question
The firms in a competitive market structure are making an economic profit when new firms enter. The entry shifts the short-run market supply curve ______, the market price ______, and each firm's economic profit ______.
a) leftward; falls; decreases
b) leftward; rises; decreases
c) rightward; rises; increases
d) rightward; falls; decreases
a) leftward; falls; decreases
b) leftward; rises; decreases
c) rightward; rises; increases
d) rightward; falls; decreases
answer
d) rightward; falls; decreases
question
In the above figure, the firm will produce
a) 0 units
b) 5 units
c) 15 units
d) 20 units
a) 0 units
b) 5 units
c) 15 units
d) 20 units
answer
d) 20 units
question
In the above figure, the firm's total economic profit is equal to
a) $60
b) $90
c) $150
d) $200
a) $60
b) $90
c) $150
d) $200
answer
a) $60
question
The USDA maintains ethanol has an impact on food prices. "Higher ethanol production definitely and directly raises the price of corn," said USDA economist Ephraim Leibtag. In the long run in the corn market, what is true if the production of ethanol increases?
a) New corn farmers will enter the market and increase the market price
b) New corn farmers will enter the market and decrease the market price
c) Existing corn farmers will exit the market and increase the market price
d) Existing corn farmers will exit the market and decrease the market price
a) New corn farmers will enter the market and increase the market price
b) New corn farmers will enter the market and decrease the market price
c) Existing corn farmers will exit the market and increase the market price
d) Existing corn farmers will exit the market and decrease the market price
answer
b) New corn farmers will enter the market and decrease the market price
question
Diminishing marginal returns occurs when
a) all inputs are increased and output decreases
b) a variable input is increased and output decreases
c) a variable unit is increased and its marginal product falls
d) all inputs are increased and output increases by a smaller proportion
a) all inputs are increased and output decreases
b) a variable input is increased and output decreases
c) a variable unit is increased and its marginal product falls
d) all inputs are increased and output increases by a smaller proportion
answer
c) a variable unit is increased and its marginal product falls
question
A competitive firm shuts down if the price of its product is
a) less than its minimum total cost
b) greater than its minimum total cost
c) less than its minimum average variable cost
d) greater than its minimum average variable cost
a) less than its minimum total cost
b) greater than its minimum total cost
c) less than its minimum average variable cost
d) greater than its minimum average variable cost
answer
c) less than its minimum average variable cost
question
In competition, the marginal revenue of an individual firm
a) is zero
b) equals the price of the product
c) exceeds the price of the product
d) is positive but less than the price of the product
a) is zero
b) equals the price of the product
c) exceeds the price of the product
d) is positive but less than the price of the product
answer
b) equals the price of the product
question
A competitive firm's economic profit is maximized by producing the amount of output such that
a) total revenue equals total cost
b) total revenue equals total variable cost
c) marginal revenue equals marginal cost
d) marginal revenue is equal to total revenue
a) total revenue equals total cost
b) total revenue equals total variable cost
c) marginal revenue equals marginal cost
d) marginal revenue is equal to total revenue
answer
c) marginal revenue equals marginal cost
question
A firm's long run average cost curve
a) is the sum of all of its short run average cost curves
b) shows the lowest attainable average total cost of producing any level of output when the plant and labor are fixed
c) shows the minimum of short run costs of each possible plant size available for a firm to use and thus the minimum cost of producing any level of output
d) all of the above
a) is the sum of all of its short run average cost curves
b) shows the lowest attainable average total cost of producing any level of output when the plant and labor are fixed
c) shows the minimum of short run costs of each possible plant size available for a firm to use and thus the minimum cost of producing any level of output
d) all of the above
answer
d) all of the above
question
When long run average costs decrease as output increases, there are
a) economies of scale
b) diseconomies of scale
c) constant marginal costs
d) constant returns to scale
a) economies of scale
b) diseconomies of scale
c) constant marginal costs
d) constant returns to scale
answer
a) economies of scale
question
When a firm is considered to be a "price taker" that means that the firm
a) pays a fixed price for all of its inputs
b) cannot influence the market price of the good that it sells
c) will accept ("take") the lowest price that its customers offer
d) can charge any price that it wants to charge, that is, "take" any price it wants
a) pays a fixed price for all of its inputs
b) cannot influence the market price of the good that it sells
c) will accept ("take") the lowest price that its customers offer
d) can charge any price that it wants to charge, that is, "take" any price it wants
answer
b) cannot influence the market price of the good that it sells
question
When marginal cost is greater than average total cost, the
a) marginal cost decreases as output increases
b) average total cost increases as output increases
c) average total cost decreases as output increases
d) marginal cost does not change as output increases
a) marginal cost decreases as output increases
b) average total cost increases as output increases
c) average total cost decreases as output increases
d) marginal cost does not change as output increases
answer
b) average total cost increases as output increases
question
In a competitive market that is in long-run equilibrium, a permanent decrease in demand
a) raises profits in the short run
b) raises prices in the short run
c) leads to new firms entering the market in the long run
d) lowers the price at first, but then raises it as firms leave the market
a) raises profits in the short run
b) raises prices in the short run
c) leads to new firms entering the market in the long run
d) lowers the price at first, but then raises it as firms leave the market
answer
d) lowers the price at first, but then raises it as firms leave the market
question
In competition, an individual firm
a) sets the price and determines the quantity it sells in the marketplace
b) sets the price but does not determine the quantity it sells in the marketplace
c) cannot affect its price not determine the quantity it sells in the marketplace
d) determines the quantity it sells in the marketplace but has no influence over its price
a) sets the price and determines the quantity it sells in the marketplace
b) sets the price but does not determine the quantity it sells in the marketplace
c) cannot affect its price not determine the quantity it sells in the marketplace
d) determines the quantity it sells in the marketplace but has no influence over its price
answer
d) determines the quantity it sells in the marketplace but has no influence over its price
question
If firms in a competitive industry are making zero economic profit, then
a) there is no incentive for either entry or exit
b) some of the firms will temporarily shut down
c) some of those firms will leave the industry because firms cannot persistently go without making economic profit
d) new firms will enter the industry because the new entrants would be ensured of doing as well in their best forgone alternative
a) there is no incentive for either entry or exit
b) some of the firms will temporarily shut down
c) some of those firms will leave the industry because firms cannot persistently go without making economic profit
d) new firms will enter the industry because the new entrants would be ensured of doing as well in their best forgone alternative
answer
a) there is no incentive for either entry or exit
question
The above figure illustrates a firm's total revenue and total cost curves. Which one of the following statements is FALSE?
a) At output Q2, the firm incurs an economic loss
b) At output Q1, the firm makes zero economic profit
c) At an output above Q3, the firm incurs an economic loss
d) Economic profit is the vertical distance between the total revenue curve and the total cost curve
a) At output Q2, the firm incurs an economic loss
b) At output Q1, the firm makes zero economic profit
c) At an output above Q3, the firm incurs an economic loss
d) Economic profit is the vertical distance between the total revenue curve and the total cost curve
answer
a) At output Q2, the firm incurs an economic loss
question
Marginal revenue is equal to
a) price divided by quantity sold
b) total revenue divided by price
c) the change in total revenue divided by total output
d) the change in total revenue divided by the change in quantity sold
a) price divided by quantity sold
b) total revenue divided by price
c) the change in total revenue divided by total output
d) the change in total revenue divided by the change in quantity sold
answer
d) the change in total revenue divided by the change in quantity sold
question
Which of the following is a defining characteristic of a competitive market?
a) No restrictions on entry into the industry
b) Advertisements by well-known celebrities
c) Persistent economic profits in the long run
d) Higher prices being charged for certain name brands
a) No restrictions on entry into the industry
b) Advertisements by well-known celebrities
c) Persistent economic profits in the long run
d) Higher prices being charged for certain name brands
answer
a) No restrictions on entry into the industry
question
In the short run, a competitive firm's economic profits
a) must be positive
b) must be equal to zero, that is, the firm earns a normal profit
c) must be negative, that is, the firm must incur an economic loss
d) might be positive, negative (an economic loss), or zero (normal profit)
a) must be positive
b) must be equal to zero, that is, the firm earns a normal profit
c) must be negative, that is, the firm must incur an economic loss
d) might be positive, negative (an economic loss), or zero (normal profit)
answer
d) might be positive, negative (an economic loss), or zero (normal profit)
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