Question 1

Refer to the data in the accompanying table. If the firm's minimum average variable cost is $11, the firm's profit-maximizing level of output would be

Accepted Answer

A) 0. 
B) 5. 
C) 4. 
D) 3. 
A) 0. 
B) 5. 
C) 4. 
D) 3.

Question 2

A firm sells a product in a purely competitive market. The marginal cost of the product at the current output is $4 and the market price is $4.5. What should the firm do?

Accepted Answer

A) shut down if the minimum possible average variable cost is below $4.5 
B) decrease output if the minimum possible average variable cost is below $4.5 
C) increase output if the minimum possible average variable cost is below $4.50 
D) increase output if the minimum possible average variable cost is above $4.5 
A) shut down if the minimum possible average variable cost is below $4.5 
B) decrease output if the minimum possible average variable cost is below $4.5 
C) increase output if the minimum possible average variable cost is below $4.50 
D) increase output if the minimum possible average variable cost is above $4.5

Question 3

A perfectly elastic demand curve implies that the firm

Accepted Answer

A) must lower price to sell more output. 
B) can sell as much output as it chooses at the existing price. 
C) realizes an increase in total revenue that is less than product price when it sells an extra unit. 
D) is selling a differentiated (heterogeneous)product. 
A) must lower price to sell more output. 
B) can sell as much output as it chooses at the existing price. 
C) realizes an increase in total revenue that is less than product price when it sells an extra unit. 
D) is selling a differentiated (heterogeneous)product.

Question 4

Farmer Jones is producing wheat and must accept the market price of $6.00 per bushel. At this time, her average total costs and her marginal costs both equal $8.00 per bushel. Her minimum average variable costs are $5.00 per bushel. In order to maximize profits or minimize losses in the short run, farmer Jones should

Accepted Answer

A) increase output. 
B) increase selling price. 
C) produce zero output and shut down. 
D) continue producing, but reduce output. 
A) increase output. 
B) increase selling price. 
C) produce zero output and shut down. 
D) continue producing, but reduce output.

Question 5

Consider the purely competitive firm whose data are shown in the accompanying graph. The firm is earning

Accepted Answer

A) normal profits, since its price is above AVC. 
B) economic profits, since its price is above AVC. 
C) normal profits, since its price just covers ATC. 
D) losses, since it is operating at the shutdown point. 
A) normal profits, since its price is above AVC. 
B) economic profits, since its price is above AVC. 
C) normal profits, since its price just covers ATC. 
D) losses, since it is operating at the shutdown point.

Question 6

Compare and contrast the types of products produced across the four types of market structures. Are they similar or differentiated?

Accepted Answer

The types of products produced in purely

Question 7

At what price will the firm shown in the accompanying graph make just a normal profit?

Accepted Answer

A) $2 
B) $5 
C) $7 
D) $10 
A) $2 
B) $5 
C) $7 
D) $10

Question 8

The marginal revenue curve of a purely competitive firm

Accepted Answer

A) lies below the firm's demand curve. 
B) is downsloping because price must be reduced to sell more output. 
C) is horizontal at the market price. 
D) has all of these characteristics. 
A) lies below the firm's demand curve. 
B) is downsloping because price must be reduced to sell more output. 
C) is horizontal at the market price. 
D) has all of these characteristics.

Question 9

An unprofitable motel will stay open in the short run if

Accepted Answer

A) price (average nightly room rate)exceeds average variable cost. 
B) marginal revenue exceeds marginal cost. 
C) price (average nightly room rate)exceeds average fixed cost. 
D) marginal revenue exceeds price. 
A) price (average nightly room rate)exceeds average variable cost. 
B) marginal revenue exceeds marginal cost. 
C) price (average nightly room rate)exceeds average fixed cost. 
D) marginal revenue exceeds price.

Question 10

According to the accompanying diagram, at the profit-maximizing output, total variable cost is equal to

Accepted Answer

A) 0 AHE. 
B) 0 CFE. 
C) 0 BGE. 
D) ABGH. 
A) 0 AHE. 
B) 0 CFE. 
C) 0 BGE. 
D) ABGH.

Question 11

Which point in the accompanying graph is definitely not on the competitive firm's short-run supply curve?

Accepted Answer

A) A 
B) B 
C) C 
D) D 
A) A 
B) B 
C) C 
D) D

Question 12

The soft drink and automobile industries would be examples of which market model?

Accepted Answer

A) monopolistic competition 
B) pure competition 
C) pure monopoly 
D) oligopoly 
A) monopolistic competition 
B) pure competition 
C) pure monopoly 
D) oligopoly

Question 13

In the short run, a competitive firm will always choose to shut down if product price is less than the lowest attainable average total cost.

Accepted Answer

A) True 
 B)False

Question 14

Sinking funds

Accepted Answer

A) represent unrecoverable costs for firms. 
B) essentially turn ongoing fixed costs into occasional variable costs. 
C) are reserves used to manage the closing of a bankrupt firm. 
D) essentially turn occasional variable costs into ongoing fixed costs. 
A) represent unrecoverable costs for firms. 
B) essentially turn ongoing fixed costs into occasional variable costs. 
C) are reserves used to manage the closing of a bankrupt firm. 
D) essentially turn occasional variable costs into ongoing fixed costs.

Question 15

Why might a business owner keep their business open but let it deteriorate, rather than shut it down? Will this profitability last?

Accepted Answer

When demand falls for a business, it may

Question 16

The fallacy of composition is essentially the error of

Accepted Answer

A) omitting relevant variables in constructing a model. 
B) conflating correlation with causation. 
C) confusing cause and effect in economic relationships. 
D) generalizing from the particular to the general. 
A) omitting relevant variables in constructing a model. 
B) conflating correlation with causation. 
C) confusing cause and effect in economic relationships. 
D) generalizing from the particular to the general.

Question 17

The market for milk can be characterized as a purely competitive industry. How might a decrease in the cost of corn that is sold to dairy farmers as feed for the cows affect the short-run costs and output for a farm in the industry? How this will affect the profit of the individual dairy?

Accepted Answer

If the price of corn falls for the dairy

Question 18

A purely competitive firm can be identified by the fact that

Accepted Answer

A) there are other firms in the industry producing similar products. 
B) it is making only normal profits in the short run. 
C) its average revenue equals its marginal revenue. 
D) it experiences diminishing marginal returns. 
A) there are other firms in the industry producing similar products. 
B) it is making only normal profits in the short run. 
C) its average revenue equals its marginal revenue. 
D) it experiences diminishing marginal returns.

Question 19

According to the accompanying diagram, at the profit-maximizing output, the firm will realize

Accepted Answer

A) a loss equal to BCFG. 
B) a loss equal to ACFH. 
C) an economic profit of ACFH. 
D) an economic profit of ABGH. 
A) a loss equal to BCFG. 
B) a loss equal to ACFH. 
C) an economic profit of ACFH. 
D) an economic profit of ABGH.

Question 20

As president and owner of the Sour Grapes Lemonade Company, you face the costs shown. To maximize your financial well-being, you should

Accepted Answer

A) continue to operate in the short run because rent is less than sales. 
B) shut down because variable costs exceed fixed costs. 
C) shut down because the company is losing money. 
D) continue operating in the short run. 
A) continue to operate in the short run because rent is less than sales. 
B) shut down because variable costs exceed fixed costs. 
C) shut down because the company is losing money. 
D) continue operating in the short run.

Exam 10: Pure Competition in the Short Run

Refer to the data in the accompanying table. If the firm's minimum average variable cost is $11, the firm's profit-maximizing level of output would be

A firm sells a product in a purely competitive market. The marginal cost of the product at the current output is $4 and the market price is $4.5. What should the firm do?

A perfectly elastic demand curve implies that the firm

Consider the purely competitive firm whose data are shown in the accompanying graph. The firm is earning

Compare and contrast the types of products produced across the four types of market structures. Are they similar or differentiated?

At what price will the firm shown in the accompanying graph make just a normal profit?

The marginal revenue curve of a purely competitive firm

An unprofitable motel will stay open in the short run if

According to the accompanying diagram, at the profit-maximizing output, total variable cost is equal to

Which point in the accompanying graph is definitely not on the competitive firm's short-run supply curve?

The soft drink and automobile industries would be examples of which market model?

In the short run, a competitive firm will always choose to shut down if product price is less than the lowest attainable average total cost.

Sinking funds

Why might a business owner keep their business open but let it deteriorate, rather than shut it down? Will this profitability last?

The fallacy of composition is essentially the error of

The market for milk can be characterized as a purely competitive industry. How might a decrease in the cost of corn that is sold to dairy farmers as feed for the cows affect the short-run costs and output for a farm in the industry? How this will affect the profit of the individual dairy?

A purely competitive firm can be identified by the fact that

According to the accompanying diagram, at the profit-maximizing output, the firm will realize

As president and owner of the Sour Grapes Lemonade Company, you face the costs shown. To maximize your financial well-being, you should

Limits, Alternatives, and Choices

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures Caused by Externalities Asymmetric Information

Public Goods, Public Choice, and Government Failure

Elasticity

Utility Maximization

Behavioral Economics

Businesses and the Costs of Production

Pure Competition in the Long Run

Pure Monopoly

Monopolistic Competition

Oligopoly and Strategic Behavior

Technology, RD, and Efficiency

The Demand for Resources

Wage Determination

Rent, Interest, and Profit

Natural Resource and Energy Economics

Public Finance: Expenditures and Taxes

Antitrust Policy and Regulation

Agriculture: Economics and Policy

Income Inequality, Poverty, and Discrimination

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The Balance of Payments, Exchange Rates, and Trade Deficits

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