Multiple Choice Questions

1. In perfect competition,themarginal revenuecurve

A. reflectsaperfectlycompetitivefirm

B. isequaltothepriceofthegood

C. isahorizontalstraight line

D. reflectseachoftheabove

2. In the short run, if price is greater than average variable cost but less than average total cost, the firm will

A. shut down.

B. earn a normal profit.

C. earn an economic profit.

D. produce and cover the part of its average fixed cost reflected in the difference between ATC and AVC.

3. Whyaresomeproducersforcedtoselltheirproducts attheprevailingmarketprice?

A. pricetakers findmarketanalysis istoocostly

B. theyareverysmall playersintheoverallmarket

C. highdegreeof identical products sold by thecompetitors.

D. theycanincreaseoutputwithoutaffectingquality

4. At a declining portions of marginal cost (MC) curve and average cost (AC) curve,

A. MC lies below AC.

B. MC lies above AC.

C. MC cuts the AC at a minimum point.

D. None of the above.

5. Foraperfectlycompetitivefirm,themarginal costcurve above average variable costisidentical tothefirm's

A.demandcurve

B. supplycurve

C averagetotalcostcurve

D. averagevariable costcurve

6. If a competitive firm is producing a level of output where marginal revenue exceeds marginal cost, the firm could increase profits if it

A. increased production.

B. decreased production.

C. maintained production at the current level.

D. temporarily shut down.

7. The profit-maximizing rule for any firm is

A. AVC = MC.

B. MC = AR.

C. MC = MR.

D. MC = ATC.

8. The break-even point is where:

A. Price is above ATC.

B. Price is equal to ATC.

C. Price is between ATC and AVC.

D. Price is equal to AVC.

9. The shut down point is where:

A. Price is above ATC.

B. Price is equal to ATC.

C. Price is between ATC and AVC.

D. Price is less than AVC.

10. Increasing returns to scale is identified by

A. average cost decreases as quantity decreases

B. average cost increases as quantity increases

C. average cost decreases as quantity increases

D. average cost equal to zero

True/false questions ( Underline and bold T or F)

11. T F The marginal-cost curve that is above the average-variable-cost curve is the competitive firm's short-run supply curve.

12. T F The purely competitive firm's demand curve slopes downward.

13. T F The break-even point and the shut down point are the same.

14. T F For a purely competitive firm D = AR = MR = P because that firm is a price taker charging only what the market dictates.

15. T F When a firm produces no output, fixed costs are zero in the short run.

Short answer questions

16.When price is less than ATC, but greater than AVC,

1. what decision does a firm take and

1. why?

17. If a competitive firm faces P=10, ATC=5 and q=20. What is the profit level?