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Deck 12: Perfect Competition
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Use the figure below to answer the following questions.
Figure 12.1.1
Refer to Figure 12.1.1. The firm competes in a perfectly competitive market.Curve A is a straight line because the firm
A)is a price taker.
B)faces constant returns to scale.
C)wants to maximize profits.
D)has perfect information.
E)has constant marginal cost.
Figure 12.1.1
Refer to Figure 12.1.1. The firm competes in a perfectly competitive market.Curve A is a straight line because the firm
A)is a price taker.
B)faces constant returns to scale.
C)wants to maximize profits.
D)has perfect information.
E)has constant marginal cost.
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Use the table below to answer the following questions.
Table 12.1.1
Refer to Table 12.1.1 which gives the demand schedule for a perfectly competitive firm.If the firm sells 5 units of output, total revenue is
A)$15.
B)$30.
C)$75.
D)$90.
E)$105.
Table 12.1.1
Refer to Table 12.1.1 which gives the demand schedule for a perfectly competitive firm.If the firm sells 5 units of output, total revenue is
A)$15.
B)$30.
C)$75.
D)$90.
E)$105.
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Use the table below to answer the following questions.
Table 12.1.1
Refer to Table 12.1.1 which gives the demand schedule for a perfectly competitive firm.If the firm sells 6 units of output, marginal revenue is
A)$15.
B)$30.
C)$75.
D)$90.
E)$105.
Table 12.1.1
Refer to Table 12.1.1 which gives the demand schedule for a perfectly competitive firm.If the firm sells 6 units of output, marginal revenue is
A)$15.
B)$30.
C)$75.
D)$90.
E)$105.
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Use the figure below to answer the following questions.
Figure 12.1.1
Refer to Figure 12.1.1.The firm competes in a perfectly competitive market.Curve A represents the firm's
A)total fixed cost curve.
B)average fixed cost curve.
C)average variable cost curve.
D)total revenue curve.
E)marginal revenue curve.
Figure 12.1.1
Refer to Figure 12.1.1.The firm competes in a perfectly competitive market.Curve A represents the firm's
A)total fixed cost curve.
B)average fixed cost curve.
C)average variable cost curve.
D)total revenue curve.
E)marginal revenue curve.
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Use the table below to answer the following questions.
Table 12.1.1
Refer to Table 12.1.1 which gives the demand schedule for a perfectly competitive firm.If the quantity sold by the firm rises from 5 to 6, marginal revenue is
A)$15.
B)$30.
C)$75.
D)$90.
E)$105.
Table 12.1.1
Refer to Table 12.1.1 which gives the demand schedule for a perfectly competitive firm.If the quantity sold by the firm rises from 5 to 6, marginal revenue is
A)$15.
B)$30.
C)$75.
D)$90.
E)$105.
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Use the table below to answer the following questions.
Table 12.2.1
Refer to Table 12.2.1, which gives the total revenue schedule and total cost schedule of a perfectly competitive firm.If the firm produces 3 units of output, it will
A)make an economic profit of $4.
B)make an economic profit of $90.
C)incur an economic loss of $4.
D)break even.
E)incur an economic loss of $86.
Table 12.2.1
Refer to Table 12.2.1, which gives the total revenue schedule and total cost schedule of a perfectly competitive firm.If the firm produces 3 units of output, it will
A)make an economic profit of $4.
B)make an economic profit of $90.
C)incur an economic loss of $4.
D)break even.
E)incur an economic loss of $86.
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Use the table below to answer the following questions.
Table 12.2.2
Refer to Table 12.2.2, which gives the total cost schedule for Chip's Pizza Palace, a perfectly competitive firm.If the price of a pizza is $7, what is Chip's profit-maximizing output per hour?
A)zero pizzas
B)1 pizza
C)2 pizzas
D)3 pizzas
E)4 pizzas
Table 12.2.2
Refer to Table 12.2.2, which gives the total cost schedule for Chip's Pizza Palace, a perfectly competitive firm.If the price of a pizza is $7, what is Chip's profit-maximizing output per hour?
A)zero pizzas
B)1 pizza
C)2 pizzas
D)3 pizzas
E)4 pizzas
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Use the table below to answer the following questions.
Table 12.2.1
Refer to Table 12.2.1, which gives the total revenue schedule and total cost schedule of a perfectly competitive firm.Economic profit is maximized when the firm produces ________ units of output.
A)zero
B)7
C)3
D)6
E)5
Table 12.2.1
Refer to Table 12.2.1, which gives the total revenue schedule and total cost schedule of a perfectly competitive firm.Economic profit is maximized when the firm produces ________ units of output.
A)zero
B)7
C)3
D)6
E)5
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Use the table below to answer the following questions.
Table 12.2.2
Refer to Table 12.2.2, which gives the total cost schedule for Chip's Pizza Palace, a perfectly competitive firm.If Chip shuts down in the short run, his total cost is
A)$0.
B)$10 an hour.
C)$12 an hour.
D)$22 an hour.
E)$40 an hour.
Table 12.2.2
Refer to Table 12.2.2, which gives the total cost schedule for Chip's Pizza Palace, a perfectly competitive firm.If Chip shuts down in the short run, his total cost is
A)$0.
B)$10 an hour.
C)$12 an hour.
D)$22 an hour.
E)$40 an hour.
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Use the table below to answer the following questions.
Table 12.2.1
Refer to Table 12.2.1, which gives the total revenue schedule and total cost schedule of a perfectly competitive firm.If the firm produces 2 units of output, it
A)makes an economic profit of $9.
B)makes an economic profit of $60.
C)incurs an economic loss of $9.
D)incurs an economic loss of $60.
E)incurs an economic loss of $69.
Table 12.2.1
Refer to Table 12.2.1, which gives the total revenue schedule and total cost schedule of a perfectly competitive firm.If the firm produces 2 units of output, it
A)makes an economic profit of $9.
B)makes an economic profit of $60.
C)incurs an economic loss of $9.
D)incurs an economic loss of $60.
E)incurs an economic loss of $69.
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Use the table below to answer the following questions.
Table 12.2.3
Refer to Table 12.2.3 which gives the total cost schedule for Brenda's Balloon Shop, a perfectly competitive firm.The average variable cost of producing the 1st balloon is
A)$1.00.
B)$4.00.
C)$2.00.
D)$4.80.
E)$3.00.
Table 12.2.3
Refer to Table 12.2.3 which gives the total cost schedule for Brenda's Balloon Shop, a perfectly competitive firm.The average variable cost of producing the 1st balloon is
A)$1.00.
B)$4.00.
C)$2.00.
D)$4.80.
E)$3.00.
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Use the table below to answer the following questions.
Table 12.2.1
Refer to Table 12.2.1, which gives the total revenue schedule and total cost schedule of a perfectly competitive firm.The marginal revenue received from the sale of the 4th unit of output is
A)$3.
B)$15.
C)$10.
D)$120.
E)$30.
Table 12.2.1
Refer to Table 12.2.1, which gives the total revenue schedule and total cost schedule of a perfectly competitive firm.The marginal revenue received from the sale of the 4th unit of output is
A)$3.
B)$15.
C)$10.
D)$120.
E)$30.
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Use the table below to answer the following questions.
Table 12.2.1
Refer to Table 12.2.1, which gives the total revenue schedule and total cost schedule of a perfectly competitive firm.The marginal cost of increasing production from 4 units to 5 units is
A)$16.
B)$128.
C)$100.
D)$116.
E)$30.
Table 12.2.1
Refer to Table 12.2.1, which gives the total revenue schedule and total cost schedule of a perfectly competitive firm.The marginal cost of increasing production from 4 units to 5 units is
A)$16.
B)$128.
C)$100.
D)$116.
E)$30.
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Use the table below to answer the following questions.
Table 12.2.3
Refer to Table 12.2.3, which gives the total cost schedule for Brenda's Balloon Shop, a perfectly competitive firm.The average fixed cost of producing the 4th balloon is
A)$4.30.
B)$4.80.
C)$4.70.
D)$4.50.
E)$1.00.
Table 12.2.3
Refer to Table 12.2.3, which gives the total cost schedule for Brenda's Balloon Shop, a perfectly competitive firm.The average fixed cost of producing the 4th balloon is
A)$4.30.
B)$4.80.
C)$4.70.
D)$4.50.
E)$1.00.
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Use the table below to answer the following questions.
Table 12.2.3
Refer to Table 12.2.3, which gives the total cost schedule for Brenda's Balloon Shop, a perfectly competitive firm.The marginal cost of increasing production from 4 balloons an hour to 5 balloons an hour is
A)$1.00.
B)$4.50.
C)$4.70.
D)$4.80.
E)$4.40.
Table 12.2.3
Refer to Table 12.2.3, which gives the total cost schedule for Brenda's Balloon Shop, a perfectly competitive firm.The marginal cost of increasing production from 4 balloons an hour to 5 balloons an hour is
A)$1.00.
B)$4.50.
C)$4.70.
D)$4.80.
E)$4.40.
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Use the table below to answer the following questions.
Table 12.2.1
Refer to Table 12.2.1, which gives the total revenue schedule and total cost schedule of a perfectly competitive firm.The short-run equilibrium price of one unit of the good is
A)$3.
B)$10.
C)$15.
D)$25.
E)$30.
Table 12.2.1
Refer to Table 12.2.1, which gives the total revenue schedule and total cost schedule of a perfectly competitive firm.The short-run equilibrium price of one unit of the good is
A)$3.
B)$10.
C)$15.
D)$25.
E)$30.
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Use the table below to answer the following questions.
Table 12.2.3
Refer to Table 12.2.3, which gives the total cost schedule for Brenda's Balloon Shop, a perfectly competitive firm.Brenda's total fixed cost is
A)$3 an hour.
B)$4 an hour.
C)$7 an hour.
D)$29 an hour.
E)zero.
Table 12.2.3
Refer to Table 12.2.3, which gives the total cost schedule for Brenda's Balloon Shop, a perfectly competitive firm.Brenda's total fixed cost is
A)$3 an hour.
B)$4 an hour.
C)$7 an hour.
D)$29 an hour.
E)zero.
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Use the figure below to answer the following questions.
Figure 12.2.2
Refer to Figure 12.2.2, which shows a perfectly competitive firm's economic profit and loss.The firm is incurring a loss at
A)point A.
B)point B.
C)point C.
D)point D.
E)both points B and D.
Figure 12.2.2
Refer to Figure 12.2.2, which shows a perfectly competitive firm's economic profit and loss.The firm is incurring a loss at
A)point A.
B)point B.
C)point C.
D)point D.
E)both points B and D.
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Use the figure below to answer the following question.
Figure 12.2.1
Refer to Figure 12.2.1, which shows a perfectly competitive firm's total revenue and total cost curves.Which one of the following statements is false?
A)Economic profit is the vertical distance between the total revenue curve and the total cost curve.
B)At an output of Q₁ units a day, the firm makes zero economic profit.
C)At an output greater than Q₃ units a day, the firm incurs an economic loss.
D)At an output of Q₂ units a day, the firm incurs an economic loss.
E)At an output less than Q₁ units a day, the firm incurs an economic loss.
Figure 12.2.1
Refer to Figure 12.2.1, which shows a perfectly competitive firm's total revenue and total cost curves.Which one of the following statements is false?
A)Economic profit is the vertical distance between the total revenue curve and the total cost curve.
B)At an output of Q₁ units a day, the firm makes zero economic profit.
C)At an output greater than Q₃ units a day, the firm incurs an economic loss.
D)At an output of Q₂ units a day, the firm incurs an economic loss.
E)At an output less than Q₁ units a day, the firm incurs an economic loss.
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Use the table below to answer the following question.
Table 12.2.4
Refer to Table 12.2.4.The market is perfectly competitive and there are 1,000 firms that produce paper. The top table sets out the market demand schedule for paper.
Each producer of paper has the costs shown in the bottom table when it uses its least-cost plant size.
The market price is ________ a box and the market output is ________ boxes. The output produced by each firm is ________ boxes.Each firm ________.
A)$7.00; 250,000; 250; incurs an economic loss of $1,000 a week
B)$8.40; 350,000; 350; makes zero economic profit
C)$7.65; 300,000; 300; incurs an economic loss of $834 a week
D)$8.40; 350,000; 350; incurs an economic loss of $581 a week
E)$7.65; 350,000; 300; makes zero economic profit
Table 12.2.4
Refer to Table 12.2.4.The market is perfectly competitive and there are 1,000 firms that produce paper. The top table sets out the market demand schedule for paper.
Each producer of paper has the costs shown in the bottom table when it uses its least-cost plant size.
The market price is ________ a box and the market output is ________ boxes. The output produced by each firm is ________ boxes.Each firm ________.
A)$7.00; 250,000; 250; incurs an economic loss of $1,000 a week
B)$8.40; 350,000; 350; makes zero economic profit
C)$7.65; 300,000; 300; incurs an economic loss of $834 a week
D)$8.40; 350,000; 350; incurs an economic loss of $581 a week
E)$7.65; 350,000; 300; makes zero economic profit
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Use the figure below to answer the following questions.
Figure 12.2.2
Refer to Figure 12.2.2, which shows a perfectly competitive firm's economic profit and loss.The firm is breaking even at points
A)A and C.
B)A and D.
C)B and C.
D)B and D.
E)C and D.
Figure 12.2.2
Refer to Figure 12.2.2, which shows a perfectly competitive firm's economic profit and loss.The firm is breaking even at points
A)A and C.
B)A and D.
C)B and C.
D)B and D.
E)C and D.
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Use the figure below to answer the following question.
Figure 12.3.4
Refer to Figure 12.3.4, which shows cost curves of Paul's Picture Frames Inc.The picture frame market is perfectly competitive and the market price is $12 a frame.Paul produces ________ frames each week and makes ________ total revenue.
A)20; $240
B)20; $96
C)zero; zero
D)30; $360
E)30; zero
Figure 12.3.4
Refer to Figure 12.3.4, which shows cost curves of Paul's Picture Frames Inc.The picture frame market is perfectly competitive and the market price is $12 a frame.Paul produces ________ frames each week and makes ________ total revenue.
A)20; $240
B)20; $96
C)zero; zero
D)30; $360
E)30; zero
Question
Use the figure below to answer the following question.
Figure 12.3.3
Refer to Figure 12.3.3, which shows the cost curves and marginal revenue curve of a firm in a perfectly competitive industry.The firm is
A)making an economic profit.
B)incurring an economic loss.
C)breaking even.
D)at its shutdown point.
E)larger than the other firms in the industry.
Figure 12.3.3
Refer to Figure 12.3.3, which shows the cost curves and marginal revenue curve of a firm in a perfectly competitive industry.The firm is
A)making an economic profit.
B)incurring an economic loss.
C)breaking even.
D)at its shutdown point.
E)larger than the other firms in the industry.
Question
Use the figure below to answer the following questions.
Figure 12.3.1
Refer to Figure 12.3.1, which shows the cost curves and marginal revenue curve of a firm in a perfectly competitive industry.In the short run, the firm will
A)exit from the industry.
B)break even.
C)make an economic profit.
D)incur an economic loss.
E)close down.
Figure 12.3.1
Refer to Figure 12.3.1, which shows the cost curves and marginal revenue curve of a firm in a perfectly competitive industry.In the short run, the firm will
A)exit from the industry.
B)break even.
C)make an economic profit.
D)incur an economic loss.
E)close down.
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Use the figure below to answer the following question.
Figure 12.3.2
Refer to Figure 12.3.2, which shows the cost curves and marginal revenue curve of a firm in a perfectly competitive industry, The firm is
A)making an economic profit.
B)incurring an economic loss.
C)breaking even.
D)not maximizing economic profit.
E)going to close down temporarily.
Figure 12.3.2
Refer to Figure 12.3.2, which shows the cost curves and marginal revenue curve of a firm in a perfectly competitive industry, The firm is
A)making an economic profit.
B)incurring an economic loss.
C)breaking even.
D)not maximizing economic profit.
E)going to close down temporarily.
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Use the figure below to answer the following question.
Figure 12.3.5
Refer to Figure 12.3.5, which shows the cost curves and the marginal revenue curve for a perfectly competitive firm.To maximize its profit, the firm produces ________ units of output and the price is ________ a unit.
A)30; $40
B)30; $30
C)20; $40
D)20; $30
E)30; $32.50
Figure 12.3.5
Refer to Figure 12.3.5, which shows the cost curves and the marginal revenue curve for a perfectly competitive firm.To maximize its profit, the firm produces ________ units of output and the price is ________ a unit.
A)30; $40
B)30; $30
C)20; $40
D)20; $30
E)30; $32.50
Question
Use the figure below to answer the following questions.
Figure 12.3.1
Refer to Figure 12.3.1, which shows the cost curves and marginal revenue curve of a firm in a perfectly competitive industry.In the short run, if the market price of the good is $10, the firm produces ________ units of output and ________.
A)10; incurs an economic loss of $20
B)10; incurs an economic loss of $40
C)less than 10; incurs an economic loss of $20
D)10; makes an economic profit of $20
E)less than 10; incurs an economic loss of less than $20
Figure 12.3.1
Refer to Figure 12.3.1, which shows the cost curves and marginal revenue curve of a firm in a perfectly competitive industry.In the short run, if the market price of the good is $10, the firm produces ________ units of output and ________.
A)10; incurs an economic loss of $20
B)10; incurs an economic loss of $40
C)less than 10; incurs an economic loss of $20
D)10; makes an economic profit of $20
E)less than 10; incurs an economic loss of less than $20
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Use the table below to answer the following questions.
Table 12.2.5
Refer to Table 12.2.5.Archibald's Tattoos is a perfectly competitive firm.The firm's total costs are shown in the table.The price at Archibald's shut-down point is
A)$10.00.
B)$15.00.
C)$12.50.
D)$13.33.
E)$17.00.
Table 12.2.5
Refer to Table 12.2.5.Archibald's Tattoos is a perfectly competitive firm.The firm's total costs are shown in the table.The price at Archibald's shut-down point is
A)$10.00.
B)$15.00.
C)$12.50.
D)$13.33.
E)$17.00.
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Use the table below to answer the following questions.
Table 12.2.5
Refer to Table 12.2.5.Archibald's Tattoos is a perfectly competitive firm.The firm's total costs are shown in the table.If the price of a tattoo is $12.50, Archibald's economic profit is
A)-$10.00 an hour.
B)zero.
C)$12.50 an hour.
D)$10.00 an hour.
E)maximized.
Table 12.2.5
Refer to Table 12.2.5.Archibald's Tattoos is a perfectly competitive firm.The firm's total costs are shown in the table.If the price of a tattoo is $12.50, Archibald's economic profit is
A)-$10.00 an hour.
B)zero.
C)$12.50 an hour.
D)$10.00 an hour.
E)maximized.
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Deck 12: Perfect Competition
1
In a perfectly competitive market, the market demand curve is illustrated by
A)a downward-sloping curve.
B)a line that is vertical at the market output.
C)an upward-sloping curve.
D)a line that is horizontal at the market price.
E)a curve that is bowed towards the origin.
A)a downward-sloping curve.
B)a line that is vertical at the market output.
C)an upward-sloping curve.
D)a line that is horizontal at the market price.
E)a curve that is bowed towards the origin.
A
2
For perfect competition to arise, it is necessary that market demand be
A)inelastic.
B)elastic.
C)perfectly elastic.
D)large relative to the minimum efficient scale of a single firm.
E)small relative to the minimum efficient scale of a single firm.
A)inelastic.
B)elastic.
C)perfectly elastic.
D)large relative to the minimum efficient scale of a single firm.
E)small relative to the minimum efficient scale of a single firm.
D
3
The slope of a perfectly competitive firm's demand curve is
A)infinity.
B)zero.
C)1.
D)greater than 1.
E)negative.
A)infinity.
B)zero.
C)1.
D)greater than 1.
E)negative.
B
4
Lin's fortune cookies are identical to the fortune cookies made by dozens of other firms, and there is free entry in the fortune cookie market.Buyers and sellers are well informed about prices.Lin's fortune cookies operates in a ________ market.
A)challenging
B)monopolistic
C)perfectly competitive
D)noncompetitive
E)perfectly competent
A)challenging
B)monopolistic
C)perfectly competitive
D)noncompetitive
E)perfectly competent
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5
Economic profit equals
A)total fixed cost plus total variable cost.
B)total revenue minus marginal cost.
C)marginal revenue minus marginal cost.
D)total revenue minus total cost.
E)total revenue minus total variable cost.
A)total fixed cost plus total variable cost.
B)total revenue minus marginal cost.
C)marginal revenue minus marginal cost.
D)total revenue minus total cost.
E)total revenue minus total variable cost.
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6
A perfectly competitive market is characterized by
A)firms that are price setters.
B)firms that each face a downward-sloping demand curve.
C)firms that each sell a unique good or service.
D)buyers who are unaware of the price charged by each firm.
E)no restrictions on entry into the market.
A)firms that are price setters.
B)firms that each face a downward-sloping demand curve.
C)firms that each sell a unique good or service.
D)buyers who are unaware of the price charged by each firm.
E)no restrictions on entry into the market.
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7
Which one of the following does not occur in perfect competition?
A)No single firm can exert a significant influence on the market price of the good.
B)There are many buyers.
C)There are significant restrictions on entry into the market.
D)Sellers and buyers are well informed about prices.
E)Established firms have no advantage over new ones.
A)No single firm can exert a significant influence on the market price of the good.
B)There are many buyers.
C)There are significant restrictions on entry into the market.
D)Sellers and buyers are well informed about prices.
E)Established firms have no advantage over new ones.
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8
Perfect competition occurs in a market where there are many firms, each selling
A)an identical product.
B)a similar product.
C)a unique product.
D)a capital-intensive product.
E)a competitive product.
A)an identical product.
B)a similar product.
C)a unique product.
D)a capital-intensive product.
E)a competitive product.
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9
Use the figure below to answer the following questions.
Figure 12.1.1
Refer to Figure 12.1.1. The firm competes in a perfectly competitive market.Curve A is a straight line because the firm
A)is a price taker.
B)faces constant returns to scale.
C)wants to maximize profits.
D)has perfect information.
E)has constant marginal cost.
Figure 12.1.1
Refer to Figure 12.1.1. The firm competes in a perfectly competitive market.Curve A is a straight line because the firm
A)is a price taker.
B)faces constant returns to scale.
C)wants to maximize profits.
D)has perfect information.
E)has constant marginal cost.
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10
An example of a perfectly competitive industry is the
A)airline industry.
B)beer industry.
C)running shoe industry.
D)fast food industry.
E)wheat industry.
A)airline industry.
B)beer industry.
C)running shoe industry.
D)fast food industry.
E)wheat industry.
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11
A price taker is a firm that
A)must lower its price if it wants to sell more output.
B)sets the market price.
C)cannot influence the market price.
D)is incurring an economic loss.
E)can raise its price if it lowers output.
A)must lower its price if it wants to sell more output.
B)sets the market price.
C)cannot influence the market price.
D)is incurring an economic loss.
E)can raise its price if it lowers output.
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12
Use the table below to answer the following questions.
Table 12.1.1
Refer to Table 12.1.1 which gives the demand schedule for a perfectly competitive firm.If the firm sells 5 units of output, total revenue is
A)$15.
B)$30.
C)$75.
D)$90.
E)$105.
Table 12.1.1
Refer to Table 12.1.1 which gives the demand schedule for a perfectly competitive firm.If the firm sells 5 units of output, total revenue is
A)$15.
B)$30.
C)$75.
D)$90.
E)$105.
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13
A price-taking firm faces a
A)perfectly inelastic demand.
B)downward-sloping marginal revenue curve.
C)downward-sloping supply curve.
D)perfectly elastic demand.
E)downward-sloping demand curve.
A)perfectly inelastic demand.
B)downward-sloping marginal revenue curve.
C)downward-sloping supply curve.
D)perfectly elastic demand.
E)downward-sloping demand curve.
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14
Use the table below to answer the following questions.
Table 12.1.1
Refer to Table 12.1.1 which gives the demand schedule for a perfectly competitive firm.If the firm sells 6 units of output, marginal revenue is
A)$15.
B)$30.
C)$75.
D)$90.
E)$105.
Table 12.1.1
Refer to Table 12.1.1 which gives the demand schedule for a perfectly competitive firm.If the firm sells 6 units of output, marginal revenue is
A)$15.
B)$30.
C)$75.
D)$90.
E)$105.
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15
If a firm faces a perfectly elastic demand for its product, then
A)it is not a price taker.
B)it will want to lower its price to increase sales.
C)it will want to raise its price to increase total revenue.
D)its marginal revenue curve is horizontal at the market price.
E)it will always make zero economic profit.
A)it is not a price taker.
B)it will want to lower its price to increase sales.
C)it will want to raise its price to increase total revenue.
D)its marginal revenue curve is horizontal at the market price.
E)it will always make zero economic profit.
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16
Assume that the leather market is a perfectly competitive market.The market demand curve for leather is ________ and each individual leather producer's demand curve is ________.
A)vertical; downward sloping
B)downward sloping; horizontal
C)downward sloping; vertical
D)horizontal; horizontal
E)horizontal; downward sloping
A)vertical; downward sloping
B)downward sloping; horizontal
C)downward sloping; vertical
D)horizontal; horizontal
E)horizontal; downward sloping
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17
Lin's fortune cookies are identical to the fortune cookies made by dozens of other firms, and there is free entry in the fortune cookie market.Buyers and sellers are well informed about prices.The price of a fortune cookie is determined by ________.The marginal revenue of a fortune cookie equals ________.
A)market demand and market supply; price
B)the ingredients that Lin's uses to produce his fortune cookies; average total cost
C)the number of cookies that Lin's produces; average variable cost
D)the freshness of the fortune cookies; average fixed cost
E)market demand and market supply; the price elasticity of demand
A)market demand and market supply; price
B)the ingredients that Lin's uses to produce his fortune cookies; average total cost
C)the number of cookies that Lin's produces; average variable cost
D)the freshness of the fortune cookies; average fixed cost
E)market demand and market supply; the price elasticity of demand
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18
Use the figure below to answer the following questions.
Figure 12.1.1
Refer to Figure 12.1.1.The firm competes in a perfectly competitive market.Curve A represents the firm's
A)total fixed cost curve.
B)average fixed cost curve.
C)average variable cost curve.
D)total revenue curve.
E)marginal revenue curve.
Figure 12.1.1
Refer to Figure 12.1.1.The firm competes in a perfectly competitive market.Curve A represents the firm's
A)total fixed cost curve.
B)average fixed cost curve.
C)average variable cost curve.
D)total revenue curve.
E)marginal revenue curve.
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19
Use the table below to answer the following questions.
Table 12.1.1
Refer to Table 12.1.1 which gives the demand schedule for a perfectly competitive firm.If the quantity sold by the firm rises from 5 to 6, marginal revenue is
A)$15.
B)$30.
C)$75.
D)$90.
E)$105.
Table 12.1.1
Refer to Table 12.1.1 which gives the demand schedule for a perfectly competitive firm.If the quantity sold by the firm rises from 5 to 6, marginal revenue is
A)$15.
B)$30.
C)$75.
D)$90.
E)$105.
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20
Marginal revenue is
A)the change in total quantity that results from a one-unit increase in the price of the good.
B)the change in total revenue that results from a one-unit increase in the quantity sold.
C)economic profit divided by the quantity sold.
D)the change in economic profit that results from a one-unit increase in the quantity sold.
E)total revenue minus total cost.
A)the change in total quantity that results from a one-unit increase in the price of the good.
B)the change in total revenue that results from a one-unit increase in the quantity sold.
C)economic profit divided by the quantity sold.
D)the change in economic profit that results from a one-unit increase in the quantity sold.
E)total revenue minus total cost.
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21
When a firm is a "price taker," the firm
A)can charge any price that it wants to charge, that is, "take" any price it chooses.
B)pays a fixed price for all of its fixed inputs.
C)will accept ("take")the lowest price that its customers offer.
D)pays a fixed price for all of its variable inputs.
E)cannot influence the market price of the good that it sells.
A)can charge any price that it wants to charge, that is, "take" any price it chooses.
B)pays a fixed price for all of its fixed inputs.
C)will accept ("take")the lowest price that its customers offer.
D)pays a fixed price for all of its variable inputs.
E)cannot influence the market price of the good that it sells.
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22
Use the table below to answer the following questions.
Table 12.2.1
Refer to Table 12.2.1, which gives the total revenue schedule and total cost schedule of a perfectly competitive firm.If the firm produces 3 units of output, it will
A)make an economic profit of $4.
B)make an economic profit of $90.
C)incur an economic loss of $4.
D)break even.
E)incur an economic loss of $86.
Table 12.2.1
Refer to Table 12.2.1, which gives the total revenue schedule and total cost schedule of a perfectly competitive firm.If the firm produces 3 units of output, it will
A)make an economic profit of $4.
B)make an economic profit of $90.
C)incur an economic loss of $4.
D)break even.
E)incur an economic loss of $86.
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23
A firm shuts down if price is
A)above minimum average variable cost.
B)below minimum average variable cost.
C)above minimum average fixed cost.
D)less than marginal cost.
E)below average total cost.
A)above minimum average variable cost.
B)below minimum average variable cost.
C)above minimum average fixed cost.
D)less than marginal cost.
E)below average total cost.
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24
Use the table below to answer the following questions.
Table 12.2.2
Refer to Table 12.2.2, which gives the total cost schedule for Chip's Pizza Palace, a perfectly competitive firm.If the price of a pizza is $7, what is Chip's profit-maximizing output per hour?
A)zero pizzas
B)1 pizza
C)2 pizzas
D)3 pizzas
E)4 pizzas
Table 12.2.2
Refer to Table 12.2.2, which gives the total cost schedule for Chip's Pizza Palace, a perfectly competitive firm.If the price of a pizza is $7, what is Chip's profit-maximizing output per hour?
A)zero pizzas
B)1 pizza
C)2 pizzas
D)3 pizzas
E)4 pizzas
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25
Use the information below to answer the following questions.
Fact 12.1.1 Money in the Bank
Two gas stations stand on opposite sides of the road: Rutter's Farm Store and Sheetz gas station. Rutter's doesn't even have to look across the highway to know when Sheetz changes its price for gas. When Sheetz raises the price, Rutter's pumps are busy. When Sheetz lowers prices, there's not a car in sight. Both gas stations survive but each has no control over the price.
Source: The Mining Journal, May 24, 2008
Refer to Fact 12.1.1.These gas stations operate in a ________market.
A)competitive
B)noncompetitive
C)monopolistic
D)challenging
E)consumer's
Fact 12.1.1 Money in the Bank
Two gas stations stand on opposite sides of the road: Rutter's Farm Store and Sheetz gas station. Rutter's doesn't even have to look across the highway to know when Sheetz changes its price for gas. When Sheetz raises the price, Rutter's pumps are busy. When Sheetz lowers prices, there's not a car in sight. Both gas stations survive but each has no control over the price.
Source: The Mining Journal, May 24, 2008
Refer to Fact 12.1.1.These gas stations operate in a ________market.
A)competitive
B)noncompetitive
C)monopolistic
D)challenging
E)consumer's
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26
Use the table below to answer the following questions.
Table 12.2.1
Refer to Table 12.2.1, which gives the total revenue schedule and total cost schedule of a perfectly competitive firm.Economic profit is maximized when the firm produces ________ units of output.
A)zero
B)7
C)3
D)6
E)5
Table 12.2.1
Refer to Table 12.2.1, which gives the total revenue schedule and total cost schedule of a perfectly competitive firm.Economic profit is maximized when the firm produces ________ units of output.
A)zero
B)7
C)3
D)6
E)5
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27
Use the information below to answer the following questions.
Fact 12.1.1 Money in the Bank
Two gas stations stand on opposite sides of the road: Rutter's Farm Store and Sheetz gas station. Rutter's doesn't even have to look across the highway to know when Sheetz changes its price for gas. When Sheetz raises the price, Rutter's pumps are busy. When Sheetz lowers prices, there's not a car in sight. Both gas stations survive but each has no control over the price.
Source: The Mining Journal, May 24, 2008
Refer to Fact 12.1.1.The price of gasoline is determined by ________.The marginal revenue from gasoline equals ________.
A)the quantity of gasoline that Rutter's and Sheetz sells; average variable cost
B)the number of tourists who drive by Rutter's and Sheetz; average fixed cost
C)the other goods and services that Rutter's and Sheetz sell; average total cost
D)market demand and market supply; price
E)the price elasticity of demand of gasoline; the change in total revenue that occurs when the price of a litre of gasoline rises by an incremental amount
Fact 12.1.1 Money in the Bank
Two gas stations stand on opposite sides of the road: Rutter's Farm Store and Sheetz gas station. Rutter's doesn't even have to look across the highway to know when Sheetz changes its price for gas. When Sheetz raises the price, Rutter's pumps are busy. When Sheetz lowers prices, there's not a car in sight. Both gas stations survive but each has no control over the price.
Source: The Mining Journal, May 24, 2008
Refer to Fact 12.1.1.The price of gasoline is determined by ________.The marginal revenue from gasoline equals ________.
A)the quantity of gasoline that Rutter's and Sheetz sells; average variable cost
B)the number of tourists who drive by Rutter's and Sheetz; average fixed cost
C)the other goods and services that Rutter's and Sheetz sell; average total cost
D)market demand and market supply; price
E)the price elasticity of demand of gasoline; the change in total revenue that occurs when the price of a litre of gasoline rises by an incremental amount
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28
Use the table below to answer the following questions.
Table 12.2.2
Refer to Table 12.2.2, which gives the total cost schedule for Chip's Pizza Palace, a perfectly competitive firm.If Chip shuts down in the short run, his total cost is
A)$0.
B)$10 an hour.
C)$12 an hour.
D)$22 an hour.
E)$40 an hour.
Table 12.2.2
Refer to Table 12.2.2, which gives the total cost schedule for Chip's Pizza Palace, a perfectly competitive firm.If Chip shuts down in the short run, his total cost is
A)$0.
B)$10 an hour.
C)$12 an hour.
D)$22 an hour.
E)$40 an hour.
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29
Use the table below to answer the following questions.
Table 12.2.1
Refer to Table 12.2.1, which gives the total revenue schedule and total cost schedule of a perfectly competitive firm.If the firm produces 2 units of output, it
A)makes an economic profit of $9.
B)makes an economic profit of $60.
C)incurs an economic loss of $9.
D)incurs an economic loss of $60.
E)incurs an economic loss of $69.
Table 12.2.1
Refer to Table 12.2.1, which gives the total revenue schedule and total cost schedule of a perfectly competitive firm.If the firm produces 2 units of output, it
A)makes an economic profit of $9.
B)makes an economic profit of $60.
C)incurs an economic loss of $9.
D)incurs an economic loss of $60.
E)incurs an economic loss of $69.
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30
Use the information below to answer the following questions.
Fact 12.1.1 Money in the Bank
Two gas stations stand on opposite sides of the road: Rutter's Farm Store and Sheetz gas station. Rutter's doesn't even have to look across the highway to know when Sheetz changes its price for gas. When Sheetz raises the price, Rutter's pumps are busy. When Sheetz lowers prices, there's not a car in sight. Both gas stations survive but each has no control over the price.
Source: The Mining Journal, May 24, 2008
Refer to Fact 12.1.1.Each of these gas stations has little control over the price of gasoline because
A)the price of gasoline is determined by head office.
B)lowering the price will eliminate competition and the government mandates that gasoline stations must have competition.
C)if it raises its price, the station will lose customers.
D)the price of gasoline is set according to the price of oil.
E)the demand for gasoline is perfectly inelastic.
Fact 12.1.1 Money in the Bank
Two gas stations stand on opposite sides of the road: Rutter's Farm Store and Sheetz gas station. Rutter's doesn't even have to look across the highway to know when Sheetz changes its price for gas. When Sheetz raises the price, Rutter's pumps are busy. When Sheetz lowers prices, there's not a car in sight. Both gas stations survive but each has no control over the price.
Source: The Mining Journal, May 24, 2008
Refer to Fact 12.1.1.Each of these gas stations has little control over the price of gasoline because
A)the price of gasoline is determined by head office.
B)lowering the price will eliminate competition and the government mandates that gasoline stations must have competition.
C)if it raises its price, the station will lose customers.
D)the price of gasoline is set according to the price of oil.
E)the demand for gasoline is perfectly inelastic.
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31
Use the table below to answer the following questions.
Table 12.2.3
Refer to Table 12.2.3 which gives the total cost schedule for Brenda's Balloon Shop, a perfectly competitive firm.The average variable cost of producing the 1st balloon is
A)$1.00.
B)$4.00.
C)$2.00.
D)$4.80.
E)$3.00.
Table 12.2.3
Refer to Table 12.2.3 which gives the total cost schedule for Brenda's Balloon Shop, a perfectly competitive firm.The average variable cost of producing the 1st balloon is
A)$1.00.
B)$4.00.
C)$2.00.
D)$4.80.
E)$3.00.
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32
Use the table below to answer the following questions.
Table 12.2.1
Refer to Table 12.2.1, which gives the total revenue schedule and total cost schedule of a perfectly competitive firm.The marginal revenue received from the sale of the 4th unit of output is
A)$3.
B)$15.
C)$10.
D)$120.
E)$30.
Table 12.2.1
Refer to Table 12.2.1, which gives the total revenue schedule and total cost schedule of a perfectly competitive firm.The marginal revenue received from the sale of the 4th unit of output is
A)$3.
B)$15.
C)$10.
D)$120.
E)$30.
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33
A firm that temporarily shuts down and produces no output incurs a loss equal to its
A)total fixed cost.
B)total variable cost.
C)marginal cost.
D)average fixed cost.
E)average total cost.
A)total fixed cost.
B)total variable cost.
C)marginal cost.
D)average fixed cost.
E)average total cost.
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34
Use the table below to answer the following questions.
Table 12.2.1
Refer to Table 12.2.1, which gives the total revenue schedule and total cost schedule of a perfectly competitive firm.The marginal cost of increasing production from 4 units to 5 units is
A)$16.
B)$128.
C)$100.
D)$116.
E)$30.
Table 12.2.1
Refer to Table 12.2.1, which gives the total revenue schedule and total cost schedule of a perfectly competitive firm.The marginal cost of increasing production from 4 units to 5 units is
A)$16.
B)$128.
C)$100.
D)$116.
E)$30.
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35
Use the table below to answer the following questions.
Table 12.2.3
Refer to Table 12.2.3, which gives the total cost schedule for Brenda's Balloon Shop, a perfectly competitive firm.The average fixed cost of producing the 4th balloon is
A)$4.30.
B)$4.80.
C)$4.70.
D)$4.50.
E)$1.00.
Table 12.2.3
Refer to Table 12.2.3, which gives the total cost schedule for Brenda's Balloon Shop, a perfectly competitive firm.The average fixed cost of producing the 4th balloon is
A)$4.30.
B)$4.80.
C)$4.70.
D)$4.50.
E)$1.00.
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36
Use the table below to answer the following questions.
Table 12.2.3
Refer to Table 12.2.3, which gives the total cost schedule for Brenda's Balloon Shop, a perfectly competitive firm.The marginal cost of increasing production from 4 balloons an hour to 5 balloons an hour is
A)$1.00.
B)$4.50.
C)$4.70.
D)$4.80.
E)$4.40.
Table 12.2.3
Refer to Table 12.2.3, which gives the total cost schedule for Brenda's Balloon Shop, a perfectly competitive firm.The marginal cost of increasing production from 4 balloons an hour to 5 balloons an hour is
A)$1.00.
B)$4.50.
C)$4.70.
D)$4.80.
E)$4.40.
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37
Use the table below to answer the following questions.
Table 12.2.1
Refer to Table 12.2.1, which gives the total revenue schedule and total cost schedule of a perfectly competitive firm.The short-run equilibrium price of one unit of the good is
A)$3.
B)$10.
C)$15.
D)$25.
E)$30.
Table 12.2.1
Refer to Table 12.2.1, which gives the total revenue schedule and total cost schedule of a perfectly competitive firm.The short-run equilibrium price of one unit of the good is
A)$3.
B)$10.
C)$15.
D)$25.
E)$30.
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38
Suppose a firm is trying to decide whether or not to temporarily shut down to minimize total loss.If price equals average variable cost, then
A)total revenue equals total fixed cost, and the loss equals total variable cost.
B)total revenue equals total variable cost, and the loss equals total fixed cost.
C)total fixed cost is zero.
D)total variable cost equals total fixed cost.
E)total cost equals total variable cost.
A)total revenue equals total fixed cost, and the loss equals total variable cost.
B)total revenue equals total variable cost, and the loss equals total fixed cost.
C)total fixed cost is zero.
D)total variable cost equals total fixed cost.
E)total cost equals total variable cost.
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39
Use the table below to answer the following questions.
Table 12.2.3
Refer to Table 12.2.3, which gives the total cost schedule for Brenda's Balloon Shop, a perfectly competitive firm.Brenda's total fixed cost is
A)$3 an hour.
B)$4 an hour.
C)$7 an hour.
D)$29 an hour.
E)zero.
Table 12.2.3
Refer to Table 12.2.3, which gives the total cost schedule for Brenda's Balloon Shop, a perfectly competitive firm.Brenda's total fixed cost is
A)$3 an hour.
B)$4 an hour.
C)$7 an hour.
D)$29 an hour.
E)zero.
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40
A firm will shut down temporarily when the price is so low that total revenue is insufficient to cover the
A)total cost of production.
B)total variable cost of production.
C)total fixed cost of production.
D)marginal cost of production.
E)average variable cost of production.
A)total cost of production.
B)total variable cost of production.
C)total fixed cost of production.
D)marginal cost of production.
E)average variable cost of production.
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41
In a perfectly competitive market, the market price is $8.An individual firm is producing the output at which MC = $8.AVC at that output is $10.What should the firm do to maximize its economic profit in the short run?
A)shut down
B)expand output
C)contract output but continue to produce
D)leave output unchanged
E)raise the price
A)shut down
B)expand output
C)contract output but continue to produce
D)leave output unchanged
E)raise the price
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42
A firm maximizes profit by producing the output at which marginal cost equals
A)marginal revenue.
B)minimum average total cost.
C)minimum average variable cost.
D)average fixed cost.
E)total revenue.
A)marginal revenue.
B)minimum average total cost.
C)minimum average variable cost.
D)average fixed cost.
E)total revenue.
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43
Use the figure below to answer the following questions.
Figure 12.2.2
Refer to Figure 12.2.2, which shows a perfectly competitive firm's economic profit and loss.The firm is incurring a loss at
A)point A.
B)point B.
C)point C.
D)point D.
E)both points B and D.
Figure 12.2.2
Refer to Figure 12.2.2, which shows a perfectly competitive firm's economic profit and loss.The firm is incurring a loss at
A)point A.
B)point B.
C)point C.
D)point D.
E)both points B and D.
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44
If price falls below minimum average variable cost, the best a firm can do is
A)increase production and incur a loss equal to total variable cost.
B)increase production and incur a loss equal to total fixed cost.
C)stop production and incur a loss equal to total fixed cost.
D)stop production and incur a loss equal to total variable cost.
E)stay at the same production level and incur a loss equal to the difference between total cost and total revenue.
A)increase production and incur a loss equal to total variable cost.
B)increase production and incur a loss equal to total fixed cost.
C)stop production and incur a loss equal to total fixed cost.
D)stop production and incur a loss equal to total variable cost.
E)stay at the same production level and incur a loss equal to the difference between total cost and total revenue.
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45
Use the figure below to answer the following question.
Figure 12.2.1
Refer to Figure 12.2.1, which shows a perfectly competitive firm's total revenue and total cost curves.Which one of the following statements is false?
A)Economic profit is the vertical distance between the total revenue curve and the total cost curve.
B)At an output of Q₁ units a day, the firm makes zero economic profit.
C)At an output greater than Q₃ units a day, the firm incurs an economic loss.
D)At an output of Q₂ units a day, the firm incurs an economic loss.
E)At an output less than Q₁ units a day, the firm incurs an economic loss.
Figure 12.2.1
Refer to Figure 12.2.1, which shows a perfectly competitive firm's total revenue and total cost curves.Which one of the following statements is false?
A)Economic profit is the vertical distance between the total revenue curve and the total cost curve.
B)At an output of Q₁ units a day, the firm makes zero economic profit.
C)At an output greater than Q₃ units a day, the firm incurs an economic loss.
D)At an output of Q₂ units a day, the firm incurs an economic loss.
E)At an output less than Q₁ units a day, the firm incurs an economic loss.
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46
Use the table below to answer the following question.
Table 12.2.4
Refer to Table 12.2.4.The market is perfectly competitive and there are 1,000 firms that produce paper. The top table sets out the market demand schedule for paper.
Each producer of paper has the costs shown in the bottom table when it uses its least-cost plant size.
The market price is ________ a box and the market output is ________ boxes. The output produced by each firm is ________ boxes.Each firm ________.
A)$7.00; 250,000; 250; incurs an economic loss of $1,000 a week
B)$8.40; 350,000; 350; makes zero economic profit
C)$7.65; 300,000; 300; incurs an economic loss of $834 a week
D)$8.40; 350,000; 350; incurs an economic loss of $581 a week
E)$7.65; 350,000; 300; makes zero economic profit
Table 12.2.4
Refer to Table 12.2.4.The market is perfectly competitive and there are 1,000 firms that produce paper. The top table sets out the market demand schedule for paper.
Each producer of paper has the costs shown in the bottom table when it uses its least-cost plant size.
The market price is ________ a box and the market output is ________ boxes. The output produced by each firm is ________ boxes.Each firm ________.
A)$7.00; 250,000; 250; incurs an economic loss of $1,000 a week
B)$8.40; 350,000; 350; makes zero economic profit
C)$7.65; 300,000; 300; incurs an economic loss of $834 a week
D)$8.40; 350,000; 350; incurs an economic loss of $581 a week
E)$7.65; 350,000; 300; makes zero economic profit
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47
If a perfectly competitive firm is producing in the short run at an output where price is less than average total cost, the firm
A)will shut down.
B)is breaking even.
C)is still making a positive economic profit.
D)is incurring an economic loss but will continue to operate as long as price is above minimum average fixed cost.
E)is incurring an economic loss but will continue to operate as long as price is above minimum average variable cost.
A)will shut down.
B)is breaking even.
C)is still making a positive economic profit.
D)is incurring an economic loss but will continue to operate as long as price is above minimum average fixed cost.
E)is incurring an economic loss but will continue to operate as long as price is above minimum average variable cost.
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48
If a perfectly competitive firm's marginal revenue is greater than its marginal cost, the firm
A)cannot increase its economic profit.
B)must be making an economic profit.
C)will decrease its output to increase economic profit.
D)will increase its output to increase economic profit.
E)will lower the price.
A)cannot increase its economic profit.
B)must be making an economic profit.
C)will decrease its output to increase economic profit.
D)will increase its output to increase economic profit.
E)will lower the price.
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49
Use the figure below to answer the following questions.
Figure 12.2.2
Refer to Figure 12.2.2, which shows a perfectly competitive firm's economic profit and loss.The firm is breaking even at points
A)A and C.
B)A and D.
C)B and C.
D)B and D.
E)C and D.
Figure 12.2.2
Refer to Figure 12.2.2, which shows a perfectly competitive firm's economic profit and loss.The firm is breaking even at points
A)A and C.
B)A and D.
C)B and C.
D)B and D.
E)C and D.
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50
A perfectly competitive firm's supply curve includes its marginal cost curve at all prices above minimum
A)average total cost.
B)average fixed cost.
C)total cost.
D)average variable cost.
E)total variable cost.
A)average total cost.
B)average fixed cost.
C)total cost.
D)average variable cost.
E)total variable cost.
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51
If a perfectly competitive firm's marginal revenue is less than its marginal cost, the firm
A)cannot increase its economic profit.
B)must be making an economic profit.
C)will decrease its output to increase economic profit.
D)will increase its output to increase economic profit.
E)must raise the price.
A)cannot increase its economic profit.
B)must be making an economic profit.
C)will decrease its output to increase economic profit.
D)will increase its output to increase economic profit.
E)must raise the price.
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52
In the price range below minimum average variable cost, a perfectly competitive firm's supply curve is
A)horizontal at the market price.
B)vertical at zero output.
C)the same as its marginal cost curve.
D)the same as its average variable cost curve.
E)the same as its total variable cost curve.
A)horizontal at the market price.
B)vertical at zero output.
C)the same as its marginal cost curve.
D)the same as its average variable cost curve.
E)the same as its total variable cost curve.
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53
The maximum loss a firm will experience in the short run equals
A)zero.
B)its total fixed cost.
C)its total variable cost.
D)its total cost.
E)its marginal cost.
A)zero.
B)its total fixed cost.
C)its total variable cost.
D)its total cost.
E)its marginal cost.
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54
A perfectly competitive firm is maximizing profit if
A)marginal cost equals price and price is not below minimum average variable cost.
B)marginal cost equals price and price is not below minimum average fixed cost.
C)total revenue is at a maximum.
D)average variable cost is at a minimum.
E)average total cost is at a minimum.
A)marginal cost equals price and price is not below minimum average variable cost.
B)marginal cost equals price and price is not below minimum average fixed cost.
C)total revenue is at a maximum.
D)average variable cost is at a minimum.
E)average total cost is at a minimum.
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55
A firm is producing the profit-maximizing amount of output when it is producing where its ________ curve intersects its ________ curve.
A)marginal cost; average total cost
B)marginal cost; average variable cost
C)marginal cost; marginal revenue
D)average total cost; average variable cost
E)total cost; total revenue
A)marginal cost; average total cost
B)marginal cost; average variable cost
C)marginal cost; marginal revenue
D)average total cost; average variable cost
E)total cost; total revenue
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56
In a perfectly competitive market, a firm maximizes its profit by producing the quantity of output at which
A)market price equals average fixed cost.
B)market price equals marginal cost.
C)average variable cost equals average fixed cost.
D)market price equals minimum average variable cost.
E)market price equals marginal revenue.
A)market price equals average fixed cost.
B)market price equals marginal cost.
C)average variable cost equals average fixed cost.
D)market price equals minimum average variable cost.
E)market price equals marginal revenue.
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57
In the price range above minimum average variable cost, a perfectly competitive firm's supply curve is
A)horizontal at the market price.
B)vertical at zero output.
C)the same as its marginal cost curve.
D)the same as its average variable cost curve.
E)the same as its total variable cost curve.
A)horizontal at the market price.
B)vertical at zero output.
C)the same as its marginal cost curve.
D)the same as its average variable cost curve.
E)the same as its total variable cost curve.
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58
The shutdown point occurs at the point of minimum
A)marginal cost.
B)average variable cost.
C)average fixed cost.
D)total cost.
E)average total cost.
A)marginal cost.
B)average variable cost.
C)average fixed cost.
D)total cost.
E)average total cost.
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59
If a perfectly competitive firm is producing an output at which price is equal to average total cost, the firm
A)should shut down.
B)is breaking even.
C)is making an economic profit.
D)is incurring an economic loss.
E)is not producing its profit-maximizing quantity.
A)should shut down.
B)is breaking even.
C)is making an economic profit.
D)is incurring an economic loss.
E)is not producing its profit-maximizing quantity.
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60
A perfectly competitive firm is producing at the point at which marginal cost equals marginal revenue. If the firm increases production, total revenue ________ and economic profit ________.
A)increases; increases
B)increases; decreases
C)decreases; decreases
D)decreases; increases
E)increases; remains unchanged
A)increases; increases
B)increases; decreases
C)decreases; decreases
D)decreases; increases
E)increases; remains unchanged
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61
Use the figure below to answer the following question.
Figure 12.3.4
Refer to Figure 12.3.4, which shows cost curves of Paul's Picture Frames Inc.The picture frame market is perfectly competitive and the market price is $12 a frame.Paul produces ________ frames each week and makes ________ total revenue.
A)20; $240
B)20; $96
C)zero; zero
D)30; $360
E)30; zero
Figure 12.3.4
Refer to Figure 12.3.4, which shows cost curves of Paul's Picture Frames Inc.The picture frame market is perfectly competitive and the market price is $12 a frame.Paul produces ________ frames each week and makes ________ total revenue.
A)20; $240
B)20; $96
C)zero; zero
D)30; $360
E)30; zero
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62
Use the figure below to answer the following question.
Figure 12.3.3
Refer to Figure 12.3.3, which shows the cost curves and marginal revenue curve of a firm in a perfectly competitive industry.The firm is
A)making an economic profit.
B)incurring an economic loss.
C)breaking even.
D)at its shutdown point.
E)larger than the other firms in the industry.
Figure 12.3.3
Refer to Figure 12.3.3, which shows the cost curves and marginal revenue curve of a firm in a perfectly competitive industry.The firm is
A)making an economic profit.
B)incurring an economic loss.
C)breaking even.
D)at its shutdown point.
E)larger than the other firms in the industry.
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63
Use the figure below to answer the following questions.
Figure 12.3.1
Refer to Figure 12.3.1, which shows the cost curves and marginal revenue curve of a firm in a perfectly competitive industry.In the short run, the firm will
A)exit from the industry.
B)break even.
C)make an economic profit.
D)incur an economic loss.
E)close down.
Figure 12.3.1
Refer to Figure 12.3.1, which shows the cost curves and marginal revenue curve of a firm in a perfectly competitive industry.In the short run, the firm will
A)exit from the industry.
B)break even.
C)make an economic profit.
D)incur an economic loss.
E)close down.
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64
Use the information below to answer the following questions.
Fact 12.2.1 Chevy Volt Production Temporarily Shut Down
GM will temporarily lay off 1,300 employees as the company stops production of the electric car, Chevy Volt, for five weeks. GM had hoped to sell 10,000 Volts last year, but ended up selling just 7,671. It plans to maintain inventory levels by adjusting production to match demand.
Source: Politico, March 2, 2012
Refer to Fact 12.2.1.The shutdown decision maximizes GM's economic profit (or minimizes its loss)when price is less than
A)average variable cost.
B)total variable cost.
C)average fixed cost.
D)total fixed cost.
E)average total cost.
Fact 12.2.1 Chevy Volt Production Temporarily Shut Down
GM will temporarily lay off 1,300 employees as the company stops production of the electric car, Chevy Volt, for five weeks. GM had hoped to sell 10,000 Volts last year, but ended up selling just 7,671. It plans to maintain inventory levels by adjusting production to match demand.
Source: Politico, March 2, 2012
Refer to Fact 12.2.1.The shutdown decision maximizes GM's economic profit (or minimizes its loss)when price is less than
A)average variable cost.
B)total variable cost.
C)average fixed cost.
D)total fixed cost.
E)average total cost.
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65
If a profit-maximizing firm in a perfectly competitive market is making an economic profit, then it must be producing a level of output where
A)price is greater than marginal cost.
B)price is greater than marginal revenue.
C)marginal cost is greater than marginal revenue.
D)marginal cost is greater than average total cost.
E)average total cost is greater than marginal cost.
A)price is greater than marginal cost.
B)price is greater than marginal revenue.
C)marginal cost is greater than marginal revenue.
D)marginal cost is greater than average total cost.
E)average total cost is greater than marginal cost.
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66
Use the figure below to answer the following question.
Figure 12.3.2
Refer to Figure 12.3.2, which shows the cost curves and marginal revenue curve of a firm in a perfectly competitive industry, The firm is
A)making an economic profit.
B)incurring an economic loss.
C)breaking even.
D)not maximizing economic profit.
E)going to close down temporarily.
Figure 12.3.2
Refer to Figure 12.3.2, which shows the cost curves and marginal revenue curve of a firm in a perfectly competitive industry, The firm is
A)making an economic profit.
B)incurring an economic loss.
C)breaking even.
D)not maximizing economic profit.
E)going to close down temporarily.
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67
In which one of the following situations will a perfectly competitive firm make an economic profit?
A)MR > AVC
B)MR > ATC
C)ATC > MC
D)ATC > MR
E)MC > AVC
A)MR > AVC
B)MR > ATC
C)ATC > MC
D)ATC > MR
E)MC > AVC
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68
In a perfectly competitive market, which of the following increases the price that the firms charge in the short run?
A)an increase in the number of firms
B)an increase in the price of a good that is a complement of the good produced in this market
C)an increase in market supply
D)a decrease in the price of a good that is a substitute for the good produced in this market
E)an increase in market demand
A)an increase in the number of firms
B)an increase in the price of a good that is a complement of the good produced in this market
C)an increase in market supply
D)a decrease in the price of a good that is a substitute for the good produced in this market
E)an increase in market demand
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69
Use the figure below to answer the following question.
Figure 12.3.5
Refer to Figure 12.3.5, which shows the cost curves and the marginal revenue curve for a perfectly competitive firm.To maximize its profit, the firm produces ________ units of output and the price is ________ a unit.
A)30; $40
B)30; $30
C)20; $40
D)20; $30
E)30; $32.50
Figure 12.3.5
Refer to Figure 12.3.5, which shows the cost curves and the marginal revenue curve for a perfectly competitive firm.To maximize its profit, the firm produces ________ units of output and the price is ________ a unit.
A)30; $40
B)30; $30
C)20; $40
D)20; $30
E)30; $32.50
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70
Use the figure below to answer the following questions.
Figure 12.3.1
Refer to Figure 12.3.1, which shows the cost curves and marginal revenue curve of a firm in a perfectly competitive industry.In the short run, if the market price of the good is $10, the firm produces ________ units of output and ________.
A)10; incurs an economic loss of $20
B)10; incurs an economic loss of $40
C)less than 10; incurs an economic loss of $20
D)10; makes an economic profit of $20
E)less than 10; incurs an economic loss of less than $20
Figure 12.3.1
Refer to Figure 12.3.1, which shows the cost curves and marginal revenue curve of a firm in a perfectly competitive industry.In the short run, if the market price of the good is $10, the firm produces ________ units of output and ________.
A)10; incurs an economic loss of $20
B)10; incurs an economic loss of $40
C)less than 10; incurs an economic loss of $20
D)10; makes an economic profit of $20
E)less than 10; incurs an economic loss of less than $20
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71
Use the information below to answer the following questions.
Fact 12.2.1 Chevy Volt Production Temporarily Shut Down
GM will temporarily lay off 1,300 employees as the company stops production of the electric car, Chevy Volt, for five weeks. GM had hoped to sell 10,000 Volts last year, but ended up selling just 7,671. It plans to maintain inventory levels by adjusting production to match demand.
Source: Politico, March 2, 2012
Refer to Fact 12.2.1.The shutdown decision ________ total fixed cost and ________ total variable cost.
A)decreases; decreases
B)does not change; decreases
C)does not change; does not change
D)increases; does not change
E)does not change; increases
Fact 12.2.1 Chevy Volt Production Temporarily Shut Down
GM will temporarily lay off 1,300 employees as the company stops production of the electric car, Chevy Volt, for five weeks. GM had hoped to sell 10,000 Volts last year, but ended up selling just 7,671. It plans to maintain inventory levels by adjusting production to match demand.
Source: Politico, March 2, 2012
Refer to Fact 12.2.1.The shutdown decision ________ total fixed cost and ________ total variable cost.
A)decreases; decreases
B)does not change; decreases
C)does not change; does not change
D)increases; does not change
E)does not change; increases
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72
In the short run, a firm in a perfectly competitive market
A)can make an economic profit, incur an economic loss, or break even.
B)always makes an economic profit.
C)chooses the price that maximizes its economic profit.
D)chooses the price that minimizes its marginal cost.
E)shuts down if it incurs an economic loss.
A)can make an economic profit, incur an economic loss, or break even.
B)always makes an economic profit.
C)chooses the price that maximizes its economic profit.
D)chooses the price that minimizes its marginal cost.
E)shuts down if it incurs an economic loss.
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73
Use the information below to answer the following questions.
Fact 12.2.1 Chevy Volt Production Temporarily Shut Down
GM will temporarily lay off 1,300 employees as the company stops production of the electric car, Chevy Volt, for five weeks. GM had hoped to sell 10,000 Volts last year, but ended up selling just 7,671. It plans to maintain inventory levels by adjusting production to match demand.
Source: Politico, March 2, 2012
Refer to Fact 12.2.1.GM will start producing the Chevy Volt again when price is greater than
A)average variable cost.
B)total variable cost.
C)average fixed cost.
D)total fixed cost.
E)total cost.
Fact 12.2.1 Chevy Volt Production Temporarily Shut Down
GM will temporarily lay off 1,300 employees as the company stops production of the electric car, Chevy Volt, for five weeks. GM had hoped to sell 10,000 Volts last year, but ended up selling just 7,671. It plans to maintain inventory levels by adjusting production to match demand.
Source: Politico, March 2, 2012
Refer to Fact 12.2.1.GM will start producing the Chevy Volt again when price is greater than
A)average variable cost.
B)total variable cost.
C)average fixed cost.
D)total fixed cost.
E)total cost.
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74
A firm in a perfectly competitive industry is maximizing its economic profit by producing 500 units of output.At 500 units of output, which one of the following must be false?
A)MC < AVC
B)MC < ATC
C)MC > ATC
D)MR < ATC
E)MR > AVC
A)MC < AVC
B)MC < ATC
C)MC > ATC
D)MR < ATC
E)MR > AVC
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75
If a profit-maximizing firm in a perfectly competitive market is incurring an economic loss, then it must be producing a level of output where
A)price is greater than marginal cost.
B)price is greater than marginal revenue.
C)marginal cost is greater than marginal revenue.
D)average total cost is greater than marginal cost.
E)average total cost is less than marginal cost.
A)price is greater than marginal cost.
B)price is greater than marginal revenue.
C)marginal cost is greater than marginal revenue.
D)average total cost is greater than marginal cost.
E)average total cost is less than marginal cost.
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76
Use the table below to answer the following questions.
Table 12.2.5
Refer to Table 12.2.5.Archibald's Tattoos is a perfectly competitive firm.The firm's total costs are shown in the table.The price at Archibald's shut-down point is
A)$10.00.
B)$15.00.
C)$12.50.
D)$13.33.
E)$17.00.
Table 12.2.5
Refer to Table 12.2.5.Archibald's Tattoos is a perfectly competitive firm.The firm's total costs are shown in the table.The price at Archibald's shut-down point is
A)$10.00.
B)$15.00.
C)$12.50.
D)$13.33.
E)$17.00.
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77
In a perfectly competitive market, the short-run market supply curve is
A)the horizontal sum of the supply curves of all the individual firms.
B)the vertical sum of the supply curves of all the individual firms.
C)vertical at the total level of output being produced by all firms.
D)horizontal at the current market price.
E)upward sloping with a constant slope.
A)the horizontal sum of the supply curves of all the individual firms.
B)the vertical sum of the supply curves of all the individual firms.
C)vertical at the total level of output being produced by all firms.
D)horizontal at the current market price.
E)upward sloping with a constant slope.
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78
Use the table below to answer the following questions.
Table 12.2.5
Refer to Table 12.2.5.Archibald's Tattoos is a perfectly competitive firm.The firm's total costs are shown in the table.If the price of a tattoo is $12.50, Archibald's economic profit is
A)-$10.00 an hour.
B)zero.
C)$12.50 an hour.
D)$10.00 an hour.
E)maximized.
Table 12.2.5
Refer to Table 12.2.5.Archibald's Tattoos is a perfectly competitive firm.The firm's total costs are shown in the table.If the price of a tattoo is $12.50, Archibald's economic profit is
A)-$10.00 an hour.
B)zero.
C)$12.50 an hour.
D)$10.00 an hour.
E)maximized.
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79
In which one of the following situations will a perfectly competitive firm incur an economic loss?
A)MR > AVC
B)MR > ATC
C)ATC < MC
D)ATC > MR
E)MC > AVC
A)MR > AVC
B)MR > ATC
C)ATC < MC
D)ATC > MR
E)MC > AVC
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80
Use the information below to answer the following questions.
Fact 12.4.1
Franklin is a fiddlehead farmer. He sold 10 bags of fiddleheads last month, with total fixed cost of $100 and total variable cost of $50.
Refer to Fact 12.4.1.If the price of fiddleheads last month was $15 per bag, Franklin
A)should have shut down because total revenue did not cover total variable cost.
B)incurred an economic loss of $135.
C)made zero economic profit.
D)made an economic profit of $50.
E)made an economic profit of $100.
Fact 12.4.1
Franklin is a fiddlehead farmer. He sold 10 bags of fiddleheads last month, with total fixed cost of $100 and total variable cost of $50.
Refer to Fact 12.4.1.If the price of fiddleheads last month was $15 per bag, Franklin
A)should have shut down because total revenue did not cover total variable cost.
B)incurred an economic loss of $135.
C)made zero economic profit.
D)made an economic profit of $50.
E)made an economic profit of $100.
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