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