Question 1

-If the firm in the above figure produces output level D, it incurs an average fixed cost of production equal to the distance

Accepted Answer

A)  DK. 
B)  RN. 
C)  JL. 
D)  KR. 
A)  DK. 
B)  RN. 
C)  JL. 
D)  KR.

Question 2

-Refer to the above figure. Profits will equal zero

Accepted Answer

A)  when the price equals $1. 
B)  when the price equals $2. 
C)  when the price equals $4. 
D)  at prices between $1 and $2. 
A)  when the price equals $1. 
B)  when the price equals $2. 
C)  when the price equals $4. 
D)  at prices between $1 and $2.

Question 3

In a perfectly competitive market, the average revenue curve of a firm is

Accepted Answer

A)  the same as its total revenue curve. 
B)  the same as its demand curve. 
C)  the same its economic profits. 
D)  the difference between its total revenue curve and its marginal revenue curve. 
A)  the same as its total revenue curve. 
B)  the same as its demand curve. 
C)  the same its economic profits. 
D)  the difference between its total revenue curve and its marginal revenue curve.

Question 4

What is the shape of the long-run supply curve in an increasing-cost industry?

Accepted Answer

A)  horizontal 
B)  inverted U-shape 
C)  downward sloping 
D)  upward sloping 
A)  horizontal 
B)  inverted U-shape 
C)  downward sloping 
D)  upward sloping

Question 5

-In the above figure, what is the profit at the profit-maximizing output level?

Accepted Answer

A)  $70 
B)  $2 
C)  $20 
D)  $10 
A)  $70 
B)  $2 
C)  $20 
D)  $10

Question 6

The short-run break-even price

Accepted Answer

A)  is the price at which the firm's current liabilities are paid off. 
B)  is the price at which a firm's total revenues equal total costs. 
C)  occurs at the output at which the firm yields a below normal rate of return. 
D)  occurs at the output at which the firm yields a positive economic profit. 
A)  is the price at which the firm's current liabilities are paid off. 
B)  is the price at which a firm's total revenues equal total costs. 
C)  occurs at the output at which the firm yields a below normal rate of return. 
D)  occurs at the output at which the firm yields a positive economic profit.

Question 7

Which of the following is always TRUE in the short run for a perfectly competitive firm that is maximizing economic profits?

Accepted Answer

A)  P = d = MR = MC = AVC 
B)  P = d = MR = MC 
C)  P = d = MR = Q 
D)  MR = MC = Q 
A)  P = d = MR = MC = AVC 
B)  P = d = MR = MC 
C)  P = d = MR = Q 
D)  MR = MC = Q

Question 8

Which is always TRUE at a firm's profit-maximizing rate of production?

Accepted Answer

A)  Total Revenue = Total Costs 
B)  The total revenue curve lies below the total cost curve. 
C)  Marginal Revenue > Marginal Cost 
D)  Marginal Revenue = Marginal Cost 
A)  Total Revenue = Total Costs 
B)  The total revenue curve lies below the total cost curve. 
C)  Marginal Revenue > Marginal Cost 
D)  Marginal Revenue = Marginal Cost

Question 9

If the wage rate increases and firms in a perfectly competitive industry are hiring labor, then

Accepted Answer

A)  the firms will quit using labor. 
B)  profits will increase. 
C)  market supply will decrease. 
D)  market price will decrease. 
A)  the firms will quit using labor. 
B)  profits will increase. 
C)  market supply will decrease. 
D)  market price will decrease.

Question 10

-In the above figure, assuming Firm 1 and Firm 2 are the sole producers in the industry, the industry quantity supplied at price P1 is equal to

Accepted Answer

A)  Q1 + Q2. 
B)  Q1 + Q3. 
C)  Q2 + Q4. 
D)  Q4 - Q2. 
A)  Q1 + Q2. 
B)  Q1 + Q3. 
C)  Q2 + Q4. 
D)  Q4 - Q2.

Question 11

-Refer to the above figure. Profits will be negative

Accepted Answer

A)  when the price equals $2. 
B)  when the price is above $2. 
C)  when the price is below $2. 
D)  only when the price equals $1. 
A)  when the price equals $2. 
B)  when the price is above $2. 
C)  when the price is below $2. 
D)  only when the price equals $1.

Question 12

-Refer to the above figure. If the market price is equal to A, which statement can be made about profits?

Accepted Answer

A)  Profits are positive and equal to BCEA. 
B)  Profits are positive and equal to BCFG. 
C)  Profits are negative and equal to BCEA. 
D)  Profits are negative and equal to GFQ0.   
A)  Profits are positive and equal to BCEA. 
B)  Profits are positive and equal to BCFG. 
C)  Profits are negative and equal to BCEA. 
D)  Profits are negative and equal to GFQ0.

Question 13

Economists generally assume that firms attempt to maximize

Accepted Answer

A)  total revenue. 
B)  sales. 
C)  marginal revenue. 
D)  total economic profits. 
A)  total revenue. 
B)  sales. 
C)  marginal revenue. 
D)  total economic profits.

Question 14

Malfeasance at Enron, a Houston-based energy firm, led to overstatement of revenues by almost $92 billion. As Enron closed its operations, U.S. energy prices remained stable. This may have been evidence that

Accepted Answer

A)  Enron could charge whatever price it wanted to for energy. 
B)  there was lack of any competition, so Enron was the winner. 
C)  there is a competitive market in energy distribution in the United States. 
D)  the accounting profession needs to review its policies quickly. 
A)  Enron could charge whatever price it wanted to for energy. 
B)  there was lack of any competition, so Enron was the winner. 
C)  there is a competitive market in energy distribution in the United States. 
D)  the accounting profession needs to review its policies quickly.

Question 15

Suppose a perfectly competitive firm faces the following short-run cost and revenue conditions: ATC = $6.00; AVC = $4.00; MC = $3.50; MR = $3.50. The firm should

Accepted Answer

A)  increase output. 
B)  increase price. 
C)  remain at the same position. 
D)  shut down. 
A)  increase output. 
B)  increase price. 
C)  remain at the same position. 
D)  shut down.

Question 16

In a perfectly competitive market, positive economic profits act to

Accepted Answer

A)  attract new entrants into the industry. 
B)  drive potential competitors away from the industry. 
C)  prevent reinvestment on the part of firms within the industry. 
D)  signal resource owners elsewhere not to invest their capital in this industry. 
A)  attract new entrants into the industry. 
B)  drive potential competitors away from the industry. 
C)  prevent reinvestment on the part of firms within the industry. 
D)  signal resource owners elsewhere not to invest their capital in this industry.

Question 17

A firm in a perfectly competitive industry is a

Accepted Answer

A)  price taker. 
B)  quantity taker. 
C)  profit maker. 
D)  price maker. 
A)  price taker. 
B)  quantity taker. 
C)  profit maker. 
D)  price maker.

Question 18

The vertical distance between the horizontal axis and any point on a perfect competitor's demand curve measures

Accepted Answer

A)  total cost. 
B)  total revenues. 
C)  product price, marginal revenue, and average revenue. 
D)  supply curve for the product. 
A)  total cost. 
B)  total revenues. 
C)  product price, marginal revenue, and average revenue. 
D)  supply curve for the product.

Question 19

-Refer to the above table. If the price is $3 the maximum profit this firm could earn is

Accepted Answer

A)  $99. 
B)  $306. 
C)  -$100. 
D)  -$99. 
A)  $99. 
B)  $306. 
C)  -$100. 
D)  -$99.

Question 20

-In the short run, the perfectly competitive firm will always earn an economic profit when

Accepted Answer

A)  P = ATC. 
B)  P > AVC. 
C)  P = MC. 
D)  P > ATC. 
A)  P = ATC. 
B)  P > AVC. 
C)  P = MC. 
D)  P > ATC.

Exam 23: Perfect Competition

-If the firm in the above figure produces output level D, it incurs an average fixed cost of production equal to the distance

-Refer to the above figure. Profits will equal zero

In a perfectly competitive market, the average revenue curve of a firm is

What is the shape of the long-run supply curve in an increasing-cost industry?

-In the above figure, what is the profit at the profit-maximizing output level?

The short-run break-even price

Which of the following is always TRUE in the short run for a perfectly competitive firm that is maximizing economic profits?

Which is always TRUE at a firm's profit-maximizing rate of production?

If the wage rate increases and firms in a perfectly competitive industry are hiring labor, then

-In the above figure, assuming Firm 1 and Firm 2 are the sole producers in the industry, the industry quantity supplied at price P1 is equal to

-Refer to the above figure. Profits will be negative

-Refer to the above figure. If the market price is equal to A, which statement can be made about profits?

Economists generally assume that firms attempt to maximize

Malfeasance at Enron, a Houston-based energy firm, led to overstatement of revenues by almost $92 billion. As Enron closed its operations, U.S. energy prices remained stable. This may have been evidence that

Suppose a perfectly competitive firm faces the following short-run cost and revenue conditions: ATC = $6.00; AVC = $4.00; MC = $3.50; MR = $3.50. The firm should

In a perfectly competitive market, positive economic profits act to

A firm in a perfectly competitive industry is a

The vertical distance between the horizontal axis and any point on a perfect competitor's demand curve measures

-Refer to the above table. If the price is $3 the maximum profit this firm could earn is

-In the short run, the perfectly competitive firm will always earn an economic profit when

The Nature of Economics

Scarcity and the World of Trade-Offs

Demand and Supply

Extensions of Demand and Supply Analysis

Public Spending and Public Choice

Funding the Public Sector

The Macroeconomy: Unemployment, Inflation, and Deflation

Measuring the Economys Performance

Global Economic Growth and Development

Real GDP and the Price Level in the Long Run

Classical and Keynesian Macro Analyses

Consumption, Real GDP, and the Multiplier

Fiscal Policy

Deficit Spending and the Public Debt

Money, Banking, and Central Banking

Domestic and International Dimensions of Monetary Policy

Stabilization in an Integrated World Economy

Policies and Prospects for Global Economic Growth

Demand and Supply Elasticity

Consumer Choice

Rents, Profits, and the Financial Environment of Business

The Firm: Cost and Output Determination

Monopoly

Monopolistic Competition

Oligopoly and Strategic Behavior

Regulation and Antitrust Policy in a Globalized Economy

The Labor Market: Demand, Supply and Outsourcing

Unions and Labor Market Monopoly Power

Income, Poverty, and Health Care

Environmental Economics

Comparative Advantage and the Open Economy

Exchange Rates and the Balance of Payments

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