Chapter 8 Catfish Farmer Will Shut Down Production

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