All firms, no matter what type of firm structure they are producing in, make their production decisions based on the point where their
a. marginal revenue equals marginal costs.
b. profits are equal to zero.
c. total revenue equals total cost.
d. marginal revenue equals price.
e. average total cost is minimized.
a.
marginal revenue equals marginal costs.
Kimiko owns a cupcake shop in Newport Beach, California. The market for cupcakes is very competitive. At Kimiko’s current production level, her marginal cost is $25 and her marginal revenue is $29. To maximize profits, Kimiko should
a. decrease the price.
b. keep production the same.
c. increase the price.
d. decrease production.
e. increase production.
Marcy owns a photography business in Mobile, Alabama. The market for photography is very competitive. At Marcy’s current production level, her marginal cost is $15 and her marginalrevenue is $12. In order to maximize profits, Marcy should
a. increase production.
b. increase the price.
c. decrease the price.
d. decrease production.
e. keep production the same.
if this firm is maximizing profits, total revenue is represented by
a. price x quantity
b. quantity
c. product x price
a. price x quantity
Total revenue minus total cost equals
a. quantity.
b. marginal cost.
c. marginal revenue.
d. profit.
e. change in profit.
Profit maximization occurs when
a. the price in the market is equal to the firm’s marginal revenue.
b. a firm sets the price at a point above average total cost.
c. total costs equal total revenue.
d. a firm expands output until marginal revenue is equal to marginal cost.
e. a firm expands output until marginal revenue is exceeded by marginal cost.
If a perfectly competitive firm is maximizing profits in the short run, what does this mean?
a. The profit can be negative, zero, or positive.
b. The profit must be zero or positive.
c. The profit must be negative.
d. The profit must be positive.
e. The profit equals zero.
The presence of many buyers and sellers is an important characteristic of competitive markets because it allows
a. the price and quantity in the market to be determined by market forces.
b. buyers in the market to have influence over the market price.
c. sellers in the market to have influence over the market quantity.
d. sellers in the market to have influence over the market price.
e. buyers in the market to have influence over the market quantity.
The market for hot dogs on the streets of New York City can be considered close to a perfectly competitive market. Because there are so many individuals buying and selling hot dogs
a. firms cannot make positive accounting profits.
b. firms are able to make large economic profits.
c. market forces set the price in the market.
d. there is a surplus of hot dogs.
e. there is a shortage of hot dogs.
In a competitive market, if one firm raises its price relative to the other firms in the market, consumers are willing to go to another firm because
a. the products are similar, which makes them complements.
b. consumers can set the price they want to pay.
c. the products are similar, which makes them substitutes.
d. there are many sellers in the market selling different items.
e. consumers can get more producer surplus by going to a different firm.
Many economists believe that the market for wheat in the United States is an almost perfectly competitive market. If one firm discovers a technology that makes its wheat taste better and have fewer calories than all other wheat offered in the market, the wheat market would become less competitive because
a. individuals would not want to switch products.
b. there would no longer be many buyers and many sellers of wheat.
c. the products would no longer be similar in the wheat market.
d. it would no longer be easy to enter and exit the existing wheat market.
e. the government would want to intervene.
All of the following are characteristics of perfect competition EXCEPT
a. many buyers and sellers.
b. homogenous products.
c. each firm is a price taker.
d. product differentiation.
e. lack of barriers to entry or exit.
In competitive markets,
a. market forces set the quantity in the market but not the prices.
b. firms set the prices for their products with little concern for the consumer.
c. firms control the prices they charge.
d. individual firms are much stronger than the market forces are.
e. market forces are much stronger than individual firms are.
Real-life examples of competitive markets
a. are difficult to break into as an entrepreneur.
b. are usually far short of perfection.
c. include the fast-food industry and soda industry.
d. do not benefit society.
e. are more common than any other market structure.
Each firm in a perfectly competitive industry
a. is a price taker.
b. is relatively large.
c. is a price maker.
d. is producing a differentiated product.
e. faces low average total costs.
Which of the following is NOT a characteristic of a perfectly competitive industry?
a. The firms earn zero profit.
b. Firms can easily enter or exit the industry.
c. There is a large number of buyers and sellers.
d. The firms produce a homogenous product.
e. Sellers have better information about the product than consumers.
What is the consequence of a firm in a competitive market selling a homogenous product?
a. The product sold by one firm is a perfect complement for the products sold by other firms in the industry.
b. Firms in the industry can produce the same product with a different quantity of inputs.
c. The firms capture some market power.
d. All the firms in the industry are the same size.
e. The product sold by one firm is a perfect substitute for the products sold by other firms in the same industry.
.
e. The product sold by one firm is a perfect substitute for the products sold by other firms in the same industry.
Which of the following is the closest example of a perfectly competitive market?
a. the market for newspapers
b. the market for handmade soaps
c. the market for athletic shoes
d. the market for bread
e. the market for cars
A farmers’ market is close to being a perfectly competitive market. Which characteristic of a perfectly competitive market do most farmers’ markets violate?
a. many sellers
b. similar goods produced
c. free entry into the market
d. free exit from the market
e. many buyers
When marginal revenue is greater than marginal cost, the firm should
a. increase the level of output until price is equal to average variable cost.
b. stay at the same level of output.
c. increase the level of output.
d. reduce the level of output.
e. stop producing.
If the price is greater than both the marginal cost and the average variable cost, what should the firm do?
a. increase the price
b. reduce the price
c. increase its production level
d. decrease its production level
e. stop producing
At what point does the profit-maximizing perfectly competitive firm produce?
a. where total revenue minus marginal revenue is at a maximum
b. where marginal revenue minus marginal cost is at a maximum
c. where marginal revenue is equal to marginal cost
d. where total revenue minus total cost is at a minimum
e. where marginal revenue minus marginal cost is at a maximum
Tamsin’s Tank Tops is a perfectly competitive firm and is currently making positive economic profits of $1,000,
a. the market supply curve will shift to the left.
b. individuals will demand more tank tops.
c. individuals will demand fewer tank tops.
d. firms will exit the market.
e. firms will enter the market.
You can tell a firm is operating in a market that is in long-run competitive equilibrium if
a. economic profits are zero.
b. economic profits are negative.
c. accounting profits are zero.
d. economic profits are positive.
e. accounting profits are negative.
If Kang’s Knick-Knacks is a perfectly competitive firm and is making zero economic profits,
a. Kang’s Knick-Knacks will stay in the market.
b. the market supply curve will shift to the left.
c. the market supply curve will shift to the right.
d. firms will enter the market.
e. firms will exit the market.
a.
Kang’s Knick-Knacks will stay in the market.
If firms in a competitive market are making positive economic profits, you would expect firms to ________ the market, causing the ________ curve to shift to the ________.
a. enter; market supply; left
b. enter; demand; right
c. enter; market supply; right
d. leave; market supply; left
e. enter; demand; left
The market for candles is perfectly competitive and is currently in equilibrium. What will happen if candles are later linked to more houses catching on fire?
a. In both the short run and the long run, firms will experience zero economic profits.
b. In the short run, firms will experience economic profits, but in the long run, firms will enter the market, bringing economic profits back down to zero.
c. In the short run, firms will incur economic losses, but in the long run, firms will enter the market, bringing economic profits back up to zero.
d. In the short run, firms will incur economic losses, but in the long run, firms will leave the market, bringing economic profits back up to zero.
e. In the short run, firms will experience economic profits, but in the long run, firms will leave the market, bringing economic profits back down to zero.
Holding all else constant, a decrease in the market demand for a product in a competitive market would cause
a. an increase in profits for a firm.
b. an increase in the price a firm could charge for the product.
c. the average total cost (ATC) curve of the firms to decrease.
d. the marginal cost (MC) curve of the firms to decrease.
e. the marginal revenue (MR) curve of the firms to shift downward.
When firms enter a market, the ________-run market supply curve shifts ________, causing individual firms’ profits to ________.
a. short; right; decrease
b. long; right; decrease
c. short; right; increase
d. short; left; increase
e. short; left; decrease
When firms exit a market, the ________-run market supply curve shifts ________, causingindividual firms’ profits to ________.
a. short; left; decrease
b. long; right; decrease
c. short; right; decrease
d. short; right; increase
e. short; left; increase
Costs that have been incurred as a result of past decisions are known as ________ costs.
a. sunk
b. marginal
c. fixed
d. variable
e. opportunity
Sunk costs
a. cause the profit-maximizing rule to no longer be useful.
b. are included only in economic profits.
c. are future costs that one has to incur.
d. should be taken into consideration when making decisions about future production.
e. are costs that have been incurred as a result of past decisions.
Firms will always suffer a loss only if the price they charge is
a. greater than their minimum average variable cost (AVC).
b. equal to their minimum average variable cost (AVC).
c. equal to their minimum average total cost (ATC).
d. greater than their minimum average total cost (ATC).
e. less than their minimum average total cost (ATC).
In the short run, a competitive firm may choose to operate at a loss
a. to recover a portion of its fixed costs.
b. only if those losses are accounting losses.
c. to ensure that other firms make a loss as well.
d. to gain market power in the future.
e. only if those losses are economic losses.
Calvin’s Campgrounds is a firm conducting business in a competitive market. Calvin realizes he is making a loss and is trying to decide whether to shut down or stay open. He should stay open
a. if his revenues cover his variable costs.
b. if his revenues do not cover his variable costs.
c. regardless of the price being charged.
d. as long as he is making revenue.
e. if the price being charged is less than his minimum average variable cost (AVC).
If the price is $8, the firm is making
a. a profit and more firms will enter the market in the long run.
b. a loss and will exit the market.
c. zero profit and the market is at long-run equilibrium.
d. a loss and more firms will enter the market.
e. a profit and will exit the market.
This firm would shut down in the long run if the price
a. fell below $8.
b. fell below $5.
c. fell below $3.
d. rose above $8.
e. rose above $5.
a. at the intersection of the marginal cost curve with the marginal revenue curve
b. at the minimum point of the average total cost curve
c. at the minimum point of the average variable cost curve
d. at the intersection of the total cost curve with the marginal revenue curve
e. at the minimum point of the marginal cost curve
If a competitive firm can make enough revenue to cover its variable costs, the firm will
a. shut down.
b. always earn a profit.
c. earn a profit in the long run.
d. choose to remain open.
e. always earn a loss.
Which of the following conditions will result in the firm making an economic profit?
a. P = AVC
b. P > ATC
c. P = ATC
d. P < ATC
e. ATC > P > AVC
Which of the following conditions will result in the firm making zero economic profits?
a. P < ATC
b. P > ATC
c. P = AVC
d. P = ATC
e. ATC > P > AVC
Which of the following conditions will result in the firm making zero economic profits?
a. raise the price
b. shut down
c. increase production to lower the marginal cost
d. continue to produce because the loss is less than the total fixed cost
e. reduce output to lower the marginal cost
A company produces at an output level where marginal revenue is equal to marginal cost andhas the following revenue and cost levels:Marginal cost curve intersects the average variable cost curve at $150.Marginal cost curve intersects the average total cost curve at $200.Marginal cost curve intersects the marginal revenue curve at $170.What would you suggest this firm should do in the short run?
a. The firm should continue to produce at a loss.
b. The firm should continue to produce at a profit level of $50 per unit.
c. The firm should continue to produce at a profit level of $20 per unit.
d. The firm should continue to produce at a profit level of $30 per unit.
e. The firm should shut down.
A company produces at an output level where marginal revenue is equal to marginal cost andhas the following revenue and cost levels:Marginal cost curve intersects the average variable cost curve at $140.Marginal cost curve intersects the average total cost curve at $150.Marginal cost curve intersects the marginal revenue curve at $200.What would you suggest this firm should do in the short run?
a. The firm should continue to produce at a profit level of $60 per unit.
b. The firm should continue to produce at a loss.
c. The firm should continue to produce at a profit level of $10 per unit.
d. The firm should shut down.
e. The firm should continue to produce at a profit level of $50 per unit.
The perfectly competitive firm’s short-run shutdown price equals
a. marginal revenue.
b. total variable costs.
c. the minimum of average variable cost.
d. the minimum of average total cost.
e. the fixed costs.
c.
the minimum of average variable cost
What is true for the perfectly competitive firm’s output level at the break-even point?
a. price > marginal revenue = marginal cost
b. marginal revenue = price > marginal cost
c. marginal revenue = price < marginal cost
d. price = marginal revenue = average total cost
e. marginal revenue < price = marginal cost
What should the firm do if there is no possible output where the price would at least be equal to average variable costs?
a. The firm should shut down in the short run.
b. The firm should increase production.
c. The firm should lower the price.
d. The firm should raise the price.
e. The firm should decrease production.
A firm would produce in the long run only if the market price is
a. at or above $20.
b. above $15.
c. between $15 and $20.
d. above $8.
e. between $8 and $15.
This firm’s short-run supply curve is represented by the
a. marginal cost (MC) curve above $15.
b. average total cost (ATC) curve above $20.
c. marginal cost (MC) curve above $8.
d. average variable cost (AVC) curve above $15.
e. marginal cost (MC) curve above $20.
A firm will shut down in the long-run if the
a. price is above the minimum average total cost (ATC).
b. firm is making zero economic profits.
c. price is equal to the minimum average total cost (ATC).
d. price is anywhere below the minimum average total cost (ATC).
e. price is anywhere above the minimum average variable cost (AVC).
In the long run, if a firm is making a loss, it will
a. increase production in order to increase profits.
b. stop producing and exit the market.
c. continue to operate no matter what.
d. decrease production in order to increase profits.
e. continue to operate if it covers its fixed costs.
It’s easy to determine if a firm is making long-run production decisions by looking at its cost structure because, in the long run, a firm does NOT have any ________ costs.
a. sunk
b. fixed
c. marginal
d. opportunity
e. variable
A firm’s willingness to supply its product in the short run is represented on a graph by the
a. part of the marginal cost (MC) curve above minimum average variable cost (AVC).
b. entire marginal cost (MC) curve.
c. marginal revenue (MR) curve.
d. market supply curve.
e. part of the marginal cost (MC) curve above minimum average total cost (ATC).
A firm’s short-run supply curve is equal to the firm’s
a. marginal cost curve above minimum average total cost (ATC).
b. marginal revenue curve.
c. demand curve.
d. marginal cost curve above minimum average variable cost (AVC).
e. marginal cost curve below minimum average variable cost (AVC).
The marginal cost curve is the short-run supply curve
a. as long as the firm is operating.
b. as long as the firm is not operating.
c. only between minimum average total cost (ATC) and minimum average variable cost (AVC).
d. at all points.
e. only above minimum average total cost (ATC).
Babak owns a sports practice facility called Boston Batting Cages in Boston, Massachusetts. During the first year of operation, Boston Batting Cages incurred many costs. In that year, Babak spent $5,000 on labor, $2,000 on maintenance, and $1,000 on electricity. Babak took out a loan to open his business, in which he would have earned $1,500, and his previous job, which he could get back at any time, paid him $50,000.Boston Batting Cages incurred ________ in explicit costs.
a. $8,000
b. $51,500
c. $9,500
d. $7,000
e. $50,000
The perfectly competitive firm’s short-run supply curve is the
a. entire marginal cost curve.
b. region of the firm’s marginal cost curve above the average total cost curve.
c. region of the firm’s marginal cost curve above the average variable cost curve.
d. region of the firm’s marginal cost curve below the average variable cost curve.
e. entire marginal revenue curve.
c. region of the firm’s marginal cost curve above the average variable cost curve.
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