question
If a perfectly competitive firm wishes to maximize profits and is producing where price exceeds both marginal cost and average variable cost, then the firm is
answer
Producing too little output
question
A perfectly competitive firm is currently in long-run equilibrium. Its total revenue is $100,000, and the average total cost of production is $100. Which of the following can be concluded from this information?
answer
The firm's output is 1,000 units, and its profit is zero.
question
If a perfectly competitive firm increases its price above the market equilibrium price, which of the following will be true for this firm?
answer
It will not be able to sell any output
question
The short-run supply curve for a firm in a perfectly competitive industry is
answer
Its marginal cost curve above the minimum point of its average variable cost curve
question
In the short run, a profit maximizing firm should shut down if which of the following is true?
answer
Its product price is less than its average variable cost.
question
At the current output level, a firm finds that it has the potential to increase its profits by expanding output. If P = price, MR = marginal revenue, and MC = marginal cost, which of the following must hold at the current output for this firm?
answer
MR > MC
question
Which of the following is true of a perfectly competitive firm in long-run equilibrium?
answer
It is allocatively efficient.
question
Allocatively Efficient
answer
P=MC
question
A perfectly competitive firm, earning economic profits, produces and sells 100 units of output at a price of $20 per unit. If its marginal cost of increasing output to a rate of 101 units $18, which of the following statements is correct?
answer
The total profit from selling 101 units is $2 greater than the total profit from selling 100 units
question
An increase in which of the following will cause a firm's marginal cost curve to shift upward?
answer
The price of variable input
question
At 100 units of a firm's output, average total cost is $10, average variable cost is $8, average fixed cost is $2, and marginal cost is $12. How will each of the following change as the firm's output further increases?
answer
ATC: Increase / AVC: Increase / AFC: Decrease
question
Carlos has a van with 20 seats and charges $10 per person per ride to the airport from downtown. Carlos' cost of the trip is $140 regardless of the number of passengers. On one trip, Carlos has 19 seats filled when a person offers him $5 for the last seat. Should Carlos accept the offer?
answer
Yes, since the marginal benefit exceeds the marginal cost.
question
Instead of being employed at a printing company at a salary of $25,000 per year, Sally starts her own printing firm. Rather than renting a building that she owns to someone else for $10,000 per year, she uses it as the location for her company. Her costs for workers, materials, advertising, and energy during her first year are $125,000. If the total revenue from her printing company is $155,000, her total economic profit is
answer
-$5,000
question
The graph above shows the short-run cost curves of a firm in a perfectly competitive market. Which of the following are true at the firm's profit maximizing output level?
I. Price exceeds average total cost.
II. Economic profits are zero.
III. Marginal cost equals average total cost.
IV. New firms are likely to enter the market in the long run.
I. Price exceeds average total cost.
II. Economic profits are zero.
III. Marginal cost equals average total cost.
IV. New firms are likely to enter the market in the long run.
answer
I and IV only
question
Which of the following are characteristics of a perfectly competitive industry?
I. New firms can enter the industry easily
II. There is no product differentiation
III. The industry's demand curve is perfectly elastic
IV. The supply curve of an individual firm in the industry is perfectly elastic
I. New firms can enter the industry easily
II. There is no product differentiation
III. The industry's demand curve is perfectly elastic
IV. The supply curve of an individual firm in the industry is perfectly elastic
answer
I and II only
question
In most cases the demand curve for a perfectly competitive industry can be described as which of the following?
answer
Downward sloping in the short run
question
Beyond a certain level of output, the short-run marginal cost will rise because
answer
at least one input is fixed and eventually diminishing returns will occur
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