9) The demand curve faced by the individual perfectly competitive firm is:

A) perfectly elastic.

B) perfectly inelastic.

C) unit elastic.

D) elastic or inelastic depending on price.

Answer:

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10) Which of the following statements regarding a price-taking firm is correct?

A) Demand = average revenue > marginal revenue.

B) Demand = marginal revenue > average revenue.

C) Demand = price = average revenue = marginal revenue.

D) Demand = price > average revenue > marginal revenue.

Answer:

11) Which of the following statements is correct?

A) Economic profit is the difference between total revenue and the full opportunity cost of all the

resources used in production.

B) Economic profit is the difference between total revenue and explicit costs.

C) Economic profit is generally greater than accounting profit.

D) Economic profit is the difference between total revenue and implicit costs.

Answer

12) In order to maximize its profits, a price-taking firm should produce the level of output at

which:

A) total revenue = total cost.

B) average revenue = average cost.

C) variable revenue = variable cost.

D) marginal revenue = marginal cost.

Answer:

13) Marginal revenue is equal to:

A) the change in price divided by the change in output.

B) the change in quantity divided by the change in price.

C) the change in P x Q due to a one unit change in output.

D) price, but only if the firm is a price searcher.

Answer:

14) In the case of the perfectly competitive firm:

A) marginal revenue equals the market price.

B) marginal revenue is greater than the market price.

C) marginal revenue is less than the market price.

D) marginal revenue is equal to, less than, or greater than market price depending on the level of

output.

15) Assume a perfectly competitive firm is producing a level of output at which MR < MC. What

should the firm do to maximize its profits?

A) The firm should do nothing it wants to maximize the difference between MR and MC in

order to maximize its profits.

B) The firm should decrease output.

C) The firm should increase price.

D) The firm should increase output.

Answer:

16) Assume a perfectly competitive firm is producing a level of output at which MR < MC. What

will happen as the firm moves to its profit-maximizing equilibrium?

A) Marginal revenue will rise.

B) Marginal revenue will fall.

C) Marginal cost will rise.

D) Marginal cost will fall.

Answer:

17) The perfectly competitive firm:

A) makes its profit-maximizing decision only on the basis of output.

B) faces a downward-sloping demand function.

C) can influence market price only in a downward direction.

D) cannot earn any economic profits because it faces a horizontal demand curve.

Answer:

18) Assume at the firm's profit-maximizing level of output P = AVC. In this case, the firm will

be:

A) earning a positive economic profit.

B) earning economic profit = 0.

C) incurring an economic loss.

D) breaking even.

Answer:

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19) When a firm is producing at the profit maximizing level of output and P > ATC, the firm is:

A) breaking even.

B) incurring an economic loss.

C) earning an economic profit.

D) earning a profit or incurring a loss depending on the level of total fixed costs.

Answer:

20) A firm encounters its "shutdown point" when:

A) average total cost equals price at the profit-maximizing level of output.

B) average variable cost equals price at the profit-maximizing level of output.

C) average fixed cost equals price at the profit-maximizing level of output.

D) marginal cost equals price at the profit-maximizing level of output.

Answer:

21) A perfectly competitive firm will minimize its losses by shutting down when:

A) P < AVC at the profit-maximizing level of output.

B) P < ATC at the profit-maximizing level of output.

C) P < MC at the profit-maximizing level of output.

D) P < TFC at the profit-maximizing level of output.

Answer:

22) Widgets R Us, which is a price-taking firm, is currently producing 250 units of output. The

market price is $3 per unit, the marginal cost of the 250th unit is $2.75, average total cost is

$3.50 per unit, and average variable cost is $2.50 per unit. What advice should you give Widgets

R Us?

A) Increase output to reduce losses.

B) Continue to produce 250 units in the short run.

C) Shut down to minimize losses.

D) Decrease output to 200 units.

Answer:

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23) By continuing to operate when price is greater than average variable cost but less than

average total cost, a firm limits its losses to:

A) $0.

B) its total fixed costs.

C) the difference between its total fixed cost and the amount by which total revenue exceeds total

variable costs.

D) its total variable costs.

Answer:

24) Assume a perfectly competitive firm is producing 300 units of output, P = $10, ATC of the

300th unit is $8, marginal cost of the 300th unit = $10, and AVC of the 300th unit = $6. Based

on this information, the firm is:

A) earning an economic profit of $600.

B) earning an economic profit of $1,200.

C) incurring a loss of $600.

D) incurring a loss of $1,200.

Answer:

25) Assume a perfectly competitive firm is producing 500 units of output, P = $7, ATC of the

500th unit is $6, marginal cost of the 500th unit = $7, and AVC of the 500th unit = $5. Based on

this information, the firm is:

A) earning an economic profit of $500.

B) earning an economic profit of $1,000.

C) incurring a loss of $500.

D) incurring a loss of $1,000.

Answer:

26) Assume a perfectly competitive firm is producing 300 units of output, P = $10, ATC of the

300th unit is $11, marginal cost of the 300th unit = $10, and AVC of the 300th unit = $9. Based

on this information, the firm is:

A) earning an economic profit of $300.

B) earning an economic profit of $600.

C) incurring a loss of $300 and should shut down.

D) incurring a loss of $300, but should continue to operate in the short run.

Answer:

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27) A perfectly competitive firm will maximize profits (or minimize losses) so long as price

(marginal revenue) is:

A) greater than marginal cost.

B) greater than average fixed cost.

C) greater than average total cost.

D) greater than average variable cost.

Answer:

28) The perfectly competitive firm's supply curve:

A) coincides with its perfectly elastic demand curve.

B) is perfectly inelastic at the market price.

C) is the firm's marginal cost curve above the minimum point on the AVC curve.

D) is the firm's average total cost curve above the shutdown point.

Answer:

29) When a perfectly competitive firm is in long-run equilibrium:

A) its total revenues equal the sum of its total explicit and implicit costs costs.

B) the firm is operating at the minimum of its LRAC curve.

C) the firm is earning zero economic profit.

D) All of the above.

Answer:

30) Assume there is a decrease in the market demand for a good sold by price-taking firms that

are initially producing the profit-maximizing level of output. For the individual firm, this would

result in:

A) a decrease in both price and the profit-maximizing quantity of output.

B) a decrease in price and increase in the profit-maximizing quantity of output.

C) an increase in both price and the profit-maximizing quantity of output.

D) an increase in price and decrease in the profit-maximizing quantity of output.