Multiple Choice Questions
1. In perfect competition, at a firm€™s short-run profit-maximizing output,
a. Its marginal revenue equals zero.
b. Its average revenue could be greater or less than average cost.
c. Its marginal revenue will be falling.
d. Both b and c will be true.
2. In perfect competition, at the firm€™s short-run profit-maximizing output, which of the following need not be true?
a. Marginal revenue equals marginal cost.
b. Price equals marginal cost.
c. Average revenue equals average cost.
d. Average revenue equals marginal revenue.
e. All of the above would have to be true.
3. The minimum price at which a firm would produce in the short run is the point at which
a. Price equals the minimum point on its marginal cost curve.
b. Price equals the minimum point on its average variable cost curve.
c. Price equals the minimum point on its average total cost curve.
d. Price equals the minimum point on its average fixed cost curve.
4. A profit-maximizing perfectly competitive firm would never operate at an output level at which
a. It would lose more than its total fixed costs.
b. It was not earning a positive economic profit.
c. It was not earning a zero economic profit.
d. It was not earning an accounting profit.
5. If a perfectly competitive firm finds that price is greater than AVC but less than ATC at the quantity where its marginal cost equals the market price,
a. The firm will produce in the short run but may eventually go out of business.
b. The firm will produce in the short run, and new entrants will tend to enter the industry over time.
c. The firm will immediately shut down.
d. The firm will be earning economic profits.
e. Both b and d are true.
Use the following diagram to answer questions 6€“9.

6. When the market price equals P1, the firm should produce output
a. Q1.
b. Q2.
c. Q3.
d. Q4.
e. none of the above.
7. When the market price equals P3, the firm should produce output
a. Q3, operating at a loss.
b. Q4, operating at a loss.
c. Q4, earning an economic profit.
d. Q5, operating at a loss.
e. Q5, earning a normal profit.
8. When the market price equals P4, the firm should produce output
a. Q4, operating at a loss.
b. Q4, earning an economic profit.
c. Q5, operating at a loss.
d. Q5, earning a normal profit.
e. Q5, earning a positive economic profit.
9. When the market price equals P5, the firm should produce output
a. Q5, operating at a loss.
b. Q5, earning an economic profit.
c. Q6, operating at a loss.
d. Q6, earning a normal profit.
e. Q6, earning a positive economicprofit.

Transcribed Image Text:

Short-Run Marginal Cost ATC AVC Pa 0 Q 023 040s O6