Question 1

Figure 8.3.2
-Refer to Figure 8.3.2 above. The demand of a price taker is illustrated:

Accepted Answer

A)  in panel (a). 
B)  in panel (b) 
C)  in both panels. 
D)  by neither curve. 
A)  in panel (a). 
B)  in panel (b) 
C)  in both panels. 
D)  by neither curve. A

Question 2

The amount of output that a firm decides to sell has no effect on the market price in a competitive industry because:

Accepted Answer

A)  the market price is determined (through regulation) by the government. 
B)  the firm supplies a different good than its rivals. 
C)  the firm's output is a small fraction of the entire industry's output. 
D)  the short run market price is determined solely by the firm's technology. 
E)  the demand curve for the industry's output is downward sloping. 
A)  the market price is determined (through regulation) by the government. 
B)  the firm supplies a different good than its rivals. 
C)  the firm's output is a small fraction of the entire industry's output. 
D)  the short run market price is determined solely by the firm's technology. 
E)  the demand curve for the industry's output is downward sloping. C

Question 3

A price taker is:

Accepted Answer

A)  a firm that accepts different prices from different customers. 
B)  a consumer who accepts different prices from different firms. 
C)  a perfectly competitive firm. 
D)  a firm that cannot influence the market price. 
E)  both C and D 
A)  a firm that accepts different prices from different customers. 
B)  a consumer who accepts different prices from different firms. 
C)  a perfectly competitive firm. 
D)  a firm that cannot influence the market price. 
E)  both C and D E

Question 4

A competitive market is made up of 100 identical firms. Each firm has a short-run marginal cost function as follows:
MC = 5 + 0.5Q,
where Q represents units of output per unit of time. The firm's average variable cost curve intersects the marginal cost at a vertical distance of 10 above the horizontal axis. Determine the market short-run supply curve. Calculate the price that would make 2,000 units forthcoming per time period. Note the minimum price at which any quantity would be placed on the market.

Accepted Answer

The market supply curve is the horizonta

Question 5

Figure 8.7.3
-Refer to Figure 8.7.3 above. As the competitive industry, not just the firm in question, moves toward long-run equilibrium, what will the price be?

Accepted Answer

A)  $60 
B)  $64 
C)  $70 
D)  $71 
E)  $80 
A)  $60 
B)  $64 
C)  $70 
D)  $71 
E)  $80

Question 6

In the local cotton market, there are 1,000 producers that have identical short-run cost functions. They are:   where q is the number of bales produced each period. The short-run marginal cost function for each producer is: MC(q) = 0.05q. If the local cotton market is perfectly competitive, what is each cotton producer's short-run supply curve? Derive the local market supply curve of cotton.

Accepted Answer

Given the cotton market is competitive,

Question 7

Figure 8.5.1
-The supply curve for a competitive firm is

Accepted Answer

A)  its entire MC curve. 
B)  the upward-sloping portion of its MC curve. 
C)  its MC curve above the minimum point of the AVC curve. 
D)  its MC curve above the minimum point of the ATC curve. 
E)  its MR curve. 
A)  its entire MC curve. 
B)  the upward-sloping portion of its MC curve. 
C)  its MC curve above the minimum point of the AVC curve. 
D)  its MC curve above the minimum point of the ATC curve. 
E)  its MR curve.

Question 8

The demand curve facing a perfectly competitive firm is:

Accepted Answer

A)  the same as its average revenue curve, but not the same as its marginal revenue curve. 
B)  the same as its average revenue curve and its marginal revenue curve. 
C)  the same as its marginal revenue curve, but not its average revenue curve. 
D)  not the same as either its marginal revenue curve or its average revenue curve. 
E)  not defined in terms of average or marginal revenue. 
A)  the same as its average revenue curve, but not the same as its marginal revenue curve. 
B)  the same as its average revenue curve and its marginal revenue curve. 
C)  the same as its marginal revenue curve, but not its average revenue curve. 
D)  not the same as either its marginal revenue curve or its average revenue curve. 
E)  not defined in terms of average or marginal revenue.

Question 9

Because of the relationship between a perfectly competitive firm's demand curve and its marginal revenue curve, the profit maximization condition for the firm can be written as:

Accepted Answer

A)  P = MR. 
B)  P = AVC. 
C)  AR = MR. 
D)  P = MC. 
E)  P = AC. 
A)  P = MR. 
B)  P = AVC. 
C)  AR = MR. 
D)  P = MC. 
E)  P = AC.

Question 10

Marginal revenue, graphically, is:

Accepted Answer

A)  the slope of a line from the origin to a point on the total revenue curve. 
B)  the slope of a line from the origin to the end of the total revenue curve. 
C)  the slope of the total revenue curve at a given point. 
D)  the vertical intercept of a line tangent to the total revenue curve at a given point. 
E)  the horizontal intercept of a line tangent to the total revenue curve at a given point. 
A)  the slope of a line from the origin to a point on the total revenue curve. 
B)  the slope of a line from the origin to the end of the total revenue curve. 
C)  the slope of the total revenue curve at a given point. 
D)  the vertical intercept of a line tangent to the total revenue curve at a given point. 
E)  the horizontal intercept of a line tangent to the total revenue curve at a given point.

Question 11

Scenario 8.2:
Yachts are produced by a perfectly competitive industry in Dystopia. Industry output (Q) is currently 30,000 yachts per year. The government, in an attempt to raise revenue, places a $20,000 tax on each yacht. Demand is highly, but not perfectly, elastic.
-Refer to Scenario 8.2. The result of the tax in the long run will be that:

Accepted Answer

A)  Q falls from 30,000; P rises by less than $20,000. 
B)  Q falls from 30,000; P rises by $20,000. 
C)  Q falls from 30,000; P does not change. 
D)  Q stays at 30,000; P rises by $20,000. 
E)  Q stays at 30,000; P rises by less than $20,000. 
A)  Q falls from 30,000; P rises by less than $20,000. 
B)  Q falls from 30,000; P rises by $20,000. 
C)  Q falls from 30,000; P does not change. 
D)  Q stays at 30,000; P rises by $20,000. 
E)  Q stays at 30,000; P rises by less than $20,000.

Question 12

The authors explain that a firm earning a zero economic profit in the long run has earned a competitive return on their investment. What do they mean by "competitive" return in this context?

Accepted Answer

A)  The firm's return could only be earned under perfect competition and would be smaller under imperfect competition. 
B)  The firm's return is at least as larger as the returns earned by other firms. 
C)  The firm's return is at least as larger as could be earned in another investment. 
D)  The firm's return is negative, which initiates stronger competition among firms in the market. 
A)  The firm's return could only be earned under perfect competition and would be smaller under imperfect competition. 
B)  The firm's return is at least as larger as the returns earned by other firms. 
C)  The firm's return is at least as larger as could be earned in another investment. 
D)  The firm's return is negative, which initiates stronger competition among firms in the market.

Question 13

Figure 8.7.3
-Refer to Figure 8.7.3 above. How much profit will the firm earn if price stays at $80?

Accepted Answer

A)  $0 
B)  $306 
C)  $312 
D)  $1000 
E)  $1024 
A)  $0 
B)  $306 
C)  $312 
D)  $1000 
E)  $1024

Question 14

The perfectly competitive firm's marginal revenue curve is:

Accepted Answer

A)  exactly the same as the marginal cost curve. 
B)  downward-sloping, at twice the (negative) slope of the market demand curve. 
C)  vertical. 
D)  horizontal. 
E)  upward-sloping. 
A)  exactly the same as the marginal cost curve. 
B)  downward-sloping, at twice the (negative) slope of the market demand curve. 
C)  vertical. 
D)  horizontal. 
E)  upward-sloping.

Question 15

Which of the following cases are examples of industries that have potentially increasing costs due to scarce inputs?

Accepted Answer

A)  Petroleum production 
B)  Medical care 
C)  Legal services 
D)  All of the above 
A)  Petroleum production 
B)  Medical care 
C)  Legal services 
D)  All of the above

Question 16

Suppose the market demand curve is perfectly elastic in an increasing-cost industry. If an output tax of t per unit is imposed on all producers of the good, what happens to the market equilibrium outcome?

Accepted Answer

A)  The price paid by buyers increases and output declines. 
B)  The price paid by buyers does not change and output decrease. 
C)  The price paid by buyers and output increase. 
D)  The price paid by buyers and output decrease. 
A)  The price paid by buyers increases and output declines. 
B)  The price paid by buyers does not change and output decrease. 
C)  The price paid by buyers and output increase. 
D)  The price paid by buyers and output decrease.

Question 17

If current output is less than the profit-maximizing output, which must be true?

Accepted Answer

A)  Total revenue is less than total cost. 
B)  Average revenue is less than average cost. 
C)  Average revenue is greater than average cost. 
D)  Marginal revenue is less than marginal cost. 
E)  Marginal revenue is greater than marginal cost. 
A)  Total revenue is less than total cost. 
B)  Average revenue is less than average cost. 
C)  Average revenue is greater than average cost. 
D)  Marginal revenue is less than marginal cost. 
E)  Marginal revenue is greater than marginal cost.

Question 18

Figure 8.6.2
-Refer to Figure 8.6.2 above. Which area represents producer surplus in this figure?

Accepted Answer

A)  ABCD 
B)  0DCq* 
C)  The area inside the MC curve and the AVC curve 
D)  The area above the MC curve and below the price level, P 
A)  ABCD 
B)  0DCq* 
C)  The area inside the MC curve and the AVC curve 
D)  The area above the MC curve and below the price level, P

Question 19

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 20

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.

Figure 8.3.2 -Refer to Figure 8.3.2 above. The demand of a price taker is illustrated:

The amount of output that a firm decides to sell has no effect on the market price in a competitive industry because:

A price taker is:

Figure 8.7.3 -Refer to Figure 8.7.3 above. As the competitive industry, not just the firm in question, moves toward long-run equilibrium, what will the price be?

Figure 8.5.1 -The supply curve for a competitive firm is

The demand curve facing a perfectly competitive firm is:

Because of the relationship between a perfectly competitive firm's demand curve and its marginal revenue curve, the profit maximization condition for the firm can be written as:

Marginal revenue, graphically, is:

The authors explain that a firm earning a zero economic profit in the long run has earned a competitive return on their investment. What do they mean by "competitive" return in this context?

Figure 8.7.3 -Refer to Figure 8.7.3 above. How much profit will the firm earn if price stays at $80?

The perfectly competitive firm's marginal revenue curve is:

Which of the following cases are examples of industries that have potentially increasing costs due to scarce inputs?

Suppose the market demand curve is perfectly elastic in an increasing-cost industry. If an output tax of t per unit is imposed on all producers of the good, what happens to the market equilibrium outcome?

If current output is less than the profit-maximizing output, which must be true?

Figure 8.6.2 -Refer to Figure 8.6.2 above. Which area represents producer surplus in this figure?

In an increasing-cost industry, expansion of output:

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

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

Behavioral Economics

Filters

Exam 8: Profit Maximization and Competitive Supply

Figure 8.3.2 -Refer to Figure 8.3.2 above. The demand of a price taker is illustrated:

The amount of output that a firm decides to sell has no effect on the market price in a competitive industry because:

A price taker is:

Figure 8.7.3 -Refer to Figure 8.7.3 above. As the competitive industry, not just the firm in question, moves toward long-run equilibrium, what will the price be?

Figure 8.5.1 -The supply curve for a competitive firm is

The demand curve facing a perfectly competitive firm is:

Because of the relationship between a perfectly competitive firm's demand curve and its marginal revenue curve, the profit maximization condition for the firm can be written as:

Marginal revenue, graphically, is:

The authors explain that a firm earning a zero economic profit in the long run has earned a competitive return on their investment. What do they mean by "competitive" return in this context?

Figure 8.7.3 -Refer to Figure 8.7.3 above. How much profit will the firm earn if price stays at $80?

The perfectly competitive firm's marginal revenue curve is:

Which of the following cases are examples of industries that have potentially increasing costs due to scarce inputs?

Suppose the market demand curve is perfectly elastic in an increasing-cost industry. If an output tax of t per unit is imposed on all producers of the good, what happens to the market equilibrium outcome?

If current output is less than the profit-maximizing output, which must be true?

Figure 8.6.2 -Refer to Figure 8.6.2 above. Which area represents producer surplus in this figure?

In an increasing-cost industry, expansion of output:

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

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

Behavioral Economics

Filters