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90. A catfish farmer will shut down production when
91. A firm experiencing economic losses will still continue to produce output in the short run
as long as
A. Revenues are greater than total fixed cost.
92. A competitive firm should always continue to operate in the short run as long as
A. P < ATC.
93. When a firm minimizes its losses in the short run,
94. When price exceeds average variable cost but not average total cost, the firm should, in the
short run,
95. The shutdown point occurs where price is below the minimum of
96. The decision to start or expand a business is known as the
97. An investment decision involves choosing
98. In making an investment decision, an entrepreneur
99. The long run is
100. If Microsoft is thinking about building a new factory, it is making a
101. Short-run supply determinants include
102. The supply curve is upward-sloping (i.e., it takes a higher price to induce greater production)
because of
103. The marginal cost curve
A. Is not affected by changes in the price of variable inputs.
104. A change in which of the following will change the optimal rate of output?
105. Suppose the cost of insecticide (a variable input) decreases for broccoli farmers. In order
to maximize profits, ceteris paribus, broccoli farmers should
106. If a perfectly competitive firm is producing at its profit-maximizing output in the short run and
fixed costs decline, the firm should
107. Which of the following does not affect marginal costs?
108. Which of the following affects both the marginal and average total cost curves of a firm in the
short run?
109. When payroll taxes are raised, the firm's marginal cost curve shifts
110. When technology improves, the firm's marginal cost curve shifts
111. Which of the following affects the ATC curve for a firm but not the MC curve?
112. An In the News article, "Too Many Sellers: The Woes of T-Shirt Shops," states that if T-shirt
shops are perfectly competitive firms, then each shop
A. Is a price setter.
113. An In the News article discusses "Too Many Sellers: The Woes of T-Shirt Shops." If T-shirt
shops are perfectly competitive firms, then
114. Businesses that fail to account for implicit costs, like the strawberry farmer, Hiroshi Fujishige,
who failed to consider the enormous opportunity of selling his property to Disneyland, will
115. In the In the News article "Southern Farmers Hooked on New Cash Crop," production of
catfish has skyrocketed in the United States from 16 million pounds in 1975 to an expected
340 million pounds in 1989. The business is growing among farmers in Alabama, Arkansas,
and Louisiana. Which of the following is the motive that enticed many farmers to give up
the production of row crops to produce catfish?
116. One In the News feature reports that General Motors planned to essentially quit making cars
and trucks in the United States for nine weeks from mid-May through July 2009 and Dell
planned to close one of its Texas computer-manufacturing plants. Based on these particular
news clips, what is the difference between GM's and Dell's decisions?
117. In the News article, "Are Profits Bad?" most Americans feel that the profit motive
A. Is bad.
118. The basic incentive to supply goods and services is the expectation of profit.
119. The profit motive encourages businesses to produce the goods and services that consumers
desire.
120. Economic profit is zero when a firm's revenues just cover its economic cost.
121. When businesses earn zero economic profit, they have no incentive to stay in business.
122. Normal profit is zero when a firm's revenues just cover its economic cost.
123. If a business owner uses a warehouse he owns to store his inventory, then his total costs
will be less than if he rented warehouse space from someone else.
124. A monopoly is a market in which no buyer or seller has market power.
125. The market structure for an industry can limit the amount of profit a firm can make.
126. Perfect competition is a market in which no buyer or seller has market power.
127. Most of the 20 million businesses in the United States are perfectly competitive firms.
128. When a firm sets its price on the basis of the price being charged by other firms in the
market, there is evidence that the firm has market power.
FALSE
129. A perfectly competitive firm has no market power.
130. If the demand curve for each firm in Industry X is horizontal, then the demand curve
for Industry X must also be horizontal.
131. The production decision is a long-run supply decision.
132. The primary objective of the producer is to find the rate of output that maximizes profit.
133. Maximizing revenue maximizes profits.
134. To maximize profits, a firm should expand production as long as it is making profits.
135. For perfectly competitive firms, marginal revenue always equals price.
136. In the short run, a firm will maximize profits if it increases output when marginal revenue is
greater than marginal cost.
137. The rule established for short-run profit maximization guarantees that a firm that follows it will
earn economic profits.
138. When price does not cover average total cost at any rate of output, the firm should
shut down in the short run.
FALSE
139. The production decision is another term for the investment decision.
140. The investment decision is made in the short run.
141. Shutting down a firm's operation is equivalent to exiting the industry.
142. For a competitive firm, the supply curve is that part of the average variable cost curve that is
above the short-run marginal cost curve.
143. An increased tax on profits leaves the optimal rate of output unchanged in the short run.
144. Explain what is necessary if a business is to earn economic profits.
145. Explain why a perfectly competitive firm has no incentive to charge a higher or lower price
than the market price.
146. Explain why a firm maximizes its total profits by producing where MC = MR. To answer this
question completely, you should explain why output levels greater than and less than the
level where MC = MR do not maximize profits.
147. What serves as the supply curve for a perfectly competitive firm? Why is this supply curve
upward-sloping, or why does it take a higher price to get a firm to produce and sell more
output?
148. Explain how a firm's cost curves and optimal rate of output are affected by (a) property taxes;
(b) payroll taxes; and (c) taxes on profits.
149. Discuss the characteristics of a perfect competitive industry and which real-life industries
come closest to this type of market structure.
Chapter 08 Test Bank Summary
Category
# of Questions
AACSB: Analytic
49
AACSB: Reflective Thinking
100
Accessibility: Keyboard Navigation
125
Blooms: Analyze
14
Blooms: Apply
35
Blooms: Remember
21
Blooms: Understand
79
Difficulty: 01 Easy
21
Difficulty: 02 Medium
79
Difficulty: 03 Hard
49
Learning Objective: 08-01 How profits are computed.
68
Learning Objective: 08-02 The characteristics of perfectly competitive firms.
25
Learning Objective: 08-03 How a competitive firm maximizes profit.
24
Learning Objective: 08-04 When a firm will shut down.
11
Learning Objective: 08-05 The difference between production and investment decisions.
5
Learning Objective: 08-06 What shapes or shifts a firm's supply curve.
16
Topic: DETERMINANTS OF SUPPLY
15
Topic: ECONOMIC VS. ACCOUNTING PROFITS
34
Topic: IN THE NEWS
5
Topic: MARKET STRUCTURE
7
Topic: PROFIT-MAXIMIZING RULE
24
Topic: THE INVESTMENT DECISION
7
Topic: THE NATURE OF PERFECT COMPETITION
20
Topic: THE PRODUCTION DECISION
22
Topic: THE PROFIT MOTIVE
7
Topic: THE SHUTDOWN DECISION
8
