Question 1

If a profit-maximizing firm shuts down in the short run,it must be true that before the shutdown,at all positive output levels,

Accepted Answer

A) average total cost was less than average variable cost 
B) fixed cost was greater than total revenue 
C) variable cost was greater than total revenue 
D) profit was zero 
E) total cost plus total revenue was less than profit

Question 2

Competition as a dynamic process implies that the individual firms in an industry

Accepted Answer

A) face a perfectly elastic demand curve. 
B) utilize a variety of techniques,such as product,style,and price,to win the dollar votes of consumers. 
C) produce a homogeneous product. 
D) cooperate,attempting to establish a price and output structure so each firm can survive and continue to serve the consumer.

Question 3

To maximize profits,a firm should always produce the level of output where

Accepted Answer

A) marginal cost equals average total cost. 
B) average total cost equals price. 
C) marginal cost equals marginal revenue. 
D) marginal revenue equals price.

Question 4

The supply curve of a price-taker firm in the short run is the

Accepted Answer

A) firm's average variable cost curve. 
B) portion of the firm's average total cost curve that lies above average variable cost curve. 
C) portion of the firm's marginal cost curve that lies above average variable cost curve. 
D) firm's marginal revenue curve.

Question 5

Farmer Fanny sells her crops in a competitive price-taker market.If she produces 500 bushels for total revenue of $2,500 and if harvesting the 501st bushel would raise her total cost from $2,500 to $2,505,her

Accepted Answer

A) revenue will increase by $10 if she harvests the 501st bushel 
B) revenue will fall by $5 if she harvests the 501st bushel 
C) average fixed cost will rise if she harvests the 501st bushel 
D) profit will fall by $10 if she harvests the 501st bushel 
E) profit will remain unchanged if she harvests the 501st bushel

Question 6

In a competitive price-taker market,

Accepted Answer

A) many other sellers are offering a product that is essentially identical. 
B) consumers have more influence over the market price than producers do. 
C) government intervention prevents firms from influencing price. 
D) producers agree not to change the price.

Question 7

Figure 9-13
 
-Refer to Figure 9-13.When price rises from P₂ to P₃,the firm finds that

Accepted Answer

A) marginal cost exceeds marginal revenue at a production level of Q₂. 
B) if it produces at output level Q₃ it will earn a positive profit. 
C) expanding output to Q₄ would leave the firm with losses. 
D) it could increase profits by lowering output from Q₃ to Q₂.

Question 8

If the ice cream industry is a competitive price-taker market and all ice cream producers are earning zero economic profit,what will be the impact of an increase in the demand for ice cream?

Accepted Answer

A) Firms will exit the ice cream industry in the long run since they are earning zero economic profit. 
B) The firms will now be able to earn long-run economic profit assuming that barriers to entry remain low and new firms can enter the market. 
C) A shortage of ice cream will develop. 
D) The price of ice cream will rise initially,inducing the existing firms to expand output and new firms to enter the industry.

Question 9

If a technological advance lowers a firm's production costs,why do prices typically fall? Shouldn't the firm maintain the same price and earn economic profit?

Accepted Answer

The answer of If a technological advance lowers a firm's...

Question 10

If a competitive price-taker firm is currently producing a level of output at which marginal revenue exceeds marginal cost,then

Accepted Answer

A) a one-unit increase in output will increase the firm's profit. 
B) a one-unit decrease in output will increase the firm's profit. 
C) total revenue exceeds total cost. 
D) total cost exceeds total revenue.

Question 11

Which of the following products would most closely fit the competitive price-taker model?

Accepted Answer

A) stereo systems-there are many reputable brands. 
B) beer-it has many consumers. 
C) eggs-there are many producers of this relatively homogeneous product. 
D) automobiles-there are substantial economies of scale in production.

Question 12

Even if a firm is optimistic about the future,why should it shut down if it cannot cover its variable cost? If it does shut down,are there ramifications not mentioned in the textbook?

Accepted Answer

The answer of Even if a firm is optimistic about...

Question 13

Figure 9-11
 
-Which of the following represents the firm's total cost of producing the profit-maximizing output in Figure 9-11?

Accepted Answer

A) OCFK 
B) OBGK 
C) OAEL 
D) OCHI

Question 14

When profits occur in a competitive market,this indicates that

Accepted Answer

A) consumers value the goods more than the resources used to produce them. 
B) producers value the goods more than the resources used to produce them. 
C) producers value the goods more than consumers value the goods. 
D) consumers value the goods less than the resources used to produce them.

Question 15

In a constant-cost industry,an increase in output that increases the demand for resources used by the industry

Accepted Answer

A) is likely to result in higher prices for at least some resources. 
B) causes the firm's cost curves to shift downward. 
C) causes the demand curve for the industry to rise. 
D) is not likely to result in higher prices for resources.

Question 16

Several states require cosmetologists to undertake 1,500 hours or more of training in order to obtain a license to provide hair styling or braiding services.This is an example of

Accepted Answer

A) antitrust legislation. 
B) government action that promotes competition. 
C) a barrier to entry 
D) the legal structure that is required for the operation of price-taker markets.

Question 17

Figure 9-19
 
-Refer to Figure 9-19.At the profit-maximizing level of output,the firm will earn an economic

Accepted Answer

A) profit of AHEB. 
B) loss of AGDC. 
C) loss of AHEB. 
D) loss of AIFB.

Question 18

Figure 9-11
 
-If the current market price for the firm depicted in Figure 9-11 is A,given the firm's cost conditions,which output should it produce?

Accepted Answer

A) OM 
B) OL 
C) OK 
D) OI

Question 19

Which portion of the marginal cost curve is used to create a firm's short-run supply curve?

Accepted Answer

A) the entire marginal cost curve 
B) the marginal cost curve above its intersection with the average variable cost curve because below this price,firms will shut down in the short run 
C) the marginal cost curve above its intersection with the marginal revenue (demand)curve 
D) the marginal cost curve above its intersection with the average total cost curve because below this price,firms will shut down in the short run

Question 20

If consumers suddenly began desiring more apples and fewer oranges,

Accepted Answer

A) the market price of apples would rise,creating short-run economic profits in the apple industry.Current firms will expand output and new firms will enter the industry. 
B) the market price of oranges would fall,creating short-run economic losses in the orange industry.Current firms will reduce output and some will go out of business in the long run. 
C) neither a nor b are correct. 
D) both a and b are correct.

Exam 22: Aprice Takers and the Competitive Process