Question 1

Exhibit 23-8
 
-Refer to Exhibit 23-8.What is the profit (loss)of Firm B at the profit-maximizing (or loss-minimizing)level of production?

Accepted Answer

A)  -$600 
B)  $270 
C)  $600 
D)  $400

Question 2

Exhibit 23-3
 
-Refer to Exhibit 23-3.What is the maximum profit?

Accepted Answer

A)  $65 
B)  $59 
C)  $20 
D)  $376

Question 3

Consider the following data: equilibrium price = $8.50,quantity of output produced = 100 units,average total cost = $10,and average variable cost = $9.What will the firm do and why?

Accepted Answer

A)  Shut down in the short run, because price is below average variable cost. 
B)  Shut down in the short run, because it will be taking a loss of $100. 
C)  Continue to produce in the short run, because price is greater than average variable cost. 
D)  Continue to produce in the short run, because firms are always stuck with having to produce in the short run. 
E)  none of the above

Question 4

At the quantity where total revenue equals total cost,

Accepted Answer

A)  profit is zero. 
B)  cost is minimized. 
C)  cost is maximized. 
D)  quantity is minimized. 
E)  profit is maximized.

Question 5

Which of the following is a characteristic of perfect competition?

Accepted Answer

A)  many sellers and few buyers 
B)  many buyers and few sellers 
C)  a heterogeneous product 
D)  buyers and sellers having all relevant information 
E)  high barriers to entry and exit

Question 6

Suppose one firm in a perfectly competitive industry experiences an increase in its costs of production.Which of the following best describes the most likely long run adjustment to this situation?

Accepted Answer

A)  Eventually, all firms in the industry will also experience this same increase in costs. 
B)  Eventually, the price of the product will increase, and consumers will pay for the increase in costs. 
C)  The firm in question may suffer losses and exit the industry. 
D)  none of the above

Question 7

In the short run,if price (P)is less than average total cost (ATC)will a perfectly competitive firm necessarily shut down? Explain why or why not using a hypothetical example.

Accepted Answer

The answer of In the short run,if price (P)is less...

Question 8

Assume the following for a certain industry: (l)there is no incentive for firms to enter or exit the industry; (2)for some firms in the industry,short-run average total cost is greater than long-run average total cost at the level of output where marginal revenue equals marginal cost; (3)all firms in the industry are currently producing the quantity of output at which marginal revenue equals marginal cost.Is the industry in long-run competitive equilibrium?

Accepted Answer

A)  Yes. 
B)  No, because of number 2. 
C)  No, because of numbers 2 and 3. 
D)  No, because of numbers 1 and 2. 
E)  No, because of numbers 1, 2, and 3.

Question 9

Exhibit 23-7
 
-Refer to Exhibit 23-7.The perfectly competitive,profit-maximizing firm will produce __________ units of output.

Accepted Answer

A)  10 
B)  30 
C)  50 
D)  60 
E)  70

Question 10

A perfectly competitive firm that maximizes profit exhibits resource allocative efficiency because it produces where price

Accepted Answer

A)  equals minimum average total cost. 
B)  equals marginal revenue. 
C)  equals marginal cost. 
D)  is greater than minimum average variable cost.

Question 11

Exhibit 23-8
 
-Refer to Exhibit 23-8.What is the total revenue of Firm B at the point where it produces in the short run?

Accepted Answer

A)  $300 
B)  $700 
C)  $1,050 
D)  $400

Question 12

Exhibit 23-8
 
-Refer to Exhibit 23-8.Which of the following is true in the short run of A and B,two perfectly competitive firms?

Accepted Answer

A)  Both A and B will continue to produce in the short run. 
B)  Firm A will continue to produce and Firm B will shut down. 
C)  Firm A will shut down and Firm B will continue to produce. 
D)  Firm A will continue to produce in the short run and shut down in the long run. 
E)  a and d

Question 13

Exhibit 23-10
 
-Refer to Exhibit 23-10. What quantity of output should the profit-maximizing firm produce?

Accepted Answer

A)  0 
B)  4 
C)  6 
D)  7 
E)  8

Question 14

Marginal revenue is defined as

Accepted Answer

A)  the difference between costs and revenues. 
B)  the change in total revenue caused by selling one additional unit of output. 
C)  price times quantity. 
D)  total revenue divided by the level of output. 
E)  total revenue minus the level of output.

Question 15

In the theory of perfect competition,the assumptions of many buyers and sellers,the production of a homogeneous product,and the possession of all relevant information by buyers and sellers imply that the perfectly competitive firm

Accepted Answer

A)  sets the price it wishes. 
B)  has a demand curve that is downward sloping. 
C)  has a demand curve that is perfectly elastic. 
D)  a and b 
E)  a and c

Question 16

Marginal revenue is

Accepted Answer

A)  total revenue divided by the quantity of output. 
B)  total profit minus total costs. 
C)  the change in total output brought about by using an additional unit of a variable input. 
D)  the change in total revenue brought about by selling an additional unit of the good. 
E)  the change in total revenue minus the change in total costs.

Question 17

Exhibit 23-7
 
-Refer to Exhibit 23-7.At the profit-maximizing output level,average total cost is

Accepted Answer

A)  $2.00. 
B)  $4.50. 
C)  $5.00. 
D)  $6.00. 
E)  This cannot be determined based on the information provided.

Question 18

If the perfectly competitive firm is producing an output level at which price equals marginal cost,it is

Accepted Answer

A)  earning profits. 
B)  taking losses. 
C)  earning normal profit. 
D)  There is not enough information to answer the question.

Question 19

A perfectly competitive market is initially in long-run competitive equilibrium.Then,market demand falls.This causes the marginal revenue curves for existing firms to shift __________ and for these firms to produce __________ output.Some of the existing firms will end up __________.

Accepted Answer

A)  upward, more, increasing their plant size 
B)  downward, less, exiting the market 
C)  downward, more, purchasing more capital equipment 
D)  upward, less, cutting fixed costs 
E)  none of the above

Question 20

In short-run equilibrium,the perfectly competitive firm may be making __________ economic profits.

Accepted Answer

A)  positive 
B)  zero 
C)  negative 
D)  a or b 
E)  any of the above

Exam 23: Perfect Competition

Exhibit 23-8 -Refer to Exhibit 23-8.What is the profit (loss) of Firm B at the profit-maximizing (or loss-minimizing) level of production?

Exhibit 23-3 -Refer to Exhibit 23-3.What is the maximum profit?

Consider the following data: equilibrium price = $8.50,quantity of output produced = 100 units,average total cost = $10,and average variable cost = $9.What will the firm do and why?

At the quantity where total revenue equals total cost,

Which of the following is a characteristic of perfect competition?

Suppose one firm in a perfectly competitive industry experiences an increase in its costs of production.Which of the following best describes the most likely long run adjustment to this situation?

In the short run,if price (P)is less than average total cost (ATC)will a perfectly competitive firm necessarily shut down? Explain why or why not using a hypothetical example.

Exhibit 23-7 -Refer to Exhibit 23-7.The perfectly competitive,profit-maximizing firm will produce __________ units of output.

A perfectly competitive firm that maximizes profit exhibits resource allocative efficiency because it produces where price

Exhibit 23-8 -Refer to Exhibit 23-8.What is the total revenue of Firm B at the point where it produces in the short run?

Exhibit 23-8 -Refer to Exhibit 23-8.Which of the following is true in the short run of A and B,two perfectly competitive firms?

Exhibit 23-10 -Refer to Exhibit 23-10. What quantity of output should the profit-maximizing firm produce?

Marginal revenue is defined as

In the theory of perfect competition,the assumptions of many buyers and sellers,the production of a homogeneous product,and the possession of all relevant information by buyers and sellers imply that the perfectly competitive firm

Marginal revenue is

Exhibit 23-7 -Refer to Exhibit 23-7.At the profit-maximizing output level,average total cost is

If the perfectly competitive firm is producing an output level at which price equals marginal cost,it is

A perfectly competitive market is initially in long-run competitive equilibrium.Then,market demand falls.This causes the marginal revenue curves for existing firms to shift and for these firms to produce output.Some of the existing firms will end up __.

In short-run equilibrium,the perfectly competitive firm may be making __________ economic profits.