Multiple Choice Questions
1. The short-run supply curve of a perfectly competitive firm is
a. Its MC curve.
b. Its MC curve above the minimum point of AVC.
c. Its MC curve above the minimum point of ATC.
d. None of the above.
2. Darlene runs a fruit-and-vegetable stand in a medium-sized community where many such stands operate. Her weekly total revenue equals $3,000. Her weekly total cost of running the stand equals $3,500, consisting of $2,500 of variable costs and $1,000 of fixed costs. An economist would likely advise Darlene to
a. Shut down as quickly as possible in order to minimize her losses.
b. Keep the stand open because it is generating an economic profit.
c. Keep the stand open for a while longer because she is covering all of her variable costs and some of her fixed costs.
d. Keep the stand open for a while longer because she is covering all of her fixed costs and some of her variable costs.
3. The entry of new firms into an industry will likely
a. Shift the industry supply curve to the right.
b. Cause the market price to fall.
c. Reduce the profits of existing firms in the industry.
d. Do all of the above.
4. Which of the following statements concerning equilibrium in the long run is incorrect?
a. Firms will exit the industry if economic profits equal zero.
b. Firms are able to vary their plant sizes in the long run.
c. Economic profits are eliminated as new firms enter the industry.
d. The market price equals both marginal cost and average total cost.
5. In long-run equilibrium under perfect competition, price does not equal which of the following?
a. Long-run marginal cost
b. Minimum average total cost
c. Average fixed cost
d. Marginal revenue
e. Average revenue
6. If the domino-making industry is a constant-cost industry, one would expect the long-run result of an increase in demand for dominos to include
a. A greater number of firms and a higher price.
b. A greater number of firms and the same price.
c. The same number of firms and a higher price.
d. The same number of firms and the same price.
7. In an increasing-cost industry, an unexpected increase in demand would lead to what result in the long run?
a. Higher costs and a higher price
b. Higher costs and a lower price
c. No change in costs or prices
d. Impossible to determine from the information given