Question 1

If current output is less than the profit-maximizing output, then the next unit produced

Accepted Answer

A)  will decrease profit. 
B)  will increase cost more than it increases revenue. 
C)  will increase revenue more than it increases cost. 
D)  will increase revenue without increasing cost. 
E)  may or may not increase profit. 
A)  will decrease profit. 
B)  will increase cost more than it increases revenue. 
C)  will increase revenue more than it increases cost. 
D)  will increase revenue without increasing cost. 
E)  may or may not increase profit. C

Question 2

Which of the following costs may provide barriers to entry in a market?

Accepted Answer

A)  High research and development expenditures 
B)  License fees 
C)  Sunk costs associated with specialized facilities 
D)  all of the above 
A)  High research and development expenditures 
B)  License fees 
C)  Sunk costs associated with specialized facilities 
D)  all of the above D

Question 3

An industry analyst observes that in response to a small increase in price, a competitive firm's output sometimes rises a little and sometimes a lot. The best explanation for this finding is that

Accepted Answer

A)  the firm's marginal cost curve is random. 
B)  the firm's marginal cost curve has a very small positive slope. 
C)  the firm's marginal cost has a very large positive slope. 
D)  the firm's marginal cost curve is horizontal for some ranges of output and rises in steps. 
E)  the firm's marginal cost curve is downward sloping. 
A)  the firm's marginal cost curve is random. 
B)  the firm's marginal cost curve has a very small positive slope. 
C)  the firm's marginal cost has a very large positive slope. 
D)  the firm's marginal cost curve is horizontal for some ranges of output and rises in steps. 
E)  the firm's marginal cost curve is downward sloping. D

Question 4

A decreasing-cost industry has a downward-sloping

Accepted Answer

A)  long-run average cost curve. 
B)  long-run marginal cost curve. 
C)  short-run average cost curve. 
D)  short-run marginal cost curve. 
E)  long-run industry supply curve. 
A)  long-run average cost curve. 
B)  long-run marginal cost curve. 
C)  short-run average cost curve. 
D)  short-run marginal cost curve. 
E)  long-run industry supply curve.

Question 5

The textbook for your class was not produced in a perfectly competitive industry because

Accepted Answer

A)  there are so few firms in the industry that market shares are not small, and firms' decisions have an impact on market price. 
B)  upper-division microeconomics texts are not all alike. 
C)  it is not costless to enter or exit the textbook industry. 
D)  of all of the above reasons. 
A)  there are so few firms in the industry that market shares are not small, and firms' decisions have an impact on market price. 
B)  upper-division microeconomics texts are not all alike. 
C)  it is not costless to enter or exit the textbook industry. 
D)  of all of the above reasons.

Question 6

The table below lists the short-run costs for One Guy's Pizza. If One Guy's can sell all the output they produce for $12 per unit, how much should One Guy's produce to maximize profits? Does One Guy's Pizza earn an economic profit in the short-run?

Accepted Answer

@#IMG-DLM& The optimal output for One Gu

Question 7

Suppose a technological innovation shifts the marginal cost curve downward. Which one of the following cost curves does NOT shift?

Accepted Answer

A)  Firm's short-run supply curve 
B)  Average total cost curve 
C)  Average variable cost curve 
D)  Average fixed cost curve 
A)  Firm's short-run supply curve 
B)  Average total cost curve 
C)  Average variable cost curve 
D)  Average fixed cost curve

Question 8

In an increasing-cost industry, expansion of output

Accepted Answer

A)  causes input prices to rise as demand for them grows. 
B)  leaves input prices constant as input demand grows. 
C)  causes economies of scale to occur. 
D)  occurs under conditions of increasing returns to scale. 
E)  occurs without diminishing marginal product. 
A)  causes input prices to rise as demand for them grows. 
B)  leaves input prices constant as input demand grows. 
C)  causes economies of scale to occur. 
D)  occurs under conditions of increasing returns to scale. 
E)  occurs without diminishing marginal product.

Question 9

Several years ago, Alcoa was effectively the sole seller of aluminum because the firm owned nearly all of the aluminum ore reserves in the world. This market was not perfectly competitive because this situation violated the:

Accepted Answer

A)  price-taking assumption. 
B)  homogeneous product assumption. 
C)  free entry assumption. 
D)  A and B are correct. 
E)  A and C are correct. 
A)  price-taking assumption. 
B)  homogeneous product assumption. 
C)  free entry assumption. 
D)  A and B are correct. 
E)  A and C are correct.

Question 10

If a competitive firm has a U-shaped marginal cost curve then

Accepted Answer

A)  the profit maximizing output will always generate positive economic profit. 
B)  the profit maximizing output will always generate positive producer surplus. 
C)  the profit maximizing output is found where MC = MR and MC is decreasing. 
D)  the profit maximizing output is found where MC = MR and MC is constant. 
E)  the profit maximizing output is found where MC = MR and MC is increasing. 
A)  the profit maximizing output will always generate positive economic profit. 
B)  the profit maximizing output will always generate positive producer surplus. 
C)  the profit maximizing output is found where MC = MR and MC is decreasing. 
D)  the profit maximizing output is found where MC = MR and MC is constant. 
E)  the profit maximizing output is found where MC = MR and MC is increasing.

Question 11

Figure 8.2
-Refer to Figure 8.2. At P = $80, how much is profit in the short run?

Accepted Answer

A)  $88 
B)  $306 
C)  $351 
D)  $1000 
E)  $1024 
A)  $88 
B)  $306 
C)  $351 
D)  $1000 
E)  $1024

Question 12

Consider the following statements when answering this question
I. In the long-run equilibrium of a perfectly competitive market, a firm's producer surplus equals the sum of the economic rents earned on its inputs to production.
II. In the long-run equilibrium of a perfectly competitive market, the amount of economic profit earned can differ across firms, but not the amount of producer surplus.

Accepted Answer

A)  I and II are true. 
B)  I is true, and II is false. 
C)  I is false, and II is true. 
D)  I and II are false. 
A)  I and II are true. 
B)  I is true, and II is false. 
C)  I is false, and II is true. 
D)  I and II are false.

Question 13

Ronny's Pizza House is a profit maximizing firm in a perfectly competitive local restaurant market, and their optimal output is 80 pizzas per day. The local government imposes a new tax of $250 per year on all restaurants that operate in the city. How does this affect Ronny's profit maximizing decisions?

Accepted Answer

A)  No impact on the restaurant's decisions 
B)  Ronny's will remain in business but will definitely produce less pizza 
C)  Ronny's will definitely shut down 
D)  Ronny's decision depends on the circumstances -- if their profits are larger than $250 per year, then the tax does not impact output; otherwise, Ronny's Pizza House will shut down. 
A)  No impact on the restaurant's decisions 
B)  Ronny's will remain in business but will definitely produce less pizza 
C)  Ronny's will definitely shut down 
D)  Ronny's decision depends on the circumstances -- if their profits are larger than $250 per year, then the tax does not impact output; otherwise, Ronny's Pizza House will shut down.

Question 14

The "perfect information" assumption of perfect competition includes all of the following except one. Which one?

Accepted Answer

A)  Consumers know their preferences. 
B)  Consumers know their income levels. 
C)  Consumers know the prices available. 
D)  Consumers can anticipate price changes. 
E)  Firms know their costs, prices and technology. 
A)  Consumers know their preferences. 
B)  Consumers know their income levels. 
C)  Consumers know the prices available. 
D)  Consumers can anticipate price changes. 
E)  Firms know their costs, prices and technology.

Question 15

In the short run, a perfectly competitive firm earning positive economic profit is

Accepted Answer

A)  on the downward-sloping portion of its ATC. 
B)  at the minimum of its ATC. 
C)  on the upward-sloping portion of its ATC. 
D)  above its ATC. 
E)  below its ATC. 
A)  on the downward-sloping portion of its ATC. 
B)  at the minimum of its ATC. 
C)  on the upward-sloping portion of its ATC. 
D)  above its ATC. 
E)  below its ATC.

Question 16

The marginal cost curves of six firms in an industry appear in the table below. If these firms behave competitively, determine the market supply curve. Calculate the elasticity of market supply at $5.

Accepted Answer

To determine each firm's individual supp

Question 17

In the short run, a perfectly competitive profit maximizing firm that has not shut down

Accepted Answer

A)  is operating on the downward-sloping portion of its AVC curve. 
B)  is operating at the minimum of its AVC curve. 
C)  is operating on the upward-sloping portion of its AVC curve. 
D)  is not operating on its AVC curve. 
E)  can be at any point on its AVC curve. 
A)  is operating on the downward-sloping portion of its AVC curve. 
B)  is operating at the minimum of its AVC curve. 
C)  is operating on the upward-sloping portion of its AVC curve. 
D)  is not operating on its AVC curve. 
E)  can be at any point on its AVC curve.

Question 18

If price is between AVC and ATC, the best and most practical thing for a perfectly competitive firm to do is

Accepted Answer

A)  raise prices. 
B)  lower prices to gain revenue from extra volume. 
C)  shut down immediately, but not liquidate the business. 
D)  shut down immediately and liquidate the business. 
E)  continue operating, but plan to go out of business. 
A)  raise prices. 
B)  lower prices to gain revenue from extra volume. 
C)  shut down immediately, but not liquidate the business. 
D)  shut down immediately and liquidate the business. 
E)  continue operating, but plan to go out of business.

Question 19

One practical implication of a kinked market supply curve is that:

Accepted Answer

A)  producer surplus is not defined at the kink point. 
B)  the MC = MR rule does not hold at the kink point. 
C)  the market supply elasticity for a price increase may be different than the market supply elasticity for a price decrease at the kink point. 
D)  All of the above are true. 
A)  producer surplus is not defined at the kink point. 
B)  the MC = MR rule does not hold at the kink point. 
C)  the market supply elasticity for a price increase may be different than the market supply elasticity for a price decrease at the kink point. 
D)  All of the above are true.

Question 20

Use the following statements to answer this question:
I. An increase in the firm's fixed costs will also shift the firm's short-run supply curve to the left.
II. An increase in the firm's fixed costs will not shift the firm's short-run supply curve to the right or left, but it may alter how much of the marginal cost curve is used to form the short-run supply curve.

Accepted Answer

A)  I and II are true. 
B)  I is true and II is false. 
C)  II is true and I is false. 
D)  I and II are false. 
A)  I and II are true. 
B)  I is true and II is false. 
C)  II is true and I is false. 
D)  I and II are false.

If current output is less than the profit-maximizing output, then the next unit produced

Which of the following costs may provide barriers to entry in a market?

An industry analyst observes that in response to a small increase in price, a competitive firm's output sometimes rises a little and sometimes a lot. The best explanation for this finding is that

A decreasing-cost industry has a downward-sloping

The textbook for your class was not produced in a perfectly competitive industry because

The table below lists the short-run costs for One Guy's Pizza. If One Guy's can sell all the output they produce for $12 per unit, how much should One Guy's produce to maximize profits? Does One Guy's Pizza earn an economic profit in the short-run?

Suppose a technological innovation shifts the marginal cost curve downward. Which one of the following cost curves does NOT shift?

In an increasing-cost industry, expansion of output

Several years ago, Alcoa was effectively the sole seller of aluminum because the firm owned nearly all of the aluminum ore reserves in the world. This market was not perfectly competitive because this situation violated the:

If a competitive firm has a U-shaped marginal cost curve then

Figure 8.2 -Refer to Figure 8.2. At P = $80, how much is profit in the short run?

The "perfect information" assumption of perfect competition includes all of the following except one. Which one?

In the short run, a perfectly competitive firm earning positive economic profit is

The marginal cost curves of six firms in an industry appear in the table below. If these firms behave competitively, determine the market supply curve. Calculate the elasticity of market supply at $5.

In the short run, a perfectly competitive profit maximizing firm that has not shut down

If price is between AVC and ATC, the best and most practical thing for a perfectly competitive firm to do is

One practical implication of a kinked market supply curve is that:

Preliminaries

The Basics of Supply and Demand

Consumer Behavior

Individual and Market Demand

Uncertainty and Consumer Behavior

Production

The Cost of Production

The Analysis of Competitive Markets

Market Power: Monopoly and Monopsony

Pricing With Market Power

Monopolistic Competition and Oligopoly

Game Theory and Competitive Strategy

Markets for Factor Inputs

Investment, Time, and Capital Markets

General Equilibrium and Economic Efficiency

Markets With Asymmetric Information

Externalities and Public Goods

Filters

Exam 8: Profit Maximization and Competitive Supply

If current output is less than the profit-maximizing output, then the next unit produced

Which of the following costs may provide barriers to entry in a market?

An industry analyst observes that in response to a small increase in price, a competitive firm's output sometimes rises a little and sometimes a lot. The best explanation for this finding is that

A decreasing-cost industry has a downward-sloping

The textbook for your class was not produced in a perfectly competitive industry because

The table below lists the short-run costs for One Guy's Pizza. If One Guy's can sell all the output they produce for $12 per unit, how much should One Guy's produce to maximize profits? Does One Guy's Pizza earn an economic profit in the short-run?

Suppose a technological innovation shifts the marginal cost curve downward. Which one of the following cost curves does NOT shift?

In an increasing-cost industry, expansion of output

Several years ago, Alcoa was effectively the sole seller of aluminum because the firm owned nearly all of the aluminum ore reserves in the world. This market was not perfectly competitive because this situation violated the:

If a competitive firm has a U-shaped marginal cost curve then

Figure 8.2 -Refer to Figure 8.2. At P = $80, how much is profit in the short run?

The "perfect information" assumption of perfect competition includes all of the following except one. Which one?

In the short run, a perfectly competitive firm earning positive economic profit is

The marginal cost curves of six firms in an industry appear in the table below. If these firms behave competitively, determine the market supply curve. Calculate the elasticity of market supply at $5.

In the short run, a perfectly competitive profit maximizing firm that has not shut down

If price is between AVC and ATC, the best and most practical thing for a perfectly competitive firm to do is

One practical implication of a kinked market supply curve is that:

Preliminaries

The Basics of Supply and Demand

Consumer Behavior

Individual and Market Demand

Uncertainty and Consumer Behavior

Production

The Cost of Production

The Analysis of Competitive Markets

Market Power: Monopoly and Monopsony

Pricing With Market Power

Monopolistic Competition and Oligopoly

Game Theory and Competitive Strategy

Markets for Factor Inputs

Investment, Time, and Capital Markets

General Equilibrium and Economic Efficiency

Markets With Asymmetric Information

Externalities and Public Goods

Filters