Question 1

What is the short-run break-even price? What are economic profits at this price? Why would a firm be willing to operate permanently at this price?

Accepted Answer

The short-run break-even price is the pr

Question 2

A firm earning economic losses should operate in the short run as long as

Accepted Answer

A)  the price per unit sold is greater than the average fixed cost per unit produced. 
B)  the price per unit sold is greater than the average variable cost per unit produced. 
C)  marginal revenue is at least the price per unit sold. 
D)  the price per unit sold is equal to or greater than the marginal cost of production. 
A)  the price per unit sold is greater than the average fixed cost per unit produced. 
B)  the price per unit sold is greater than the average variable cost per unit produced. 
C)  marginal revenue is at least the price per unit sold. 
D)  the price per unit sold is equal to or greater than the marginal cost of production.

Question 3

-Refer to the above figure. If an individual firm wants to maximize economic profits, it should

Accepted Answer

A)  charge $5 for its product. 
B)  charge more than $5 for its product since increasing the price will increase revenues. 
C)  charge less than $5 for its product since a lower price will attract more customers. 
D)  withdraw its product from the market forcing the market price up. 
A)  charge $5 for its product. 
B)  charge more than $5 for its product since increasing the price will increase revenues. 
C)  charge less than $5 for its product since a lower price will attract more customers. 
D)  withdraw its product from the market forcing the market price up.

Question 4

Suppose that in a perfectly competitive market, the market price is $10. A firm in that market has marginal cost of $10, average total cost of $12, and it is producing 100 units. The firm is

Accepted Answer

A)  earning $1,000 in total economic profits and is maximizing economic profits. 
B)  earning $200 in total economic profits and is maximizing economic profits. 
C)  earning zero total economic profits and is not maximizing economic profits. 
D)  incurring $200 in total economic losses and is minimizing economic losses. 
A)  earning $1,000 in total economic profits and is maximizing economic profits. 
B)  earning $200 in total economic profits and is maximizing economic profits. 
C)  earning zero total economic profits and is not maximizing economic profits. 
D)  incurring $200 in total economic losses and is minimizing economic losses.

Question 5

The profit-maximizing level of output for a firm occurs at the point at which

Accepted Answer

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

Question 6

When there are large numbers of buyers and sellers, then

Accepted Answer

A)  the products sold must look identical. 
B)  firms will move labor and capital in pursuit of profit-making opportunities to whatever business venture gives them the highest return on their investment. 
C)  no one buyer or seller has any influence on price. 
D)  consumers are able to find out about lower prices charged by other firms. 
A)  the products sold must look identical. 
B)  firms will move labor and capital in pursuit of profit-making opportunities to whatever business venture gives them the highest return on their investment. 
C)  no one buyer or seller has any influence on price. 
D)  consumers are able to find out about lower prices charged by other firms.

Question 7

When price is greater than both marginal cost and average variable cost, the perfectly competitive firm

Accepted Answer

A)  is maximizing economic profit. 
B)  should increase its level of output. 
C)  should reduce its level of output. 
D)  should stop production. 
A)  is maximizing economic profit. 
B)  should increase its level of output. 
C)  should reduce its level of output. 
D)  should stop production.

Question 8

For a perfectly competitive firm, which of the following is NOT true?

Accepted Answer

A)  The average revenue curve, the demand and the marginal revenue curves are identical. 
B)  The total revenue curve begins at the origin and slopes upward as output increases. 
C)  The slope of the total revenue curve is equal to the product price. 
D)  The total revenue curve is horizontal. 
A)  The average revenue curve, the demand and the marginal revenue curves are identical. 
B)  The total revenue curve begins at the origin and slopes upward as output increases. 
C)  The slope of the total revenue curve is equal to the product price. 
D)  The total revenue curve is horizontal.

Question 9

Which of the following would tell us that resources are NOT flowing to their highest valued uses?

Accepted Answer

A)  short-run economic profits 
B)  short-run economic losses 
C)  long-run economic profits 
D)  Some firms are just breaking even. 
A)  short-run economic profits 
B)  short-run economic losses 
C)  long-run economic profits 
D)  Some firms are just breaking even.

Question 10

-Refer to the above figure. Profits for this firm will be maximized at

Accepted Answer

A)  point B. 
B)  point C. 
C)  a quantity greater than point C. 
D)  a quantity between points B and C. 
A)  point B. 
B)  point C. 
C)  a quantity greater than point C. 
D)  a quantity between points B and C.

Question 11

Which of the following is NOT a characteristic of perfect competition?

Accepted Answer

A)  There are many buyers and sellers. 
B)  Each firm determines the market price of its product. 
C)  Products are homogeneous. 
D)  Buyers and sellers have equal access to information. 
A)  There are many buyers and sellers. 
B)  Each firm determines the market price of its product. 
C)  Products are homogeneous. 
D)  Buyers and sellers have equal access to information.

Question 12

Economic profits are maximized at the point at which

Accepted Answer

A)  marginal revenues equal marginal costs. 
B)  accounting profit exceeds economic profit. 
C)  total revenues are greater than total costs. 
D)  accounting profits are equal to zero. 
A)  marginal revenues equal marginal costs. 
B)  accounting profit exceeds economic profit. 
C)  total revenues are greater than total costs. 
D)  accounting profits are equal to zero.

Question 13

Why should a firm not produce more than the rate of output at which marginal revenue equals marginal cost?

Accepted Answer

A firm maximizes its total profits when

Question 14

At the short-run break-even price, the firm

Accepted Answer

A)  is earning positive economic profits. 
B)  is earning negative economic profits. 
C)  is making a normal rate of return on its capital investment. 
D)  may be earning a positive or negative economic profit depending upon costs. 
A)  is earning positive economic profits. 
B)  is earning negative economic profits. 
C)  is making a normal rate of return on its capital investment. 
D)  may be earning a positive or negative economic profit depending upon costs.

Question 15

An industry in which an increase in industry output is accompanied by an increase in long-run per-unit costs is a(n)

Accepted Answer

A)  increasing-cost industry. 
B)  constant-cost industry. 
C)  break-even cost industry. 
D)  decreasing-cost industry. 
A)  increasing-cost industry. 
B)  constant-cost industry. 
C)  break-even cost industry. 
D)  decreasing-cost industry.

Question 16

Explain what happens to the long-run supply curve of an industry when firm entry raises the price of inputs used in the industry.

Accepted Answer

When firm entry raises the price of inpu

Question 17

Why should a perfect competitor produce at which price equals marginal cost?

Accepted Answer

For a perfect competitor, its market pri

Question 18

Under the perfectly competitive market structure, the demand curve of an individual firm is

Accepted Answer

A)  perfectly inelastic. 
B)  downward sloping. 
C)  relatively inelastic. 
D)  perfectly elastic. 
A)  perfectly inelastic. 
B)  downward sloping. 
C)  relatively inelastic. 
D)  perfectly elastic.

Question 19

-Using the above figure, the perfectly competitive firm should shut down if the market price is below

Accepted Answer

A)  P1. 
B)  P2. 
C)  P3. 
D)  P4. 
A)  P1. 
B)  P2. 
C)  P3. 
D)  P4.

Question 20

If an industry's long-run per-unit costs increase as its output increases then

Accepted Answer

A)  the firm's long-run economic profits must be greater than zero. 
B)  the firm is most likely a decreasing-cost industry. 
C)  the firm is most likely an increasing-cost industry. 
D)  the firm is most likely a constant-cost industry. 
A)  the firm's long-run economic profits must be greater than zero. 
B)  the firm is most likely a decreasing-cost industry. 
C)  the firm is most likely an increasing-cost industry. 
D)  the firm is most likely a constant-cost industry.

Exam 23: Perfect Competition

What is the short-run break-even price? What are economic profits at this price? Why would a firm be willing to operate permanently at this price?

A firm earning economic losses should operate in the short run as long as

-Refer to the above figure. If an individual firm wants to maximize economic profits, it should

Suppose that in a perfectly competitive market, the market price is $10. A firm in that market has marginal cost of $10, average total cost of $12, and it is producing 100 units. The firm is

The profit-maximizing level of output for a firm occurs at the point at which

When there are large numbers of buyers and sellers, then

When price is greater than both marginal cost and average variable cost, the perfectly competitive firm

For a perfectly competitive firm, which of the following is NOT true?

Which of the following would tell us that resources are NOT flowing to their highest valued uses?

-Refer to the above figure. Profits for this firm will be maximized at

Which of the following is NOT a characteristic of perfect competition?

Economic profits are maximized at the point at which

Why should a firm not produce more than the rate of output at which marginal revenue equals marginal cost?

At the short-run break-even price, the firm

An industry in which an increase in industry output is accompanied by an increase in long-run per-unit costs is a(n)

Explain what happens to the long-run supply curve of an industry when firm entry raises the price of inputs used in the industry.

Why should a perfect competitor produce at which price equals marginal cost?

Under the perfectly competitive market structure, the demand curve of an individual firm is

-Using the above figure, the perfectly competitive firm should shut down if the market price is below

If an industry's long-run per-unit costs increase as its output increases then

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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