Study guide

CHAPTER 14 Name: True/False Questions 1. Sunk cost is a cost that, although it is committed, can be recovered (_ 2. For all firms, average revenue and marginal revenue equals the price of the good (_ 3. Marginal revenue is the additional revenue a firm receives for selling any unit above the break-even level of output (_ 4. A profit maximizing competitive firm will produce until P=MC (_ 5. A firm producing where MC>MR is producing more than the profit maximizing quantity (_ 6. For a competitive firm, total revenue is proportional to the amount of output Multiple-Choice Questions 1. Which one of the following is true for a firm operating in perfectly competitive market? a. The firm can control neither its price nor its output b. The firm can control its price but not its output c. The firm can control its output but not its price d. The firm can control both its price and its output 2. A competitive firm is said to maximize its profits when a. The price is equal to average cost b. The price is equal to average revenue c. The price is equal to marginal cost d. The price is equal to marginal revenue 3. What is the shape of the demand curve faced by a perfectly competitive firm? a. Vertical b. Downward sloping c. Horizontal d. Upward sloping 4. Which one of the following situations should cause a firm to shut down in the short run? a. It is not covering its variable costs b. It is not covering its fixed costs c. It is not covering its total costs d. It is not covering its money outlays or explicit costs TEST, ECON 1501 5. Which one of the following will be satisfied by a competitive firm in the long- run equilibrium? a. P=MR b. MR=MC C. P=AR d. P=AC