13
13
13
4) When a firm is considered to be a "price taker" that means that the firm
A) can charge any price that it wants to charge, that is, "take" any price it wants.
B) pays a fixed price for all of its inputs.
C) will accept ("take") the lowest price that its customers offer.
D) cannot influence the market price of the good that it sells.
5) The difference between a firm's total revenue and its total opportunity cost is the firm's
A) normal profit.
B) economic profit.
C) marginal profit.
D) marginal revenue.
6) In perfect competition, a firm that maximizes its economic profit will sell its good at a price
that is
A) below the market price.
B) at the market price.
C) above the market price.
D) below the market price if its supply curve is inelastic and above the market price if its supply
curve is elastic.
7) In the above table, if the firm sells 5 units of output, its total revenue is
A) $15.
B) $30.
C) $75.
D) $90.
8) In the above table, if the quantity sold by the firm rises from 5 to 6, its marginal revenue is
A) $15.
B) $30.
C) $75.
D) $90.
10) When Sidney's Sweaters, Inc. makes exactly zero economic profit, Sidney, the owner,
A) is taking a loss.
B) will shut down in the short run.
C) makes an income equal to his best alternative forgone income.
D) will boost output.
11) A firm is producing the profit-maximizing amount of output when it is producing where its
________ curve intersects its ________ curve.
A) MC; MR
B) MC; AVC
C) MC; ATC
D) MC; TR
12) As long as it does not shut down, a profit-maximizing perfectly competitive firm will
A) always earn an economic profit.
B) produce so that marginal revenue equals marginal cost.
C) produce so that price equals average cost.
D) never set its price equal to its marginal revenue.
13) Charlie's Chimps is a perfectly competitive firm that produces cuddly chimps for children.
The market price of a chimp is $10, and Charlie's produces 100 chimps at a marginal cost of $9 a
chimp. Charlie's ________.
A) is maximizing its profit
B) will maximize its profit if it produces more than 100 chimps
C) will maximize its profit if it lowers the price to $9 a chimp
D) will maximize its profit if it produces fewer than 100 chimps
14) For a perfectly competitive firm, as its output increases its marginal revenue ________ and
its marginal cost ________.
A) changes; changes
B) changes; does not change
C) does not change; changes
D) does not change; does not change
15) The first table shows the market demand schedule for CDs, and the second table shows the
cost structure of each firm. The CD market is perfectly competitive and there are 100 identical
firms. The market price of a CD is ________, and ________ CDs are produced and sold.
A) $9.00; 20,000
B) $9.50; 15,000
C) $10.00; 10,000
D) $8.50; 24,000
16) In the above figure, by increasing its output from Q1 to Q2, the firm
A) reduces its marginal revenue.
B) increases its marginal revenue.
C) decreases its profit.
D) increases its profit.
17) In the above figure, by increasing its output from Q2 to Q3, the firm
A) reduces its marginal revenue.
B) increases its marginal revenue.
C) decreases its profit.
D) increases its profit.
Total fixed Total variable
Quantity cost, TFC cost, TVC
(dollars) (dollars)
0 500 0
1 500 100
2 500 180
3 500 220
4 500 300
5 500 390
6 500 500
7 500 640
8 500 800
9 500 1000
10 500 1250
18) The table above shows some of the costs for a perfectly competitive firm. The firm will
produce 9 units of output if the price per unit is
A) $1750.
B) $200.
C) $300.
D) $500.
19) In the above figure, the line represented by the "2" is the
A) average fixed cost.
B) average variable cost.
C) total cost.
D) average total cost.
20) In the above figure, the line represented by the "1" is the
A) average fixed cost.
B) marginal revenue.
C) total cost.
D) average total cost.
21) In the above figure, the line represented by the "4" is the
A) average fixed cost.
B) marginal revenue.
C) average total cost.
D) marginal cost.
23) A perfectly competitive firm's short-run shutdown point is the level of output at which
A) price equals average total cost.
B) price equals average fixed cost.
C) price equals the minimum average variable cost.
D) price is above the minimum average total cost but below the minimum average fixed cost.
24) In the short run, a perfectly competitive firm will shut down if at the profit maximizing
quantity the
A) P < AVC.
B) AVC < ATC.
C) P > ATC.
D) P > MC.
25) A firm that shuts down and produces no output incurs a loss equal to its
A) total fixed costs.
B) total variable costs.
C) marginal costs.
D) marginal revenue.
27) A perfectly competitive firm will operate and incur an economic loss in the short run if
A) the loss is smaller than its total fixed costs.
B) it knows it can recoup the loss in the long run.
C) shareholders do not know about the loss.
D) the loss can offset future profits.
28) Based on the table above which shows Chip's costs, if rice sells for $600 a ton, Chip's profit-
maximizing output is
A) less than one ton.
B) between two and three tons.
C) between three and four tons.
D) between one and two tons.
Quantity Total cost, TC
(tattoos per (dollars per
hour) hour)
0 10
1 25
2 35
3 50
4 70
5 95
6 125
29) Archibald's Tattoos is a perfectly competitive firm. The firm's costs are shown in the table
above. What is Archibald's shut-down point?
A) $10.00
B) $16.67
C) $15.00
D) $12.50
30) The figure above shows a perfectly competitive firm. In the short run, the firm will shut
down
A) only if the AVC of producing 10 units is less than $20.
B) only if the AVC of producing 10 units is more than $20.
C) only if the AVC curve reaches its minimum before 10 units are produced.
D) always.
31) Consider the perfectly competitive firm in the above figure. The profit maximizing level of
output for the firm is equal to
A) 0 units.
B) 14 units.
C) 17 units.
D) 19 units.
32) Consider the perfectly competitive firm in the above figure. At the profit maximizing level of
output, the firm is
A) incurring an economic loss equal to $119.00.
B) incurring an economic loss equal to $123.50.
C) incurring an economic loss equal to $187.00.
D) making zero economic profit.
33) Consider the perfectly competitive firm in the above figure. The shutdown point occurs at a
price of
A) $11.00.
B) $12.00.
C) $16.00.
D) $22.00.
34) Consider the perfectly competitive firm in the above figure. What will the firm choose to do
in the short-run and why?
A) shut down because the firm incurs an economic loss
B) stay in business because the firm is making an economic profit
C) stay in business because the firm's economic loss is less than fixed costs
D) stay in business because it is making zero economic profit
35) A perfectly competitive firm's short-run supply curve is the same as its
A) ATC curve.
B) MR curve.
C) AVC curve.
D) MC curve above the minimum of the AVC curve.
36) In the above figure, the perfectly competitive firm's shutdown point is at a price of
A) $4 per unit.
B) $8 per unit.
C) $12 per unit.
D) $16 per unit.
37) In the above figure, if the price is $16 per unit, how many units will a profit maximizing
perfectly competitive firm produce?
A) 0
B) 20
C) 30
D) 35
38) In the above figure, if the price is $12 per unit, how many units will a profit maximizing
perfectly competitive firm produce?
A) 0
B) 20
C) 30
D) 35
39) In the above figure, if the price is $8 per unit, how many units will a profit maximizing
perfectly competitive firm produce?
A) 5
B) 20
C) 30
D) 35
41) In the above figure, at what price does a perfectly competitive firm make zero economic
profit?
A) $4 per unit
B) $8 per unit
C) $12 per unit
D) $16 per unit
42) In the above figure, if the price is $16 per unit, a profit maximizing perfectly competitive
firm will
A) shut down.
B) incur an economic loss but continue to operate.
C) make zero economic profit.
D) make an economic profit.
43) If firms in a perfectly competitive industry are making zero economic profit, then
A) some of those firms will leave the industry, because firms cannot persistently go without
making economic profit.
B) new firms will enter the industry, because the new entrants would be ensured of doing as well
as in their best foregone alternative.
C) there is no incentive for either entry or exit.
D) some of the firms will temporarily shut down.
44) The firms in a perfectly competitive 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; rises; decreases
B) rightward; rises; increases
C) rightward; falls; decreases
D) leftward; falls; decreases
45) In the long run, for a perfectly competitive market, if economic profit is
A) less than zero, then some firms will exit the market and the market supply curve will shift
leftward.
B) greater than zero, then some firms will enter the market and the market supply curve will shift
rightward.
C) equal to zero, then there is no entry or exit of firms into or out of the market.
D) All of the above answers are correct.
48) The apple market is perfectly competitive and is in long-run equilibrium. Now a disease kills
50 percent of the apple orchards. In the short run, the price of a bag of apples ________ and the
remaining apple growers make ________ economic profit. In the long run, the ________.
A) increases; zero; price of apples will return to their original level
B) remains the same; zero; orchards will be replanted and growers will make normal profits
C) increases; zero; orchards will be replanted and economic profit will return to zero
D) increases; positive; orchards will be replanted and economic profit will return to zero
49) Suppose some firms in a perfectly competitive market are incurring an economic loss. As a
result,
A) all the firms will eventually incur an economic loss.
B) some firms will leave the market and the price of the good will rise.
C) some firms will leave the market and the remaining firms' quantity will decrease.
D) the total market economic profit must equal $0.
50) A perfectly competitive firm initially is earning zero economic profit. Then, a decrease in
demand for the firm's product occurs. Of the following, in the long run which action listed below
is the firm most likely to take?
A) Increase the quantity it produces.
B) Increase its advertising to increase the demand for its product.
C) Exit the market.
D) Increase the size of its plant.
51) Fast Copy is a perfectly competitive firm. The figure above shows Fast Copy's cost curves.
The current market price is 4 cents per page. With no change in demand and technology, in the
long run, the price will
A) remain unchanged.
B) rise to 5 cents per page.
C) fall to 2 cents per page.
D) fall to 1 cent per page.
57) In the monopoly, the firm's marginal revenue curve is ________, while in a perfectly
competitive market, each firm's marginal revenue curve is ________ .
A) downward sloping; horizontal
B) horizontal; downward sloping
C) upward sloping; horizontal
D) downward sloping; upward sloping
58) Monopolies can make an economic profit in the long run because there
A) are close substitutes for the product.
B) is free entry and exit.
C) is inelastic demand from consumers.
D) is a barrier to entry.
59) In the figure above, the curve labeled "X" can be a
A) monopoly's demand curve.
B) monopoly's marginal revenue curve.
C) perfectly competitive firm's demand curve.
D) perfectly competitive firm's marginal revenue curve.
61) The figure above shows the cost, demand, and marginal revenue curves for a monopoly. The
firm
A) will make an economic profit of $20.
B) will charge a price of $10 per unit.
C) will produce 20 units per day.
D) is a natural monopoly.
62) The above figure illustrates a single-price unregulated monopolist. If the monopolist
maximizes its profit, the consumer surplus equals ________.
A) $20,000
B) $10,000
C) $45,000
D) $40,000
63) The above figure illustrates a single-price unregulated monopolist. If the monopolist
maximizes its profit, the deadweight loss equals ________.
A) $10,000
B) $20,000
C) $45,000
D) $40,000