Question 1

What do we know about the short-run supply curve for a firm in a perfectly competitive market?

Select one:

a.It is likely to be horizontal.

b.It is likely to slope downward.

c.It is determined by forces external to the firm.

d.It is the same as its marginal-cost curve (above average variable cost).

Question2

Which of the following curves is the competitive firm's supply curve?

Select one:

a.the average-variable-cost curve, above marginal cost

b.the average-total-cost curve, above marginal cost

c.the marginal-cost curve, above average variable cost

d.the average-fixed-cost curve

Question3

For all positive levels of output, a firm will shut down in the short run

Select one:

a.when its loss exceeds its average costs.

b.when its total revenue is less than its average variable costs.

c.when the price of its product is less than its average variable cost.

d.when it cannot cover its sunk costs.

Question4

A competitive market is in long-run equilibrium. If demand decreases, what can we be certain will happen to price?

Select one:

a.Price will fall in the short run. All firms will shut down, and some of them will exit the industry. Price will then rise.

b.Price will fall in the short run. No firms will shut down, but some of them will exit the industry. Price will then rise.

c.Price will fall in the short run. All, some, or no firms will shut down, and some of them will exit the industry. Price will then rise.

d.Price will not fall in the short run because firms will exit to maintain the price.

Question5

A firm's marginal cost has a minimum value of $2; its average variable cost has a minimum value of $5; and its average total cost has a minimum value of $7. At what product price will the firm shut down?

Select one:

a.below $5

b.above $10

c.above $11

d.above $12

Question6

In calculating accounting profit, what do accountants typically exclude?

Select one:

a.long-run costs

b.sunk costs

c.explicit costs of production

d.opportunity costs that do not involve an outflow of money

Question7

A profit-maximizing firm in a competitive market is able to sell its product for $8. At its current level of output, the firm's average total cost is $11. Its marginal-cost curve crosses the marginal revenue curve at an output level of 10 units. At that point, what does the firm experience?

Select one:

a.a loss of more than $30

b.a loss of exactly $30

c.a profit of exactly $30

d.a profit of more than $30

Question8

What happens if a competitive firm is currently producing a level of output at which marginal revenue exceeds marginal cost?

Select one:

a.A one-unit increase in output will increase the firm's profit.

b.A one-unit decrease in output will increase the firm's profit.

c.Total revenue exceeds total cost.

d.Total cost exceeds total revenue.

Question9

When firms are said to be price takers, what will happen if a firm raises its price?

Select one:

a.Buyers will go elsewhere.

b.Buyers will pay the higher price in the short run.

c.Competitors will also raise their prices.

d.Firms in the industry will exercise market power.

Question10

In the following table, over what range of output is average revenue equal to price?

Quantity

Price per item

1

$15

2

$15

3

$15

4

$15

5

$15

6

$15

7

$15

8

$15

9

$15

Select one:

a.1 to 5

b.3 to 7

c.5 to 9

d.1 to 9

Question11

The Wheeler Wheat Farm has a long-term lease on 5000 acres of land in Saskatchewan. The annual lease payment is $240,000. Prior to planting in the spring of 2017, the farm's economist predicted that the farm would have $135,000 left after paying all of its costs except the annual lease payment. In this case, the Wheeler Wheat Farm should

Select one:

a.continue to operate because total revenue exceeds total cost.

b.continue to operate even though it predicts an accounting loss of $105,000.

c.shut down and experience an accounting loss of $135,000.

d.exit the market and experience an accounting loss of $240,000.

Question12

Assume a firm is producing 500 units of output and that it sells each unit for $6. Its average total cost is $4. What is its profit?

Select one:

a.-$2000

b.-$1000

c.$1000

d.$2000

Question13

Which expression calculates the profit of a profit-maximizing firm?

Select one:

a.profit = (price of output - average total cost) x quantity of output

b.profit = (price of output x quantity of output) - average total cost

c.profit = total revenue - (average fixed cost quantity of output)

d.profit = total revenue - (average variable cost x quantity of output)

Question14

When fixed costs are ignored because they are irrelevant to a business's production decision, what are they called?

Select one:

a.explicit costs

b.implicit costs

c.sunk costs

d.opportunity costs

Question15

If all existing firms and all potential firms have the same cost curves, there are no inputs in limited quantities, and the market is characterized by free entry and exit, what do we know regarding the long run?

Select one:

a.The long-run market supply curve is equal to the sum of individual firms' marginal-cost curves.

b.The long-run supply curve for the market must slope downward.

c.The long-run market supply curve must slope upward.

d.The long-run supply curve for the market is horizontal and equal to the minimum of long-run average cost for each firm.

Question16

If a competitive firm is currently producing a level of output at which profit is not maximized, then which of the following must be true for the firm?

Select one:

a.Marginal revenue exceeds marginal cost.

b.Marginal cost exceeds marginal revenue.

c.Total cost exceeds total revenue.

d.Marginal revenue is not equal to marginal cost.

Question17

As a general rule, what do we know about the level at which profit-maximizing producers in a competitive market produce output?

Select one:

a.Marginal cost is increasing.

b.Marginal cost is decreasing.

c.Marginal revenue is increasing.

d.Marginal revenue is decreasing.

Question18

A firm's short-run supply curve is part of its

Select one:

a.marginal-revenue curve.

b.average-variable-cost curve.

c.average-total-cost curve.

d.marginal-cost curve.

Question19

When a perfectly competitive firm makes a decision to shut down, which of the following is most likely true?

Select one:

a.Marginal cost is above average variable cost.

b.Marginal cost is above average total cost.

c.Price is below the minimum of average variable cost.

d.Fixed costs exceed variable costs.

Question20

For a firm in a perfectly competitive market, the price of the good must always be

Select one:

a.equal to marginal revenue.

b.equal to total revenue.

c.greater than average revenue.

d.less than average revenue.

Question21

Which expression is correct for a competitive firm?

Select one:

a.profit = total revenue - total variable cost

b.marginal revenue = (change in total revenue) (change in quantity of output)

c.average revenue = total revenue marginal revenue

d.total revenue = marginal revenue + average revenue

Question22

In the long run, all of a firm's costs are variable. In this case, what is the exit criterion for a profit-maximizing firm?

Select one:

a.price is less than average total cost

b.price is more than average total cost

c.average revenue is greater than average fixed cost

d.average revenue is greater than marginal cost

Question23

Starting from a situation in which a firm in a competitive market produces and sells 5000 doorknobs for a price of $20 per doorknob, which event would decrease the firm's average revenue?

Select one:

a.The market price of doorknobs falls below $20.

b.The market price of doorknobs rises above $20.

c.The firm decreases its output below 5000 doorknobs.

d.The firm increases its output above 5000 doorknobs.

Question24

Managers of a firm think at the margin and make incremental adjustments to the level of production. For the managers to be satisfied with the correct level of production, what must result?

Select one:

a.average variable cost must exceed marginal cost

b.total cost must be less than average revenue

c.costs must be minimized

d.profit must be maximized

Question25

Suppose you bought a ticket to a football game for $40, and you place a $45 value on seeing the game. If you lose the ticket, what is the maximum price you should pay for another ticket?

Select one:

a.$40

b.$45

c.$50

d.$60

Question26

Which production decision is a profit-maximizing firm in a competitive market most likely to take when price falls below the minimum of average variable cost?

Select one:

a.The firm will continue to produce to attempt to pay fixed costs.

b.The firm will immediately stop production to minimize its losses.

c.The firm will stop production as soon as it is able to pay its sunk costs.

d.The firm will continue to produce in the short run, but will likely exit the market in the long run.

Question27

When a firm in a competitive market produces 15 units of output, it has a marginal revenue of $8.00. What would be the firm's total revenue when it produces 8 units of output?

Select one:

a.$4.80

b.$6.00

c.$48.00

d.$64.00

Question28

A profit-maximizing firm in a competitive market is currently producing 100 units of output. It has an average revenue of $10, and its average total cost is $9. What is the firm's profit/loss?

Select one:

a.The firm has a loss of $100.

b.The firm has a profit of $100.

c.The firm has a loss of $200.

d.The firm has a profit of $200.

Question29

Whenever a perfectly competitive firm chooses to change its level of output, holding the price of the product constant, what happens to its marginal revenue?

Select one:

a.It increases if MR < ATC and decreases if MR > ATC.

b.It does not change.

c.It increases.

d.It decreases.

Question30

A firm that shuts down temporarily still has to pay its

Select one:

a.variable costs.

b.fixed costs.

c.total costs.

d.marginal costs.