Question 1

The demand curve facing a perfectly competitive firm is

Accepted Answer

A)  the same as the market demand curve. 
B)  downward-sloping and less flat than the market demand curve. 
C)  downward-sloping and more flat than the market demand curve. 
D)  perfectly horizontal. 
E)  perfectly vertical. 
A)  the same as the market demand curve. 
B)  downward-sloping and less flat than the market demand curve. 
C)  downward-sloping and more flat than the market demand curve. 
D)  perfectly horizontal. 
E)  perfectly vertical.

Question 2

At the profit-maximizing level of output, marginal profit

Accepted Answer

A)  is also maximized. 
B)  is zero. 
C)  is positive. 
D)  is increasing. 
E)  may be positive, negative or zero. 
A)  is also maximized. 
B)  is zero. 
C)  is positive. 
D)  is increasing. 
E)  may be positive, negative or zero.

Question 3

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 4

Figure 8.7.2
-Refer to Figure 8.7.2 above. In long run equilibrium, how much is the economic profit of the firm expected to be?

Accepted Answer

A)  $3.64 million 
B)  $3 million 
C)  zero 
D)  somewhere between $3 and $3.64 million 
A)  $3.64 million 
B)  $3 million 
C)  zero 
D)  somewhere between $3 and $3.64 million

Question 5

Scenario 8.1:
Two soft-drink firms, Fizzle & Sizzle, operate on a river. Fizzle is farther upstream, and gets cleaner water, so its cost of purifying water for use in the soft drinks is lower than Sizzle's by $500,000 yearly.
-According to Scenario 8.1, Fizzle and Sizzle:

Accepted Answer

A)  would be perfectly competitive if their purification costs were equal; otherwise, not. 
B)  would be perfectly competitive if it costs Fizzle $500,000 yearly to keep that land. 
C)  may or may not be perfect competitors, but their position on the river has nothing to do with it. 
D)  cannot be perfect competitors because they are not identical firms. 
A)  would be perfectly competitive if their purification costs were equal; otherwise, not. 
B)  would be perfectly competitive if it costs Fizzle $500,000 yearly to keep that land. 
C)  may or may not be perfect competitors, but their position on the river has nothing to do with it. 
D)  cannot be perfect competitors because they are not identical firms.

Question 6

Figure 8.7.3
-Refer to Figure 8.7.3 above. 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 7

Figure 8.7.1
-Refer to Figure 8.7.1 above. When market price equals $40, we can expect:

Accepted Answer

A)  exit of firms and a decrease in market price. 
B)  entry of firms and a decrease in market price. 
C)  exit of firms and an increase in market price. 
D)  entry of firms and an increase in market price. 
A)  exit of firms and a decrease in market price. 
B)  entry of firms and a decrease in market price. 
C)  exit of firms and an increase in market price. 
D)  entry of firms and an increase in market price.

Question 8

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 9

The following table contains information for a price taking competitive firm. Complete the table and determine the profit maximizing level of output (round your answer to the nearest whole number).
Total Marginal Fixed Average Total Average Marginal
Output Cost Cost Cost Cost Revenue Revenue Revenue
0 5 0
1 7 10
2 11 20
3 17 30
4 27 40
5 41 50
6 61 60

Accepted Answer

Total Marginal Fixed Average Total Avera

Question 10

An association of businesses that are jointly owned and operated by members for mutual benefit is a:

Accepted Answer

A)  condominium. 
B)  corporation. 
C)  cooperative. 
D)  joint tenancy. 
A)  condominium. 
B)  corporation. 
C)  cooperative. 
D)  joint tenancy.

Question 11

Which of the following events does NOT occur when market demand shifts leftward in an increasing-cost industry?

Accepted Answer

A)  Initially, the output produced by existing firms declines along the short-run market supply curve. 
B)  The market price declines below the minimum LAC due to the short-run supply response. 
C)  The market supply curve shifts leftward as some firms exit the market when the market price is below the minimum LAC. 
D)  As firms exit, the market price rises and attracts other firms to enter the market. 
E)  The LAC curve shifts downward as output falls. 
A)  Initially, the output produced by existing firms declines along the short-run market supply curve. 
B)  The market price declines below the minimum LAC due to the short-run supply response. 
C)  The market supply curve shifts leftward as some firms exit the market when the market price is below the minimum LAC. 
D)  As firms exit, the market price rises and attracts other firms to enter the market. 
E)  The LAC curve shifts downward as output falls.

Question 12

In the robotics industry there are 100 firms. Each firm shares the same long-run cost function. It is:   The relevant marginal cost function is   Each of the 100 firms produce 64 units. The market demand for robotics is:   Calculate the market price at this production level. Also, calculate the profits for a representative firm in the robotics industry. If one firm expanded production to 100 units while the remaining 99 firms kept output at 64 units, what would happen to the market price and profits? Would all firms benefit or lose if every firm expanded output to 100 units?

Accepted Answer

If each firm is producing 64 units, the

Question 13

In many rural areas, electric generation and distribution utilities were initially set up as cooperatives in which the electricity customers were member-owners. Like most cooperatives, the objective of these firms was to:

Accepted Answer

A)  maximize profits for the member-owners. 
B)  maximize total revenue that could be redistributed to the member-owners. 
C)  operate at zero profit in order to provide low electricity prices for the member-owners. 
D)  minimize the costs of production. 
A)  maximize profits for the member-owners. 
B)  maximize total revenue that could be redistributed to the member-owners. 
C)  operate at zero profit in order to provide low electricity prices for the member-owners. 
D)  minimize the costs of production.

Question 14

Which of following is a key assumption of a perfectly competitive market?

Accepted Answer

A)  Firms can influence market price. 
B)  Commodities have few sellers. 
C)  It is difficult for new sellers to enter the market. 
D)  Each seller has a very small share of the market. 
E)  none of the above 
A)  Firms can influence market price. 
B)  Commodities have few sellers. 
C)  It is difficult for new sellers to enter the market. 
D)  Each seller has a very small share of the market. 
E)  none of the above

Question 15

Revenue is equal to:

Accepted Answer

A)  price times quantity. 
B)  price times quantity minus total cost. 
C)  price times quantity minus average cost. 
D)  price times quantity minus marginal cost. 
E)  expenditure on production of output. 
A)  price times quantity. 
B)  price times quantity minus total cost. 
C)  price times quantity minus average cost. 
D)  price times quantity minus marginal cost. 
E)  expenditure on production of output.

Question 16

Scenario 8.1:
Two soft-drink firms, Fizzle & Sizzle, operate on a river. Fizzle is farther upstream, and gets cleaner water, so its cost of purifying water for use in the soft drinks is lower than Sizzle's by $500,000 yearly.
-Refer to the information in Scenario 8.1. If Fizzle and Sizzle sell the same output at the same price and are otherwise identical, Fizzle's profit will be:

Accepted Answer

A)  higher than Sizzle's by $500,000 yearly. 
B)  higher than Sizzle's by just less than $500,000 yearly. 
C)  zero in the long run, and Sizzle will be out of business. 
D)  the same as Sizzle's because Fizzle must be assigned an implicit cost of $500,000 yearly for economic rent. 
E)  the same as Sizzle's because Sizzle will move to a more advantageous location in order to compete. 
A)  higher than Sizzle's by $500,000 yearly. 
B)  higher than Sizzle's by just less than $500,000 yearly. 
C)  zero in the long run, and Sizzle will be out of business. 
D)  the same as Sizzle's because Fizzle must be assigned an implicit cost of $500,000 yearly for economic rent. 
E)  the same as Sizzle's because Sizzle will move to a more advantageous location in order to compete.

Question 17

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

Question 18

An increasing-cost industry is so named because of the positive slope of which curve?

Accepted Answer

A)  Each firm's short-run average cost curve 
B)  Each firm's short-run marginal cost curve 
C)  Each firm's long-run average cost curve 
D)  Each firm's long-run marginal cost curve 
E)  The industry's long-run supply curve 
A)  Each firm's short-run average cost curve 
B)  Each firm's short-run marginal cost curve 
C)  Each firm's long-run average cost curve 
D)  Each firm's long-run marginal cost curve 
E)  The industry's long-run supply curve

Question 19

Figure 8.6.3
-Refer to Figure 8.6.3 above. Producer surplus in the figure equals the area:

Accepted Answer

A)  below market price and above the supply curve. 
B)  below market demand and above market price. 
C)  between market supply and market demand, from zero to the equilibrium quantity. 
D)  below the supply curve, from zero to the equilibrium quantity. 
A)  below market price and above the supply curve. 
B)  below market demand and above market price. 
C)  between market supply and market demand, from zero to the equilibrium quantity. 
D)  below the supply curve, from zero to the equilibrium quantity.

Question 20

Figure 8.4.2
-Refer to Figure 8.4.2 above. When profit is maximized, the total revenue of the farmer equals:

Accepted Answer

A)  $8.360. 
B)  $5.320. 
C)  $996. 
D)  $2.170. 
A)  $8.360. 
B)  $5.320. 
C)  $996. 
D)  $2.170.

The demand curve facing a perfectly competitive firm is

At the profit-maximizing level of output, marginal profit

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

Figure 8.7.2 -Refer to Figure 8.7.2 above. In long run equilibrium, how much is the economic profit of the firm expected to be?

Scenario 8.1: Two soft-drink firms, Fizzle & Sizzle, operate on a river. Fizzle is farther upstream, and gets cleaner water, so its cost of purifying water for use in the soft drinks is lower than Sizzle's by $500,000 yearly. -According to Scenario 8.1, Fizzle and Sizzle:

Figure 8.7.3 -Refer to Figure 8.7.3 above. At P = $80, how much is profit in the short run?

Figure 8.7.1 -Refer to Figure 8.7.1 above. When market price equals $40, we can expect:

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

An association of businesses that are jointly owned and operated by members for mutual benefit is a:

Which of the following events does NOT occur when market demand shifts leftward in an increasing-cost industry?

In many rural areas, electric generation and distribution utilities were initially set up as cooperatives in which the electricity customers were member-owners. Like most cooperatives, the objective of these firms was to:

Which of following is a key assumption of a perfectly competitive market?

Revenue is equal to:

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

An increasing-cost industry is so named because of the positive slope of which curve?

Figure 8.6.3 -Refer to Figure 8.6.3 above. Producer surplus in the figure equals the area:

Figure 8.4.2 -Refer to Figure 8.4.2 above. When profit is maximized, the total revenue of the farmer equals:

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

The demand curve facing a perfectly competitive firm is

At the profit-maximizing level of output, marginal profit

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

Figure 8.7.2 -Refer to Figure 8.7.2 above. In long run equilibrium, how much is the economic profit of the firm expected to be?

Scenario 8.1: Two soft-drink firms, Fizzle & Sizzle, operate on a river. Fizzle is farther upstream, and gets cleaner water, so its cost of purifying water for use in the soft drinks is lower than Sizzle's by $500,000 yearly. -According to Scenario 8.1, Fizzle and Sizzle:

Figure 8.7.3 -Refer to Figure 8.7.3 above. At P = $80, how much is profit in the short run?

Figure 8.7.1 -Refer to Figure 8.7.1 above. When market price equals $40, we can expect:

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

An association of businesses that are jointly owned and operated by members for mutual benefit is a:

Which of the following events does NOT occur when market demand shifts leftward in an increasing-cost industry?

In many rural areas, electric generation and distribution utilities were initially set up as cooperatives in which the electricity customers were member-owners. Like most cooperatives, the objective of these firms was to:

Which of following is a key assumption of a perfectly competitive market?

Revenue is equal to:

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

An increasing-cost industry is so named because of the positive slope of which curve?

Figure 8.6.3 -Refer to Figure 8.6.3 above. Producer surplus in the figure equals the area:

Figure 8.4.2 -Refer to Figure 8.4.2 above. When profit is maximized, the total revenue of the farmer equals:

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