1. John starts a bicycle business and makes and sells bicycles similar to those of his competitors. The bicycle industry has no barriers to entry and exit and there are many firms in the industry. John controls the price of his bicycles. Which of the following would have to occur for John's business to become a perfectly competitive firm?

A.The business would have to sell highly differentiated products.

B.There would have to be barriers to entry in the bicycle business.

C.John would have to sell the quantity that would maximize his profits.

D.The number of firms in the bicycle market would have to become restricted.

E.John would have to become a price taker, accepting the market price for bicycles.

2.A firm operates in a perfectly competitive market. In which of the following situations will the market be attractive for new firms to enter, assuming there are no barriers of entry?

A.Market price

B.Market price = Average total cost

C.Market price > Average total cost

D.Market price

E.Market price = Average variable cost

3.Top Limited is currently maximizing its profits and earning only normal economic profits. Which of the following describes Top's situation?

A.Marginal revenue = marginal cost; total cost = zero

B.Marginal revenue

C.Marginal revenue = marginal cost; total revenue > total cost

D.Marginal revenue

E.Marginal revenue = marginal cost; total revenue = total cost

4.Moon Limited is a monopolistic firm. It sells its current output quantity at a price higher than its marginal cost. Which of the following is correct?

A.The firm is making economic losses.

B.An increase in the firm's output will increase its profits.

C.The price at which the firm is selling produces no deadweight loss.

D.The firm would be allocatively efficient if price would equal marginal cost.

E.The consumers will be ready to pay more than marginal cost for a higher quantity.

5.Which of the following is an expression of the production function?

A.As inputs increase, total output increases until minimum efficient scale is reached, then declines.

B.As inputs increase, total output increases but at a slowing rate when diminishing returns sets in.

C.As inputs increase, total output decreases because of the inverse relationship between input and output.

D.As marginal costs increase, total output will increase in order to gain higher total revenue and profits.

E.As marginal costs increase, total output decreases until maximum efficient scale is restored.

6.If a good's price elasticity of supply is inelastic and its quantity supplied decreased by 20%, which of the following must be true?

A.Price must have decreased by exactly 20%.

B.Price must have decreased by more than 20%.

C.Price must have decreased by less than 20%.

D.Quantity supplied must have decreased by 20 units.

E.Quantity supplied must have increased by 10 units.

7.Use the data in the tables to answer the question that follows.

Use the data in the tables to answer the question that follows. Market Firm Price of Output Quantity Supplied of Output Quantity Demanded of Output Quantity of Labor Total Product $5 25,000 60,000 0 0 $10 50,000 50,000 15 100 $15 75,000 40,000 30 190 $20 100,000 30,000 45 265 $25 125,000 20,000 60 325Current output 5000 units Current market price $3 Total cost $25,000 Marginal cost $3 Total variable cost $20,000\fPrice ($) MSC MPC pc PE PP MSB Q' OF QuantityNumber of Units Produced Average Total Cost 9 2 10 3 12 4 15 5 16