Page 1
1.
If a California avocado stand operates in a perfectly competitive market, that stand
owner will be a price:
A)
maker.
B)
taker.
C)
discriminator.
D)
maximizer.
2.
If all firms in an industry are price takers:
A)
each firm can sell at the price it wants to charge, provided it is not too different
from the prices other firms are charging.
B)
each firm takes the market price as given for its output level, recognizing that the
price will change if it alters its output significantly.
C)
an individual firm cannot alter the market price even if it doubles its output.
D)
the market sets the price, and each firm can take it or leave it by setting a different
price.
3.
The assumptions of perfect competition imply that:
A)
individuals in the market accept the market price as given.
B)
individuals can influence the market price.
C)
the price will be fair.
D)
the price will be high.
4.
Price takers are individuals in a market who:
A)
select a price from a wide range of alternatives.
B)
select the lowest price available in a competitive market.
C)
select the average of prices available in a competitive market.
D)
have no ability to affect the price of a good in a market.
5.
Individuals in a market who must take the market price as given are:
A)
quantity minimizers.
B)
quantity takers.
C)
price takers.
D)
price searchers.
6.
Perfect competition is characterized by:
A)
rivalry in advertising.
B)
fierce quality competition.
C)
the inability of any one firm to influence price.
D)
widely recognized brands.
Page 2
7.
When a firm cannot affect the market price of the good that it sells, it is said to be a:
A)
price taker.
B)
natural monopoly.
C)
dominant firm.
D)
cartel.
8.
The assumptions of perfect competition imply that:
A)
individuals in the market determine the market price.
B)
firms in the market accept the market price as given.
C)
there will be no new competition due to natural monopolies.
D)
the price will be decreasing yearly.
9.
In the model of perfect competition:
A)
the consumer is at the mercy of powerful firms that can set prices wherever they
prefer.
B)
individual firms can influence the price, but only slightly.
C)
no individual or firm has enough power to affect price.
D)
the price is determined by how many years are left in the product’s patent.
10.
A perfectly competitive firm is a:
A)
price taker.
B)
price searcher.
C)
cost maximizer.
D)
quantity taker.
11.
If a Florida strawberry wholesaler operates in a perfectly competitive market, that
wholesaler will have a _____ share of the market, and consumers will consider her
strawberries and her competitors’ strawberries to be _____. Therefore, _____
advertising will take place in this market.
A)
large; standardized; no
B)
small; standardized; little or no
C)
small; differentiated; no
D)
large; differentiated; extensive
12.
One characteristic of a perfectly competitive market is that there are _____ sellers of the
good or service.
A)
one or two
B)
a few
C)
usually fewer than 10
D)
many
Page 3
13.
Which of the following is NOT a characteristic of a perfectly competitive industry?
A)
Firms seek to maximize profits.
B)
Profits may be positive in the short run.
C)
There are many firms.
D)
Products are differentiated.
14.
In a perfectly competitive industry, each firm:
A)
is a price maker.
B)
produces about half of the total industry output.
C)
produces a differentiated product.
D)
produces a standardized product.
15.
For the Colorado beef industry to be classified as perfectly competitive, ranchers in
Colorado must have _____ on prices and beef must be a _____ product.
A)
no noticeable effect; standardized
B)
a huge effect; standardized
C)
a huge effect; differentiated
D)
no noticeable effect; differentiated
16.
Which of the following is a necessary condition for perfect competition?
A)
A small number of firms control a large share of the total market.
B)
Movement into and out of the market is limited.
C)
Firms produce a standardized product.
D)
Extensive advertising is used to promote the firm’s product.
17.
Which of the following statements is NOT characteristic of perfect competition?
A)
All firms produce the same standardized product.
B)
There are many producers, and each has only a small market share.
C)
There are many producers; one firm has a 25% market share, and all of the
remaining firms have a market share of less than 2% each.
D)
There are no obstacles to entry into or exit from the industry.
18.
The perfectly competitive model assumes all of the following EXCEPT:
A)
a great number of buyers.
B)
easy entry to and exit from the market.
C)
a standardized product.
D)
that firms attempt to maximize their total revenue.
Page 4
19.
The market for breakfast cereal contains hundreds of similar products, such as Froot
Loops, cornflakes, and Rice Krispies, that are considered to be different products by
different buyers. This situation violates the perfect competition assumption of:
A)
many buyers and sellers.
B)
a standardized product.
C)
ease of entry.
D)
ease of exit.
20.
An assumption of the model of perfect competition is:
A)
discrimination.
B)
difficult entry and exit.
C)
many buyers and sellers.
D)
limited information.
21.
The competitive model assumes all of the following EXCEPT:
A)
a large number of buyers.
B)
easy entry to and exit from the market.
C)
standardized product.
D)
patents and copyrights that serve as barriers to entry into the industry.
22.
_____ almost always take the market price as given—that is, are considered _____—but
this is often not true of _____.
A)
Consumers; quantity minimizers; producers
B)
Producers; quantity takers; consumers
C)
Consumers and producers; price takers; firms that produce a differentiated product
D)
Producers; price searchers; consumers
23.
An assumption of the model of perfect competition is:
A)
identical goods.
B)
difficult entry and exit.
C)
few buyers and sellers.
D)
cooperation and interdependence between sellers.
24.
People in the eastern part of Beirut are prevented by border guards from traveling to the
western part of Beirut to shop for or sell food. This situation violates the perfect
competition assumption of:
A)
price-setting behavior.
B)
a small number of buyers and sellers.
C)
differentiated goods.
D)
ease of entry and exit.
Page 5
25.
When perfect competition prevails, which of the following characteristics of firms are
we likely to observe?
A)
They erect and maintain barriers to new firms.
B)
There are not many of them.
C)
They all try to highlight the substantial product differentiation between producers.
D)
They are all price takers.
26.
In perfect competition:
A)
a firm’s total revenue is found by multiplying the market price by the firm’s
quantity of output.
B)
the firm’s total revenue curve is a downward-sloping line.
C)
at any price, the more sold, the higher a firm’s marginal revenue.
D)
the firm’s total revenue curve is nonlinear.
27.
A firm’s total output times the price at which it sells that output is _____ revenue.
A)
net
B)
total
C)
average
D)
marginal
28.
Total revenue is a firm’s:
A)
change in revenue resulting from a unit change in output.
B)
ratio of revenue to quantity.
C)
difference between revenue and cost.
D)
total output times the price of that output.
29.
If a perfectly competitive firm increases production from 10 units to 11 units and the
market price is $20 per unit, total revenue for 11 units is:
A)
$10.
B)
$20.
C)
$200.
D)
$220.
30.
If a perfectly competitive firm decreases production from 11 units to 10 units and the
market price is $20 per unit, total revenue for 10 units is:
A)
$10.
B)
$20.
C)
$200.
D)
$210.
Page 6
31.
The difference between total revenue and total cost is:
A)
economic profit or loss.
B)
nominal revenue.
C)
average revenue.
D)
marginal revenue.
32.
In a perfectly competitive industry, the market demand curve is usually:
A)
perfectly inelastic.
B)
perfectly elastic.
C)
downward-sloping.
D)
relatively elastic.
33.
The demand curve for a perfectly competitive firm is:
A)
perfectly inelastic.
B)
perfectly elastic.
C)
downward-sloping.
D)
relatively but not perfectly elastic.
34.
Marginal revenue:
A)
is the slope of the average revenue curve.
B)
equals the market price in perfect competition.
C)
is the change in quantity divided by the change in total revenue.
D)
is the price divided by the change in quantity.
35.
The marginal revenue received by a firm in a perfectly competitive market:
A)
is greater than the market price.
B)
is less than the market price.
C)
is equal to its average revenue.
D)
increases with the quantity of output sold.
36.
If a perfectly competitive gardening shop sells 30 evergreen bushes at $10 per bush, its
marginal revenue is:
A)
$10.
B)
more than $10.
C)
less than $10.
D)
$300.
Page 7
37.
Marginal revenue is a firm’s:
A)
ratio of profit to quantity.
B)
ratio of average revenue to quantity.
C)
price per unit times the number of units sold.
D)
increase in total revenue when it sells an additional unit of output.
38.
Perfectly competitive firms will:
A)
maximize total revenue by using the marginal decision rule.
B)
increase output up to the point that the marginal benefit of an additional unit of
output is greater than the marginal cost.
C)
increase output up to the point that the marginal benefit of an additional unit of
output is equal to the marginal cost.
D)
always attempt to minimize average variable cost.
39.
For a perfectly competitive firm, marginal revenue:
A)
is less than price.
B)
is greater than price.
C)
decreases as the firm increases output.
D)
is equal to price.
40.
A perfectly competitive firm will maximize profits when the:
A)
marginal revenue equals marginal cost.
B)
marginal revenue is lower than average variable cost.
C)
price is lower than marginal cost.
D)
price is higher than marginal cost.
41.
The equilibrium price of a guidebook is $35 in the perfectly competitive guidebook
industry. Our firm produces 10,000 guidebooks for an average total cost of $38,
marginal cost of $30, and average variable cost of $30. Our firm should:
A)
raise the price of guidebooks, because the firm is losing money.
B)
keep output the same, because the firm is producing at minimum average variable
cost.
C)
produce more guidebooks, because the next guidebook produced increases profit
by $5.
D)
shut down, because the firm is losing money.
Page 8
42.
Zoe’s Bakery operates in a perfectly competitive industry and has standard cost curves.
The variable costs at Zoe’s Bakery increase, so all of the cost curves (except fixed cost)
shift upward. The demand for Zoe’s pastries does not change, nor does the firm shut
down. To maximize profits after the variable cost increase, Zoe’s Bakery will _____ its
price and _____ its level of production.
A)
raise; increase
B)
decrease; increase
C)
raise; decrease
D)
do nothing to; decrease
43.
The slope of the total revenue curve is:
A)
marginal cost.
B)
net revenue.
C)
equal to marginal revenue and is constant under perfect competition.
D)
equal to marginal revenue and varies under perfect competition.
44.
The slope of the total cost curve is:
A)
marginal cost.
B)
marginal revenue.
C)
constant under perfect competition.
D)
always negative.
45.
For a firm producing at any level of output LOWER THAN the most profitable one, an
increase in output adds:
A)
more to total cost than to total revenue.
B)
more to total revenue than to total cost.
C)
the same amount to total revenue as to total cost.
D)
to total revenue but not to total cost.
46.
For a firm producing at any level of output GREATER THAN the most profitable one, a
reduction in output decreases total revenue _____ total cost.
A)
less than
B)
more than
C)
by the same amount as
D)
but not
Page 9
47.
A perfectly competitive firm maximizes profit in the short run by producing the quantity
at which:
A)
TR = TC.
B)
MR = MC.
C)
Q × (P – ATC) = 0.
D)
P < AVC.
48.
The price received by a firm in a perfectly competitive market:
A)
is equal to the market price.
B)
is less than the market price.
C)
is greater than the market price.
D)
decreases with the quantity of output sold by the firm.
49.
The marginal revenue received by a firm in a perfectly competitive market:
A)
is unrelated to the market price.
B)
is less than the market price.
C)
is greater than the market price.
D)
is the change in total revenue divided by the change in output.
50.
For a firm in a perfectly competitive market _____ revenue equals _____.
A)
marginal; total revenue
B)
marginal; market price
C)
net; price
D)
net; marginal revenue
51.
If a perfectly competitive firm sells 10 units of output at $30 per unit, its marginal
revenue is:
A)
$10.
B)
$30.
C)
more than $30.
D)
$300.
52.
Price in a perfectly competitive industry:
A)
is determined by each firm, depending on its costs of production.
B)
is always equal to marginal revenue for the firm.
C)
must be greater than average total cost or the firm will shut down in the short run.
D)
is indeterminate in the short run.
Page 10
53.
Marginal revenue is a firm’s:
A)
ratio of the change in total revenue to the change in output.
B)
ratio of average revenue to total revenue.
C)
profit per unit times the number of units sold.
D)
increase in profit when it sells an additional unit of output.
54.
If a firm in perfect competition sells 10 units of output at $5 per unit, its marginal
revenue is:
A)
$5.
B)
more than $5 but less than $50.
C)
$50.
D)
$250.
55.
If a perfectly competitive firm sells 300 units of output at $1 per unit, its marginal
revenue is:
A)
less than $1.
B)
$1.
C)
more than $1 but less than $300.
D)
$300.
56.
In perfect competition:
A)
price and average variable cost are the same.
B)
price and marginal revenue are the same.
C)
price and total revenue are the same.
D)
total revenue and total variable cost are the same.
57.
The profit-maximizing level of output for a perfectly competitive firm in the short run
occurs where _____ equals _____.
A)
marginal cost; price
B)
marginal revenue; price
C)
total revenue; total cost
D)
average revenue; average total cost
58.
If a perfectly competitive firm is producing a quantity where MC > MR, then profit:
A)
is maximized.
B)
can be increased by increasing production.
C)
can be increased by decreasing production.
D)
can be increased by decreasing the price.
Page 11
59.
If a perfectly competitive firm is producing a quantity where MC < MR, then profit:
A)
is maximized.
B)
can be increased by increasing production.
C)
can be increased by decreasing production.
D)
can be increased by decreasing the price.
60.
If a perfectly competitive firm is producing a quantity where MC = MR, then profit:
A)
is maximized.
B)
can be increased by increasing production.
C)
can be increased by decreasing production.
D)
can be increased by decreasing the price.
61.
If a perfectly competitive firm is producing a quantity where P < MC, then profit:
A)
is maximized.
B)
can be increased by decreasing the price.
C)
can be increased by increasing production.
D)
can be increased by decreasing production.
62.
If a perfectly competitive firm is producing a quantity where P > MC, then the firm can
increase profit by:
A)
making no change in output or price because it is already maximizing profit.
B)
increasing the price.
C)
decreasing the price.
D)
increasing production.
63.
If a perfectly competitive firm is producing a quantity where P = MC, then profit:
A)
is maximized.
B)
can be increased by decreasing the quantity.
C)
can be increased by decreasing the price.
D)
can be increased by increasing production.
Page 12
Use the following to answer question 64:
Figure: Total Revenue and Total Cost
64.
(Figure: Total Revenue and Total Cost) Look at the figure Total Revenue and Total
Cost. The most profitable level of output occurs at quantity:
A)
F.
B)
K.
C)
L.
D)
M.
65.
If the price is greater than average total cost at the profit-maximizing quantity of output
in the short run, a perfectly competitive firm will:
A)
produce at a loss.
B)
produce at a profit.
C)
shut down production.
D)
produce more than the profit-maximizing quantity.
66.
In the short run, a perfectly competitive firm produces output and earns an economic
profit if:
A)
P > ATC.
B)
P = ATC.
C)
P < MC.
D)
P < ATC.
Page 13
67.
In the short run, a perfectly competitive firm produces output and earns ZERO
economic profit if:
A)
P < ATC.
B)
P = ATC.
C)
P < MC.
D)
P > ATC.
68.
Which of the following is TRUE?
A)
Profit per unit is price minus MC.
B)
Total economic profit is per-unit profit times quantity.
C)
If price is less than ATC, the firm will break even in the short run.
D)
If price is less than marginal cost, the perfectly competitive firm should raise the
price and increase output.
69.
A perfectly competitive firm will earn a profit in the short run when it produces the
profit-maximizing quantity of output and the price is:
A)
greater than marginal cost.
B)
less than marginal cost.
C)
less than average variable cost.
D)
greater than average total cost.
70.
If the price is greater than average total cost at the profit-maximizing quantity of output
in the short run, a perfectly competitive firm will:
A)
continue to produce at a loss.
B)
produce at a profit.
C)
shut down production.
D)
reduce its fixed costs.
71.
For a perfectly competitive firm in the short run, if the firm produces the quantity at
which _____, the firm _____.
A)
P > ATC; is profitable
B)
P < ATC; breaks even
C)
P = ATC; incurs a loss
D)
P < ATC; is profitable
Page 14
72.
In the short run, a perfectly competitive firm produces output and breaks even if the firm
produces the quantity at which:
A)
P < ATC.
B)
P = ATC.
C)
P > ATC.
D)
P = (TR / Q + TC / Q) × Q.
73.
In the short run, if P = ATC, a perfectly competitive firm:
A)
produces output and earns zero economic profit.
B)
produces output and earns an economic profit.
C)
produces output and incurs an economic loss.
D)
does not produce output and incurs an economic loss.
74.
In the short run, if P > ATC, a perfectly competitive firm:
A)
produces output and earns zero economic profit.
B)
produces output and earns an economic profit.
C)
produces output and incurs an economic loss.
D)
does not produce output and earns economic profit.
75.
In perfectly competitive markets, if the price is _____, the firm will _____.
A)
greater than ATC; make an economic profit
B)
greater than the minimum ATC; break even
C)
less than ATC; make an economic profit
D)
less than ATC; break even
76.
A perfectly competitive firm will earn a profit and will continue producing the
profit-maximizing quantity of output in the short run if the price is:
A)
less than the average fixed cost.
B)
less than marginal cost.
C)
greater than average variable cost but less than average total cost.
D)
greater than average total cost.
77.
Consider a perfectly competitive firm in the short run. Assume the firm produces the
profit-maximizing output and earns economic profits. Which statement is FALSE?
A)
Price is equal to marginal cost.
B)
Price is equal to marginal revenue.
C)
Price is equal to average total cost.
D)
Marginal cost is greater than average total cost.
Page 15
78.
Suppose a perfectly competitive firm can increase its profits by increasing its output.
Then it must be true that the firm’s _____ exceeds its _____.
A)
marginal revenue; marginal cost
B)
price; average total cost but is less than marginal cost
C)
marginal cost; marginal revenue
D)
price; marginal revenue
79.
A competitive firm operating in the short run is producing at the output level at which
ATC is at a minimum. If ATC = $8 and MR = $9, to maximize profits (or minimize
losses), this firm should:
A)
increase output.
B)
reduce output.
C)
increase price.
D)
do nothing; the firm is already maximizing profits.
80.
Zoe’s Bakery operates in a perfectly competitive industry. When the market price of iced
cupcakes is $5, the profit-maximizing output level is 150 cupcakes. Her average total
cost is $4, and her average variable cost is $3. Zoe’s marginal cost is _____, and her
short-run profits are _____.
A)
$5; $150
B)
$5; $300
C)
$1; $150
D)
$1; $300
81.
A perfectly competitive firm is definitely earning an economic profit when:
A)
MR > MC.
B)
P > ATC.
C)
P > MC.
D)
P < ATC.
82.
Mikail’s perfectly competitive camera memory card–producing factory is making
positive economic profits. If the price of memory cards is $9, if Mikail’s output is 3,000
cards a month, and if his monthly average total cost is $7, what are his monthly profits?
A)
$6,000
B)
$27,000
C)
$21,000
D)
$2
Page 16
83.
Suppose Sarah’s pottery studio is charging the market price, which is just higher than
her minimum average total cost. This means that Sarah:
A)
is breaking even.
B)
should shut down immediately.
C)
is earning a small economic profit.
D)
is incurring a small economic loss.
84.
The break-even price for a perfectly competitive firm is equal to:
A)
the minimum value of average variable cost.
B)
the marginal revenue, provided that marginal revenue is equal to marginal cost.
C)
the average fixed cost at the given output level.
D)
the minimum value of average total cost.
85.
Consider a perfectly competitive firm in the short run. Assume that it is sustaining
economic losses but continues to produce at the profit-maximizing (loss-minimizing)
output. Which statement is FALSE?
A)
Marginal cost is less than average total cost.
B)
Marginal cost is equal to marginal revenue.
C)
Price is equal to marginal cost.
D)
Marginal cost is less than average variable cost.
86.
Zoe’s Bakery determines that P < ATC and P > AVC. In the short run, Zoe should:
A)
continue to operate even though she is taking an economic loss.
B)
continue to operate, as she is making an economic profit.
C)
shut down immediately, as she is taking an economic loss.
D)
raise the price until she has maximized her profits.
87.
A perfectly competitive small organic farm produces 1,000 cauliflower heads in the
short run. Its ATC = $6 and AFC = $2. The market price is $3 per head and is equal to
MC. To maximize profits or minimize losses, this farm should:
A)
increase output.
B)
reduce output but continue to produce.
C)
shut down.
D)
do nothing; the firm is already maximizing profits.
Page 17
88.
If the price is consistently below average total cost, then in the short run a perfectly
competitive firm should:
A)
shut down.
B)
continue to produce to minimize losses.
C)
raise the price.
D)
There is not enough information given to answer this question.
89.
During the summer, Alex runs a mowing service, and lawn mowing is a perfectly
competitive industry. In the short run, Alex will shut down if:
A)
the total revenues can’t cover fixed costs.
B)
the total revenues can’t cover variable costs.
C)
the total revenues can’t cover total costs.
D)
the price exceeds the average total cost.
90.
Many furniture stores run “going out of business” sales but never go out of business. For
the shut-down decision to be the appropriate one, the price of furniture must be _____
than the _____ average variable cost.
A)
higher; maximum
B)
lower; minimum
C)
higher; minimum
D)
lower; maximum
91.
The short-run supply curve for a perfectly competitive firm is its:
A)
demand curve above its marginal revenue curve.
B)
marginal revenue curve to the right of its marginal cost curve.
C)
marginal cost curve above its average variable cost curve.
D)
average total cost curve below its marginal cost curve.
92.
The lowest point on a perfectly competitive firm’s short-run supply curve corresponds to
the minimum point on the _____ curve.
A)
ATC
B)
AVC
C)
AFC
D)
MC
Page 18
93.
If the price is consistently below the average variable cost, then in the short run a
perfectly competitive firm should:
A)
raise the price.
B)
sell more output.
C)
shut down.
D)
lower the price to sell more.
94.
A perfectly competitive firm will incur an economic loss but will continue to produce a
positive quantity of output in the short run if the price is:
A)
less than marginal cost.
B)
less than average variable cost.
C)
greater than average total cost.
D)
greater than average variable cost and less than average total cost.
95.
If the price is greater than the average variable cost and less than the average total cost
at the profit-maximizing quantity of output in the short run, a perfectly competitive firm
will:
A)
produce at an economic loss.
B)
produce at an economic profit.
C)
shut down production.
D)
produce more than the profit-maximizing quantity.
96.
The short-run shut-down price is:
A)
the price at which economic profit is zero.
B)
the minimum of the AVC curve.
C)
the intersection of the MC and ATC curves.
D)
the minimum of the AFC curve.
97.
For a perfectly competitive firm, the short-run supply curve is the:
A)
entire MC curve.
B)
rising part of the MC curve beginning at the shut-down point.
C)
rising part of the MC curve beginning where the firm starts earning economic
profit.
D)
MC curve below the shut-down point.
Page 19
98.
A perfectly competitive firm will continue producing in the short run as long as it can
cover its _____ cost.
A)
total
B)
average fixed
C)
variable
D)
fixed
99.
The short-run supply curve for a perfectly competitive firm is the ____ cost curve above
the _____ price.
A)
average total; break-even
B)
average variable; shut-down
C)
marginal; break-even
D)
marginal; shut-down
100.
Which of the following is TRUE?
A)
If price falls below average variable cost, the firm will shut down in the short run.
B)
Total revenue and marginal revenue are the same in perfect competition.
C)
Economic profit per unit is found by subtracting MC from price.
D)
Economic profit is always positive in the long run.
101.
In perfect competition, the profit-maximizing level of output occurs where the:
A)
MR = MC above minimum AVC.
B)
price < marginal cost above minimum AVC.
C)
MR > MC below minimum AVC.
D)
P = MR above MC.
102.
A perfectly competitive firm will incur an economic loss but will continue producing
output in the short run if the price is:
A)
less than marginal cost.
B)
greater than average fixed cost and less than average variable cost.
C)
greater than average total cost.
D)
greater than average variable cost but less than average total cost.
103.
If the price is greater than the average variable cost and less than the average total cost
at the profit-maximizing quantity of output in the short run, a perfectly competitive firm
will:
A)
continue to produce at an economic loss.
B)
earn an economic profit.
C)
encourage other firms to enter the industry.
D)
produce more than the profit-maximizing quantity.
Page 20
104.
In the short run, if AVC < P < ATC, a perfectly competitive firm:
A)
produces output and earns an economic profit.
B)
produces output and incurs an economic loss.
C)
does not produce output and earns an economic profit.
D)
does not produce output and earns zero economic profit.
105.
In the short run, a perfectly competitive firm produces output and incurs an economic
loss if:
A)
P > ATC.
B)
P < AVC.
C)
AVC > P > ATC.
D)
AVC < P < ATC.
106.
A perfectly competitive firm will not produce any output in the short run and will shut
down if the price is:
A)
greater than marginal cost.
B)
less than marginal cost.
C)
less than average variable cost.
D)
greater than average variable cost and less than average total cost.
107.
The shut-down point in the short run is:
A)
the point at which economic profit is zero.
B)
the minimum point of AVC.
C)
the intersection of the MC and ATC curves.
D)
the minimum point of AFC.
108.
If the price is less than the average variable cost at the quantity of output where MR =
MC, in the short run a perfectly competitive firm will:
A)
produce at a loss.
B)
produce at a profit.
C)
shut down production.
D)
produce more than the profit-maximizing quantity.
109.
Assume that in the short run a perfectly competitive firm does not produce output and
has economic losses. This occurs at the quantity where MR = MC and:
A)
P = ATC and FC = 0.
B)
P < AVC and FC > 0.
C)
AVC > P > ATC and FC = 0.
D)
AVC < P < ATC and FC > 0.
Page 21
110.
In the short run, if P < AVC at the quantity where MR = MC, a perfectly competitive
firm produces _____ and takes an economic _____.
A)
output; profit
B)
output; loss
C)
no output; profit
D)
no output; loss
111.
A firm’s shut-down point is the minimum value of:
A)
total cost.
B)
average variable cost.
C)
average total cost.
D)
marginal cost.
112.
A perfectly competitive firm’s short-run supply curve is its _____ cost curve above its
_____ cost curve.
A)
average variable; marginal
B)
marginal; average fixed
C)
marginal; average total
D)
marginal; average variable
113.
A perfectly competitive firm’s marginal cost curve above the average variable cost curve
is its _____ curve.
A)
input demand
B)
short-run supply
C)
marginal revenue
D)
total revenue
114.
A competitive firm operating in the short run is maximizing profits and just breaking
even. Its costs include a monthly state license fee of $100 that must be paid for as long
as the firm operates. If the license fee is raised to $150, what should the firm do to
maximize profits in the short run?
A)
increase price
B)
increase output
C)
reduce output
D)
not change output
Page 22
115.
Which of the following is TRUE?
A)
If the price falls below the average total cost, the firm will earn economic profits.
B)
Price and marginal revenue are the same in perfect competition.
C)
Economic profit per unit is found by subtracting AVC from the price.
D)
Economic profit is always positive in the short run.
116.
Wenqin is a farmer, and in the short run she produces 100 bushels of wheat. Her average
total cost per bushel is $1.75, total revenue is $450, and total fixed costs are $100.
Wenqin’s:
A)
average fixed cost is $1.50.
B)
profit per bushel is $2.75.
C)
average variable cost is $1.25.
D)
economic profit is $250.
Use the following to answer questions 117-118:
Figure: Prices, Cost Curves, and Profits
117.
(Figure: Prices, Cost Curves, and Profits) Look at the figure Prices, Cost Curves, and
Profits. If the price is P1 and the firm decides to produce at output Q1, then the firm
earns:
A)
a loss equal to (ba) × Q1.
B)
a loss equal to (ca) × Q1.
C)
a loss equal to (bc) × Q1.
D)
zero.
Page 23
118.
(Figure: Prices, Cost Curves, and Profits) Look at the figure Prices, Cost Curves, and
Profits. If the price is P2 and the firm is profit-maximizing, then the firm’s profit is:
A)
(fg) × Q3.
B)
(de) × Q2.
C)
(fg) × Q2.
D)
(de) × P2.
Use the following to answer questions 119-121:
Figure: Cost Curves for Corn Producers
119.
(Figure: Cost Curves for Corn Producers) Look at the figure Cost Curves for Corn
Producers. The market for corn is perfectly competitive. If the price of a bushel of corn
is $14, in the short run, the farmer will produce _____ of corn and earn an economic
_____ equal to _____.
A)
4 bushels; profit; $0
B)
4 bushels; profit; just less than $80 per bushel
C)
2 bushels; profit; $0
D)
2 bushels; loss; just more than $80 per bushel
120.
(Figure: Cost Curves for Corn Producers) Look at the figure Cost Curves for Corn
Producers. The market for corn is perfectly competitive. If the price of a bushel of corn
is $4, in the short run the farmer will produce _____ bushels of corn and earn an
economic _____ equal to _____.
A)
0; loss; average fixed costs
B)
0; loss; total fixed costs
C)
3; loss; $30 per bushel
D)
3; profit; $20 per bushel
Page 24
121.
(Figure: Cost Curves for Corn Producers) Look at the figure Cost Curves for Corn
Producers. The market for corn is perfectly competitive. If the price of a bushel of corn
is $10, then in the short run the farmer will produce _____ bushels of corn and take an
economic loss equal to _____.
A)
0; average fixed costs
B)
0; total variable costs
C)
3; total fixed costs
D)
3; $22 per bushel
Use the following to answer questions 122-123:
Figure: Costs and Profits for Tomato Producers
122.
(Figure: Costs and Profits for Tomato Producers) Look at the figure Costs and Profits
for Tomato Producers. The market for tomatoes is perfectly competitive. The market
price of a bushel of tomatoes is $18. If the market price increases to $20, the farmer’s
marginal revenue _____ and the profit-maximizing output _____.
A)
increases; increases
B)
increases; decreases
C)
decreases; increases
D)
decreases; decreases
123.
(Figure: Costs and Profits for Tomato Producers) Look at the figure Costs and Profits
for Tomato Producers. The market for tomatoes is perfectly competitive. The market
price of a bushel of tomatoes is $18. If the market price falls to $16, the farmer’s
marginal revenue _____ and the profit-maximizing output _____.
A)
increases; decreases
B)
increases; increases
C)
decreases; increases
D)
decreases; decreases
Page 25
Use the following to answer question 124:
Figure: Total Cost for Tomato Producers
124.
(Figure: Total Cost for Tomato Producers) Look at the figure Total Cost for Tomato
Producers. The market for tomatoes is perfectly competitive. The market price of a
bushel of tomatoes is $14. The farmer’s total cost at the profit-maximizing number of
bushels is:
A)
$3.50.
B)
$14.00.
C)
$56.00.
D)
$72.00.
Use the following to answer question 125:
Figure: Revenues, Costs, and Profits for Tomato Producers
Page 26
125.
(Figure: Revenues, Costs, and Profits for Tomato Producers) Look at the figure
Revenues, Costs, and Profits for Tomato Producers. The market for tomatoes is
perfectly competitive. The market price of a bushel of tomatoes is $18. At the
profit-maximizing quantity of output in the figure, the farmer’s total revenue is _____,
total cost is _____, and profit is _____.
A)
$90; $14; $76
B)
$90; $70; $20
C)
$30; $42; –$12
D)
$48; $56; –$8
Use the following to answer question 126:
Figure: Revenues, Costs, and Profits for Tomato Producers II
126.
(Figure: Revenues, Costs, and Profits for Tomato Producers II) Look at the figure
Revenues, Costs, and Profits for Tomato Producers II. The market for tomatoes is
perfectly competitive. The market price of a bushel of tomatoes is $10. At the farmer’s
profit-maximizing output, total revenue is _____, total cost is _____, and profit is
_____.
A)
$90; $72; $18
B)
$56; $56; $0
C)
$30; $48; –$18
D)
$48; $56; –$8
Page 27
Use the following to answer questions 127-132:
Figure: Revenues, Costs, and Profits for Tomato Producers III
127.
(Figure: Revenues, Costs, and Profits for Tomato Producers III) Look at the figure
Revenues, Costs, and Profits for Tomato Producers III. The market for tomatoes is
perfectly competitive. If market price of a bushel of tomatoes is $18, in the short run the
farmer’s profit-maximizing output is _____ bushels.
A)
2
B)
3
C)
4
D)
5
128.
(Figure: Revenues, Costs, and Profits for Tomato Producers III) Look at the figure
Revenues, Costs, and Profits for Tomato Producers III. The market for tomatoes is
perfectly competitive. If the market price of a bushel of tomatoes is $14, in the short run
the farmer’s profit-maximizing output is _____ bushels.
A)
2
B)
3
C)
4
D)
5
Page 28
129.
(Figure: Revenues, Costs, and Profits for Tomato Producers III) Look at the figure
Revenues, Costs, and Profits for Tomato Producers III. The market for tomatoes is
perfectly competitive. If the market price of a bushel of tomatoes is $8, in the short run
the farmer’s profit-maximizing output is _____ bushels.
A)
0
B)
1
C)
2
D)
3
130.
(Figure: Revenues, Costs, and Profits for Tomato Producers III) Look at the figure
Revenues, Costs, and Profits for Tomato Producers III. The market for tomatoes is
perfectly competitive. If the market price of a bushel of tomatoes is $18, this farm will:
A)
minimize its losses by shutting down.
B)
minimize its losses by continuing to produce.
C)
break even.
D)
earn an economic profit.
131.
(Figure: Revenues, Costs, and Profits for Tomato Producers III) Look at the figure
Revenues, Costs, and Profits for Tomato Producers III. The market for tomatoes is
perfectly competitive. If the market price of a bushel of tomatoes is $12, in the short run
this farm will:
A)
minimize its losses by shutting down.
B)
minimize its losses by continuing to produce.
C)
break even.
D)
earn an economic profit.
132.
(Figure: Revenues, Costs, and Profits for Tomato Producers III) Look at the figure
Revenues, Costs, and Profits for Tomato Producers III. The market for tomatoes is
perfectly competitive. The farm’s short-run supply curve is the _____ cost curve above a
price of _____.
A)
average total; $14
B)
average variable; $10
C)
marginal; $10
D)
marginal; $14
Page 29
Use the following to answer questions 133-138:
Figure: The Marginal Decision Rule
133.
(Figure: Marginal Decision Rule) Look at the figure The Marginal Decision Rule. At q2,
or the _____, the _____ price is equal to marginal cost.
A)
minimum-cost output; shut-down
B)
profit-maximizing quantity; market
C)
maximum-cost output; break-even
D)
profit-minimizing quantity; break-even
134.
(Figure: Marginal Decision Rule) Look at the figure The Marginal Decision Rule. If P1
is the market price and if this firm is maximizing profit, it should produce:
A)
where MR > MC.
B)
at quantity q2.
C)
at quantity q1, where MR > MC.
D)
a quantity greater than q1 but less than q2.
135.
(Figure: Marginal Decision Rule) Look at the figure The Marginal Decision Rule. Given
the market price P1, B is the _____ curve.
A)
marginal revenue
B)
marginal cost
C)
marginal product
D)
average fixed cost
Page 30
136.
(Figure: Marginal Decision Rule) Look at the figure The Marginal Decision Rule.
Economic profit:
A)
is earned between q1 and q2.
B)
is earned between the origin and q1.
C)
is earned as a maximum at q1.
D)
cannot be determined from the information provided.
137.
(Figure: Marginal Decision Rule) Look at the figure The Marginal Decision Rule. As
long as the price is above the minimum variable cost, this firm should produce quantity
_____ where _____ equals _____ to maximize economic profit.
A)
q1; MR; MC
B)
q2; price; MC
C)
q2; MR; TR
D)
q1; TR; TC
138.
(Figure: Marginal Decision Rule) Look at the figure The Marginal Decision Rule. To
the left of point C (e.g., at q1):
A)
economic profit is the vertical distance between curves B and MC.
B)
the firm is not maximizing profits.
C)
the firm is maximizing profits.
D)
the firm should produce less.
Use the following to answer questions 139-152:
Figure: The Profit-Maximizing Firm in the Short Run
Page 31
139.
(Figure: The Profit-Maximizing Firm in the Short Run) Look at the figure The
Profit-Maximizing Firm in the Short Run. M is the _____ curve.
A)
ATC
B)
MR
C)
MC
D)
AVC
140.
(Figure: The Profit-Maximizing Firm in the Short Run) Look at the figure The
Profit-Maximizing Firm in the Short Run. N is the _____ curve.
A)
ATC
B)
MR
C)
MC
D)
AVC
141.
(Figure: The Profit-Maximizing Firm in the Short Run) Look at the figure The
Profit-Maximizing Firm in the Short Run. If the market price is P3, the firm will
produce quantity _____ and _____ in the short run.
A)
q2; make a profit
B)
q1; break even
C)
q2; incur a loss
D)
q4; incur a loss
142.
(Figure: The Profit-Maximizing Firm in the Short Run) Look at the figure The
Profit-Maximizing Firm in the Short Run. If the market price is P4, the firm will
produce quantity _____ and _____ in the short run.
A)
q1; break even
B)
q3; make a profit
C)
q4; break even
D)
q5; lose fixed costs
143.
(Figure: The Profit-Maximizing Firm in the Short Run) Look at the figure The
Profit-Maximizing Firm. O is the _____ curve.
A)
ATC
B)
MR
C)
MC
D)
AVC
Page 32
144.
(Figure: The Profit-Maximizing Firm in the Short Run) Look at the figure The
Profit-Maximizing Firm in the Short Run. Curve M must cross curves N and O:
A)
at their maximum points.
B)
to the left of their minimum points.
C)
at their minimum points.
D)
to the right of their minimum points.
145.
(Figure: The Profit-Maximizing Firm in the Short Run) Look at the figure The
Profit-Maximizing Firm in the Short Run. If the market price is less than P2, the firm
will _____ in the short run.
A)
produce q1 and break even
B)
produce q1 and incur a loss
C)
shut down
D)
produce q3 and make a profit
146.
(Figure: The Profit-Maximizing Firm in the Short Run) Look at the figure The
Profit-Maximizing Firm in the Short Run. Which of the following statements is TRUE?
A)
AFC is represented by the vertical distance between curve M and curve N at any
level of output.
B)
AFC is represented by the vertical distance between curve N and curve O at any
level of output.
C)
This figure illustrates the long run because all costs are variable.
D)
Quantity q2 is to the left of the shut-down point.
147.
(Figure: The Profit-Maximizing Firm in the Short Run) Look at the figure The
Profit-Maximizing Firm in the Short Run. The MC curve is represented by:
A)
none of the curves.
B)
curve O.
C)
curve M.
D)
curve N.
148.
(Figure: The Profit-Maximizing Firm in the Short Run) Look at the figure The
Profit-Maximizing Firm in the Short Run. The ATC curve is represented by:
A)
curve N.
B)
curve M.
C)
curve O.
D)
none of the curves.
Page 33
149.
(Figure: The Profit-Maximizing Firm in the Short Run) Look at the figure The
Profit-Maximizing Firm in the Short Run. Which of these curves is the AVC curve?
A)
curve M
B)
none of the curves
C)
curve N
D)
curve O
150.
(Figure: The Profit-Maximizing Firm in the Short Run) Look at the figure The
Profit-Maximizing Firm in the Short Run. If the market price is P4, marginal revenue:
A)
and price are the same.
B)
is less than P4.
C)
is greater than P4.
D)
and price are unrelated.
151.
(Figure: The Profit-Maximizing Firm in the Short Run) Look at the figure The
Profit-Maximizing Firm in the Short Run. If the market price is P4:
A)
firms will leave the industry and the price will fall in the long run.
B)
there will be economic profits and firms will enter the industry in the long run.
C)
the market supply curve will shift to the left and price will fall in the long run.
D)
the firm will produce q4.
152.
(Figure: The Profit-Maximizing Firm in the Short Run) Look at the figure The
Profit-Maximizing Firm in the Short Run. At q2, ATC is the vertical distance between q2
on the horizontal axis and:
A)
curve M.
B)
curve N.
C)
curve O.
D)
P4.
Page 34
Use the following to answer questions 153-163:
Figure: A Perfectly Competitive Firm in the Short Run
153.
(Figure: A Perfectly Competitive Firm in the Short Run) Look at the figure A Perfectly
Competitive Firm in the Short Run. The firm’s total cost of producing its most profitable
level of output is:
A)
BS.
B)
DK.
C)
0FKD.
D)
0ESB.
154.
(Figure: A Perfectly Competitive Firm in the Short Run) Look at the figure A Perfectly
Competitive Firm in the Short Run. The firm’s total revenue from the sale of its most
profitable level of output is:
A)
0GLD.
B)
0GHB.
C)
BH.
D)
DL.
155.
(Figure: A Perfectly Competitive Firm in the Short Run) Look at the figure A Perfectly
Competitive Firm in the Short Run. The firm’s total economic profit at its most
profitable level of output is:
A)
0GHB.
B)
EFJS.
C)
EGHS.
D)
FGLK.
Page 35
156.
(Figure: A Perfectly Competitive Firm in the Short Run) Look at the figure A Perfectly
Competitive Firm in the Short Run. The lowest price that will yield zero economic
profit is indicated by the letter:
A)
G.
B)
F.
C)
E.
D)
N.
157.
(Figure: A Perfectly Competitive Firm in the Short Run) Look at the figure A Perfectly
Competitive Firm in the Short Run. The firm will produce in the short run if the price is
at least as high as point:
A)
F.
B)
E.
C)
N.
D)
P.
158.
(Figure: A Perfectly Competitive Firm in the Short Run) Look at the figure A Perfectly
Competitive Firm in the Short Run. The firm will shut down in the short run if the price
falls below:
A)
G.
B)
F.
C)
E.
D)
P.
159.
(Figure: A Perfectly Competitive Firm in the Short Run) Look at the figure A Perfectly
Competitive Firm in the Short Run. If the market price is G, the firm’s total cost of
producing its most profitable level of output is:
A)
BS.
B)
DK.
C)
0FKD.
D)
0ESB.
160.
(Figure: A Perfectly Competitive Firm in the Short Run) Look at the figure A Perfectly
Competitive Firm in the Short Run. If market price is G, the firm’s total revenue from
the sale of its most profitable level of output is:
A)
0GLD.
B)
0GHB.
C)
BH.
D)
DL.
Page 36
161.
(Figure: A Perfectly Competitive Firm in the Short Run) Look at the figure A Perfectly
Competitive Firm in the Short Run. If the market price is G, the firm’s total economic
profit at its most profitable level of output is:
A)
0GHB.
B)
EFJS.
C)
EGHS.
D)
FGLK.
162.
(Figure: A Perfectly Competitive Firm in the Short Run) Look at the figure A Perfectly
Competitive Firm in the Short Run. The minimum price that the firm must receive to
produce in the short run is:
A)
F.
B)
E.
C)
N.
D)
P.
163.
(Figure: A Perfectly Competitive Firm in the Short Run) Look at the figure A Perfectly
Competitive Firm in the Short Run. The firm’s short-run supply curve is the:
A)
entire MC curve.
B)
rising part of the MC curve beginning at point W.
C)
rising part of the MC curve beginning at the point at which the firm starts earning
economic profit.
D)
MC curve below point P.
Use the following to answer questions 164-167:
Page 37
164.
(Table: Soybean Cost) Look at the table Soybean Cost. If the market price of a bushel of
soybeans is $15, how many bushels will the farmer produce to maximize short-run
profit?
A)
2
B)
5
C)
3
D)
7
165.
(Table: Soybean Cost) Look at the table Soybean Cost. If the market price of a bushel of
soybeans is $15, what will be the farmer’s short-run maximum profit?
A)
$75
B)
$69
C)
$6
D)
$5
166.
(Table: Soybean Cost) Look at the table Soybean Cost. What is the break-even price for
this farmer?
A)
$13.00
B)
$13.50
C)
$14.00
D)
$14.50
167.
(Table: Soybean Cost) Look at the table Soybean Cost. What is the shut-down price for
this farmer?
A)
$10
B)
$11
C)
$12
D)
$13
Page 38
Use the following to answer questions 168-169:
168.
(Table: Lilly’s Apple Orchard) Look at the table Lilly’s Apple Orchard. Lilly is the
price-taking owner of an apple orchard. Her orchard has fixed costs of $30. If the price
of a bushel of apples is $25, how many bushels will Lilly produce to maximize profit?
A)
0
B)
1
C)
2
D)
3
169.
(Table: Lilly’s Apple Orchard) Look at the table Lilly’s Apple Orchard. Lilly is the
price-taking owner of an apple orchard. Her orchard has fixed costs of $30. If the price
of a bushel of apples is $35, her economic profit will be:
A)
–$30
B)
–$5
C)
$0
D)
$5
Page 39
Use the following to answer questions 170-176:
170.
(Table: Total Cost for a Perfectly Competitive Firm) Look at the table Total Cost for a
Perfectly Competitive Firm. If the market price is $4.50, the profit-maximizing output is
_____ units.
A)
5
B)
7
C)
8
D)
9
171.
(Table: Total Cost for a Perfectly Competitive Firm) Look at the table Total Cost for a
Perfectly Competitive Firm. If the market price is $3.50, the profit-maximizing output is
_____ units.
A)
5
B)
7
C)
8
D)
9
172.
(Table: Total Cost for a Perfectly Competitive Firm) Look at the table Total Cost for a
Perfectly Competitive Firm. If the market price is $5.50, the profit-maximizing quantity
of output is _____ units.
A)
5
B)
7
C)
8
D)
9
Page 40
173.
(Table: Total Cost for a Perfectly Competitive Firm) Look at the table Total Cost for a
Perfectly Competitive Firm. If the market price is $4.50, profit at the profit-maximizing
quantity of output is:
A)
$2.00.
B)
$4.50.
C)
$5.00.
D)
$34.00.
174.
(Table: Total Cost for a Perfectly Competitive Firm) Look at the table Total Cost for a
Perfectly Competitive Firm. The firm will produce at a profit in the short run if the price
is at least:
A)
$2.07.
B)
$2.53.
C)
$3.47.
D)
$4.26.
175.
(Table: Total Cost for a Perfectly Competitive Firm) Look at the table Total Cost for a
Perfectly Competitive Firm. In the short run, the firm will produce, but at a loss, if the
price is:
A)
$2.00.
B)
$2.50.
C)
$3.50.
D)
$4.50.
176.
(Table: Total Cost for a Perfectly Competitive Firm) Look at the table Total Cost for a
Perfectly Competitive Firm. The firm will stop production and shut down if the price is:
A)
$2.50.
B)
$3.50.
C)
$4.50.
D)
$5.00.
Page 41
Use the following to answer questions 177-180:
Figure: The Perfectly Competitive Firm
177.
(Figure: Perfectly Competitive Firm) Look at the figure The Perfectly Competitive
Firm. The figure shows a perfectly competitive firm that faces demand curve d and
maximizes profit. If the market price is $3, the firm will produce _____ units of output
per day.
A)
100
B)
250
C)
300
D)
400
178.
(Figure: Perfectly Competitive Firm) Look at the figure The Perfectly Competitive
Firm. The figure shows a perfectly competitive firm that faces demand curve d
maximizes profit. Given the market price, the firm’s total revenue per day is:
A)
$475.
B)
$600.
C)
$900.
D)
$1,200.
179.
(Figure: Perfectly Competitive Firm) Look at the figure The Perfectly Competitive
Firm. The figure shows a perfectly competitive firm that faces demand curve d and
maximizes profit. Given the market price, the firm’s total cost per day is:
A)
$475.
B)
$600.
C)
$900.
D)
$1,200.
Page 42
180.
(Figure: Perfectly Competitive Firm) Look at the figure The Perfectly Competitive
Firm. The figure shows a perfectly competitive firm that faces demand curve d and
maximizes profit. If the firm faces a market price of $3, its total profit per day is:
A)
$0.
B)
$250.
C)
$275.
D)
$300.
Use the following to answer questions 181-182:
Figure: Short-Run Costs
181.
(Figure: Short-Run Costs) Look at the figure Short-Run Costs. At the given price, the
most profitable level of output occurs at quantity:
A)
N.
B)
P.
C)
S.
D)
T.
182.
(Figure: Short-Run Costs) Look at the figure Short-Run Costs. This firm’s short-run
supply curve begins at quantity:
A)
Q.
B)
R.
C)
S.
D)
T.
Page 43
183.
The short-run industry supply curve:
A)
shows the total quantity supplied by all firms in an industry for each possible price
when the number of producers is fixed.
B)
is drawn on the assumption that the number of firms in the industry doesn’t
increase, but it allows for a decrease in the number of firms due to bankrupt firms
leaving the industry.
C)
is a meaningful concept only if all firms in the industry are identical.
D)
is of limited usefulness, since it is not relevant when markets are perfectly
competitive.
Use the following to answer question 184:
184.
(Table: Short-Run Supply Curve) Look at the table Short-Run Supply Curve. The table
lists three supply points for a perfectly competitive firm operating in the short run. If the
industry is composed of 120 identical firms, a price of _____ and a quantity of _____
will be a point on the short-run industry supply curve.
A)
$5; 1,650
B)
$1,200; 40
C)
$960; 3,840
D)
$10; 4,800
185.
The supply curve found by taking the horizontal summation of the short-run supply
curves of all of the firms in a perfectly competitive industry is called the _____ curve.
A)
marginal cost
B)
short-run market supply
C)
interim market supply
D)
competitive
186.
In perfect competition, the assumption of easy entry and exit implies that in the _____
run all firms in the industry will earn _____ economic profits.
A)
long; zero
B)
short; positive
C)
short; zero
D)
long; positive
Page 44
187.
If firms are making positive economic profits in the short run, then in the long run:
A)
the short-run industry supply curve will shift leftward.
B)
firms will enter the industry.
C)
industry output will rise and the price will rise.
D)
firms will leave the industry.
188.
The market for beef is in long-run equilibrium at $3.25 per pound. The announcement
that mad cow disease has been discovered in the United States reduces the demand for
beef sharply, and the price falls to $2.00 per pound. If the long-run supply curve is
horizontal, when the long-run equilibrium is reestablished, the price will be:
A)
$3.25 per pound.
B)
$2.00 per pound.
C)
greater than $2.00 per pound but less than $3.25 per pound.
D)
More information is needed to answer this question.
189.
Suppose economic profits exist in perfect competition in the short run. Firms will enter
in the long run because of easy entry, the short-run market _____ curve will shift to the
right, and _____ will _____.
A)
supply; output; increase
B)
demand; supply; fall
C)
supply; demand; also shift to the right
D)
demand; price; increase
190.
Economic profits in a perfectly competitive industry encourage firms to _____ the
industry, and losses encourage firms to _____ the industry.
A)
exit; enter
B)
enter; enter
C)
enter; exit
D)
exit; exit
191.
Suppose that some firms in a perfectly competitive industry earn negative economic
profits. In the long run, the:
A)
short-run industry supply curve will not shift.
B)
short-run industry supply curve will shift to the left.
C)
number of firms in the industry will not change.
D)
number of firms in the industry will increase.
Page 45
192.
If firms are taking economic losses in the short run, firms will leave the industry,
industry output will _____, and economic losses will _____ in the long run.
A)
fall; fall
B)
rise; fall
C)
rise; rise
D)
fall; rise
193.
Suppose that the market for candy canes operates under conditions of perfect
competition, that it is initially in long-run equilibrium, that the price of each candy cane
is $0.10, and that the market demand curve is downward-sloping. The price of sugar
rises, increasing the marginal and average total costs of producing candy canes by
$0.05. In the short run a typical producer of candy canes will be making:
A)
an economic profit.
B)
zero economic profit.
C)
negative economic profit.
D)
The answer is impossible to determine from the information given.
194.
Suppose that the market for candy canes operates under conditions of perfect
competition, that it is initially in long-run equilibrium, that the price of each candy cane
is $0.10, and that the market demand curve is downward-sloping. The price of sugar
rises, increasing the marginal and average total cost of producing candy canes by $0.05;
there are no other changes in production costs. In the long run we will observe:
A)
firms leaving the industry.
B)
firms entering the industry.
C)
some firms entering and some firms leaving.
D)
neither entry to nor exit from the industry.
195.
Suppose that the market for candy canes operates under conditions of perfect
competition, that it is initially in long-run equilibrium, that the price of each candy cane
is $0.10, and that the market demand curve is downward-sloping. The price of sugar
rises, increasing the marginal and average total cost of producing candy canes by $0.05;
there are no other changes in production costs. Once all of the adjustments to long-run
equilibrium have been made, the price of candy canes will equal:
A)
$0.05.
B)
$0.10.
C)
$0.15.
D)
The question is impossible to answer without knowing exactly how many firms
entered and/or left the industry.
Page 46
196.
Suppose that the market for haircuts in a community is perfectly competitive and that
the market is initially in long-run equilibrium. Subsequently, an increase in population
increases the demand for haircuts. In the short run, the market price will _____ and the
output of a typical firm will _____.
A)
rise; rise
B)
rise; fall
C)
fall; rise
D)
fall; fall
197.
Suppose that the market for haircuts in a community is perfectly competitive and that
the market is initially in long-run equilibrium. Subsequently, an increase in population
increases the demand for haircuts. In the short run, the typical firm is likely to:
A)
earn an economic profit.
B)
incur an economic loss.
C)
have no change in its economic profit.
D)
have neither an economic profit nor an economic loss.
198.
Suppose that the market for haircuts in a community is a perfectly competitive
constant-cost industry and that the market is initially in long-run equilibrium.
Subsequently, an increase in population increases the demand for haircuts. In the long
run, firms will _____ the market, driving the price of haircuts _____ and the profits of
individual firms _____.
A)
enter; up; back to zero
B)
enter; down; back to zero
C)
leave; up; up
D)
leave; up; back to zero
199.
Assuming a downward-sloping demand curve, a decrease in production costs for firms
in a perfectly competitive market initially in long-run equilibrium will cause a(n):
A)
permanent increase in the price.
B)
economic profit for firms in the short run.
C)
increase in demand.
D)
increase in firms’ marginal revenue.
200.
In perfect competition, a change in fixed cost will:
A)
cause a change in the price in the short run.
B)
cause a change in output in the short run.
C)
encourage entry or exit in the long run so that price will change enough to leave
firms earning zero profits.
D)
cause a change in variable cost.
Page 47
201.
In a perfectly competitive market:
A)
the price will change to reflect any change in production cost.
B)
the existence of profits leads firms to exit the industry, while losses lead firms to
enter the industry.
C)
in the long run, economic profits are positive.
D)
perfect competition generates prices greater than marginal costs.
202.
A curve that shows the quantity of a good or service supplied at various prices after all
long-run adjustments to a price change have been completed is a long-run _____ curve.
A)
marginal revenue
B)
marginal cost
C)
industry supply
D)
production
203.
Which of the following is TRUE?
A)
The long-run industry supply curve relates the price of a good or service to the
quantity produced after all adjustments to a price change have been made.
B)
Every point on a long-run industry supply curve shows a price and quantity
supplied at which firms in the industry are earning positive economic profit.
C)
For establishing the long-run industry supply curve, factor costs and the number of
firms are held constant.
D)
In perfectly competitive industries, the long-run supply curve is always horizontal.
204.
Lilly is the price-taking owner of an apple orchard. The price of apples is high enough
that Lilly is earning positive economic profits. In the long run, Lilly should expect
_____ apple prices due to the _____ firms.
A)
lower; entry of new
B)
higher; exit of existing
C)
lower; exit of existing
D)
higher; entry of new
205.
Which of the following is MOST likely to cause firms to exit a perfectly competitive
industry?
A)
Consumer tastes and preferences for this product get stronger.
B)
A technological advance allows all firms to produce more efficiently.
C)
The price of a key variable input falls.
D)
Consumer income falls.
Page 48
Use the following to answer question 206:
206.
(Table: Lilly’s Apple Orchard) Look at the table Lilly’s Apple Orchard. Lilly is the
price-taking owner of an apple orchard; the orchard’s variable costs are given in the
table. Her orchard has fixed costs of $30. If the price of a bushel of apples is $85, we
would expect total industry output to _____ and Lilly’s output to _____ in the long run.
A)
rise; rise
B)
fall; fall
C)
fall; rise
D)
rise; fall
Use the following to answer questions 207-208:
Figure: The Perfectly Competitive Firm
Page 49
207.
(Figure: The Perfectly Competitive Firm) Look at the figure The Perfectly Competitive
Firm. The firm faces demand curve d and maximizes profit. In a long-run equilibrium,
this firm will produce _____ units of output and sell its output for _____.
A)
100; $1.00
B)
250; $1.90
C)
300; $2.00
D)
400; $3.00
208.
(Figure: The Perfectly Competitive Firm) Look at the figure The Perfectly Competitive
Firm. The figure shows a perfectly competitive firm that faces demand curve d and
maximizes profit. The firm’s economic profit in the long run will be:
A)
$0.
B)
$250.
C)
$275.
D)
$300.
209.
If some firms in a perfectly competitive industry are earning positive economic profits,
then in the long run, the:
A)
industry is in equilibrium.
B)
short-run industry supply curve will shift to the right.
C)
number of firms in the industry will not change.
D)
number of firms in the industry will decrease.
210.
Suppose that some firms in a perfectly competitive industry are earning positive
economic profits. In the long run, the:
A)
industry is in equilibrium.
B)
industry supply curve will shift to the left.
C)
number of firms in the industry will not change.
D)
number of firms in the industry will increase.
211.
Suppose that the market for haircuts in a community is perfectly competitive and that
the market is initially in long-run equilibrium. Subsequently, a decrease in population
decreases the demand for haircuts. In the short run, we expect that the market price will
_____ and the output of a typical firm will _____.
A)
rise; rise
B)
rise; fall
C)
fall; rise
D)
fall; fall
Page 50
212.
In perfectly competitive long-run equilibrium:
A)
all firms make positive economic profits.
B)
all firms produce at the minimum point of their average total cost curves.
C)
the industry supply curve must be upward-sloping.
D)
all firms face the same price, but the value of marginal cost will vary directly with
firm size.
213.
When economic profits in an industry are zero:
A)
firms are really doing badly.
B)
firms are doing as well as they could do in other markets.
C)
firms should exit so they can make an economic profit in some other market.
D)
the industry is not in long-run equilibrium.
214.
When a perfectly competitive firm is in long-run equilibrium, the firm is producing at
_____ cost.
A)
maximum average total
B)
maximum average variable
C)
minimum marginal
D)
minimum long-run average total
215.
Provided that there are no external benefits or costs, resources are efficiently allocated
when:
A)
P = MR.
B)
P = AVC.
C)
P = MC.
D)
MC = AVC.
216.
In a long-run equilibrium, economic profits in a perfectly competitive industry are:
A)
positive.
B)
zero.
C)
negative.
D)
indeterminate.
217.
When a perfectly competitive industry is in long-run equilibrium, its firms:
A)
earn more than zero economic profits.
B)
combine their variable and fixed resources inefficiently.
C)
are not in short-run equilibrium.
D)
allocate all of their resources efficiently.
Page 51
218.
A perfectly competitive industry is in a state of long-run equilibrium. Which of the
following must be TRUE?
A)
P = MR = MC > ATC.
B)
P = MR = MC < AVC.
C)
P = MR = MC = ATC.
D)
P > MR = MC = AVC.
219.
A perfectly competitive industry is said to be efficient because the:
A)
marginal cost of production of the last unit of output is minimized.
B)
product is standardized across firms in the industry.
C)
average total cost of production of the industry’s output is minimized.
D)
market price of the good is equal to economic profit for all firms in the industry.
Use the following to answer questions 220-232:
220.
(Table: Cherry Farm) Look at the table Cherry Farm. If Hank and Helen have one of
100 farms in the perfectly competitive cherry industry and if the price is $5, in the short
run the industry will supply _____ pounds.
A)
100
B)
200
C)
400
D)
500
Page 52
221.
(Table: Cherry Farm) Look at the table Cherry Farm. If Hank and Helen have one of
100 farms in the perfectly competitive cherry industry and if the price is $4, in the short
run the industry will supply _____ pounds.
A)
200
B)
400
C)
600
D)
700
222.
(Table: Cherry Farm) Look at the table Cherry Farm. If Hank and Helen have one of
100 farms in the perfectly competitive cherry industry and if the price is $3, in the short
run the industry will supply _____ pounds.
A)
0
B)
100
C)
200
D)
300
223.
(Table: Cherry Farm) Look at the table Cherry Farm. Which of the following is a point
on the industry short-run supply curve?
A)
$2; 300 pounds
B)
$11; 200 pounds
C)
$3; 500 pounds
D)
$8; 600 pounds
224.
(Table: Cherry Farm) Look at the table Cherry Farm. Which of the following is a point
on the industry short-run supply curve?
A)
$5; 100 pounds
B)
$4; 200 pounds
C)
$4; 400 pounds
D)
$2; 500 pounds
225.
(Table: Cherry Farm) Look at the table Cherry Farm. At what price will the industry be
in long-run equilibrium?
A)
$2
B)
$3
C)
$4
D)
$5
Page 53
226.
(Table: Cherry Farm) Look at the table Cherry Farm. If all cherry farms are the same
size, how much will each farm produce in long-run equilibrium?
A)
0 pounds
B)
4 pounds
C)
5 pounds
D)
7 pounds
227.
(Table: Cherry Farm) Look at the table Cherry Farm. How much will the industry
produce in long-run equilibrium?
A)
600 pounds
B)
500 pounds
C)
400 pounds
D)
0 pounds
228.
(Table: Cherry Farm) Look at the table Cherry Farm. If all farms are the same size, how
much economic profit will each farm earn when the industry is in long-run equilibrium?
A)
$0
B)
$100
C)
–$200
D)
$1,000
229.
(Table: Cherry Farm) Look at the table Cherry Farm. If the price is $6 per pound:
A)
firms will enter the industry.
B)
firms will exit the industry.
C)
the industry is in long-run equilibrium.
D)
the industry has minimized average total cost.
230.
(Table: Cherry Farm) Look at the table Cherry Farm. If the price is $3.60 per pound:
A)
firms will enter the industry.
B)
firms will exit the industry.
C)
the industry is in long-run equilibrium.
D)
the industry has minimized average total cost.
231.
(Table: Cherry Farm) Look at the table Cherry Farm. If the price is $4 per pound:
A)
firms will enter the industry.
B)
firms will exit the industry.
C)
the industry is in long-run equilibrium.
D)
the industry has maximized average total cost.
Page 54
232.
(Table: Cherry Farm) Look at the table Cherry Farm. If the price is $10 per pound:
A)
firms will enter the industry.
B)
firms will exit the industry.
C)
the industry is in long-run equilibrium.
D)
the industry has minimized average total cost.
Use the following to answer questions 233-242:
Figure: Game-Day Shirts
233.
(Figure: Game-Day Shirts) Rick is one of 10 vendors who sell game-day T-shirts at
football games in a perfectly competitive market. His costs are identical to the costs of
the other 9 vendors. If the price of a shirt is $14, the short-run industry supply will be
_____ shirts.
A)
140
B)
200
C)
220
D)
240
Page 55
234.
(Figure: Game-Day Shirts) Rick is one of 10 vendors who sell game-day T-shirts at
football games in a perfectly competitive market. His costs are identical to the costs of
the other 9 vendors. If the price of a shirt is $11, the short-run industry supply will be
_____ shirts.
A)
140
B)
200
C)
220
D)
240
235.
(Figure: Game-Day Shirts) Rick is one of 10 vendors who sell game-day T-shirts at
football games in a perfectly competitive market. His costs are identical to the costs of
the other 9 vendors. If the price of a shirt is $9, the short-run industry supply will be
_____ shirts.
A)
140
B)
200
C)
220
D)
240
236.
(Figure: Game-Day Shirts) Rick is one of 10 vendors who sell game-day T-shirts at
football games in a perfectly competitive market. His costs are identical to the costs of
the other 9 vendors. If the price of a shirt is $6, the short-run industry supply will be
_____ shirts.
A)
0
B)
140
C)
220
D)
240
237.
(Figure: Game-Day Shirts) Rick is one of 10 vendors who sell game-day T-shirts at
football games in a perfectly competitive market. His costs are identical to the costs of
the other 9 vendors. If the industry is in long-run equilibrium, how many shirts will each
vendor sell?
A)
14
B)
20
C)
22
D)
24
Page 56
238.
(Figure: Game-Day Shirts) Rick is one of 10 vendors who sell game-day T-shirts at
football games in a perfectly competitive market. His costs are identical to the costs of
the other 9 vendors. If the industry is in long-run equilibrium, the price of each shirt will
be:
A)
$6.
B)
$9.
C)
$11.
D)
$14.
239.
(Figure: Game-Day Shirts) Rick is one of 10 vendors who sell game-day T-shirts at
football games in a perfectly competitive market. His costs are identical to the costs of
the other 9 vendors. When the industry is in long-run equilibrium, the price of each shirt
will be _____, and the total quantity supplied will be _____.
A)
$6; 0
B)
$9; 200
C)
$11; 220
D)
$14; 240
240.
(Figure: Game-Day Shirts) Rick is one of 10 vendors who sell game-day T-shirts at
football games in a perfectly competitive market. His costs are identical to the costs of
the other 9 vendors. If the price of a shirt is $14, in the long run:
A)
firms will enter the industry.
B)
firms will exit the industry.
C)
the industry is in equilibrium.
D)
the industry has minimized average total cost.
241.
(Figure: Game-Day Shirts) Rick is one of 10 vendors who sell game-day T-shirts at
football games in a perfectly competitive market. His costs are identical to the costs of
the other 9 vendors. If the price of a shirt is $9, in the long run:
A)
firms will enter the industry.
B)
firms will exit the industry.
C)
the industry is in equilibrium.
D)
the industry has minimized average total cost.
242.
(Figure: Game-Day Shirts) Rick is one of 10 vendors who sell game-day T-shirts at
football games in a perfectly competitive market. His costs are identical to the costs of
the other 9 vendors. If the price of a shirt is $11, in the long run:
A)
firms will enter the industry.
B)
firms will exit the industry.
C)
the industry is in equilibrium.
D)
the industry has maximized average total cost.
Page 57
243.
Perfect competition is a model of the market that assumes all of the following EXCEPT:
A)
a large number of firms.
B)
firms facing downward-sloping demand curves.
C)
firms producing identical goods.
D)
many buyers.
244.
When perfect competition prevails, which of the following characteristics of firms are
we likely to observe?
A)
None of them ever has diminishing marginal returns.
B)
They all try to operate where price equals average variable cost.
C)
They all try to operate where price equals total cost.
D)
They are all price takers.
245.
Which of the following is NOT an assumption that economists make when using the
model of perfect competition?
A)
Firms seek to maximize profits.
B)
The products of each firm in a particular market are identical.
C)
Each firm sets its price equal to its average total cost.
D)
Entry and exit are easy.
Use the following to answer questions 246-261:
246.
(Table: Total Cost and Output) Look at the table Total Cost and Output, which describes
Sergei’s costs for his perfectly competitive all-natural ice cream firm. If the market price
of a tub of ice cream is $67.50, how many tubs of ice cream will Sergei’s firm produce?
A)
1
B)
2
C)
3
D)
4
Page 58
247.
(Table: Total Cost and Output) Look at the table Total Cost and Output, which describes
Sergei’s total costs for his perfectly competitive all-natural ice cream firm. If the market
price of a tub of ice cream is $67.50, how much is Sergei’s total revenue at the
profit-maximizing output?
A)
$270.00
B)
$170.00
C)
$135.00
D)
$67.50
248.
(Table: Total Cost and Output) Look at the table Total Cost and Output, which describes
Sergei’s total costs for his perfectly competitive all-natural ice cream firm. If the market
price of a tub of ice cream is $67.50, how much is Sergei’s total cost at the
profit-maximizing output?
A)
$270.00
B)
$170.00
C)
$135.00
D)
$67.50
249.
(Table: Total Cost and Output) Look at the table Total Cost and Output, which describes
Sergei’s total costs for his perfectly competitive all-natural ice cream firm. If the market
price of a tub of ice cream is $67.50, how much is Sergei’s profit at the
profit-maximizing output?
A)
$680.00
B)
$270.00
C)
$102.50
D)
$100.00
250.
(Table: Total Cost and Output) Look at the table Total Cost and Output, which describes
Sergei’s total costs for his perfectly competitive all-natural ice cream firm. If the market
price of a tub of ice cream is $50, what quantity will Sergei produce to maximize profit?
A)
2
B)
3
C)
4
D)
5
Page 59
251.
(Table: Total Cost and Output) Look at the table Total Cost and Output, which describes
Sergei’s total costs for his perfectly competitive all-natural ice cream firm. If the market
price of a tub of ice cream is $50, how much is Sergei’s profit at the profit-maximizing
output?
A)
$680
B)
$330
C)
$150
D)
$40
252.
(Table: Total Cost and Output) Look at the table Total Cost and Output, which describes
Sergei’s total costs for his perfectly competitive all-natural ice cream firm. If the market
price of a tub of ice cream is $35, how many tubs of ice cream will Sergei produce in
the short run?
A)
1
B)
2
C)
3
D)
4
253.
(Table: Total Cost and Output) Look at the table Total Cost and Output, which describes
Sergei’s total costs for his perfectly competitive all-natural ice cream firm. If the market
price of a tub of ice cream is $35, how much is Sergei’s profit at the optimal short-run
output?
A)
–$5
B)
$110
C)
$180
D)
$330
254.
(Table: Total Cost and Output) Look at the table Total Cost and Output, which describes
Sergei’s total costs for his perfectly competitive all-natural ice cream firm. If the market
price of a tub of ice cream is $20, how many tubs of ice cream will Sergei produce in
the short run?
A)
0
B)
1
C)
2
D)
3
Page 60
255.
(Table: Total Cost and Output) Look at the table Total Cost and Output, which describes
Sergei’s total costs for his perfectly competitive all-natural ice cream firm. If the market
price of a tub of ice cream is $20, how much is Sergei’s profit at the optimal short-run
output?
A)
$100
B)
$0
C)
–$5
D)
–$10
256.
(Table: Total Cost and Output) Look at the table Total Cost and Output, which describes
Sergei’s total costs for his perfectly competitive all-natural ice cream firm. What is the
minimum price that Sergei needs to receive for a tub of ice cream to stay in business in
the short run?
A)
$10.00
B)
$20.00
C)
$33.33
D)
$36.67
257.
(Table: Total Cost and Output) Look at the table Total Cost and Output, which describes
Sergei’s total costs for his perfectly competitive all-natural ice cream firm. What is the
minimum price that Sergei needs to receive for a tub of ice cream to stay in business in
the long run?
A)
$10.00
B)
$20.00
C)
$33.33
D)
$36.67
258.
(Table: Total Cost and Output) Look at the table Total Cost and Output, which describes
Sergei’s total costs for his perfectly competitive all-natural ice cream firm. How many
tubs of ice cream will Sergei produce in the long run?
A)
1
B)
2
C)
3
D)
4
Page 61
259.
(Table: Total Cost and Output) Look at the table Total Cost and Output, which describes
Sergei’s total costs for his perfectly competitive all-natural ice cream firm. Where does
Sergei’s short-run supply curve begin?
A)
P = $0; Q = 0
B)
P = $36.67; Q = 3
C)
P = $33.33; Q = 3
D)
P = $170; Q = 4
260.
(Table: Total Cost and Output) Look at the table Total Cost and Output, which describes
Sergei’s total costs for his perfectly competitive all-natural ice cream firm. Which of the
following is a point on Sergei’s short-run supply curve?
A)
P = $10; Q = 0
B)
P = $20; Q = 2
C)
P = $110; Q = 3
D)
P = $75; Q = 5
261.
(Table: Total Cost and Output) Look at the table Total Cost and Output, which describes
Sergei’s total costs for his perfectly competitive all natural ice cream firm. If there are
100 firms in the all-natural ice cream industry, which of the following is a point on the
industry short-run supply curve?
A)
P = $10; Q = 0
B)
P = $20; Q = 200
C)
P = $110; Q = 3
D)
P = $75; Q = 500
Use the following to answer questions 262-272:
Page 62
262.
(Table: Variable Costs for Lots) Look at the table Variable Costs for Lots. During the
winter, Alexa runs a snow-clearing service in a perfectly competitive industry. Assume
that costs are constant in each interval; that is, the variable cost of clearing anywhere
from 1 through 10 lots is $200. Her only fixed cost is $1,000 for a snowplow. Her
variable costs include fuel, her time, and hot coffee. What is Alexa’s shut-down price in
the short run?
A)
$20
B)
$15
C)
$50
D)
$42
263.
(Table: Variable Costs for Lots) Look at the table Variable Costs for Lots. During the
winter, Alexa runs a snow-clearing service in a perfectly competitive industry. Assume
that costs are constant in each interval; that is, the variable cost of clearing anywhere
from 1 through 10 lots is $200. Her only fixed cost is $1,000 for a snowplow. Her
variable costs include fuel, her time, and hot coffee. If the price per cleared lot is $14,
how many lots should Alexa clear?
A)
0
B)
40
C)
50
D)
20
264.
(Table: Variable Costs for Lots) Look at the table Variable Costs for Lots. During the
winter, Alexa runs a snow-clearing service in a perfectly competitive industry. Assume
that costs are constant in each interval; that is, the variable cost of clearing anywhere
from 1 through 10 lots is $200. Her only fixed cost is $1,000 for a snowplow. Her
variable costs include fuel, her time, and hot coffee. If the price to clear a lot is $60, how
many lots should Alexa clear?
A)
50
B)
40
C)
30
D)
20
Page 63
265.
(Table: Variable Costs for Lots) Look at the table Variable Costs for Lots. During the
winter, Alexa runs a snow-clearing service in a perfectly competitive industry. Assume
that costs are constant in each interval; that is, the variable cost of clearing anywhere
from 1 through 10 lots is $200. Her only fixed cost is $1,000 for a snowplow. Her
variable costs include fuel, her time, and hot coffee. If the price to clear a lot is $60,
what is Alexa’s profit or loss at the optimal output?
A)
$3,000
B)
$1,100
C)
$900
D)
$3,850
266.
(Table: Variable Costs for Lots) Look at the table Variable Costs for Lots. During the
winter, Alexa runs a snow-clearing service in a perfectly competitive industry. Assume
that costs are constant in each interval; that is, the variable cost of clearing anywhere
from 1 through 10 lots is $200. Her only fixed cost is $1,000 for a snowplow. Her
variable costs include fuel, her time, and hot coffee. If the price to clear a lot is $60,
what is Alexa’s profit per unit at the optimal output?
A)
$60
B)
$42
C)
$35
D)
$18
267.
(Table: Variable Costs for Lots) Look at the table Variable Costs for Lots. During the
winter, Alexa runs a snow-clearing service in a perfectly competitive industry. Assume
that costs are constant in each interval; that is, the variable cost of clearing anywhere
from 1 through 10 lots is $200. Her only fixed cost is $1,000 for a snowplow. Her
variable costs include fuel, her time, and hot coffee. If the price to clear a lot is $30, how
many lots should Alexa clear?
A)
50
B)
40
C)
30
D)
20
Page 64
268.
(Table: Variable Costs for Lots) Look at the table Variable Costs for Lots. During the
winter, Alexa runs a snow-clearing service in a perfectly competitive industry. Assume
that costs are constant in each interval; that is, the variable cost of clearing anywhere
from 1 through 10 lots is $200. Her only fixed cost is $1,000 for a snowplow. Her
variable costs include fuel, her time, and hot coffee. If the price to clear a lot is $30,
what is Alexa’s profit at the optimal output?
A)
$1,200
B)
$1,500
C)
$0
D)
–$550
269.
(Table: Variable Costs for Lots) Look at the table Variable Costs for Lots. During the
winter, Alexa runs a snow-clearing service in a perfectly competitive industry. Assume
that costs are constant in each interval; that is, the variable cost of clearing anywhere
from 1 through 10 lots is $200. Her only fixed cost is $1,000 for a snowplow. Her
variable costs include fuel, her time, and hot coffee. If the price to clear a lot is $30,
what is Alexa’s profit per unit at the optimal output?
A)
–$13.75
B)
$720
C)
$0
D)
–$12.25
270.
(Table: Variable Costs for Lots) Look at the table Variable Costs for Lots. During the
winter, Alexa runs a snow-clearing service in a perfectly competitive industry. Assume
that costs are constant in each interval; that is, the variable cost of clearing anywhere
from 1 through 10 lots is $200. Her only fixed cost is $1,000 for a snowplow. Her
variable costs include fuel, her time, and hot coffee. At what price does Alexa’ s
short-run supply curve start?
A)
$200
B)
$15
C)
$50
D)
$42
Page 65
271.
(Table: Variable Costs for Lots) Look at the table Variable Costs for Lots. During the
winter, Alexa runs a snow-clearing service in a perfectly competitive industry. Assume
that costs are constant in each interval; that is, the variable cost of clearing anywhere
from 1 through 10 lots is $200. Her only fixed cost is $1,000 for a snowplow. Her
variable costs include fuel, her time, and hot coffee. Which of the following is a point
on Alexa’s short-run supply curve?
A)
P = $40; Q = 10
B)
P = $10; Q = 200
C)
P = $35; Q = 50
D)
P = $0; Q = 0
272.
(Table: Variable Costs for Lots) Look at the table Variable Costs for Lots. During the
winter, Alexa runs a snow-clearing service in a perfectly competitive industry, which is
made up of 50 identical firms. Assume that costs are constant in each interval; that is,
the variable cost of clearing anywhere from 1 through 10 lots is $200. Her only fixed
cost is $1,000 for a snowplow. Her variable costs include fuel, her time, and hot coffee.
Which of the following is a point on the industry short-run supply curve?
A)
P = $40; Q = 60
B)
P = $10; Q = 10,000
C)
P = $35; Q = 2,500
D)
P = $25; Q = 40
Use the following to answer questions 273-290:
Page 66
273.
(Table: Variable Costs for Lawns) Look at the table Variable Costs for Lawns. During
the summer, Alex runs a lawn-mowing service in a perfectly competitive industry.
Assume that costs are constant in each interval; that is, the variable cost of mowing 1
through 10 lawns is $100. His only fixed cost is $1,000 for the mower. His variable
costs include fuel, his time, and mower parts. What is Alex’s break-even price?
A)
$100.00
B)
$10.00
C)
$50.00
D)
$27.50
274.
(Table: Variable Costs for Lawns) Look at the table Variable Costs for Lawns. During
the summer, Alex runs a lawn-mowing service, and lawn-mowing is a perfectly
competitive industry. Assume that costs are constant in each interval; that is, the
variable cost of mowing 1 through 10 lawns is $100. His only fixed cost is $1,000 for
the mower. His variable costs include fuel, his time, and mower parts. If the price for
mowing a lawn is $60, how many lawns will Alex mow?
A)
0
B)
20
C)
50
D)
40
275.
(Table: Variable Costs for Lawns) Look at the table Variable Costs for Lawns. During
the summer, Alex runs a lawn-mowing service, and lawn-mowing is a perfectly
competitive industry. Assume that costs are constant in each interval; that is, the
variable cost of mowing 1 through 10 lawns is $100. His only fixed cost is $1,000 for
the mower. His variable costs include fuel, his time, and mower parts. If the price for
mowing a lawn is $60, how much is Alex’s total revenue at the profit-maximizing
output?
A)
$60
B)
$1,100
C)
$2,400
D)
$2,100
Page 67
276.
(Table: Variable Costs for Lawns) Look at the table Variable Costs for Lawns. During
the summer, Alex runs a lawn-mowing service, and lawn-mowing is a perfectly
competitive industry. Assume that costs are constant in each interval; that is, the
variable cost of mowing 1 through 10 lawns is $100. His only fixed cost is $1,000 for
the mower. His variable costs include fuel, his time, and mower parts. If the price for
mowing a lawn is $60, how much is Alex’s total cost at the profit-maximizing output?
A)
$60
B)
$1,100
C)
$2,400
D)
$2,100
277.
(Table: Variable Costs for Lawns) Look at the table Variable Costs for Lawns. During
the summer, Alex runs a lawn-mowing service, and lawn-mowing is a perfectly
competitive industry. Assume that costs are constant in each interval; that is, the
variable cost of mowing 1 through 10 lawns is $100. His only fixed cost is $1,000 for
the mower. His variable costs include fuel, his time, and mower parts. If the price for
mowing a lawn is $60, how much is Alex’s profit at the profit-maximizing output?
A)
$10
B)
$2,400
C)
$300
D)
$2,100
278.
(Table: Variable Costs for Lawns) Look at the table Variable Costs for Lawns. During
the summer, Alex runs a lawn-mowing service, and lawn-mowing is a perfectly
competitive industry. Assume that costs are constant in each interval; that is, the
variable cost of mowing 1 through 10 lawns is $100. His only fixed cost is $1,000 for
the mower. His variable costs include fuel, his time, and mower parts. If the price for
mowing a lawn is $60, how much is Alex’s profit per unit at the profit-maximizing
output?
A)
$7.50
B)
$32.50
C)
$20.00
D)
$60.00
Page 68
279.
(Table: Variable Costs for Lawns) Look at the table Variable Costs for Lawns. During
the summer, Alex runs a lawn-mowing service, and lawn-mowing is a perfectly
competitive industry. Assume that costs are constant in each interval; that is, the
variable cost of mowing 1 through 10 lawns is $100. His only fixed cost is $1,000 for
the mower. His variable costs include fuel, his time, and mower parts. If the price for
mowing a lawn is $40, how many lawns will Alex mow?
A)
0
B)
20
C)
30
D)
40
280.
(Table: Variable Costs for Lawns) Look at the table Variable Costs for Lawns. During
the summer, Alex runs a lawn-mowing service, and lawn-mowing is a perfectly
competitive industry. Assume that costs are constant in each interval; that is, the
variable cost of mowing 1 through 10 lawns is $100. His only fixed cost is $1,000 for
the mower. His variable costs include fuel, his time, and mower parts. If the price for
mowing a lawn is $40, how much is Alex’s total revenue at the profit-maximizing
output?
A)
$1,000
B)
$1,200
C)
$500
D)
$1,500
281.
(Table: Variable Costs for Lawns) Look at the table Variable Costs for Lawns. During
the summer, Alex runs a lawn-mowing service, and lawn-mowing is a perfectly
competitive industry. Assume that costs are constant in each interval; that is, the
variable cost of mowing 1 through 10 lawns is $100. His only fixed cost is $1,000 for
the mower. His variable costs include fuel, his time, and mower parts. If the price for
mowing a lawn is $40, how much is Alex’s total cost at the profit-maximizing output?
A)
$1,000
B)
$1,200
C)
$500
D)
$1,500
Page 69
282.
(Table: Variable Costs for Lawns) Look at the table Variable Costs for Lawns. During
the summer, Alex runs a lawn-mowing service, and lawn-mowing is a perfectly
competitive industry. Assume that costs are constant in each interval; that is, the
variable cost of mowing 1 through 10 lawns is $100. His only fixed cost is $1,000 for
the mower. His variable costs include fuel, his time, and mower parts. If the price for
mowing a lawn is $40, how much is Alex’s profit at the profit-maximizing output?
A)
–$10
B)
–$300
C)
$300
D)
–$1,000
283.
(Table: Variable Costs for Lawns) Look at the table Variable Costs for Lawns. During
the summer, Alex runs a lawn-mowing service, and lawn-mowing is a perfectly
competitive industry. Assume that costs are constant in each interval; that is, the
variable cost of mowing 1 through 10 lawns is $100. His only fixed cost is $1,000 for
the mower. His variable costs include fuel, his time, and mower parts. If the price for
mowing a lawn is $40, how much is Alex’s profit per unit at the profit-maximizing
output?
A)
–$10.00
B)
$10.00
C)
$23.33
D)
–$20.00
284.
(Table: Variable Costs for Lawns) Look at the table Variable Costs for Lawns. During
the summer, Alex runs a lawn-mowing service, and lawn-mowing is a perfectly
competitive industry. Assume that costs are constant in each interval; that is, the
variable cost of mowing 1 through 10 lawns is $100. His only fixed cost is $1,000 for
the mower. His variable costs include fuel, his time, and mower parts. If the price for
mowing a lawn is $70, how many lawns will Alex mow?
A)
20
B)
30
C)
40
D)
50
Page 70
285.
(Table: Variable Costs for Lawns) Look at the table Variable Costs for Lawns. During
the summer, Alex runs a lawn-mowing service, and lawn-mowing is a perfectly
competitive industry. Assume that costs are constant in each interval; that is, the
variable cost of mowing 1 through 10 lawns is $100. His only fixed cost is $1,000 for
the mower. His variable costs include fuel, his time, and mower parts. If the price for
mowing a lawn is $70, how much is Alex’s total revenue at the profit-maximizing
output?
A)
$3,500
B)
$2,800
C)
$2,100
D)
$1,800
286.
(Table: Variable Costs for Lawns) Look at the table Variable Costs for Lawns. During
the summer, Alex runs a lawn-mowing service, and lawn-mowing is a perfectly
competitive industry. Assume that costs are constant in each interval; that is, the
variable cost of mowing 1 through 10 lawns is $100. His only fixed cost is $1,000 for
the mower. His variable costs include fuel, his time, and mower parts. If the price for
mowing a lawn is $70, how much is Alex’s total cost at the profit-maximizing output?
A)
$3,500
B)
$2,800
C)
$2,100
D)
$1,500
287.
(Table: Variable Costs for Lawns) Look at the table Variable Costs for Lawns. During
the summer, Alex runs a lawn-mowing service, and lawn-mowing is a perfectly
competitive industry. Assume that costs are constant in each interval; that is, the
variable cost of mowing 1 through 10 lawns is $100. His only fixed cost is $1,000 for
the mower. His variable costs include fuel, his time, and mower parts. If the price for
mowing a lawn is $70, how much is Alex’s profit at the profit-maximizing output?
A)
$3,500
B)
–$300
C)
$700
D)
$1,700
Page 71
288.
(Table: Variable Costs for Lawns) Look at the table Variable Costs for Lawns. During
the summer, Alex runs a lawn-mowing service, and lawn-mowing is a perfectly
competitive industry. Assume that costs are constant in each interval; that is, the
variable cost of mowing 1 through 10 lawns is $100. His only fixed cost is $1,000 for
the mower. His variable costs include fuel, his time, and mower parts. If the price for
mowing a lawn is $70, how much is Alex’s profit per unit at the profit-maximizing
output?
A)
–$10
B)
$10
C)
$34
D)
$14
289.
(Table: Variable Costs for Lawns) Look at the table Variable Costs for Lawns. During
the summer, Alex runs a lawn-mowing service, and lawn-mowing is a perfectly
competitive industry. Assume that costs are constant in each interval; that is, the
variable cost of mowing 1 through 10 lawns is $100. His only fixed cost is $1,000 for
the mower. His variable costs include fuel, his time, and mower parts. Which of the
following is a point on Alex’s short-run supply curve?
A)
P = $5; Q = 10.
B)
P = $10; Q = 100.
C)
P = $60; Q = 40.
D)
P = $20; Q = 300.
290.
(Table: Variable Costs for Lawns) Look at the table Variable Costs for Lawns. During
the summer, Alex runs a lawn-mowing service, and lawn-mowing is a perfectly
competitive industry. Assume that costs are constant in each interval; that is, the
variable cost of mowing 1 through 10 lawns is $100. His only fixed cost is $1,000 for
the mower. His variable costs include fuel, his time, and mower parts. Which of the
following is a point on the industry short-run supply curve?
A)
P = $5; Q = 100.
B)
P = $10; Q = 1,000.
C)
P = $40; Q = 1,100.
D)
P = $70; Q = 5,000.
291.
If a perfectly competitive firm reduces its output, the market price will increase.
A)
True
B)
False
Page 72
292.
Microsoft’s Windows operating system is a standardized product, since everyone who
buys a particular version of the product gets exactly the same thing. This means that
Microsoft is a perfectly competitive firm.
A)
True
B)
False
293.
If the Kansas corn market is perfectly competitive, it means there is easy entry into this
market.
A)
True
B)
False
294.
The market for new drugs is not usually perfectly competitive, since the companies
manufacturing these drugs are usually granted patents, and this restricts entry into the
industry.
A)
True
B)
False
295.
A perfectly competitive firm’s demand curve is perfectly elastic at the
market-determined price.
A)
True
B)
False
296.
In the short run, if a perfectly competitive firm chooses to produce, then its profits are
maximized by producing the quantity of output where marginal cost equals marginal
revenue.
A)
True
B)
False
297.
According to the optimal output rule, profits are maximized when firms produce where
the difference between marginal revenue and marginal cost is the largest.
A)
True
B)
False
298.
Lawn mowing is a perfectly competitive industry. Alex’s Lawn-Mowing Service should
shut down in the short run whenever his profits are negative.
A)
True
B)
False
Page 73
299.
In the short run, the fixed costs of running a farm should play no role in determining the
level of production.
A)
True
B)
False
300.
A perfectly competitive firm’s supply curve is its marginal cost curve above the average
variable cost curve.
A)
True
B)
False
301.
The short-run individual supply curve for a perfectly competitive firm is given by the
marginal cost curve above minimum average fixed cost.
A)
True
B)
False
302.
Cindy’s Nails operates in the perfectly competitive pedicure industry. The city is
considering requiring nail salons to be certified by a health inspector. The certification
will cost $1,000 annually and is thus a fixed cost. The certification will affect Cindy’s
decision to operate in the long run but will not affect the number of pedicures she
chooses to perform if she operates in the short run.
A)
True
B)
False
303.
The short-run industry supply curve is the sum of the marginal cost curves above
average variable cost for all of the firms in the industry, assuming that the number of
firms is constant.
A)
True
B)
False
304.
The short-run industry supply curve is the sum of the individual supply curves of all of
the firms in the industry, given a fixed number of firms.
A)
True
B)
False
305.
In the long run, firms will leave an industry if the market price is consistently less than
their break-even price.
A)
True
B)
False
Page 74
306.
The long-run industry supply curve is usually more elastic than the short-run industry
supply curve, but if entering firms make intensive use of an input that is in limited
supply, then it is possible for the long-run curve to be less elastic than the short-run
curve.
A)
True
B)
False
307.
Suppose the beef industry is perfectly competitive and the demand for beef rises. As
long as the demand does not subsequently fall, beef producers can expect to earn
economic profits in both the short run and the long run.
A)
True
B)
False
308.
A market that is in long-run equilibrium must also be in short-run equilibrium.
A)
True
B)
False
309.
The short-run industry supply curve is more elastic than the long-run industry supply
curve.
A)
True
B)
False
310.
Lawn mowing is a perfectly competitive industry. Alex’s Lawn Mowing Service should
close if Alex expects his long-run economic profits to equal zero.
A)
True
B)
False
311.
In the long run, when there are economic profits, firms enter the industry, which will
increase the market supply and price until economic profits are zero.
A)
True
B)
False
312.
In the long run, when there are economic losses, firms leave the industry, which will
decrease the market supply and increase price until economic losses are zero.
A)
True
B)
False
Page 75
313.
In the long run, when economic profit is zero, firms leave the industry, which will
increase the market supply and price until economic profits are positive.
A)
True
B)
False
314.
In long-run equilibrium in a perfectly competitive market, all firms will be operating at
their lowest possible average total cost.
A)
True
B)
False
315.
In long-run equilibrium in a perfectly competitive market, all firms will be operating at
the same level of marginal cost.
A)
True
B)
False
316.
Why is the market for soybeans a better example of perfect competition than the market
for cars?
317.
Why are perfectly competitive firms described as price takers?
318.
State and explain the price-taking firm’s optimal output rule.
319.
Why does it make sense for a firm to shut down in the short run if the price falls below
minimum average variable cost?
320.
Sam is one of many growers who sell potatoes to a large food-processing plant. The
price of a bushel of potatoes is $4, and Sam sells 100 bushels at that price. He has $250
of fixed cost. Sam figures if he produces one more bushel of potatoes, his total variable
costs will increase from $175 to $180. Should Sam produce any more potatoes at $4?
Explain. Will he earn a positive economic profit? Show how you came to your answer.
321.
A perfectly competitive industry is in long-run equilibrium. Now suppose that the fixed
costs of firms in the industry decrease. Describe how this change will affect short-run
economic profits. How will this industry adjust in the long run?
Page 76
322.
A perfectly competitive tomato industry is in long-run equilibrium. Now suppose that
some consumers are getting sick by eating tomatoes that contain salmonella. Describe
how this change will affect short-run economic profits. What will happen to the number
of tomato growers in the long run? How will price and output in this industry adjust in
the long run?
323.
Consider a perfectly competitive corn industry that has positive economic profit.
Describe how the long-run industry supply curve might slope upward rather than be
horizontal.
324.
Explain how the long-run perfectly competitive equilibrium is efficient.
Use the following to answer questions 325-326:
325.
(Table: Cherry Farm) Look at the table Cherry Farm. If Hank and Helen have one of
100 identical farms in the perfectly competitive cherry industry, explain how Hank and
Helen and the industry will react in the short run and the long run to a price of $8 per
pound for cherries.
326.
(Table: Cherry Farm) Look at the table Cherry Farm. If Hank and Helen have one of
100 identical farms in the perfectly competitive cherry industry, explain how Hank and
Helen and the industry will react in the short run and the long run to a price of $3.75 per
pound for cherries.
Page 77
Use the following to answer question 327:
327.
(Table: Lilly’s Apple Orchard) Look at the table Lilly’s Apple Orchard. Lilly is the
price-taking owner of an apple orchard. Her orchard has fixed costs of $30. If the price
of a bushel of apples is $80, how many bushels will Lilly produce? Is this a long-run
equilibrium? If not, what will be the price of a bushel of apples in the long run? Show
your work.
328.
In a perfectly competitive market _____ are price takers.
A)
only consumers
B)
only producers
C)
both producers and consumers
D)
neither producers nor consumers
329.
Perfectly competitive industries are characterized by:
A)
few sellers and many buyers.
B)
consumers who can differentiate between products.
C)
standardized goods.
D)
a few producers who make up most of the market share of the industry.
330.
In perfect competition, _____ are _____, and _____ are price takers.
A)
all goods; standardized; all market participants
B)
some goods; standardized; consumers but not producers
C)
all goods; differentiated; producers but not consumers
D)
some goods; differentiated; consumers but not producers
Page 78
331.
When a firm produces at an output level at which MR = MC, it is operating at the _____
level.
A)
shut-down
B)
break-even
C)
optimal output
D)
minimum cost
332.
The addition to the total revenue from selling one more unit of the good is:
A)
less than the market price.
B)
average profit.
C)
marginal cost.
D)
marginal revenue.
333.
Ashley, who makes knitted caps, determines that her marginal cost of knitting one more
cap is $10. A consumer offers her $12 for one more knitted cap. Ashley will:
A)
not sell the additional cap, since she does not know what her total costs will be.
B)
sell the additional cap, since the marginal revenue is greater than the marginal cost
for the unit.
C)
realize that her production is not profitable and shut down her business.
D)
offer to sell 20 additional caps, since it must be profitable.
334.
Tony runs Read Economic Reports. If Tony finds that the cost of completing an
additional report is $100 and someone offers him $125 to complete this additional
report, Tony should:
A)
not complete the additional report, since he will incur a loss.
B)
complete the additional report but make the person buy two reports.
C)
complete the additional report.
D)
not complete the additional report, since his additional cost is more than his
additional revenue.
335.
Firms will make a profit in the long run or short run if the price is:
A)
equal to marginal revenue.
B)
greater than ATC.
C)
less than MC.
D)
greater than AVC.
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336.
If a firm’s economic profits are equal to zero, its accounting profits are most likely:
A)
less than zero.
B)
greater than economic profits.
C)
less than economic profits.
D)
equal to zero.
337.
A firm produces at the output level at which its average total costs are minimized. At
this output level, its average total costs are equal to all of the following EXCEPT:
A)
price.
B)
MC.
C)
MR.
D)
AVC.
338.
Maximizing profits also means that a firm is attempting to:
A)
make as much output as possible.
B)
change the market price.
C)
produce at the output level where the difference between total revenue and total
cost is the greatest.
D)
produce below its break-even price.
339.
In the short run, a firm will continue to sell its product as long as:
A)
it is making a positive profit.
B)
the price is greater than average total costs.
C)
the price is greater than average variable costs.
D)
its marginal cost is increasing.
340.
In the short run, a firm will produce as long as the price is greater than its:
A)
ATC.
B)
MC.
C)
MR.
D)
AVC.
341.
In the short run, fixed costs:
A)
are an important feature in a firm’s decision to produce or not produce.
B)
have no impact on a firm’s profit level.
C)
do not exist.
D)
remain constant.
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342.
A perfectly competitive firm will produce:
A)
whenever it can.
B)
mostly in the long run and only if price is greater than AFC.
C)
with a loss in the short run if its price is greater than AVC but less than ATC.
D)
only when it earns profits in the short run.
343.
In the short run, for a perfectly competitive firm, the portion of the MC curve at or
above the shut-down price is also its:
A)
individual short-run supply curve.
B)
ATC curve.
C)
AVC curve.
D)
individual demand curve.
344.
Hank operates a perfectly competitive firm in the long run. For several periods the
market price has been $20, and his break-even price is $22. Given the chance to change
his fixed costs, Hank should:
A)
stay in the industry, since he can cover his fixed costs.
B)
exit the industry, since he is making losses.
C)
stay in the industry, since he is a perfect competitor and must take the price as
given.
D)
wait for the short-run period.
Use the following to answer questions 345-346:
Figure: The Perfectly Competitive Firm II
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345.
(Figure: The Perfectly Competitive Firm II) Look at the figure The Perfectly
Competitive Firm II. If this firm’s MR curve is MR1, the firm will maximize profit by
producing _____ units of output, and its economic profit will be _____.
A)
Q1; positive
B)
Q2; negative
C)
Q3; positive
D)
Q4; negative
346.
(Figure: The Perfectly Competitive Firm II) Look at the figure The Perfectly
Competitive Firm II. If this firm’s MR curve is MR2, then this firm’s optimal output is
_____ units of output and its economic profit will be _____.
A)
Q1; positive
B)
Q2; negative
C)
Q3; positive
D)
Q4; negative
347.
The horizontal sum of individual firms’ MC curves is the:
A)
short-run industry demand curve.
B)
short-run industry supply curve.
C)
long-run fixed cost curve.
D)
long-run average variable cost curve.
348.
A perfectly competitive industry has 10 firms, each with an MC curve that can be
expressed as MC = 5q, where q is the level of output for each firm. The minimum point
of the AVC curve is $5. Which of the following equations would describe
upward-sloping portion of the industry supply curve for the industry, where Q is the
market quantity and P is the market price?
A)
P = Q for Q 10
B)
P = 0.5Q for Q 10
C)
P = 2Q for Q 10
D)
P = Q for Q 20
349.
In the long run, each firm in a perfectly competitive industry will:
A)
earn only enough to cover the opportunity costs of the resources used in
production.
B)
produce where MR is greater than MC.
C)
differentiate its goods.
D)
increase its price.
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350.
If the long-run market supply curve for a perfectly competitive market is horizontal,
then this industry exhibits _____ costs.
A)
constant
B)
decreasing
C)
increasing
D)
absence of marginal
351.
In a perfectly competitive market, tastes and preferences lead to an increase in the
demand for the good. Holding everything else constant, this will lead to an increase in
price that will result in _____, which will _____, which will _____.
A)
positive economic profits; attract new firms; reduce the price
B)
economic losses; attract new firms; reduce the price
C)
positive economic profits; lead some firms to leave the industry; further increase
the price
D)
economic losses; lead some firms to leave the industry; further increase the price
352.
A perfectly competitive industry with constant costs initially operates in long-run
equilibrium. When demand increases:
A)
in the short run, prices and profits will be higher, but in the long run, price will fall
back to its original level and firms will again earn zero economic profit.
B)
in the long run and the short run, prices and profits will be higher than before the
demand increase.
C)
in the short run, prices and profits will fall, but in the long run, price will rise back
to its initial level, as will profits.
D)
in the long run and the short run, prices and profits will be lower than before the
demand increase.
353.
A perfectly competitive industry with constant costs initially operates in long-run
equilibrium. When demand increases, in the long run and the short run:
A)
positive economic profits will result for all firms.
B)
higher prices will result.
C)
output will increase.
D)
negative economic profits will result for some firms.
354.
In the long run, all of the firms in a perfectly competitive industry will:
A)
produce at an output level at which average total cost equals marginal cost.
B)
earn an economic profit greater than zero.
C)
exit the industry if price is greater than average total cost.
D)
produce an output level at which price is greater than average total cost.
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355.
Bob runs a pedicure business in a perfectly competitive industry. He knows that he will
break even if the price of pedicures is $15 but that he will have to shut down if the price
is $11. If the market demand in the industry is P = 30 – (0.2)Q and the market supply is
P = (0.2)Q, in the short run, Bob will:
A)
shut down, since he cannot cover any of his variable costs.
B)
produce but just break even.
C)
produce with a loss, since he is operating below his break-even level.
D)
shut down, although he is making a positive economic profit.
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