Question 1

Under what condition are profits maximized?

Accepted Answer

A)  at the rate of output at which marginal revenue equals marginal cost 
B)  at the output rate where marginal cost is greater than marginal revenue 
C)  at the point at which the difference between total revenues and total costs is negative 
D)  at the point at which the difference between price and quantity demanded is greatest 
A)  at the rate of output at which marginal revenue equals marginal cost 
B)  at the output rate where marginal cost is greater than marginal revenue 
C)  at the point at which the difference between total revenues and total costs is negative 
D)  at the point at which the difference between price and quantity demanded is greatest

Question 2

-In the above figure, at the profit-maximizing rate of production for the perfectly competitive firm total cost is

Accepted Answer

A)  $100. 
B)  $70. 
C)  $30. 
D)  $130. 
A)  $100. 
B)  $70. 
C)  $30. 
D)  $130.

Question 3

In the short run, a firm should shut down when

Accepted Answer

A)  P  MC. 
C)  MR > MC. 
D)  MR = ATC. 
A)  P  MC. 
C)  MR > MC. 
D)  MR = ATC.

Question 4

-Refer to the above table. If the price is $5, the perfectly competitive firm should produce

Accepted Answer

A)  104 units. 
B)  105 units. 
C)  106 units. 
D)  107 units. 
A)  104 units. 
B)  105 units. 
C)  106 units. 
D)  107 units.

Question 5

A firm's long-run position under perfect competition is often said to be efficient because

Accepted Answer

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

Question 6

Which of the following equals the ratio of the change in total revenues over the change in output?

Accepted Answer

A)  total cost 
B)  average revenue 
C)  demand 
D)  marginal revenue 
A)  total cost 
B)  average revenue 
C)  demand 
D)  marginal revenue

Question 7

The demand curve for a perfectly competitive firm is

Accepted Answer

A)  elastic at relatively high prices and inelastic at relatively low prices. 
B)  perfectly elastic. 
C)  perfectly inelastic. 
D)  unitary elastic. 
A)  elastic at relatively high prices and inelastic at relatively low prices. 
B)  perfectly elastic. 
C)  perfectly inelastic. 
D)  unitary elastic.

Question 8

Firms in a perfectly competitive industry are earning economic losses. This is

Accepted Answer

A)  a signal to entrepreneurs that some of the firms in the industry should exit and the resources of these firms should move into production of other goods. 
B)  a signal to entrepreneurs that additional resources should be brought into this industry in order to make it profitable. 
C)  a signal that the entrepreneurs are doing a poor job and should become workers for someone else. 
D)  a signal to government officials that a subsidy is needed for the firms in the industry. 
A)  a signal to entrepreneurs that some of the firms in the industry should exit and the resources of these firms should move into production of other goods. 
B)  a signal to entrepreneurs that additional resources should be brought into this industry in order to make it profitable. 
C)  a signal that the entrepreneurs are doing a poor job and should become workers for someone else. 
D)  a signal to government officials that a subsidy is needed for the firms in the industry.

Question 9

A perfectly competitive firm is producing zero units of output in the short run. We know that price is

Accepted Answer

A)  below the minimum point of its average fixed cost curve. 
B)  below the minimum point of its average variable cost curve. 
C)  below the minimum point of its average total cost curve. 
D)  between the minimum points of its average total cost curve. 
A)  below the minimum point of its average fixed cost curve. 
B)  below the minimum point of its average variable cost curve. 
C)  below the minimum point of its average total cost curve. 
D)  between the minimum points of its average total cost curve.

Question 10

-In the above figure, when price is below E, this firm should

Accepted Answer

A)  lower prices. 
B)  continue to operate as-is. 
C)  attempt to lower ATC and to raise AVC. 
D)  shut down. 
A)  lower prices. 
B)  continue to operate as-is. 
C)  attempt to lower ATC and to raise AVC. 
D)  shut down.

Question 11

For a firm in a perfectly competitive industry, the demand curve for its own product is

Accepted Answer

A)  downward sloping. 
B)  vertical. 
C)  always above the marginal revenue curve. 
D)  the same as the marginal revenue curve. 
A)  downward sloping. 
B)  vertical. 
C)  always above the marginal revenue curve. 
D)  the same as the marginal revenue curve.

Question 12

A firm that shuts down in the short run experiences losses equal to

Accepted Answer

A)  zero. 
B)  total variable costs. 
C)  total fixed costs. 
D)  total marginal costs. 
A)  zero. 
B)  total variable costs. 
C)  total fixed costs. 
D)  total marginal costs.

Question 13

-Refer to the above table. The table represents information on the costs for Ajax Corporation. Ajax operates in a perfectly competitive market and the price of the product is $8. What will be the value of total revenue when quantity sold equals 3?

Accepted Answer

A)  $24 
B)  $27 
C)  $3 
D)  $9 
A)  $24 
B)  $27 
C)  $3 
D)  $9

Question 14

The market demand curve in perfect competition is found by

Accepted Answer

A)  horizontally summing the supply curves of the individual firms in the industry. 
B)  horizontally summing the demand curves of the individual consumers. 
C)  utility maximizing behavior of the "representative consumer." 
D)  the interaction of supply and demand at the individual firm and consumer levels. 
A)  horizontally summing the supply curves of the individual firms in the industry. 
B)  horizontally summing the demand curves of the individual consumers. 
C)  utility maximizing behavior of the "representative consumer." 
D)  the interaction of supply and demand at the individual firm and consumer levels.

Question 15

The long-run industry supply curve in a decreasing-cost, perfectly competitive industry is

Accepted Answer

A)  negatively sloped. 
B)  perfectly elastic. 
C)  positively sloped. 
D)  perfectly inelastic. 
A)  negatively sloped. 
B)  perfectly elastic. 
C)  positively sloped. 
D)  perfectly inelastic.

Question 16

The goal of the perfectly competitive firm is to

Accepted Answer

A)  maximize total revenue. 
B)  maximize total profits. 
C)  minimize AFC. 
D)  minimize ATC. 
A)  maximize total revenue. 
B)  maximize total profits. 
C)  minimize AFC. 
D)  minimize ATC.

Question 17

Suppose a perfectly competitive firm can produce 20,000 bushels of corn a year at an output at which marginal cost equals marginal revenue. The market price of corn per bushel is $2.00. The firm's total costs per year are $50,000 and fixed costs per year are $25,000. In the short run, this firm should

Accepted Answer

A)  shut down. 
B)  continue producing until the price of corn increases. 
C)  produce 20,000 bushels of corn because, although they are losing money, they are losing less than if they shut down. 
D)  produce 40,000 bushels to try to increase economic profit. 
A)  shut down. 
B)  continue producing until the price of corn increases. 
C)  produce 20,000 bushels of corn because, although they are losing money, they are losing less than if they shut down. 
D)  produce 40,000 bushels to try to increase economic profit.

Question 18

If AVC is $10 when P = MC, a firm

Accepted Answer

A)  will have positive economic profits if price is greater than $10. 
B)  is producing too little output. 
C)  should shut down if price is less than $10. 
D)  is experiencing economies of scale. 
A)  will have positive economic profits if price is greater than $10. 
B)  is producing too little output. 
C)  should shut down if price is less than $10. 
D)  is experiencing economies of scale.

Question 19

-In the above figure, at the profit-maximizing rate of production for the perfectly competitive firm profit is

Accepted Answer

A)  $100. 
B)  $70. 
C)  $30. 
D)  $130. 
A)  $100. 
B)  $70. 
C)  $30. 
D)  $130.

Question 20

"A firm should shut down immediately when it earns zero economic profits." Do you agree or disagree? Explain your answer.

Accepted Answer

Disagree. When a firm earns economic pro

Exam 23: Perfect Competition

Under what condition are profits maximized?

-In the above figure, at the profit-maximizing rate of production for the perfectly competitive firm total cost is

In the short run, a firm should shut down when

-Refer to the above table. If the price is $5, the perfectly competitive firm should produce

A firm's long-run position under perfect competition is often said to be efficient because

Which of the following equals the ratio of the change in total revenues over the change in output?

The demand curve for a perfectly competitive firm is

Firms in a perfectly competitive industry are earning economic losses. This is

A perfectly competitive firm is producing zero units of output in the short run. We know that price is

-In the above figure, when price is below E, this firm should

For a firm in a perfectly competitive industry, the demand curve for its own product is

A firm that shuts down in the short run experiences losses equal to

-Refer to the above table. The table represents information on the costs for Ajax Corporation. Ajax operates in a perfectly competitive market and the price of the product is $8. What will be the value of total revenue when quantity sold equals 3?

The market demand curve in perfect competition is found by

The long-run industry supply curve in a decreasing-cost, perfectly competitive industry is

The goal of the perfectly competitive firm is to

If AVC is $10 when P = MC, a firm

-In the above figure, at the profit-maximizing rate of production for the perfectly competitive firm profit is

"A firm should shut down immediately when it earns zero economic profits." Do you agree or disagree? Explain your answer.

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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