1.Company Alpha produces its product in a perfectly competitive market that is in long-run equilibrium. What will happen if it lowers its price while increasing its output?

It will increase revenue but increase costs by the same amount.

It will incur economic losses.

It will take business from its competitors, increasing its revenue and profit.

It will begin to develop market power, making its market imperfectly competitive.

Its producer surplus will increase but consumer surplus will decrease by a greater amount.

2.A price-taking firm evaluates its production costs and revenue and decides it will operate in the short run and can stay in the market in the long run without conditions changing. Which of the following must describe the firm's short-run production?

Average variable cost > Price

Average variable cost = Price = Average total cost

Average variable cost

Price ? Average total cost

Price > Average total cost

3.If the average income increases by 3 percent, which of the following is true of the quantity demanded for necessity goods?

Quantity demanded remains constant.

Quantity demanded decreases by 1 percent.

Quantity demanded increases by 1 percent.

Quantity demanded increases by at least 3 percent.

Quantity demanded decreases by at least 3 percent.

4.Which of the following policies would be most likely to have the effect of increasing income inequality?

Increasing the interest rate on bank loans

Switching from a regressive tax system to a progressive tax system

Lowering taxes on income from interest earned on investments

Increasing the nation's per capita income

Taxing inheritance and using the revenue to provide college scholarships

10 9 8 7 Long Run Average Total Costs 6 A D Cost B C 2 1 2 3 4 5 6 7 Output 8 9 1010 9 8 7 Long Run Average Total Costs 6 A D Cost B C 2 1 2 3 4 5 6 7 Output 8 9 10Cost (thousands of dollars) Benefit (thousands of dollars) Option A 10 Option B Option D