question
In making a production decision, an entrepreneur:
A.
Decides whether to enter or exit the market.
B.
Decides what level of output will maximize profits.
C.
Determines plant and equipment.
D.
Can change both fixed and variable inputs.
A.
Decides whether to enter or exit the market.
B.
Decides what level of output will maximize profits.
C.
Determines plant and equipment.
D.
Can change both fixed and variable inputs.
answer
B
question
If a perfectly competitive firm wanted to maximize its total revenues, it would produce:
A.
The output where MC equals price.
B.
As much as it is capable of producing.
C.
The output where the ATC curve is at a minimum.
D.
The output where the marginal cost curve is at a minimum.
A.
The output where MC equals price.
B.
As much as it is capable of producing.
C.
The output where the ATC curve is at a minimum.
D.
The output where the marginal cost curve is at a minimum.
answer
B
question
Which of the following is generally a fixed cost?
A.
Lease payments for plant and equipment.
B.
Payroll taxes.
C.
Profit taxes.
D.
All of the above.
A.
Lease payments for plant and equipment.
B.
Payroll taxes.
C.
Profit taxes.
D.
All of the above.
answer
A
question
When the short-run marginal cost curve is upward-sloping:
A.
The average total cost curve is upward-sloping.
B.
The average total cost curve is above the marginal cost curve.
C.
Diminishing returns occur with greater output.
D.
There are diseconomies of scale.
A.
The average total cost curve is upward-sloping.
B.
The average total cost curve is above the marginal cost curve.
C.
Diminishing returns occur with greater output.
D.
There are diseconomies of scale.
answer
C
question
If diminishing returns exist, then:
A.
Total costs will decelerate as output rises.
B.
Total costs will accelerate as output rises.
C.
The total cost curve will be flat.
D.
The total cost curve will be negatively sloped.
A.
Total costs will decelerate as output rises.
B.
Total costs will accelerate as output rises.
C.
The total cost curve will be flat.
D.
The total cost curve will be negatively sloped.
answer
B
question
For the perfectly competitive firm, the marginal revenue is always:
A.
Below the firm's demand curve.
B.
Equal to the market price.
C.
Equal to marginal cost.
D.
Declining.
A.
Below the firm's demand curve.
B.
Equal to the market price.
C.
Equal to marginal cost.
D.
Declining.
answer
B
question
Short-run profits are maximized, for a perfectly competitive firm, at the rate of output where:
A.
Price is equal to marginal cost.
B.
Total revenue is maximized.
C.
Marginal revenue is zero.
D.
Average total costs are maximized.
A.
Price is equal to marginal cost.
B.
Total revenue is maximized.
C.
Marginal revenue is zero.
D.
Average total costs are maximized.
answer
A
question
At the profit-maximizing output for a perfectly competitive firm:
A.
Average revenue = average total cost.
B.
Total revenue = price.
C.
Marginal cost = price.
D.
Total cost = total revenue
A.
Average revenue = average total cost.
B.
Total revenue = price.
C.
Marginal cost = price.
D.
Total cost = total revenue
answer
C
question
For a perfectly competitive firm in the short run, the profit maximization rule requires:
A.
Producing where the marginal profit is maximized.
B.
That price equal marginal cost.
C.
Production at the minimum of short-run average variable cost.
D.
That price equal average total cost.
A.
Producing where the marginal profit is maximized.
B.
That price equal marginal cost.
C.
Production at the minimum of short-run average variable cost.
D.
That price equal average total cost.
answer
B
question
Since the demand curve is horizontal for a perfectly competitive firm, at the profit-maximizing output:
A.
TR = P.
B.
P = minimum AVC.
C.
P = MC.
D.
All of the above.
A.
TR = P.
B.
P = minimum AVC.
C.
P = MC.
D.
All of the above.
answer
C
question
If price is less than marginal cost, a perfectly competitive firm should decrease output because:
A.
Marginal costs are increasing.
B.
Total revenues are decreasing.
C.
The firm is producing units that cost more to produce than the firm receives in revenue thus reducing profits (or increasing losses).
D.
All of the above are reasons to decrease output.
A.
Marginal costs are increasing.
B.
Total revenues are decreasing.
C.
The firm is producing units that cost more to produce than the firm receives in revenue thus reducing profits (or increasing losses).
D.
All of the above are reasons to decrease output.
answer
C
question
Profit per unit equals:
A.
(TR - TC) ÷ Q.
B.
(P - ATC) × Q.
C.
Profit × Q.
D.
All of the above.
A.
(TR - TC) ÷ Q.
B.
(P - ATC) × Q.
C.
Profit × Q.
D.
All of the above.
answer
A
question
A firm experiencing economic losses will still continue to produce output in the short run as long as:
A.
Revenues are greater than total fixed cost.
B.
Price is above average variable cost.
C.
MR = MC.
D.
All of the above.
A.
Revenues are greater than total fixed cost.
B.
Price is above average variable cost.
C.
MR = MC.
D.
All of the above.
answer
B
question
A competitive firm should always continue to operate in the short run as long as:
A.
P < ATC.
B.
P < AVC.
C.
MR > AVC.
D.
MR > MC.
A.
P < ATC.
B.
P < AVC.
C.
MR > AVC.
D.
MR > MC.
answer
C
question
When a firm minimizes its losses in the short run:
A.
It continues to produce only if price exceeds average variable cost.
B.
The firm will make an investment decision.
C.
The firm will enter or exit from the market.
D.
All of the above.
A.
It continues to produce only if price exceeds average variable cost.
B.
The firm will make an investment decision.
C.
The firm will enter or exit from the market.
D.
All of the above.
answer
A
question
When price exceeds average variable cost but not average total cost, the firm should, in the short run:
A.
Shut down.
B.
Produce at the rate of output where MR = MC.
C.
Minimize per-unit losses by producing at the rate of output where ATC is minimized in the short run.
D.
Minimize total losses by producing at the rate of output where ATC is minimized.
A.
Shut down.
B.
Produce at the rate of output where MR = MC.
C.
Minimize per-unit losses by producing at the rate of output where ATC is minimized in the short run.
D.
Minimize total losses by producing at the rate of output where ATC is minimized.
answer
B
question
The shutdown point occurs where:
A.
P = minimum of MR.
B.
P = minimum of AFC.
C.
P = minimum of AVC.
D.
P = minimum of ATC.
A.
P = minimum of MR.
B.
P = minimum of AFC.
C.
P = minimum of AVC.
D.
P = minimum of ATC.
answer
C
question
The decision to start or expand a business is known as the:
A.
Output decision.
B.
Production decision.
C.
Investment decision.
D.
Profit-maximization decision.
A.
Output decision.
B.
Production decision.
C.
Investment decision.
D.
Profit-maximization decision.
answer
C
question
An investment decision involves choosing:
A.
A rate of output and is a short-run decision.
B.
A rate of output and is a long-run decision.
C.
The amount of plant and equipment and is a short-run decision.
D.
The amount of plant and equipment and is a long-run decision.
A.
A rate of output and is a short-run decision.
B.
A rate of output and is a long-run decision.
C.
The amount of plant and equipment and is a short-run decision.
D.
The amount of plant and equipment and is a long-run decision.
answer
D
question
The long run is:
A.
A time period longer than 1 year.
B.
The time period required to produce a unit of the firm's output.
C.
A period of time long enough for all inputs to be variable.
D.
Approximately one year.
A.
A time period longer than 1 year.
B.
The time period required to produce a unit of the firm's output.
C.
A period of time long enough for all inputs to be variable.
D.
Approximately one year.
answer
C
question
To determine the market supply, the quantities:
A.
Demanded at each price by each demander are added together.
B.
Supplied at each price by each supplier are added together.
C.
Demanded at each price by each demander and supplied at each price by each supplier are added together.
D.
Demanded at each price by each demander are subtracted from the quantities supplied at each price by each supplier.
A.
Demanded at each price by each demander are added together.
B.
Supplied at each price by each supplier are added together.
C.
Demanded at each price by each demander and supplied at each price by each supplier are added together.
D.
Demanded at each price by each demander are subtracted from the quantities supplied at each price by each supplier.
answer
B
question
Which of the following is true about the market supply curve?
A.
It is the sum of the marginal cost curves of all the firms in the market.
B.
It is upward sloping to the right.
C.
It is determined by the number of firms in the market.
D.
All of the above.
A.
It is the sum of the marginal cost curves of all the firms in the market.
B.
It is upward sloping to the right.
C.
It is determined by the number of firms in the market.
D.
All of the above.
answer
D
question
Which of the following is characteristic of a perfectly competitive market?
A.
Zero economic profit in the long run.
B.
Imperfect information.
C.
One firm in the market.
D.
All of the above.
A.
Zero economic profit in the long run.
B.
Imperfect information.
C.
One firm in the market.
D.
All of the above.
answer
A
question
The behavior expected in a competitive market includes:
A.
Very little entry and exit.
B.
Marginal cost pricing.
C.
Aggressive behavior among competitors to control prices.
D.
Little technological growth.
A.
Very little entry and exit.
B.
Marginal cost pricing.
C.
Aggressive behavior among competitors to control prices.
D.
Little technological growth.
answer
B
question
A profit-maximizing producer seeks to:
A.
Maximize profit per unit.
B.
Minimize average total costs.
C.
Minimize marginal cost.
D.
Maximize total profit.
A.
Maximize profit per unit.
B.
Minimize average total costs.
C.
Minimize marginal cost.
D.
Maximize total profit.
answer
D
question
`A profit-maximizing producer seeks to maximize:
A.
Profit per unit of output.
B.
Total revenue.
C.
Total profit.
D.
Marginal revenue.
A.
Profit per unit of output.
B.
Total revenue.
C.
Total profit.
D.
Marginal revenue.
answer
C
question
The entry of additional firms into a market, ceteris paribus:
A.
Shifts the market supply curve to the right.
B.
Reduces the equilibrium price.
C.
Forces the typical producer to reduce output.
D.
All of the above.
A.
Shifts the market supply curve to the right.
B.
Reduces the equilibrium price.
C.
Forces the typical producer to reduce output.
D.
All of the above.
answer
D
question
Which of the following characterizes a firm that is in long-run perfectly competitive equilibrium where profits are maximized?
A.
P = minimumATC.
B.
Price equals marginal cost.
C.
Zero economic profit.
D.
All of the above.
A.
P = minimumATC.
B.
Price equals marginal cost.
C.
Zero economic profit.
D.
All of the above.
answer
D
question
For a perfectly competitive market, long-run competitive equilibrium is characterized by:
A.
P = minimumATC.
B.
MC = ATC.
C.
P = MC.
D.
All of the above.
A.
P = minimumATC.
B.
MC = ATC.
C.
P = MC.
D.
All of the above.
answer
D
question
In a perfectly competitive market, prices will tend to fall to the minimum of the firm's long-run:
A.
Marginal cost curve.
B.
Fixed cost curve.
C.
Average total cost curve.
D.
Total cost curve.
A.
Marginal cost curve.
B.
Fixed cost curve.
C.
Average total cost curve.
D.
Total cost curve.
answer
C
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