question
The most important challenge facing a firm in a perfectly competitive market is deciding:
answer
how much to produce.
question
Which of the following is a defining characteristic of all perfectly competitive markets?
Each firm in the market faces a perfectly inelastic demand curve.
The market demand curve is perfectly elastic.
All firms sell the same standardized product.
Consumers display strong brand loyalty.
Each firm in the market faces a perfectly inelastic demand curve.
The market demand curve is perfectly elastic.
All firms sell the same standardized product.
Consumers display strong brand loyalty.
answer
All firms sell the same standardized product.
question
One implication of the shape of the demand curve facing a perfectly competitive firm is that:
answer
if the firm increases its price above the market price, it will earn zero revenue.
question
A profit-maximizing perfectly competitive firm must decide:
answer
only how much to produce, taking price as fixed.
question
Jenny sells lemonade in front of her house in the summer. Several other kids in Jenny's neighborhood also run lemonade stands in the summer. If the lemonade market is perfectly competitive and Jenny is charging the equilibrium price, then Jenny can increase her revenue if she:
answer
keeps the price of her lemonade the same and increases the output.
question
A fixed factor of production:
answer
is fixed only in the short run.
question
According to the law of diminishing returns, when some factors of production are fixed, in order to increase production by a given amount, a firm will eventually need to add successively:
answer
larger and larger quantities of the variable factors of production.
question
Which of the following is the most likely to be a fixed factor of production at a pizza restaurant?
answer
The size of the seating area.
question
One reason that variable factors of production tend to show diminishing returns in the short run is that:
answer
there is only so much that can be produced using additional variable inputs when some factors of production are fixed.
question
To produce 150 units of output, a firm must use 3 employee-hours. To produce 300 units of output, the firm must use 8 employee-hours. Apparently, the firm is:
answer
experiencing diminishing returns.
question
The Cost-Benefit Principle tells us that a firm should continue to expand production as long as:
answer
price of the good is greater than its marginal cost.
question
Suppose a firm produces the level of output at which the marginal cost of the last unit produced equals the price of the good. Which of the following statements is always true?
answer
The firm should shutdown if its total revenue is less than its variable cost.
question
Suppose Sarah owns a small company that makes wedding cakes. The table below shows how Sarah's total cost varies depending on the number of wedding cakes she makes each day.
If Sarah's fixed costs double, then in the short run, her profit-maximizing level of output:
If Sarah's fixed costs double, then in the short run, her profit-maximizing level of output:
answer
will not change.
question
If a perfectly competitive firm can sell each unit of output for $9, and the marginal cost of the last unit produced is $8.50, then the:
answer
extra benefit of the last unit produced is greater than the extra cost.
question
A decrease in the price a firm receives for its output will lead the firm to:
answer
reduce output.
question
A profit-maximizing firm will only produce a positive amount of output if:
answer
its total revenue is greater than or equal to its variable cost.
question
When more firms enter an industry:
answer
the industry supply curve will shift right.
question
Which of the following will cause a decrease the supply of jeans?
An increase in the wages paid to workers who make jeans.
A decrease in the demand for jeans.
A decrease in the price of jeans.
A decrease in the expected future price of jeans.
An increase in the wages paid to workers who make jeans.
A decrease in the demand for jeans.
A decrease in the price of jeans.
A decrease in the expected future price of jeans.
answer
An increase in the wages paid to workers who make jeans.
question
If the price of textbooks increases by one percent and the quantity demanded falls by one-half percent, then demand for textbooks is:
answer
inelastic.
question
If the absolute value of the price elasticity of demand for cell phone service is 3, then if the price of cell phone service increases by 1%, quantity demanded would:
answer
decrease by 3%.
question
If the price elasticity of demand for a good equals one, then the demand for that good is:
answer
unit elastic.
question
When the price of NBA tickets is $25 each, 30,000 tickets are sold. After the price rises to $30 each, 20,000 tickets are sold. At the original price, the demand for NBA ticket is:
answer
elastic
question
If consumers cannot readily switch to a close substitute when the price of a good increases, the demand for that good is likely to be:
answer
inelastic.
question
Suppose that the short-run price elasticity of demand for electricity is 0.03, and the long-run price elasticity of demand is 1.2. One would classify the short-run elasticity as being ___________ and the long-run elasticity as being ____________.
answer
inelastic; elastic.
question
Refer to the figure below. When the price is equal to 8, the price elasticity of demand for the demand curve D1 is ______ and for D2 the price elasticity of demand is _____.
answer
1;4
question
The owner of a pizza shop observes that when she raises the price of a large pizza, her total revenue decreases, and when she lowers the price of a large pizza, her total revenue increases. This suggests that:
answer
the demand for her large pizzas is elastic with respect to price.
question
Suppose an increase in the price of golf clubs from $75 to $125 leads to an increase in quantity supplied from 200 units to 300 units. The price elasticity of supply for golf clubs at the original price of $75 is ______, so supply is ______.
answer
0.8, inelastic
question
Refer to the figure below. If P = $6, then the price elasticity of supply is:
answer
greater than 1
question
Antony's Pizza uses the same dough, sauce, and cheese for pizza and calzones. When the price of pizza is low Antony produces more calzones. For Antony, the supply of pizza is ______ compared to the supply at a pizza restaurant that does not serve calzones.
answer
more price elastic
question
If demand is elastic, then total revenue will decrease when price increases, and total revenue will increase when price decreases.
answer
......
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