total revenue equals its total cost. 
D) its total revenue is greater than or equal to its variable cost.

Question 13

Suppose Ben owns a small company that makes kites. The market for kites is perfectly competitive, and kites sell for $25 each. Ben's total production costs vary depending on the number of kites he makes each day, as shown in the accompanying table.  
$$\begin{array} { | c | c | } 
\hline \text { Number d kites Per Day } & \text { Tutal Cast Per Day (\$) } \
\hline 0 & 100 \
\hline 1 & 110 \
\hline 2 & 126 \
\hline 3 & 148 \
\hline 4 & 172 \
\hline 5 & 200 \
\hline 6 & 235 \
\hline
\end{array}$$  
When Ben makes 2 kites per day, what is his average variable cost?

Accepted Answer

A) $13 
B) $26 
C) $50 
D) $63 
A) $13 
B) $26 
C) $50 
D) $63

Question 14

Which of the following is NOT a characteristic of a perfectly competitive market?

Accepted Answer

A) Each firm in the market sells a somewhat different variant of the good. 
B) There are many sellers, each of which sells only a small fraction of the total quantity exchanged. 
C) Buyers and sellers are well-informed. 
D) Sellers can easily buy and sell the productive resources needed to enter the market. 
A) Each firm in the market sells a somewhat different variant of the good. 
B) There are many sellers, each of which sells only a small fraction of the total quantity exchanged. 
C) Buyers and sellers are well-informed. 
D) Sellers can easily buy and sell the productive resources needed to enter the market.

Question 15

Last year, Casey grew fresh vegetables, which she sold at her local farmers market, but this year, Casey did not plant any vegetables and went to work at a bank instead. Which of the following best explains Casey's career change?

Accepted Answer

A) Casey's opportunity costs of gardening exceeded Casey's benefits from working at the bank. 
B) Casey's opportunity costs of working at the bank exceeded Casey's benefits from gardening. 
C) Casey's opportunity costs of working at the bank exceeded Casey's opportunity costs of gardening. 
D) Casey's opportunity costs of gardening exceeded Casey's opportunity costs of working at the bank. 
A) Casey's opportunity costs of gardening exceeded Casey's benefits from working at the bank. 
B) Casey's opportunity costs of working at the bank exceeded Casey's benefits from gardening. 
C) Casey's opportunity costs of working at the bank exceeded Casey's opportunity costs of gardening. 
D) Casey's opportunity costs of gardening exceeded Casey's opportunity costs of working at the bank.

Question 16

Which of the following is NOT true of a perfectly competitive firm?

Accepted Answer

A) It faces a perfectly elastic demand curve. 
B) It is unable to influence the price of the good it sells. 
C) It seeks to maximize revenue. 
D) It sells only a small fraction of the total quantity exchanged in the market. 
A) It faces a perfectly elastic demand curve. 
B) It is unable to influence the price of the good it sells. 
C) It seeks to maximize revenue. 
D) It sells only a small fraction of the total quantity exchanged in the market.

Question 17

Refer to the accompanying table. To increase output from 99 to 132 units requires ________ extra employees per day; to increase output from 132 to 165 units requires ________ extra employees per day.

Accepted Answer

A) 11; 18 
B) 7; 11 
C) 4; 3 
D) 3; 4 
A) 11; 18 
B) 7; 11 
C) 4; 3 
D) 3; 4

Question 18

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. $$\begin{array} { | c | c | } 
\hline \text { Number d Mugs Per Day } & \text { Tatal Cast Per Day } \
\hline 0 & \$ 10 \
\hline 1 & \$ 14 \
\hline 2 & \$ 19 \
\hline 3 & \$ 25 \
\hline 4 & \$ 32 \
\hline 5 & \$ 40 \
\hline 6 & \$ 49 \
\hline
\end{array}$$  
If the market for mugs is perfectly competitive, and mugs sell for $7.50 each, then at his profit-maximizing level of output, Chris will earn a ________ of ________ per day.

Accepted Answer

A) loss; $2 
B) loss; $10 
C) profit; $2 
D) profit; $30 
A) loss; $2 
B) loss; $10 
C) profit; $2 
D) profit; $30

Question 19

If the market for butter is perfectly competitive, then the demand curve facing a firm that produces butter will be:

Accepted Answer

A) unit elastic. 
B) perfectly inelastic. 
C) perfectly elastic. 
D) upward sloping. 
A) unit elastic. 
B) perfectly inelastic. 
C) perfectly elastic. 
D) upward sloping.

Exam 6: Perfectly Competitive Supply

The accompanying graph shows the cost curves for Moe's mushroom gathering business, which is perfectly competitive. The curve labeled A is upward sloping because:

Suppose that when a perfectly competitive firm produces 1,000 units of output, its total variable cost is $1,900. If the marginal cost of producing the 1,000ᵗʰ unit is $1.70, and if the market price of each unit of output is $1.70, then the firm should:

Suppose that at a firm's profit-maximizing level of output, its total revenue is $1,250, the total cost of its variable factors of production is $1,000, and its total fixed cost is $500. This firm will ________ in the short run, and will ________ in the long run.

An imperfectly competitive firm is one that:

Suppose a profit-maximizing firm in a perfectly competitive market is collecting $1,999 in total revenues. If the total cost of its fixed factors of production falls from $500 to $400, the firm will:

Refer to the accompanying figure. At quantities less than 50 doughnuts per day:

The most important challenge facing a firm in a perfectly competitive market is deciding:

When the price of a perfectly competitive firm's output rises:

According to the law of diminishing returns, when some factors of production are fixed, in order to increase production by a given amount, a firm will eventually need to add successively:

A profit-maximizing firm will only produce a positive amount of output if:

Which of the following is NOT a characteristic of a perfectly competitive market?

Last year, Casey grew fresh vegetables, which she sold at her local farmers market, but this year, Casey did not plant any vegetables and went to work at a bank instead. Which of the following best explains Casey's career change?

Which of the following is NOT true of a perfectly competitive firm?

Refer to the accompanying table. To increase output from 99 to 132 units requires ________ extra employees per day; to increase output from 132 to 165 units requires ________ extra employees per day.

If the market for butter is perfectly competitive, then the demand curve facing a firm that produces butter will be:

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

Suppose that at a firm's profit-maximizing level of output, its total revenue is $1,250, the total cost of its variable factors of production is $1,000, and its total fixed cost is $500. This firm will in the short run, and will in the long run.

Refer to the accompanying table. To increase output from 99 to 132 units requires extra employees per day; to increase output from 132 to 165 units requires extra employees per day.