Question 1

The only decision that a perfectly competitive firm makes is:

Accepted Answer

A) what price to charge. 
B) what quantity to produce. 
C) how much to spend on advertisements. 
D) how much to price discriminate. 
E) how to differentiate its products from its rivals. 
A) what price to charge. 
B) what quantity to produce. 
C) how much to spend on advertisements. 
D) how much to price discriminate. 
E) how to differentiate its products from its rivals. B

Question 2

A zero economic profit is not a bad thing because:

Accepted Answer

A) it is a situation in which the owners, or shareholders, of a firm could not do better elsewhere. 
B) it is a situation in which the resources of a firm are always underutilized. 
C) it means that a firm is paying an interest rate that is above the market rate. 
D) it means that stock prices will not fall. 
E) it means that investors are better off in the current venture than they would be in any other investment. 
A) it is a situation in which the owners, or shareholders, of a firm could not do better elsewhere. 
B) it is a situation in which the resources of a firm are always underutilized. 
C) it means that a firm is paying an interest rate that is above the market rate. 
D) it means that stock prices will not fall. 
E) it means that investors are better off in the current venture than they would be in any other investment. A

Question 3

Economic profit includes all opportunity costs.

Accepted Answer

A) True 
 B)False  True

Question 4

The demand curve faced by a perfectly competitive firm is:

Accepted Answer

A) perfectly inelastic. 
B) relatively elastic. 
C) unit elastic. 
D) perfectly elastic. 
E) relatively inelastic. 
A) perfectly inelastic. 
B) relatively elastic. 
C) unit elastic. 
D) perfectly elastic. 
E) relatively inelastic.

Question 5

Irrespective of the market structure, a firm maximizes profit where the price of its product equals its marginal cost.

Accepted Answer

A) True 
 B)False

Question 6

The table given below reports the marginal revenue and marginal cost of Holmes Detective Agency for each client. Table 22.2
  According to Table 22.2, what will be the total number of clients that will maximize profits for the Holmes Detective Agency?

Accepted Answer

A) 2 
B) 3 
C) 5 
D) 6 
E) 8 
A) 2 
B) 3 
C) 5 
D) 6 
E) 8

Question 7

The equity capital of a privately owned firm includes:

Accepted Answer

A) the owner's own dollars put into the firm. 
B) the cost of raw materials. 
C) the cost of labor resource used in production. 
D) economic rent only. 
E) the value added at each stage of production. 
A) the owner's own dollars put into the firm. 
B) the cost of raw materials. 
C) the cost of labor resource used in production. 
D) economic rent only. 
E) the value added at each stage of production.

Question 8

Each firm under perfect competition charges different prices for their products.

Accepted Answer

A) True 
 B)False

Question 9

The opportunity cost of capital is:

Accepted Answer

A) the cost of labor inputs required to operate that capital. 
B) the cost of raw materials necessary to put that capital to work. 
C) the payment necessary to keep that capital from moving to an alternative use. 
D) the costs of maintenance necessary to keep that capital operating. 
E) the cost of hiring more units of capital to generate additional units of output. 
A) the cost of labor inputs required to operate that capital. 
B) the cost of raw materials necessary to put that capital to work. 
C) the payment necessary to keep that capital from moving to an alternative use. 
D) the costs of maintenance necessary to keep that capital operating. 
E) the cost of hiring more units of capital to generate additional units of output.

Question 10

Under imperfect competition:

Accepted Answer

A) demand curve lies below the marginal revenue curve. 
B) demand curve lies above the marginal revenue curve. 
C) demand curve coincides with the marginal revenue curve. 
D) demand curve coincides with the marginal cost curve. 
E) demand curve coincides with the average cost curve. 
A) demand curve lies below the marginal revenue curve. 
B) demand curve lies above the marginal revenue curve. 
C) demand curve coincides with the marginal revenue curve. 
D) demand curve coincides with the marginal cost curve. 
E) demand curve coincides with the average cost curve.

Question 11

Firms under perfect competition produce:

Accepted Answer

A) homogeneous products. 
B) unique products. 
C) either standardized or differentiated products. 
D) differentiated products. 
E) antique products. 
A) homogeneous products. 
B) unique products. 
C) either standardized or differentiated products. 
D) differentiated products. 
E) antique products.

Question 12

The following graph shows the demand and cost curves of an imperfectly competitive firm.MC and ATC represent the marginal cost curve and the average cost curve respectively. Figure 22.1   In Table 22.1, in order to maximize profits, the firm should increase output until the ____ unit of output.

Accepted Answer

A) fifth 
B) sixth 
C) seventh 
D) eighth 
E) ninth 
A) fifth 
B) sixth 
C) seventh 
D) eighth 
E) ninth

Question 13

The ordering of market structures from most market power to least market power (where market power is the ability to set its own price)is:

Accepted Answer

A) monopoly, monopolistic competition, oligopoly, perfect competition. 
B) perfect competition, monopolistic competition, oligopoly, monopoly. 
C) oligopoly, monopoly, monopolistic competition, perfect competition. 
D) monopoly, oligopoly, monopolistic competition, perfect competition. 
E) monopoly, perfect competition, monopolistic competition, oligopoly. 
A) monopoly, monopolistic competition, oligopoly, perfect competition. 
B) perfect competition, monopolistic competition, oligopoly, monopoly. 
C) oligopoly, monopoly, monopolistic competition, perfect competition. 
D) monopoly, oligopoly, monopolistic competition, perfect competition. 
E) monopoly, perfect competition, monopolistic competition, oligopoly.

Question 14

Under oligopoly market structure, the rival firms take complete independent decisions.

Accepted Answer

A) True 
 B)False

Question 15

The table given below reports the marginal revenue and marginal cost of Holmes Detective Agency for each client. Table 22.2
  Refer to Table 22.1.If we assume that Holmes is currently serving 8 clients, then Holmes Agency:

Accepted Answer

A) is maximizing profit. 
B) should find more clients to increase profits. 
C) is maximizing total revenue. 
D) could increase profits by serving less clients. 
E) is minimizing cost. 
A) is maximizing profit. 
B) should find more clients to increase profits. 
C) is maximizing total revenue. 
D) could increase profits by serving less clients. 
E) is minimizing cost.

Question 16

When the average cost curve lies below the average revenue curve at the profit maximizing level of output, it implies that the firm is suffering losses.

Accepted Answer

A) True 
 B)False

Question 17

Suppose that Cheapo Industries, a perfectly competitive firm, currently produces 500 units of imitation ham spread for a total cost of $1, 500.The marginal cost of the 500th unit is $20, and the marginal revenue of the 500th unit is $15.To maximize profits, Cheapo Industries should:

Accepted Answer

A) continue to produce 500 units. 
B) produce more than 500 units but less than 1500 units. 
C) produce less than 500 units. 
D) produce more than 1500 units. 
E) stop producing at 500 units. 
A) continue to produce 500 units. 
B) produce more than 500 units but less than 1500 units. 
C) produce less than 500 units. 
D) produce more than 1500 units. 
E) stop producing at 500 units.

Question 18

The table given below shows the total revenue and total cost of producing a commodity. Table 22.1
  In Table 22.1, marginal revenue exceeds marginal cost:

Accepted Answer

A) until the fifth unit of output. 
B) until the sixth unit of output. 
C) up to the seventh unit of output. 
D) up to the eighth unit of output. 
E) at all units of output. 
A) until the fifth unit of output. 
B) until the sixth unit of output. 
C) up to the seventh unit of output. 
D) up to the eighth unit of output. 
E) at all units of output.

Question 19

The entry of new firms into the market stops when:

Accepted Answer

A) accounting profit falls to zero. 
B) the general price level in the economy rises. 
C) the rate of interest declines. 
D) economic profit falls to zero. 
E) the corporate taxes are relaxed. 
A) accounting profit falls to zero. 
B) the general price level in the economy rises. 
C) the rate of interest declines. 
D) economic profit falls to zero. 
E) the corporate taxes are relaxed.

Question 20

The figure given below shows the cost curves of a firm. Figure 22.3   ATC: Average Total Cost
AVC: Average Variable Cost
MC: Marginal Cost
In Figure 22.3, if the marginal revenue of the firm is constant at $55, calculate the profit earned by the firm?

Accepted Answer

A) $35 
B) $40 
C) $600 
D) $4, 800 
E) $0 
A) $35 
B) $40 
C) $600 
D) $4, 800 
E) $0

Exam 43: Profit Maximization

The only decision that a perfectly competitive firm makes is:

A zero economic profit is not a bad thing because:

Economic profit includes all opportunity costs.

The demand curve faced by a perfectly competitive firm is:

Irrespective of the market structure, a firm maximizes profit where the price of its product equals its marginal cost.

The table given below reports the marginal revenue and marginal cost of Holmes Detective Agency for each client. Table 22.2 According to Table 22.2, what will be the total number of clients that will maximize profits for the Holmes Detective Agency?

The equity capital of a privately owned firm includes:

Each firm under perfect competition charges different prices for their products.

The opportunity cost of capital is:

Under imperfect competition:

Firms under perfect competition produce:

The following graph shows the demand and cost curves of an imperfectly competitive firm.MC and ATC represent the marginal cost curve and the average cost curve respectively. Figure 22.1 In Table 22.1, in order to maximize profits, the firm should increase output until the ____ unit of output.

The ordering of market structures from most market power to least market power (where market power is the ability to set its own price)is:

Under oligopoly market structure, the rival firms take complete independent decisions.

The table given below reports the marginal revenue and marginal cost of Holmes Detective Agency for each client. Table 22.2 Refer to Table 22.1.If we assume that Holmes is currently serving 8 clients, then Holmes Agency:

When the average cost curve lies below the average revenue curve at the profit maximizing level of output, it implies that the firm is suffering losses.

Suppose that Cheapo Industries, a perfectly competitive firm, currently produces 500 units of imitation ham spread for a total cost of $1, 500.The marginal cost of the 500th unit is $20, and the marginal revenue of the 500th unit is $15.To maximize profits, Cheapo Industries should:

The table given below shows the total revenue and total cost of producing a commodity. Table 22.1 In Table 22.1, marginal revenue exceeds marginal cost:

The entry of new firms into the market stops when:

The figure given below shows the cost curves of a firm. Figure 22.3 ATC: Average Total Cost AVC: Average Variable Cost MC: Marginal Cost In Figure 22.3, if the marginal revenue of the firm is constant at $55, calculate the profit earned by the firm?

Economics: The World Around You

Choice, Opportunity Costs, and Specialization

Markets, Demand and Supply, and the Price System

The Market System and the Private and Public Sector

Elasticity: Demand and Supply

National Income Accounting

an Introduction to the Foreign Exchange Market and the Balance of Payments

Consumer Choice

Supply: The Costs of Doing Business

Unemployment and Inflation

Macroeconomic Equilibrium: Aggregate Demand and Supply

Profit Maximization

Aggregate Expenditures

Perfect Competition

Income and Expenditures Equilibrium

Monopoly

Fiscal Policy

Monopolistic Competition and Oligopoly

Antitrust and Regulation

Money and Banking

Market Failures, Government Failures, and Rent Seeking

Monetary Policy

Macroeconomic Policy: Tradeoffs, Expectations, Credibility, and Sources of Business Cycles

Resource Markets

Macroeconomic Viewpoints: New Keynesian, Monetarist, and New Classical

The Labor Market

Capital Markets

Economic Growth

Development Economics

the Land Market and Natural Resources

Aging, Social Security and Health Care

Globalization

Elasticity: Demand and Supply

Income Distribution, Poverty and Government Policy

World Trade Equilibrium

Consumer Choice

International Trade Restrictions

World Trade Equilibrium

Exchange Rates and Financial Links Between Countries

International Trade Restrictions

Supply: the Costs of Doing Business

Exchange Rates and Financial Links Between Countries

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Antitrust and Regulation

Market Failures, Government Failures, and Rent Seeking

Resource Markets

The Labor Market

Capital Markets

The Land Market and Natural Resources

Aging, Social Security and Health Care

Income Distribution, Poverty and Government Policy

World Trade Equilibrium

International Trade Restrictions

Exchange Rates and Financial Links Between Countries

Filters

Suppose that Cheapo Industries, a perfectly competitive firm, currently produces 500 units of imitation ham spread for a total cost of $1, 500.The marginal cost of the 500^th unit is $20, and the marginal revenue of the 500^th unit is $15.To maximize profits, Cheapo Industries should: