question
which of the following is not a characteristic of the structure of perfectly competitive markets?
a. each individual firm is small in size relative to the overall market
b. few sellers
c. homogeneous product
d. easy, low cost entry and exit
a. each individual firm is small in size relative to the overall market
b. few sellers
c. homogeneous product
d. easy, low cost entry and exit
answer
b. few sellers
question
the large-number-of-sellers condition of perfect competition is met when
a. there are more sellers than buyers in the market
b. there are more than 50 firms in the industry
c. there are more than 100 firms in the industry
d. each firm is so small relative to the total market that no single firm can influence the market price
a. there are more sellers than buyers in the market
b. there are more than 50 firms in the industry
c. there are more than 100 firms in the industry
d. each firm is so small relative to the total market that no single firm can influence the market price
answer
d. each firm is so small relative to the total market that no single firm can influence the market price
question
suppose a single egg farmer alters the number of eggs she produces but the change in egg output does not have any effect on the market price. This example describes which of the following characteristics of perfect competition?
a. large number of small firms
b. homogeneous product
c. very easy entry and exit
d. mutual interdependence
a. large number of small firms
b. homogeneous product
c. very easy entry and exit
d. mutual interdependence
answer
a. large number of small firms
question
in the perfectly competitive market, all firms in the market are assumed to be producing:
a. identical products
b. differentiated products
c. products that are heavily advertised
d. complementary products
a. identical products
b. differentiated products
c. products that are heavily advertised
d. complementary products
answer
a. identical products
question
which of the following is a characteristic of a competitive price-taker market?
a. profit maximizing firms in the market will expand output until price equals average variable cost
b. the market demand curve for the product is a horizontal line
c. there are many firms in the market, each producing a small share of total market output
d. the product produced by each of the firms is differentiated
a. profit maximizing firms in the market will expand output until price equals average variable cost
b. the market demand curve for the product is a horizontal line
c. there are many firms in the market, each producing a small share of total market output
d. the product produced by each of the firms is differentiated
answer
c. there are many firms in the market, each producing a small share of total market output
question
when a product is defined as homogeneous,
a. buyers prefer one seller's product to another's
b. buyers are indifferent as to which seller's product they buy
c. sellers are indifferent as to the quantity of the product they sell
d. sellers have an incentive to charge a price higher than the market price
a. buyers prefer one seller's product to another's
b. buyers are indifferent as to which seller's product they buy
c. sellers are indifferent as to the quantity of the product they sell
d. sellers have an incentive to charge a price higher than the market price
answer
b. buyers are indifferent as to which seller's product they buy
question
Pedro goes to the local farmer's market and is just as happy buying corn from the first vendor as he is from the second vendor. This example describes which of the following characteristics of perfect competition?
a. large number of small firms
b. homogeneous product
c. very easy entry and exit
d. differentiated product
a. large number of small firms
b. homogeneous product
c. very easy entry and exit
d. differentiated product
answer
b. homogeneous product
question
which of the following could be a perfectly competitive market?
a. the market for licensed electricians
b. the market for restaurants with permits to sell alcohol
c. the market for patented pharmaceuticals
d. the market for tradable stocks
a. the market for licensed electricians
b. the market for restaurants with permits to sell alcohol
c. the market for patented pharmaceuticals
d. the market for tradable stocks
answer
d. the market for tradable stocks
question
which of the following best illustrates perfect competition?
a. wheat farming
b. orange growers setting quotas under the Sunkist cooperative
c. General Motors advertising campaign for its cars
d. Coca-Cola and Pepsi battling for market share
a. wheat farming
b. orange growers setting quotas under the Sunkist cooperative
c. General Motors advertising campaign for its cars
d. Coca-Cola and Pepsi battling for market share
answer
a. wheat farming
question
which of the following best illustrates a perfectly competitive market?
a. jeans
b. breakfast cereal
c. electric power
d. soybeans
a. jeans
b. breakfast cereal
c. electric power
d. soybeans
answer
d. soybeans
question
which of the following is not a characteristic of a perfectly competitive market?
a. there is a large number of small firms
b. firms sell a homogeneous product
c. firms can easily enter or exit the market
d. firms are price makers, not price takers
a. there is a large number of small firms
b. firms sell a homogeneous product
c. firms can easily enter or exit the market
d. firms are price makers, not price takers
answer
d. firms are price makers, not price takers
question
Bethany decides to get some build a chicken coop, get some chickens, and start selling fresh eggs in her neighborhood. This example describes which of the following characteristics of perfect competition?
a. large number of small firms
b. homogeneous goods
c. very easy entry and exit
d. imperfect information
a. large number of small firms
b. homogeneous goods
c. very easy entry and exit
d. imperfect information
answer
c. very easy entry and exit
question
which of the following is true of a perfectly competitive firm?
a. the firm is a price maker
b. if the firm wishes to maximize profits it will produce an output level in which marginal revenue exceeds marginal cost
c. the firm will not earn an economic profit in the long run
d. the firm's short-run supply curve is its MC curve below its AVC curve
a. the firm is a price maker
b. if the firm wishes to maximize profits it will produce an output level in which marginal revenue exceeds marginal cost
c. the firm will not earn an economic profit in the long run
d. the firm's short-run supply curve is its MC curve below its AVC curve
answer
c. the firm will not earn an economic profit in the long run
question
if a firm has no ability to influence the market price of its product, it:
a. will go out of business due to losses
b. is a price-maker
c. cannot maximize profit
d. has a horizontal individual demand curve
a. will go out of business due to losses
b. is a price-maker
c. cannot maximize profit
d. has a horizontal individual demand curve
answer
d. has a horizontal individual demand curve
question
which of the following correctly explains why sellers in a perfectly competitive market are price takers?
a. there are few sellers, and so they have the power to take whatever price they want
b. there are many sellers, and so the market process generates an equilibrium price that cannot be influenced by any one seller. Thus they have no choice but to take the price generated by the market process
c. sellers in a competitive market have the power to influence price by colluding with one another and using quotas to limit overall market output and thus raise price
d. individual buyers in a competitive market have the power to influence price, and thus can impose prices and other conditions on powerless sellers
a. there are few sellers, and so they have the power to take whatever price they want
b. there are many sellers, and so the market process generates an equilibrium price that cannot be influenced by any one seller. Thus they have no choice but to take the price generated by the market process
c. sellers in a competitive market have the power to influence price by colluding with one another and using quotas to limit overall market output and thus raise price
d. individual buyers in a competitive market have the power to influence price, and thus can impose prices and other conditions on powerless sellers
answer
b. there are many sellers, and so the market process generates an equilibrium price that cannot be influenced by any one seller. Thus they have no choice but to take the price generated by the market process
question
a firm in a perfectly competitive market:
a. must take the price that is determined in the market
b. must reduce its price if it wants to sell a larger quantity
c. must be large relative to the total market
d. can exert a major influence on the market price
a. must take the price that is determined in the market
b. must reduce its price if it wants to sell a larger quantity
c. must be large relative to the total market
d. can exert a major influence on the market price
answer
a. must take the price that is determined in the market
question
a firm that is a price taker can:
a. substantially change the market price of its product by changing its level of production
b. sell all of its output at the market price
c. sell some of its output at a price higher than the market price
d. decide what price to charge for its product
a. substantially change the market price of its product by changing its level of production
b. sell all of its output at the market price
c. sell some of its output at a price higher than the market price
d. decide what price to charge for its product
answer
b. sell all of its output at the market price
question
which of the following best explains why a firm in a perfectly competitive market must take the price determined in the market?
a. the short-run average total costs of firms that are price takers will be constant
b. if a price taker increased its price, consumers would buy from other suppliers
c. firms in a price-taker market will have to advertise to increase sales
d. there are no good substitutes for the product supplied by a firm that is a price taker
a. the short-run average total costs of firms that are price takers will be constant
b. if a price taker increased its price, consumers would buy from other suppliers
c. firms in a price-taker market will have to advertise to increase sales
d. there are no good substitutes for the product supplied by a firm that is a price taker
answer
b. if a price taker increased its price, consumers would buy from other suppliers
question
the demand for the product of a competitive price-taker firm is:
a. perfectly inelastic
b. perfectly elastic
c. greater than zero but less than one
d. dependent on the availability of substitutes for the firm's product
a. perfectly inelastic
b. perfectly elastic
c. greater than zero but less than one
d. dependent on the availability of substitutes for the firm's product
answer
b. perfectly elastic
question
in a perfectly competitive market buyers want to buy 20,000 units and sellers want to sell 20,000 units of a product when the price is $50 per unit. ABC Corporation, one seller in this market,
a. will sell a fixed number of units regardless of how the price changes
b. faces a downward-sloping demand curve for its product
c. will maximize profit by selling at a price less than $50
d. faces a perfectly elastic demand curve at a price of $50
a. will sell a fixed number of units regardless of how the price changes
b. faces a downward-sloping demand curve for its product
c. will maximize profit by selling at a price less than $50
d. faces a perfectly elastic demand curve at a price of $50
answer
d. faces a perfectly elastic demand curve at a price of $50
question
a firm operating in a perfectly competitive market is a price taker because:
a. each firm has a significant market share
b. each firm's product is perceived as different
c. setting a price higher than the market price results in zero sales
d. the market demand curve is perfectly elastic
a. each firm has a significant market share
b. each firm's product is perceived as different
c. setting a price higher than the market price results in zero sales
d. the market demand curve is perfectly elastic
answer
c. setting a price higher than the market price results in zero sales
question
under perfect competition, a firm is a price taker because:
a. setting a price higher than the going price results in profits
b. each firm's product is perceived as different
c. each firm has a significant market share
d. setting a price higher than the going price results in zero sales
a. setting a price higher than the going price results in profits
b. each firm's product is perceived as different
c. each firm has a significant market share
d. setting a price higher than the going price results in zero sales
answer
d. setting a price higher than the going price results in zero sales
question
under perfect competition, which of the following are equal at all levels of output?
a. price and marginal cost
b. price and marginal revenue
c. marginal cost and marginal revenue
d. marginal cost and short-run average total cost
a. price and marginal cost
b. price and marginal revenue
c. marginal cost and marginal revenue
d. marginal cost and short-run average total cost
answer
b. price and marginal revenue
question
which of the following offers the best explanation of why "marginal revenue equals marginal cost" is the rule that indicates the profit-maximizing output level?
a. if output were reduced from the profit-maximizing level, then the firm would be gaining marginal revenue that exceeds marginal cost, and thus increasing the level of profit
b. if output were increased from the profit-maximizing level, then the firm would be gaining marginal revenue that is less than the marginal cost incurred in producing this additional unit, and thus reducing the level of profit
c. because the firm colludes with other similar firms to set price equal to marginal cost
d. the marginal revenue is equal to the marginal cost at all levels of output for a perfectly competitive firm
a. if output were reduced from the profit-maximizing level, then the firm would be gaining marginal revenue that exceeds marginal cost, and thus increasing the level of profit
b. if output were increased from the profit-maximizing level, then the firm would be gaining marginal revenue that is less than the marginal cost incurred in producing this additional unit, and thus reducing the level of profit
c. because the firm colludes with other similar firms to set price equal to marginal cost
d. the marginal revenue is equal to the marginal cost at all levels of output for a perfectly competitive firm
answer
b. if output were increased from the profit-maximizing level, then the firm would be gaining marginal revenue that is less than the marginal cost incurred in producing this additional unit, and thus reducing the level of profit
question
a perfectly competitive firm sells its output for $100 per unit and marginal cost is $100 per unit. To maximize short-run profit, the firm should:
a. increase output
b. decrease output
c. maintain its current output
d. shut down
a. increase output
b. decrease output
c. maintain its current output
d. shut down
answer
c. maintain its current output
question
in the short run, if a perfectly competitive firm is producing at a price below average total cost, its economic profit is:
a. positive
b. zero
c. negative
d. normal
a. positive
b. zero
c. negative
d. normal
answer
c. negative
question
a competitive firm maximizes its profits (or minimizes is losses) by producing the quantity where the market price equals the firm's:
a. marginal cost
b. average total cost
c. average variable cost
d. average fixed cost
a. marginal cost
b. average total cost
c. average variable cost
d. average fixed cost
answer
a. marginal cost
question
the profit maximizing or loss minimizing quantity of output for any firm to produce exists at that output level in which:
a. total revenue is maximized
b. total cost is minimized
c. marginal cost is minimized
d. marginal revenue equals marginal cost
a. total revenue is maximized
b. total cost is minimized
c. marginal cost is minimized
d. marginal revenue equals marginal cost
answer
d. marginal revenue equals marginal cost
question
a profit-maximizing firm will continue to expand output:
a. as long as the revenues from the production and sale of an additional unit exceeds the average cost of the unit
b. until the average cost of producing the good or service is at a minimum
c. as long as the revenues from the production and sale of an additional unit exceeds the marginal cost of the unit
d. until the marginal cost of producing a good or service is at a minimum
a. as long as the revenues from the production and sale of an additional unit exceeds the average cost of the unit
b. until the average cost of producing the good or service is at a minimum
c. as long as the revenues from the production and sale of an additional unit exceeds the marginal cost of the unit
d. until the marginal cost of producing a good or service is at a minimum
answer
c. as long as the revenues from the production and sale of an additional unit exceeds the marginal cost of the unit
question
a firm is currently operating where the MC of the last unit produced = $84, and the MR of this unit = $70. What would you advise this firm to do?
a. shut down
b. increase output
c. stay at its current output
d. decrease output
a. shut down
b. increase output
c. stay at its current output
d. decrease output
answer
d. decrease output
question
a firm is currently operating where the MC of the last unit produced = $64, and the MR of this unit = $70. What would you advise this firm to do?
a. shut down
b. increase output
c. stay at current output
d. decrease output
a. shut down
b. increase output
c. stay at current output
d. decrease output
answer
b. increase output
question
the point of maximum profit for a business firm is where:
a. P = AC
b. TR = TC
c. MR = AR
d. MR = MC
a. P = AC
b. TR = TC
c. MR = AR
d. MR = MC
answer
d. MR = MC
question
if a firm increases output when MR > MC, then:
a. profit will equal zero
b. profit will increase
c. profit will decrease
d. profit will remain the same
a. profit will equal zero
b. profit will increase
c. profit will decrease
d. profit will remain the same
answer
b. profit will increase
question
maximizing profit means finding the maximum difference between:
a. TR and TC
b. MR and MC
c. price and ATC
d. ATC and MC
a. TR and TC
b. MR and MC
c. price and ATC
d. ATC and MC
answer
a. TR and TC
question
suppose product price is fixed at $24; MR = MC at Q = 200; AFC = $6; AVC = $16. What do you advise this firm to do?
a. increase output
b. decrease output
c. stay at the current output; the firm is losing $200
d. stay at the current output; the firm is earning a profit of $400
a. increase output
b. decrease output
c. stay at the current output; the firm is losing $200
d. stay at the current output; the firm is earning a profit of $400
answer
d. stay at the current output; the firm is earning a profit of $400
question
if a firm equates MR and MC, then:
a. TR is at a maximum, and TC is at a minimum
b. output is at a maximum
c. both TR and TC are at a maximum
d. profits are at a maximum or losses are at a minimum
a. TR is at a maximum, and TC is at a minimum
b. output is at a maximum
c. both TR and TC are at a maximum
d. profits are at a maximum or losses are at a minimum
answer
d. profits are at a maximum or losses are at a minimum
question
if a firm is currently equating MR and MC and product price = $24, AVC = $22, and ATC = $26, then in the long run this firm:
a. will continue to operate at a loss
b. will earn a positive profit
c. will go out of business
d. should decrease price
a. will continue to operate at a loss
b. will earn a positive profit
c. will go out of business
d. should decrease price
answer
c. will go out of business
question
if a potato farmer expands output, he finds that the increase in total revenue is less than the increase in total costs. This means that:
a. profit is being maximized
b. he should not have expanded output
c. he should produce even more output
d. the firm is wasting resources
a. profit is being maximized
b. he should not have expanded output
c. he should produce even more output
d. the firm is wasting resources
answer
b. he should not have expanded output
question
a sandwich shop owner has the following information: P = MR = $4, ATC = $2, AVC = $1, MC = 4, and Q = 500. From this, she can determine:
a. her profits are not being maximized
b. she has earned zero economic profits
c. she has earned economic profits of $1,000
d. she has earned economic profits of $1,500
a. her profits are not being maximized
b. she has earned zero economic profits
c. she has earned economic profits of $1,000
d. she has earned economic profits of $1,500
answer
c. she has earned economic profits of $1,000
question
Jerome, the florist, sold 500 bridesmaid's bouquets in June. He estimates his costs that month were ATC = $10, AVC = $6, and MC = $9. If he sold each bouquet at the constant market price of $9, Jerome:
a. made an economic profit of $500
b. made a loss of $500
c. should have shut down in June
d. made a loss of $1,500
a. made an economic profit of $500
b. made a loss of $500
c. should have shut down in June
d. made a loss of $1,500
answer
b. made a loss of $500
question
consider a firm with the following cost information: ATC = $15, AVC = $12, and MC = $14. If we know that this firm has decided to produce Q = 20 by following the rule to maximize profits or minimize losses, then the price of the output is:
a. $12
b. $14
c. $15
d. $20
a. $12
b. $14
c. $15
d. $20
answer
b. $14
question
the neighborhood ice cream shop finds that when it charges $3 per ice cream cone, its total revenues are $90,000. It has total variable costs of $30,000 and total fixed costs of $40,000. From this we can infer the:
a. shop sells 10,000 ice cream cones
b. price is less than average total cost
c. economic profits are $20,000
d. shop will be closed in the long run
a. shop sells 10,000 ice cream cones
b. price is less than average total cost
c. economic profits are $20,000
d. shop will be closed in the long run
answer
c. economic profits are $20,000
question
if a fishing boat owner brings 10,000 fish to market and the market price is $7 per fish, she will have $70,000 in total revenue. If the average variable cost of 10,000 fish is $4 and the fixed cost of the boat is $20,000, what is her profit?
a. $3
b. $1,000
c. $3,000
d. $10,000
a. $3
b. $1,000
c. $3,000
d. $10,000
answer
d. $10,000
question
if the market price is $5 and you are currently producing at a level where average total cost is $3 and falling, you should:
a. produce until the average total cost and average revenue are equal
b. shut down
c. produce only enough to cover variable costs
d. produce where MR = MC
a. produce until the average total cost and average revenue are equal
b. shut down
c. produce only enough to cover variable costs
d. produce where MR = MC
answer
d. produce where MR = MC
question
the market price for wallets is $20. Your technology is such that at your most efficient production point, the average total cost of producing a wallet is $2.50. Your manager runs into your office and shouts, "Boss!!! Average costs are rising!! Average costs are rising!!" To make a profit-maximizing decision, you should:
a. ask the manager about the average total cost
b. immediately stop production
c. completely ignore your manager
d. ask the manager about the marginal cost
a. ask the manager about the average total cost
b. immediately stop production
c. completely ignore your manager
d. ask the manager about the marginal cost
answer
d. ask the manager about the marginal cost
question
suppose a company increases production from a point where marginal cost equals average total cost to a point where marginal revenue and marginal cost are equal. Is it a good idea for the company to do this? Why?
a. no, average total costs have increased which means the company is not minimizing losses
b. yes, because average variable costs are always less than average total costs
c. no, the previous level of output was the most efficient because it had the lowest average total cost
d. yes, even though the previous level of output had minimized the average total cost, there was still profit to be earned by producing additional units
a. no, average total costs have increased which means the company is not minimizing losses
b. yes, because average variable costs are always less than average total costs
c. no, the previous level of output was the most efficient because it had the lowest average total cost
d. yes, even though the previous level of output had minimized the average total cost, there was still profit to be earned by producing additional units
answer
d. yes, even though the previous level of output had minimized the average total cost, there was still profit to be earned by producing additional units
question
if a firm in a competitive industry is making zero economic profit but still producing, it must be the case that:
a. MC = MR > ATC
b. MC = MR < ATC
c. MC = ATC > MR
d. MC = MR = ATC
a. MC = MR > ATC
b. MC = MR < ATC
c. MC = ATC > MR
d. MC = MR = ATC
answer
d. MC = MR = ATC
question
in the perfectly competitive market, individual firms exert no effect on the market price. Therefore, the firm's marginal revenue is:
a. zero
b. an upward-sloping curve
c. a downward-sloping curve
d. the same as the firm's demand curve
a. zero
b. an upward-sloping curve
c. a downward-sloping curve
d. the same as the firm's demand curve
answer
d. the same as the firm's demand curve
question
if a perfectly competitive firm sells 50 units of output at a market price of $10 per unit, its marginal revenue is:
a. more than $10
b. less than $10
c. $10
d. $500
a. more than $10
b. less than $10
c. $10
d. $500
answer
c. $10
question
marginal revenue is the change in:
a. total profit brought about by selling one more unit of output
b. price brought about by selling one more unit of output
c. total revenue brought about by selling one more unit of output
d. output brought about by a $1 change in product price
a. total profit brought about by selling one more unit of output
b. price brought about by selling one more unit of output
c. total revenue brought about by selling one more unit of output
d. output brought about by a $1 change in product price
answer
c. total revenue brought about by selling one more unit of output
question
a portrait photographer produces output in packages of 100 photos each. If the output sold increases from 600 to 700 photos, total revenue increases from $1,200 to $1,400. The marginal revenue per photo is:
a. $200
b. $100
c. $20
d. $2
a. $200
b. $100
c. $20
d. $2
answer
d. $2
question
which of the following best describes why a perfectly competitive firm will sometimes continue producing in the short run even if it incurs a loss?
a. as long as price exceeds average variable cost, the loss from producing will be smaller than the loss from shutting down, which is equal to the amount of total fixed costs
b. short-run losses turn into long-run profits when there is entry into the market
c. a perfectly competitive firm should never produce if it incurs a loss because it is unable to influence the market price
d. if price exceeds average total cost, the loss from covering the fixed costs will be smaller than the loss from covering the variable costs
a. as long as price exceeds average variable cost, the loss from producing will be smaller than the loss from shutting down, which is equal to the amount of total fixed costs
b. short-run losses turn into long-run profits when there is entry into the market
c. a perfectly competitive firm should never produce if it incurs a loss because it is unable to influence the market price
d. if price exceeds average total cost, the loss from covering the fixed costs will be smaller than the loss from covering the variable costs
answer
a. as long as price exceeds average variable cost, the loss from producing will be smaller than the loss from shutting down, which is equal to the amount of total fixed costs
question
in the short run, why would a firm in a perfectly competitive market shut down production if the prevailing market price falls below the lowest possible average variable cost?
a. at that point (economic) profit is zero
b. below that point average revenue becomes less than marginal revenue
c. below that point marginal revenue becomes insufficient to pay for avoidable average variable cost
d. below that point other firms with similar cost will find it profitable to enter the market and take away demand from the existing firms
a. at that point (economic) profit is zero
b. below that point average revenue becomes less than marginal revenue
c. below that point marginal revenue becomes insufficient to pay for avoidable average variable cost
d. below that point other firms with similar cost will find it profitable to enter the market and take away demand from the existing firms
answer
c. below that point marginal revenue becomes insufficient to pay for avoidable average variable cost
question
in the short run, a firm will stay in business as long as:
a. price equals average revenue
b. marginal revenue is greater than or equal to marginal cost
c. price exceeds average variable cost
d. price is less than average variable cost
a. price equals average revenue
b. marginal revenue is greater than or equal to marginal cost
c. price exceeds average variable cost
d. price is less than average variable cost
answer
c. price exceeds average variable cost
question
suppose that price is below the minimum average total cost but above the minimum average variable cost. In the short run, a firm that is a price taker would:
a. immediately shut down and get out of the industry
b. continue to produce a quantity such that marginal revenue equals marginal cost
c. shut down temporarily, in hopes of restarting in the near future
d. cut price and expand output in hopes of achieving economies of scale
a. immediately shut down and get out of the industry
b. continue to produce a quantity such that marginal revenue equals marginal cost
c. shut down temporarily, in hopes of restarting in the near future
d. cut price and expand output in hopes of achieving economies of scale
answer
b. continue to produce a quantity such that marginal revenue equals marginal cost
question
the price-taker firm should discontinue production immediately if:
a. the market price exceeds the firm's average total costs
b. the market price is less than the firm's average variable costs
c. the market price is less than the firm's average total costs, but greater than its average variable cost
d. its accounting statement indicates that it is suffering losses
a. the market price exceeds the firm's average total costs
b. the market price is less than the firm's average variable costs
c. the market price is less than the firm's average total costs, but greater than its average variable cost
d. its accounting statement indicates that it is suffering losses
answer
b. the market price is less than the firm's average variable costs
question
in the short run, a firm should shut down its business if price is less than:
a. ATC
b. AR
c. MC
d. AVC
a. ATC
b. AR
c. MC
d. AVC
answer
d. AVC
question
in the short run, a firm should shut down its operation if:
a. its losses are less than TFC at the MR = MC point
b. its losses equal TFC at the MR = MC point
c. its losses are greater than TFC at the MR = MC point
d. TR is less than TC
a. its losses are less than TFC at the MR = MC point
b. its losses equal TFC at the MR = MC point
c. its losses are greater than TFC at the MR = MC point
d. TR is less than TC
answer
c. its losses are greater than TFC at the MR = MC point
question
consider a firm with the following cost and revenue information: ATC = $8, AVC = $7, and MR = MC = $6. If the firm produces Q = 60 in the short run, it:
a. is minimizing losses
b. makes a total loss of $60
c. should produce more output
d. should shut down
a. is minimizing losses
b. makes a total loss of $60
c. should produce more output
d. should shut down
answer
d. should shut down
question
if the price of a product is $12, its average total cost is $2 and its average total cost is $15 at the profit-maximizing output level, in the short run the firm:
a. should expand output until MR = MC
b. cannot cover total fixed costs
c. experiences a loss
d. must always shut down
a. should expand output until MR = MC
b. cannot cover total fixed costs
c. experiences a loss
d. must always shut down
answer
c. experiences a loss
question
if a firm shuts down in the short run, it will:
a. incur losses equal to its fixed costs
b. have total revenue greater than total fixed costs
c. reduce its losses to zero
d. do this because P > AVC
a. incur losses equal to its fixed costs
b. have total revenue greater than total fixed costs
c. reduce its losses to zero
d. do this because P > AVC
answer
a. incur losses equal to its fixed costs
question
suppose the price of a product is less than its average variable cost. When the firm's fixed obligations are completely ended, it will now most likely:
a. make an economic profit
b. go out of business
c. expand to a bigger operation
d. break even
a. make an economic profit
b. go out of business
c. expand to a bigger operation
d. break even
answer
b. go out of business
question
if a firm is operating at a loss in the short run and finds that its price is greater than average variable cost, then
a. it should produce where MR = MC
b. it should produce zero output
c. total revenue is greater than total costs
d. total revenue is less than total variable costs
a. it should produce where MR = MC
b. it should produce zero output
c. total revenue is greater than total costs
d. total revenue is less than total variable costs
answer
a. it should produce where MR = MC
question
in the short run, when the prevailing market price falls below the average variable cost curve, a firm in perfect competition will shut down because:
a. economic profit is zero
b. price is less than marginal revenue
c. marginal revenue is insufficient to pay average variable cost
d. other firms will enter the market seeking profits
a. economic profit is zero
b. price is less than marginal revenue
c. marginal revenue is insufficient to pay average variable cost
d. other firms will enter the market seeking profits
answer
c. marginal revenue is insufficient to pay average variable cost
question
if a competitive firm is losing money then it should:
a. always shut down
b. shut down if its losses are greater than total fixed costs
c. shut down if its total fixed costs are greater than losses
d. raise its price
a. always shut down
b. shut down if its losses are greater than total fixed costs
c. shut down if its total fixed costs are greater than losses
d. raise its price
answer
b. shut down if its losses are greater than total fixed costs
question
above the shutdown point, a competitive firm's supply curve coincides with its:
a. marginal revenue curve
b. marginal cost curve
c. average variable cost curve
d. average total cost curve
a. marginal revenue curve
b. marginal cost curve
c. average variable cost curve
d. average total cost curve
answer
b. marginal cost curve
question
suppose that 1000 identical sellers each set their profit-maximizing output level at 18 units when price equals $10. Then what is market quantity supplied at a price of $10?
a. 100
b. 1,000
c. 10,000
d. 18,000
a. 100
b. 1,000
c. 10,000
d. 18,000
answer
d. 18,000
question
as market price increases in the short run, a profit-maximizing firm in a perfectly competitive market will expand output along its:
a. marginal cost curve
b. average total cost curve
c. average variable cost curve
d. market demand curve
a. marginal cost curve
b. average total cost curve
c. average variable cost curve
d. market demand curve
answer
a. marginal cost curve
question
suppose the marginal revenue curve for a perfectly competitive firm intersects the average total cost curve at its minimum point. As the marginal revenue curve moves upward from that point along the marginal cost curve,
a. the profit-maximizing quantity decreases
b. the profit-maximizing quantity increases
c. the firm will choose not to produce to minimize its loss
d. the average fixed cost curve will shift upward
a. the profit-maximizing quantity decreases
b. the profit-maximizing quantity increases
c. the firm will choose not to produce to minimize its loss
d. the average fixed cost curve will shift upward
answer
b. the profit-maximizing quantity increases
question
the short-run supply curve for a perfectly competitive firm is the marginal cost curve
a. at all price levels because the firm chooses the profit-maximizing quantity of output where marginal revenue equals marginal cost
b. above the minimum point of the average variable cost (AVC) curve because as the price falls, the firm maximizes profit by producing more output to account for a smaller profit margin on each unit
c. above the minimum point of the average variable cost (AVC) curve because the firm maximizes profit by choosing the quantity at which marginal revenue equals marginal cost and below the minimum point of AVC the firm will shut down to minimize its losses
d. above the minimum point of the average total cost (ATC) curve because the firm maximizes profit by choosing the quantity at which marginal revenue equals marginal cost and below the minimum point of ATC the firm will shut down to minimize its losses
a. at all price levels because the firm chooses the profit-maximizing quantity of output where marginal revenue equals marginal cost
b. above the minimum point of the average variable cost (AVC) curve because as the price falls, the firm maximizes profit by producing more output to account for a smaller profit margin on each unit
c. above the minimum point of the average variable cost (AVC) curve because the firm maximizes profit by choosing the quantity at which marginal revenue equals marginal cost and below the minimum point of AVC the firm will shut down to minimize its losses
d. above the minimum point of the average total cost (ATC) curve because the firm maximizes profit by choosing the quantity at which marginal revenue equals marginal cost and below the minimum point of ATC the firm will shut down to minimize its losses
answer
c. above the minimum point of the average variable cost (AVC) curve because the firm maximizes profit by choosing the quantity at which marginal revenue equals marginal cost and below the minimum point of AVC the firm will shut down to minimize its losses
question
which of the following is a key characteristic of the long-run competitive equilibrium that distinguishes it from the short-run competitive equilibrium?
a. free entry to reduce short-run profits, or free exit to reduce short-run losses
b. economic profits are positive, but cannot be negative
c. marginal revenue is greater than marginal cost
d. average revenue is less than average cost
a. free entry to reduce short-run profits, or free exit to reduce short-run losses
b. economic profits are positive, but cannot be negative
c. marginal revenue is greater than marginal cost
d. average revenue is less than average cost
answer
a. free entry to reduce short-run profits, or free exit to reduce short-run losses
question
what is the largest possible loss that is consistent with a firm producing in a perfectly competitive market in long-run competitive equilibrium?
a. an amount equal to price minus average variable cost
b. an amount equal to total variable
c. zero
d. an amount equal to total fixed cost
a. an amount equal to price minus average variable cost
b. an amount equal to total variable
c. zero
d. an amount equal to total fixed cost
answer
c. zero
question
the long run is a planning period:
a. during which the firm can vary its plant size
b. less than six months
c. less than one year
d. less than five years
a. during which the firm can vary its plant size
b. less than six months
c. less than one year
d. less than five years
answer
a. during which the firm can vary its plant size
question
in long-run equilibrium, which of the following is not equal to price for a perfectly competitive firm?
a. short-run average variable cost
b. long-run average total cost
c. short-run marginal cost
d. short-run average total cost
a. short-run average variable cost
b. long-run average total cost
c. short-run marginal cost
d. short-run average total cost
answer
a. short-run average variable cost
question
which of the following statements is true?
a. to maximize profits, a firm must maximize total revenue
b. in long-run equilibrium, a competitive firm produces at the point of minimum average total cost
c. in the short-run, a perfectly competitive firm produces where total cost is minimum
d. in the short-run, a perfectly competitive firm will close down whenever price is less than average total cost
a. to maximize profits, a firm must maximize total revenue
b. in long-run equilibrium, a competitive firm produces at the point of minimum average total cost
c. in the short-run, a perfectly competitive firm produces where total cost is minimum
d. in the short-run, a perfectly competitive firm will close down whenever price is less than average total cost
answer
b. in long-run equilibrium, a competitive firm produces at the point of minimum average total cost
question
in a perfectly competitive industry, assume the short-run average total cost increases as the output of the industry expands. In the long run, the industry supply curve will:
a. have a positive slope
b. have a negative slope
c. be perfectly horizontal
d. be perfectly vertical
a. have a positive slope
b. have a negative slope
c. be perfectly horizontal
d. be perfectly vertical
answer
a. have a positive slope
question
suppose that in a perfectly competitive market, firms are making economic profits. In the long run, we can expect to see:
a. some firms leave
b. the market price rise
c. market supply shift to the left
d. economic profits become zero
a. some firms leave
b. the market price rise
c. market supply shift to the left
d. economic profits become zero
answer
d. economic profits become zero
question
the long-run equilibrium condition for perfect competition is:
a. P = AVC = MR = MC
b. P = ATC = MR = MC
c. Q = AVC = MR = MC
d. Q = ATC = MR = MC
a. P = AVC = MR = MC
b. P = ATC = MR = MC
c. Q = AVC = MR = MC
d. Q = ATC = MR = MC
answer
b. P = ATC = MR = MC
question
consider a firm operating with the following: price = 10; MR = 10; MC = 10; ATC = 10. This firm is:
a. making an economic profit of 10
b. an example of monopolistic competition
c. perfectly competitive in long-run equilibrium
d. a monopolist for a product with a relatively inelastic demand
a. making an economic profit of 10
b. an example of monopolistic competition
c. perfectly competitive in long-run equilibrium
d. a monopolist for a product with a relatively inelastic demand
answer
c. perfectly competitive in long-run equilibrium
question
if the expansion of output in an industry leads to unchanged resource prices, the industry is most likely to be a(n):
a. decreasing cost industry
b. increasing cost industry
c. constant cost industry
d. industry characterized by economies of scale
a. decreasing cost industry
b. increasing cost industry
c. constant cost industry
d. industry characterized by economies of scale
answer
c. constant cost industry
question
if resource prices rise and the per-unit cost of producing a product increases as the firms in an industry expand output in response to an increase in demand, the long-run market supply curve for the product will:
a. be perfectly elastic
b. be perfectly inelastic
c. slope upward to the right
d. be more inelastic than the short-run supply curve for the product
a. be perfectly elastic
b. be perfectly inelastic
c. slope upward to the right
d. be more inelastic than the short-run supply curve for the product
answer
c. slope upward to the right
question
assume the short-run average total cost for a perfectly competitive industry decreases as the output of the industry expands. In the long run, the industry supply curve will:
a. have a positive slope
b. have a negative slope
c. be perfectly horizontal
d. be perfectly vertical
a. have a positive slope
b. have a negative slope
c. be perfectly horizontal
d. be perfectly vertical
answer
b. have a negative slope
question
if a perfectly competitive industry's long-run supply curve is downward sloping, we can conclude that input prices will:
a. increase as industry output increases
b. decrease as industry output increases
c. remain constant as industry output increases
d. not change systematically as industry output increases
a. increase as industry output increases
b. decrease as industry output increases
c. remain constant as industry output increases
d. not change systematically as industry output increases
answer
b. decrease as industry output increases
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