Question 1
In a perfectly competitive market, positive economic profits act to
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a.
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attract new entrants into the industry.
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b.
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drive potential competitors away from the industry.
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c.
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prevent reinvestment on the part of firms within the industry.
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d.
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signal resource owners elsewhere not to invest their capital in this industry.
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Question 2
Which is always true at a firm's profit-maximizing rate of production?
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a.
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Marginal Revenue > Marginal Cost
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b.
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The total revenue curve lies below the total cost curve.
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c.
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Marginal Revenue = Marginal Cost
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d.
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Total Revenue = Total Costs
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Question 3
For a firm in a perfectly competitive industry,
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a.
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short-run economic profits may be positive, but long-run economic profits must be zero.
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b.
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short-run economic profits must be zero.
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c.
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short-run and long-run economic profits must be zero.
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d.
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both short-run and long-run economic profits may be negative.
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Question 4
All firms in a perfect competition industry
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a.
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are price makers.
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b.
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produce differentiated products.
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c.
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produce identical products.
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d.
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lose money.
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Question 5
In the above figure, at which output level is this firm earning negative economic profits?
Answer
Question 6
If a firm is perfectly competitive, then
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a.
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its demand curve is perfectly elastic.
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b.
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it can independently set the price of the product it sells without regard to what other firms in the market are doing.
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c.
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it is impossible for the firm to earn short-run economic profits.
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d.
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its marginal cost will exceed marginal revenue at the optimal level of output.
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Question 7
Which of the following is a characteristic of perfect competition?
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a.
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Easy entry and exit
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b.
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Few firms
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c.
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Differentiated products
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d.
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none of these
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Question 8
In the above figure, what is the profit-maximizing output and price?
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a.
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10, $8
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b.
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10, $10
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c.
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12, $10
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d.
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8, $7
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Question 9
In the above figure, assume this firm is operating on d3. Which is true?
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a.
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This firm is earning an economic profit.
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b.
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This firm is experiencing an economic loss.
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c.
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This firm is breaking even.
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d.
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This firm's total revenues equal HRD0.
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Question 10
If a constant-cost, perfectly competitive industry experiences an increase in the demand for its product, we would expect
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a.
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only the market price of the good to increase.
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b.
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both the market price and quantity supplied to increase.
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c.
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decreases in the market price, but increases in quantity supplied.
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d.
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only the quantity supplied of the product to increase.
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Question 11
In the above figure, the market price charged by this perfectly competitive firm is
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a.
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$5 per unit of output.
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b.
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$10 per unit of output.
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c.
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$8 per unit of output.
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d.
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$14 per unit of output.
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Question 12
If price is $5, marginal cost is $5, average total cost is $3, and the quantity produced is 150 units, then the firm is
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a.
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earning $300 and maximizing economic profit.
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b.
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earning $2 and maximizing economic profit.
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c.
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not maximizing economic profit.
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d.
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earning $150 and not maximizing economic profit.
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Question 13
For a firm in a perfectly competitive market, average revenue equals
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a.
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average cost.
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b.
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the change in total revenue.
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c.
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the market price.
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d.
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price divided by quantity.
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Question 14
In the above figure, when price is below E, this firm should
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a.
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lower prices.
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b.
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continue to operate as-is.
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c.
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attempt to lower ATC and to raise AVC.
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d.
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shut down.
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Question 15
In a perfectly competitive industry
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a.
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no buyer or seller can influence the market price.
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b.
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firms can never make an economic profit.
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c.
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there is apt to be a shortage of sellers of output.
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d.
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each firm is a price maker.
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Question 16
A firm that shuts down in the short run experiences losses equal to its
Answer
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a.
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total fixed costs.
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b.
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average variable costs.
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c.
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total variable costs.
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d.
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total variable costs minus its total fixed costs.
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Question 17
In the above figure, if the market price is less than $7, the firm
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a.
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produces 11 units.
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b.
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produces 10 units.
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c.
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produces 12 units.
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d.
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shuts down operations.
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Question 18
According to the above figure, if the firm is earning zero economic profits, what quantity is the firm selling and at what price?
Answer
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a.
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Q = 200; P = $4
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b.
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Q = 1,000; P = $5
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c.
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Q = 800; P = $4
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d.
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Q = 1,200; P = $7.00
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Question 19
Suppose that at the current level of output, price = $10, MC = $4, AVC = 7, and ATC = $11. Which of the following is true?
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a.
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The firm should decrease output.
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b.
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The firm should shut down.
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c.
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The firm should increase output.
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d.
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The firm should maintain the current level of output.
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Question 20
Economists generally assume that firms attempt to maximize
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a.
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total revenue.
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b.
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sales.
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c.
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marginal revenue.
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d.
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total economic profits.
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