Question 1

Price times quantity minus total cost equals:

Accepted Answer

A)  total revenue. 
B)  fixed costs. 
C)  marginal revenue. 
D)  profit. 
A)  total revenue. 
B)  fixed costs. 
C)  marginal revenue. 
D)  profit.

Question 2

If a single supplier produces a good with many good substitutes, then:

Accepted Answer

A)  it will have little control over the market price. 
B)  the demand curve for its output will be downward sloping. 
C)  the price it chooses to set must be less than the market price in order to sell additional output. 
D)  the market demand will be perfectly elastic. 
A)  it will have little control over the market price. 
B)  the demand curve for its output will be downward sloping. 
C)  the price it chooses to set must be less than the market price in order to sell additional output. 
D)  the market demand will be perfectly elastic.

Question 3

Figure: Calculating Profits   Refer to the figure. How much profit is the firm making at the profit-maximizing quantity?

Accepted Answer

A)  a profit of $200 
B)  The firm is not making a profit-it is making a loss of $220. 
C)  The firm is not making a profit-it is making a loss of $200. 
D)  The firm is not making a profit-it is making a loss of $320. 
A)  a profit of $200 
B)  The firm is not making a profit-it is making a loss of $220. 
C)  The firm is not making a profit-it is making a loss of $200. 
D)  The firm is not making a profit-it is making a loss of $320.

Question 4

A flat firm-level demand curve means:

Accepted Answer

A)  full market pricing power. 
B)  limited market pricing power. 
C)  no market pricing power. 
D)  seasonal market pricing power. 
A)  full market pricing power. 
B)  limited market pricing power. 
C)  no market pricing power. 
D)  seasonal market pricing power.

Question 5

The short run is the period before exit or entry can occur.

Accepted Answer

A) True 
 B)False

Question 6

Firms in competitive industries:
I. can only charge a price equal to the market price.
II. cannot charge any more than the market price.
III. will earn less profit if they charge less than the market price.

Accepted Answer

A)  I only 
B)  I and III only 
C)  II only 
D)  I, II, and III 
A)  I only 
B)  I and III only 
C)  II only 
D)  I, II, and III

Question 7

When marginal cost is rising, the average total costs:

Accepted Answer

A)  could be rising or falling. 
B)  must be rising. 
C)  must be falling. 
D)  must be constant. 
A)  could be rising or falling. 
B)  must be rising. 
C)  must be falling. 
D)  must be constant.

Question 8

Which of the following is NOT an example of a decreasing cost industry?

Accepted Answer

A)  movie production in Hollywood 
B)  the retail clothing industry 
C)  computer technology in Silicon Valley 
D)  the carpet industry in Dalton, Georgia 
A)  movie production in Hollywood 
B)  the retail clothing industry 
C)  computer technology in Silicon Valley 
D)  the carpet industry in Dalton, Georgia

Question 9

If Homer operates a small bakery and sells donuts for $4/dozen, he should:

Accepted Answer

A)  sell an additional dozen donuts as long as the marginal cost of producing an additional dozen donuts is less than $4. 
B)  sell an additional dozen donuts as long as the total cost of producing an additional dozen donuts is less than $4. 
C)  only sell more donuts if his total revenue is greater than his total cost. 
D)  sell an additional dozen donuts so long as the fixed cost of production is greater than $4. 
A)  sell an additional dozen donuts as long as the marginal cost of producing an additional dozen donuts is less than $4. 
B)  sell an additional dozen donuts as long as the total cost of producing an additional dozen donuts is less than $4. 
C)  only sell more donuts if his total revenue is greater than his total cost. 
D)  sell an additional dozen donuts so long as the fixed cost of production is greater than $4.

Question 10

Describe the supply curve of a constant cost industry.

Accepted Answer

A)  upward sloping 
B)  flat 
C)  downward sloping 
D)  downward sloping, then upward sloping 
A)  upward sloping 
B)  flat 
C)  downward sloping 
D)  downward sloping, then upward sloping

Question 11

Figure Profit Maximization 3   At the profit-maximizing level of output in this diagram, the firm's profit is:

Accepted Answer

A)  $238. 
B)  $10. 
C)  $68. 
D)  $77. 
A)  $238. 
B)  $10. 
C)  $68. 
D)  $77.

Question 12

Use the following to answer questions:
Figure: Profit Maximization 5  
-(Figure: Profit Maximization 5) At a price of $8 in this diagram, profit per unit is approximately ______, and total profit is approximately ______.

Accepted Answer

A)  $8.00; $114 
B)  $5.50; $78 
C)  $2.50; $36 
D)  $5.00; $60 
A)  $8.00; $114 
B)  $5.50; $78 
C)  $2.50; $36 
D)  $5.00; $60

Question 13

At zero economic profits, a competitive firm:

Accepted Answer

A)  has an incentive to leave the industry to make higher profit elsewhere. 
B)  is making a normal profit; its revenues are just sufficient to cover all costs of production, including opportunity costs. 
C)  is unable to pay its opportunity costs of production but will remain in business to minimize losses. 
D)  will benefit, in the form of higher profits, by raising its prices above average cost. 
A)  has an incentive to leave the industry to make higher profit elsewhere. 
B)  is making a normal profit; its revenues are just sufficient to cover all costs of production, including opportunity costs. 
C)  is unable to pay its opportunity costs of production but will remain in business to minimize losses. 
D)  will benefit, in the form of higher profits, by raising its prices above average cost.

Question 14

What condition is necessary in a constant cost industry?

Accepted Answer

A)  Prices of the industry's inputs do not change as the industry expands. 
B)  Prices of the industry's inputs decline as the industry expands. 
C)  Prices of the industry's inputs rise as the industry expands. 
D)  There are barriers that prevent new firms from entering such an industry. 
A)  Prices of the industry's inputs do not change as the industry expands. 
B)  Prices of the industry's inputs decline as the industry expands. 
C)  Prices of the industry's inputs rise as the industry expands. 
D)  There are barriers that prevent new firms from entering such an industry.

Question 15

Any industry that buys a large fraction of the output of an increasing cost industry:

Accepted Answer

A)  could be an increasing cost industry, but not necessarily. 
B)  must be an increasing cost industry. 
C)  must be a constant cost industry. 
D)  must be a decreasing cost industry. 
A)  could be an increasing cost industry, but not necessarily. 
B)  must be an increasing cost industry. 
C)  must be a constant cost industry. 
D)  must be a decreasing cost industry.

Question 16

The marginal cost curve intersects the average cost curve:

Accepted Answer

A)  on the downward-sloping portion. 
B)  on the upward-sloping portion. 
C)  at its minimum point. 
D)  on the vertical portion. 
A)  on the downward-sloping portion. 
B)  on the upward-sloping portion. 
C)  at its minimum point. 
D)  on the vertical portion.

Question 17

Table: Decision to Enter
 
Use the table. A firm is considering whether to enter an industry, with the conditions upon entry set forth in the table. Entering the industry would require the firm to pay $800 per day in fixed costs. This firm should ________ the industry because its profits would be ________ per day.

Accepted Answer

A)  not enter; -$1,350 
B)  not enter; -$800 
C)  enter; $700 
D)  enter; $150 
A)  not enter; -$1,350 
B)  not enter; -$800 
C)  enter; $700 
D)  enter; $150

Question 18

When there are many buyers and sellers of a good and the product sold is identical across firms,:

Accepted Answer

A)  the demand curve for each firm's output is somewhat elastic. 
B)  the industry demand curve is somewhat elastic. 
C)  the demand curve for each firm's output is perfectly inelastic. 
D)  the industry demand curve is perfectly inelastic 
A)  the demand curve for each firm's output is somewhat elastic. 
B)  the industry demand curve is somewhat elastic. 
C)  the demand curve for each firm's output is perfectly inelastic. 
D)  the industry demand curve is perfectly inelastic

Question 19

To maximize profit, a firm in a competitive industry increases output until price is greater than the average cost.

Accepted Answer

A) True 
 B)False

Question 20

A competitive firm maximizes profits when price equals marginal cost.

Accepted Answer

A) True 
 B)False

Exam 11: Costs and Profit Maximization Under Competition

Price times quantity minus total cost equals:

If a single supplier produces a good with many good substitutes, then:

Figure: Calculating Profits Refer to the figure. How much profit is the firm making at the profit-maximizing quantity?

A flat firm-level demand curve means:

The short run is the period before exit or entry can occur.

Firms in competitive industries: I. can only charge a price equal to the market price. II. cannot charge any more than the market price. III. will earn less profit if they charge less than the market price.

When marginal cost is rising, the average total costs:

Which of the following is NOT an example of a decreasing cost industry?

If Homer operates a small bakery and sells donuts for $4/dozen, he should:

Describe the supply curve of a constant cost industry.

Figure Profit Maximization 3 At the profit-maximizing level of output in this diagram, the firm's profit is:

Use the following to answer questions: Figure: Profit Maximization 5 -(Figure: Profit Maximization 5) At a price of $8 in this diagram, profit per unit is approximately ______, and total profit is approximately ______.

At zero economic profits, a competitive firm:

What condition is necessary in a constant cost industry?

Any industry that buys a large fraction of the output of an increasing cost industry:

The marginal cost curve intersects the average cost curve:

When there are many buyers and sellers of a good and the product sold is identical across firms,:

To maximize profit, a firm in a competitive industry increases output until price is greater than the average cost.

A competitive firm maximizes profits when price equals marginal cost.

The Big Ideas

The Power of Trade and Comparative

Supply and Demand

Equilibrium

Elasticity and Its Applications

Taxes and Subsidies

The Price System

Price Ceilings and Floors

International Trade

Externalities- When the Price Is Not Right

Competition and the Invisible Hand

Monopoly

Price Discrimination

Oligopoly and Game Theory

Competing for Monopoly

Monopolistic Competition and Advertising

Labor Markets

Public Goods and the Tragedy of the Commons

Political Economy and Public Choice

Economics, Ethics, and Public Policy

Managing Incentives

Stock Markets and Personal Finance

Price Discrimination

Consumer Choice

Filters

Use the following to answer questions: Figure: Profit Maximization 5 -(Figure: Profit Maximization 5) At a price of $8 in this diagram, profit per unit is approximately , and total profit is approximately .