Question 1

Firms often use patent rights as a:

Accepted Answer

A)  barrier to exit. 
B)  barrier to entry. 
C)  way to achieve perfect competition. 
D)  none of the above 
A)  barrier to exit. 
B)  barrier to entry. 
C)  way to achieve perfect competition. 
D)  none of the above

Question 2

A few sellers may behave as if they operate in a perfectly competitive market if the market demand is:

Accepted Answer

A)  highly inelastic. 
B)  very elastic. 
C)  unitary elastic. 
D)  composed of many small buyers. 
A)  highly inelastic. 
B)  very elastic. 
C)  unitary elastic. 
D)  composed of many small buyers.

Question 3

Figure 8.5.1
-Refer to Figure 8.5.1 above. The dashed portion of the marginal cost curve refers to:

Accepted Answer

A)  the portion where an increase in output results in an increase in profit. 
B)  the portion where marginal cost is always equal to average total cost (AT
C) , when ATC is at its minimum. 
C)  the supply curve of the firm. 
D)  the portion of the curve where the firm shuts down when it suffers losses. 
A)  the portion where an increase in output results in an increase in profit. 
B)  the portion where marginal cost is always equal to average total cost (AT
C) , when ATC is at its minimum. 
C)  the supply curve of the firm. 
D)  the portion of the curve where the firm shuts down when it suffers losses.

Question 4

Figure 8.5.2
-Higher input prices result in:

Accepted Answer

A)  upward shifts of MC and reductions in output. 
B)  upward shifts of MC and increases in output. 
C)  downward shifts of MC and reductions in output. 
D)  downward shifts of MC and increases in output. 
E)  increased demand for the good the input is used for. 
A)  upward shifts of MC and reductions in output. 
B)  upward shifts of MC and increases in output. 
C)  downward shifts of MC and reductions in output. 
D)  downward shifts of MC and increases in output. 
E)  increased demand for the good the input is used for.

Question 5

Suppose all firms have constant marginal costs that are the same for each firm in the short run. In this case, the market level supply curve is ________ and producer surplus equals ________.

Accepted Answer

A)  perfectly inelastic; fixed costs 
B)  perfectly inelastic; zero 
C)  perfectly elastic; fixed costs 
D)  perfectly elastic; zero 
A)  perfectly inelastic; fixed costs 
B)  perfectly inelastic; zero 
C)  perfectly elastic; fixed costs 
D)  perfectly elastic; zero

Question 6

If a graph of a perfectly competitive firm shows that the   point occurs where MR is above AVC but below ATC,

Accepted Answer

A)  the firm is earning negative profit, and will shut down rather than produce that level of output. 
B)  the firm is earning negative profit, but will continue to produce where   in the short run. 
C)  the firm is still earning positive profit, as long as variable costs are covered. 
D)  the firm is covering explicit, but not implicit, costs. 
E)  the firm can cover all of fixed costs but only a portion of variable costs. 
A)  the firm is earning negative profit, and will shut down rather than produce that level of output. 
B)  the firm is earning negative profit, but will continue to produce where   in the short run. 
C)  the firm is still earning positive profit, as long as variable costs are covered. 
D)  the firm is covering explicit, but not implicit, costs. 
E)  the firm can cover all of fixed costs but only a portion of variable costs.

Question 7

Suppose the state legislature in your state imposes a state licensing fee of $100 per year to be paid by all firms that file state tax revenue reports. This new business tax:

Accepted Answer

A)  increases marginal cost. 
B)  decreases marginal cost. 
C)  increases marginal revenue. 
D)  decreases marginal revenue. 
E)  none of the above 
A)  increases marginal cost. 
B)  decreases marginal cost. 
C)  increases marginal revenue. 
D)  decreases marginal revenue. 
E)  none of the above

Question 8

Imposition of an output tax on all firms in a competitive industry will result in:

Accepted Answer

A)  a downward shift in each firm's marginal cost curve. 
B)  a downward shift in each firm's average cost curve. 
C)  a leftward shift in the market supply curve. 
D)  the entry of new firms into the industry. 
E)  higher profits for the industry as price rises. 
A)  a downward shift in each firm's marginal cost curve. 
B)  a downward shift in each firm's average cost curve. 
C)  a leftward shift in the market supply curve. 
D)  the entry of new firms into the industry. 
E)  higher profits for the industry as price rises.

Question 9

If any of the assumptions of perfect competition are violated,

Accepted Answer

A)  supply-and-demand analysis cannot be used to study the industry. 
B)  graphs with flat demand curves cannot be used to study the firm. 
C)  graphs with downward-sloping demand curves cannot be used to study the firm. 
D)  there may still be enough competition in the industry to make the model of perfect competition usable. 
E)  one must use the monopoly model instead. 
A)  supply-and-demand analysis cannot be used to study the industry. 
B)  graphs with flat demand curves cannot be used to study the firm. 
C)  graphs with downward-sloping demand curves cannot be used to study the firm. 
D)  there may still be enough competition in the industry to make the model of perfect competition usable. 
E)  one must use the monopoly model instead.

Question 10

The total revenue graph consistent with Table 8.1 is:

Accepted Answer

A)  linear and upward-sloping. 
B)  linear and horizontal. 
C)  linear and vertical. 
D)  linear and downward-sloping. 
E)  concave downwards. 
A)  linear and upward-sloping. 
B)  linear and horizontal. 
C)  linear and vertical. 
D)  linear and downward-sloping. 
E)  concave downwards.

Question 11

Figure 8.4.2
-Refer to Figure 8.4.2 above. When the farmer's profit is maximized, total cost equals:

Accepted Answer

A)  $1.624 
B)  $3.696 
C)  $.6226 
D)  $264 
A)  $1.624 
B)  $3.696 
C)  $.6226 
D)  $264

Question 12

Figure 8.7.1
-Refer to Figure 8.7.1 above. When market price equals $40, the long run level of output will be:

Accepted Answer

A)  q1 
B)  q2 
C)  q3 
D)  q2 or q3 
A)  q1 
B)  q2 
C)  q3 
D)  q2 or q3

Question 13

Sarah's Pretzel plant has the following short-run cost function:   where q is Sarah's output level, w is the cost of a labor hour, and K is the number of pretzel machines Sarah leases. Sarah's short-run marginal cost curve is   At the moment, Sarah leases 10 pretzel machines, the cost of a labor hour is $6.85, and she can sell all the output she produces at $35 per unit. If the cost per labor hour rises to $7.50, what happens to Sarah's optimal level of output and profits?

Accepted Answer

First, we need to determine Sarah's opti

Question 14

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, how much profit will the firm earn?

Accepted Answer

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

Question 15

Use the following statements to answer this question: I. Markets that have only a few sellers cannot be highly competitive.
II) Markets with many sellers are always perfectly competitive.

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.

Question 16

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 17

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.

Question 18

Conigan Box Company produces cardboard boxes that are sold in bundles of 1000 boxes. The market is highly competitive, with boxes currently selling for $100 per thousand. Conigan's total and marginal cost curves are:
TC = 3,000,000 + 0.001Q2 
MC = 0.002Q
where Q is measured in thousand box bundles per year.
a. Calculate Conigan's profit maximizing quantity. Is the firm earning a profit?
b. Analyze Conigan's position in terms of the shutdown condition. Should Conigan operate or shut down in the short run?

Accepted Answer

a.Given the competitive nature of the in

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

Figure 8.4.3
-Refer to Figure 8.4.3 above. The firm in this situation should decide to:

Accepted Answer

A)  shut down. 
B)  produce at a loss. 
C)  produce and earn the resulting profit. 
D)  produce or shut down, with the same outcome. 
A)  shut down. 
B)  produce at a loss. 
C)  produce and earn the resulting profit. 
D)  produce or shut down, with the same outcome.

Firms often use patent rights as a:

A few sellers may behave as if they operate in a perfectly competitive market if the market demand is:

Figure 8.5.1 -Refer to Figure 8.5.1 above. The dashed portion of the marginal cost curve refers to:

Figure 8.5.2 -Higher input prices result in:

Suppose all firms have constant marginal costs that are the same for each firm in the short run. In this case, the market level supply curve is and producer surplus equals .

If a graph of a perfectly competitive firm shows that the point occurs where MR is above AVC but below ATC,

Suppose the state legislature in your state imposes a state licensing fee of $100 per year to be paid by all firms that file state tax revenue reports. This new business tax:

Imposition of an output tax on all firms in a competitive industry will result in:

If any of the assumptions of perfect competition are violated,

The total revenue graph consistent with Table 8.1 is:

Figure 8.4.2 -Refer to Figure 8.4.2 above. When the farmer's profit is maximized, total cost equals:

Figure 8.7.1 -Refer to Figure 8.7.1 above. When market price equals $40, the long run level of output will be:

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, how much profit will the firm earn?

Use the following statements to answer this question: I. Markets that have only a few sellers cannot be highly competitive. II) Markets with many sellers are always perfectly competitive.

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

Figure 8.4.3 -Refer to Figure 8.4.3 above. The firm in this situation should decide to:

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

Firms often use patent rights as a:

A few sellers may behave as if they operate in a perfectly competitive market if the market demand is:

Figure 8.5.1 -Refer to Figure 8.5.1 above. The dashed portion of the marginal cost curve refers to:

Figure 8.5.2 -Higher input prices result in:

Suppose all firms have constant marginal costs that are the same for each firm in the short run. In this case, the market level supply curve is ________ and producer surplus equals ________.

If a graph of a perfectly competitive firm shows that the point occurs where MR is above AVC but below ATC,

Suppose the state legislature in your state imposes a state licensing fee of $100 per year to be paid by all firms that file state tax revenue reports. This new business tax:

Imposition of an output tax on all firms in a competitive industry will result in:

If any of the assumptions of perfect competition are violated,

The total revenue graph consistent with Table 8.1 is:

Figure 8.4.2 -Refer to Figure 8.4.2 above. When the farmer's profit is maximized, total cost equals:

Figure 8.7.1 -Refer to Figure 8.7.1 above. When market price equals $40, the long run level of output will be:

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, how much profit will the firm earn?

Use the following statements to answer this question: I. Markets that have only a few sellers cannot be highly competitive. II) Markets with many sellers are always perfectly competitive.

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

Figure 8.4.3 -Refer to Figure 8.4.3 above. The firm in this situation should decide to:

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

Suppose all firms have constant marginal costs that are the same for each firm in the short run. In this case, the market level supply curve is and producer surplus equals .