Deck 8: Perfect Competition

Question 1

Suppose Thelma and Louise both sell tomatoes in a perfectly competitive market.If Louise increases the amount of tomatoes that she sells in the market,_____

A)Thelma must reduce the amount of tomatoes she sells.
B)the price Thelma can charge for her output decreases.
C)the price Thelma can charge for her output increases.
D)the price at which Thelma sells her output is unaffected.
E)Thelma's profits must fall.

Answer 1

D

Question 2

Which of the following would not help identify market structure?

A)the number of firms in a market
B)the type of product produced in a market
C)the ease of entry into a market
D)the forms of competition among the firms in a market
E)the price of a good sold in a market

Answer 2

E

Question 3

Which of the following firms is most likely to be a perfectly competitive firm?

A)one of the three largest automobile manufacturers in the United States
B)one of the "Seven Sisters," which are oil-producing companies
C)a public school operated by the government
D)a farm that grows soybeans
E)a manufacturer of refrigerators

Answer 3

D

Question 4

Which of the following best approximates a perfectly competitive market structure?

A)automobile manufacturing
B)the insurance market
C)foreign exchange markets
D)the airlines industry
E)stereo equipment

Question 5

If every firm in a market is a price taker,then which of the following is true?

A)There are numerous sellers in the market.
B)There are no substitutes of the products sold in the market.
C)There is limited resource mobility.
D)There are few consumers for the product being sold in the market.
E)A few firms in the market have market power.

Question 6

A firm in a perfectly competitive market _____

A)can raise the price of its product and sell more output.
B)has to lower the price of its product to sell more output.
C)can increase its supply to lower the market price.
D)can decrease its supply to increase the market price.
E)has to accept the market price for its product.

Question 7

Which of the following is true of a perfectly competitive market?

A)Firms experience constant returns to scale.
B)Firms face significant barriers to entry.
C)Firms experience decreasing returns to scale.
D)Each firm chooses the price at which it wants to sell its product.
E)Each seller supplies only a small fraction of the total amount in a market.

Question 8

Which of the following is not necessarily a characteristic of a perfectly competitive market structure?

A)low prices
B)a large number of buyers and sellers
C)a homogeneous product
D)perfect information
E)easy entry and exit in the long run

Question 9

Which of the following is likely to be present in a perfectly competitive market?

A)patents
B)government licenses
C)non-price competition such as advertising
D)high capital costs
E)commodities

Question 10

In a perfectly competitive industry,we are likely to find that _____

A)firms produce a wide variety of products.
B)there exist strict barriers to entry.
C)firms do not earn positive profits in the short run.
D)firms do not advertise.
E)firms can choose the price of their products.

Question 11

The price charged by a perfectly competitive firm is determined by _____

A)each individual firm.
B)a group of firms acting together as a cartel.
C)market demand and market supply.
D)the firm's total costs.
E)the firm's average variable cost.

Question 12

A farmer in the Midwest who produces wheat faces a horizontal demand curve because _____

A)the quantity he supplies is so large relative to the market that it has no impact on the market price for wheat.
B)the quantity he supplies is so small relative to the market that it has no impact on the market price for wheat.
C)he produces a good for which there are no substitutes.
D)he produces a good for which there are no complements.
E)he produces an inferior good.

Question 13

Individual firms in a perfectly competitive market can _____

A)sell more only by lowering their prices.
B)sell all they produce at the market price.
C)earn more profit if they charge a price above the market price.
D)earn more profit if they charge a price below the market price.
E)exit the market only if the existing firms allow it.

Question 14

Suppose the market for hot pretzels in New York City is perfectly competitive.Which of the following is true of the demand in this market?

A)The demand curve facing each seller is perfectly elastic.
B)The demand curve facing each seller is perfectly inelastic.
C)The market demand curve is perfectly elastic.
D)The market demand curve is perfectly inelastic.
E)The market demand curve is positively sloped.

Question 15

Perfectly competitive firms respond to changing market conditions by varying _____

A)price.
B)output.
C)market share.
D)cost structures.
E)advertising campaigns.

Question 16

The demand curve facing a perfectly competitive firm is _____

A)vertical at the equilibrium quantity.
B)upward sloping.
C)a straight line through the origin.
D)a horizontal straight line at the market price.
E)downward sloping.

Question 17

Adam's Apples,a small firm supplying apples in a perfectly competitive market,decides to cut its production to half this year.Which of the following is likely to occur in this case?

A)The market price of apples will increase.
B)The market price of apples will decrease.
C)The market demand for apples will increase.
D)The market price of apples will not be affected.
E)The market supply curve of apples will shift rightward.

Question 18

Perfectly competitive firms are price takers because _____

A)each firm is too small compared to the market to be able to affect price.
B)one firm determines the market price and all other firms accept this price.
C)firms charge the price that government determines.
D)firms must accept any price that consumers offer them.
E)firms earn high profits by charging different prices to different groups of consumers.

Question 19

Which of the following characterizes a perfectly competitive market?

A)a few firms fiercely competing by slashing prices
B)product differentiation through aggressive advertising
C)perfect information
D)limited resource mobility
E)barriers to entry, such as licenses

Question 20

The demand curve for the output of a perfectly competitive firm is _____

A)perfectly inelastic.
B)perfectly elastic.
C)unit elastic.
D)downward sloping.
E)nonlinear.

Question 21

Table 8.2

$\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\text { Demand }$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\text { Cost }$
$$\begin{array} { | c | c | c | c | } \hline \text { Price(dollars) } & \begin{array} { c } \text { Quantity } \\\text { (cords of } \\\text { wood) }\end{array} & \begin{array} { c } \text { Quantity } \\\text { (cords of } \\\text { wood) }\end{array} & \begin{array} { c } \text { Marginal } \\\text { cost (dollars) }\end{array} \\\hline 60 & 5 & 1 & 50 \\\hline 80 & 4 & 2 & 60 \\\hline 100 & 3 & 3 & 100 \\\hline 120 & 2 & 4 & 140 \\\hline\end{array}$$

-Refer to Table 8.2.The perfectly competitive firewood market is composed of 1,000 identical consumers and 1,000 identical firms.The table shows the cost for one representative firm and the demand schedule for one representative consumer.The demand curve facing a single firm will be a _____

A)horizontal line at a price of $120.
B)horizontal line at a price of $100.
C)vertical line at a quantity of 3 cords of firewood.
D)horizontal line at a price of $60.
E)vertical line at a quantity of 4 cords of firewood.

Question 22

Suppose the equilibrium price in a perfectly competitive industry is $100,and a firm in the industry charges $112.Which of the following is likely to happen?

A)The firm will not be able to sell any of its output.
B)The firm will sell more output than its competitors.
C)The firm's profits will increase.
D)The firm's revenue will increase.
E)The firm will gradually take over the entire industry.

Question 23

Exhibit 8.1

Refer to Exhibit 8.1 for wheat markets.The demand curve is facing what type of market?

A)the perfectly competitive firm
B)a group of firms acting together as a cartel
C)the whole market
D)a monopoly market
E)an oligopoly market

Question 24

Table 8.2

$\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\text { Demand }$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\text { Cost }$
$$\begin{array} { | c | c | c | c | } \hline \text { Price(dollars) } & \begin{array} { c } \text { Quantity } \\\text { (cords of } \\\text { wood) }\end{array} & \begin{array} { c } \text { Quantity } \\\text { (cords of } \\\text { wood) }\end{array} & \begin{array} { c } \text { Marginal } \\\text { cost (dollars) }\end{array} \\\hline 60 & 5 & 1 & 50 \\\hline 80 & 4 & 2 & 60 \\\hline 100 & 3 & 3 & 100 \\\hline 120 & 2 & 4 & 140 \\\hline\end{array}$$

-Refer to Table 8.2.The perfectly competitive firewood market is composed of 1,000 identical consumers and 1,000 identical firms.The table shows the cost for one representative firm and the demand schedule for one representative consumer.The equilibrium price in this market is _____

A)$60.
B)$80.
C)$100.
D)$120.
E)below $60.

Question 25

Exhibit 8.1

Refer to Exhibit 8.1,which shows a firm's demand in wheat markets.What will happen if the firm increases the price from $5 to $6?

A)Demand will decrease.
B)Demand will increase.
C)The firm will sell more wheat.
D)The firm will sell less wheat.
E)The firm will sell no wheat.

Question 26

Table 8.1
$$\begin{array} { | c | c | c | } \begin{array} { l } \text { Seller A Offer Price } \\( \$ )\end{array} & \text { Quantity (shares) } & \begin{array} { l } \text { Stock Market Price } \\\text { for Google } ( \$ )\end{array} \\\hline 900 & 50 & 950 \\\hline 950 & 100 & 950 \\\hline 1,000 & 150 & 950 \\\hline\end{array}$$

-Refer to Table 8.1.The perfectly competitive for shares of Google stock is composed of millions of buyers and sellers on the stock market.What is the market equilibrium price for Google stock?

A)$900
B)$950
C)$1,000
D)over $950
E)less than $950

Question 27

Table 8.1
$$\begin{array} { | c | c | c | } \begin{array} { l } \text { Seller A Offer Price } \\( \$ )\end{array} & \text { Quantity (shares) } & \begin{array} { l } \text { Stock Market Price } \\\text { for Google } ( \$ )\end{array} \\\hline 900 & 50 & 950 \\\hline 950 & 100 & 950 \\\hline 1,000 & 150 & 950 \\\hline\end{array}$$

-Refer to Table 8.1.The perfectly competitive for shares of Google stock is composed of millions of buyers and sellers in the stock market.At a price of $950,how many shares is Seller A willing to sell?

A)50 shares
B)100 shares
C)150 shares
D)over 150 shares
E)less than 50 shares

Question 28

Exhibit 8.1

Refer to Exhibit 8.1,which shows a firm's demand in wheat markets.This firm is said to be a(an)_____

A)price taker.
B)price maker.
C)monopolist.
D)oligopolist.
E)rival.

Question 29

Economists assume that firms seek to _____

A)maximize accounting profit.
B)maximize economic profit.
C)maximize total revenue.
D)earn normal profit.
E)maximize cost.

Question 30

Firms that ignore the profit maximization strategy _____

A)are somewhat profitable.
B)are very profitable.
C)are steady growth firms.
D)survive for long periods.
E)do not survive for long.

Question 31

Table 8.1
$$\begin{array} { | c | c | c | } \begin{array} { l } \text { Seller A Offer Price } \\( \$ )\end{array} & \text { Quantity (shares) } & \begin{array} { l } \text { Stock Market Price } \\\text { for Google } ( \$ )\end{array} \\\hline 900 & 50 & 950 \\\hline 950 & 100 & 950 \\\hline 1,000 & 150 & 950 \\\hline\end{array}$$

-Refer to Table 8.1.The perfectly competitive for shares of Google stock is composed of millions of buyers and sellers on the stock market.If Seller A sells 1,000 shares at $950,what will happen to the market price of Google stock?

A)It will increase to more than $950.
B)It will decrease to more than $950.
C)It will stay the same at $950.
D)It will increase to more than $1,000.
E)It will increase to more than $1,500.

Question 32

How does a perfectly competitive firm maximize profit?

A)by controlling price
B)by minimizing costs
C)by competing with other sellers
D)by increasing its customer base
E)by controlling its output

Question 33

Exhibit 8.1

Refer to Exhibit 8.1,which shows a firm's demand in wheat markets.If the firm increases output from 5 to 500 bushels a day,what will happen to the price?

A)The price will increase.
B)The price will decrease.
C)The price will stay constant at $5.
D)The price will increase by more than $5.
E)The price will decrease by less than $5.

Question 34

Which of the following is true of economic profit?

A)It equals total revenue minus total cost.
B)It excludes implicit cost.
C)It is any profit lower than a normal profit.
D)Firms attempt to maximize accounting profit and are not concerned about economic profit.
E)It is always equal to zero in a perfectly competitive market in the short run.

Question 35

Economic theory assumes that _____

A)the goal of firms is to maximize their sales.
B)firms are concerned only about the quantity supplied in a market.
C)the goal of firms is to maximize their profit.
D)firms are concerned only about the price of their product.
E)firms are concerned only about the utility consumers gain from consumption.

Question 36

Table 8.2

$\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\text { Demand }$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\text { Cost }$
$$\begin{array} { | c | c | c | c | } \hline \text { Price(dollars) } & \begin{array} { c } \text { Quantity } \\\text { (cords of } \\\text { wood) }\end{array} & \begin{array} { c } \text { Quantity } \\\text { (cords of } \\\text { wood) }\end{array} & \begin{array} { c } \text { Marginal } \\\text { cost (dollars) }\end{array} \\\hline 60 & 5 & 1 & 50 \\\hline 80 & 4 & 2 & 60 \\\hline 100 & 3 & 3 & 100 \\\hline 120 & 2 & 4 & 140 \\\hline\end{array}$$

-Refer to Table 8.2.The perfectly competitive firewood market is composed of 1,000 identical consumers and 1,000 identical firms.The table shows the cost for one representative firm and the demand schedule for one representative consumer.The profit-maximizing quantity for each firm in this market is _____

A)zero cords of wood.
B)one cord of wood.
C)two cords of wood.
D)three cords of wood.
E)four cords of wood.

Question 37

In a perfectly competitive market,what can one farmer do to change the market price?

A)Sell more wheat.
B)Sell less wheat.
C)Compete with neighboring farms for customers.
D)Compete with the wheat market for sellers.
E)The firm cannot change the market price.

Question 38

Table 8.2

$\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\text { Demand }$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\text { Cost }$
$$\begin{array} { | c | c | c | c | } \hline \text { Price(dollars) } & \begin{array} { c } \text { Quantity } \\\text { (cords of } \\\text { wood) }\end{array} & \begin{array} { c } \text { Quantity } \\\text { (cords of } \\\text { wood) }\end{array} & \begin{array} { c } \text { Marginal } \\\text { cost (dollars) }\end{array} \\\hline 60 & 5 & 1 & 50 \\\hline 80 & 4 & 2 & 60 \\\hline 100 & 3 & 3 & 100 \\\hline 120 & 2 & 4 & 140 \\\hline\end{array}$$

-Refer to Table 8.2.The perfectly competitive firewood market is composed of 1,000 identical consumers and 1,000 identical firms.The table shows the cost for one representative firm and the demand schedule for one representative consumer._____ cords of firewood will be bought and sold in the market at equilibrium.

A)5,000
B)4,000
C)3,000
D)2,000
E)1,000

Question 39

In Connecticut,the market for apples is perfectly competitive.Suppose consumers' tastes change so that the market demand for apples increases.In this case,the demand curves faced by individual firms will _____

A)not change.
B)become less elastic.
C)shift upward.
D)become upward sloping.
E)shift downward.

Question 40

Table 8.1
$$\begin{array} { | c | c | c | } \begin{array} { l } \text { Seller A Offer Price } \\( \$ )\end{array} & \text { Quantity (shares) } & \begin{array} { l } \text { Stock Market Price } \\\text { for Google } ( \$ )\end{array} \\\hline 900 & 50 & 950 \\\hline 950 & 100 & 950 \\\hline 1,000 & 150 & 950 \\\hline\end{array}$$

-Refer to Table 8.1.In the stock market,what can one seller of a small amount of shares do to change the market price of Google stock?

A)Sell more shares.
B)Sell fewer shares.
C)Compete with other traders for buyers.
D)Compete with Google for sellers.
E)The seller cannot change the market price.

Question 41

The total revenue curve for a perfectly competitive firm_____

A)is a vertical line intersecting the horizontal axis.
B)is a horizontal line intersecting the vertical axis.
C)is a backward-bending curve.
D)is a straight line that starts from the origin and slopes upward.
E)starts at the origin, slopes upward at first, and then slopes downward.

Question 42

Exhibit 8.2

Refer to Exhibit 8.2.The shape of the total cost curve between the output levels represented by points a and b reflects _____

A)fixed costs.
B)increasing profits.
C)diminishing marginal returns.
D)increasing marginal returns.
E)economies of scale.

Question 43

Exhibit 8.3

Refer to Exhibit 8.3,which shows short-run profit maximization by a perfectly competitive firm._____,the marginal revenue of the firm is equal to its marginal cost.

A)At the output level represented by point a
B)At the output level represented by point b
C)At the output level represented by point c
D)Between the output levels represented by points a and b
E)Between the output levels represented by points c and d

Question 44

Marginal revenue is defined as _____

A)total revenue divided by quantity.
B)total revenue minus total cost.
C)the change in total revenue divided by the change in quantity.
D)the change in total revenue divided by quantity.
E)the change in total revenue divided by the change in per unit price.

Question 45

Exhibit 8.2

Refer to Exhibit 8.2.The total revenue curve reflects _____

A)a constant rate of profit for the competitive firms.
B)diminishing marginal revenue.
C)increasing marginal revenue.
D)the fact that perfectly competitive firms are price takers.
E)the fact that consumers will purchase more from a firm that sells its product at higher prices.

Question 46

Exhibit 8.2

Refer to Exhibit 8.2,which shows the total cost and total revenue curves of a firm.The firm maximizes profit at an output represented by _____

A) point a.
B) point b.
C) point c.
D) point d.
E) a point beyond point d.

Question 47

Table 8.4
$\begin{array}{cc}\begin{array}{c}\text { Quantity } \\\text { of Output }\end{array} & \text { Market Price (\$) } \\\hline 0 & 0 \\10 & 5 \\20 & 5 \\30 & 5 \\40 & 5 \\50 & 5\end{array}$

-Refer to Table 8.4,which shows the output supplied by a firm and its total revenue.When does marginal revenue start decreasing?

A)at a quantity of 10
B)at a quantity of 20
C)at a quantity of 30
D)at a quantity of 40
E)It stays constant at MR=P.

Question 48

_____ is the change in total cost from producing one more unit of the output.

A)Marginal cost
B)Variable cost
C)Opportunity cost
D)Average cost
E)Fixed cost

Question 49

Table 8.4
$\begin{array}{cc}\begin{array}{c}\text { Quantity } \\\text { of Output }\end{array} & \text { Market Price (\$) } \\\hline 0 & 0 \\10 & 5 \\20 & 5 \\30 & 5 \\40 & 5 \\50 & 5\end{array}$

-Refer to Table 8.4,which shows the output supplied by a firm and its total revenue.When does marginal revenue start increasing?

A)at a quantity of 10
B)at a quantity of 20
C)at a quantity of 30
D)at a quantity of 40
E)It stays constant at MR=P.

Question 50

Table 8.5
$$\begin{array} { | c | c | c | } \hline \begin{array} { c } \text { Quantity } \\\text { of Output }\end{array} & \begin{array} { c } \text { Total } \\\text { Revenue } ( \$ )\end{array} & \begin{array} { c } \text { Total } \\\text { Cost } ( \$ )\end{array} \\\hline 0 & 0 & 50 \\\hline 10 & 50 & 70 \\\hline 20 & 100 & 90 \\\hline 30 & 150 & 120 \\\hline 40 & 200 & 200 \\\hline 50 & 250 & 325 \\\hline\end{array}$$

-Refer to Table 8.5,which shows the output supplied by a firm,its total revenue,and its total cost of production.It represents a firm in the _____

A)long run, because there is no fixed cost.
B)short run, because there is no equilibrium.
C)long run, because there is an equilibrium level of output.
D)short run, because a firm incurs fixed cost.
E)long run, because there is a normal profit.

Question 51

Table 8.4
$\begin{array}{cc}\begin{array}{c}\text { Quantity } \\\text { of Output }\end{array} & \text { Market Price (\$) } \\\hline 0 & 0 \\10 & 5 \\20 & 5 \\30 & 5 \\40 & 5 \\50 & 5\end{array}$

-Refer to Table 8.4,which shows the output supplied by a firm and its total revenue.What happens to marginal revenue as the firm increases its output along the quantities shown?

A)It varies with output.
B)It stays constant at $50.
C)It gradually increases by decreasing amounts.
D)It gradually increases by increasing amounts.
E)It ranges from a low of $50 to a high of $250.

Question 52

The slope of the total revenue curve for a perfectly competitive firm equals _____

A)marginal revenue.
B)economic profit.
C)accounting profit.
D)average revenue.
E)normal profit.

Question 53

Table 8.4
$\begin{array}{cc}\begin{array}{c}\text { Quantity } \\\text { of Output }\end{array} & \text { Market Price (\$) } \\\hline 0 & 0 \\10 & 5 \\20 & 5 \\30 & 5 \\40 & 5 \\50 & 5\end{array}$

-Refer to Table 8.4,which shows the output supplied by a firm and its total revenue.As this is a competitive market structure,what is the difference between average revenue and marginal revenue?

A)It varies with output.
B)It stays constant at $50.
C)It gradually increases by decreasing amounts.
D)It gradually increases by increasing amounts.
E)It ranges from a low of $50 to a high of $250.

Question 54

Table 8.3
$\begin{array}{cc}\begin{array}{c}\text { Quantity } \\\text { of Output }\end{array} & \begin{array}{c}\text { Total } \\\text { Cost (\$) })\end{array} \\\hline 0 & 50 \\10 & 85 \\20 & 150 \\30 & 220 \\40 & 305 \\50 & 455\end{array}$

-Refer to Table 8.3,which shows the output supplied by a firm and its total cost of production.If the market price is $8.50,the profit-maximizing output and profit are _____

A)40 units and $35, respectively.
B)40 units and $0, respectively.
C)0 units and ?$50, respectively.
D)30 units and $25, respectively.
E)50 units and $30, respectively.

Question 55

Table 8.4
$\begin{array}{cc}\begin{array}{c}\text { Quantity } \\\text { of Output }\end{array} & \text { Market Price (\$) } \\\hline 0 & 0 \\10 & 5 \\20 & 5 \\30 & 5 \\40 & 5 \\50 & 5\end{array}$

-Refer to Table 8.4,which shows the output supplied by a firm and its total revenue.What is total revenue (TR)when the quantity of output is 10 units?

A)$0
B)$10
C)$20
D)$40
E)$50

Question 56

The golden rule of profit maximization says that _____

A)profit-maximizing firms produce where marginal revenue equals total cost.
B)profit-maximizing firms produce where marginal revenue equals marginal cost.
C)profit-maximizing firms produce where total revenue equals marginal cost.
D)profit-maximizing firms produce where marginal revenue is less than marginal cost.
E)profit-maximizing firms produce where marginal cost is greater than marginal revenue.

Question 57

A perfectly competitive firm that earns an economic profit in the short run chooses the output that _____

A)maximizes its total revenue.
B)minimizes its total cost.
C)maximizes the difference between total revenue and total cost.
D)maximizes the difference between total revenue and explicit cost.
E)maximizes the difference between total revenue and implicit cost.

Question 58

Table 8.4
$\begin{array}{cc}\begin{array}{c}\text { Quantity } \\\text { of Output }\end{array} & \text { Market Price (\$) } \\\hline 0 & 0 \\10 & 5 \\20 & 5 \\30 & 5 \\40 & 5 \\50 & 5\end{array}$

-Refer to Table 8.4,which shows the output supplied by a firm and its total revenue.What is the difference between the firm's price and the market price when the quantity of output is 10 units?

A)$0
B)$10
C)$20
D)$40
E)$50

Question 59

Which of the following is true of the total revenue curve of a perfectly competitive firm?

A)It is horizontal.
B)It is vertical.
C)The slope of the curve decreases as output increases.
D)The slope of the curve increases as output increases.
E)The slope of the curve remains at a constant slope as output increases.

Question 60

Table 8.5
$$\begin{array} { | c | c | c | } \hline \begin{array} { c } \text { Quantity } \\\text { of Output }\end{array} & \begin{array} { c } \text { Total } \\\text { Revenue } ( \$ )\end{array} & \begin{array} { c } \text { Total } \\\text { Cost } ( \$ )\end{array} \\\hline 0 & 0 & 50 \\\hline 10 & 50 & 70 \\\hline 20 & 100 & 90 \\\hline 30 & 150 & 120 \\\hline 40 & 200 & 200 \\\hline 50 & 250 & 325 \\\hline\end{array}$$

-Refer to Table 8.5,which shows the output supplied by a firm,its total revenue,and its total cost of production.What is the profit-maximizing output?

A)10 units
B)20 units
C)30 units
D)40 units
E)50 units

Question 61

If a firm shuts down in the short run,its total revenue is _____

A)zero.
B)equal to its fixed cost.
C)greater than its variable cost.
D)greater than its fixed cost.
E)less than its variable cost.

Question 62

If Harry's Blueberries,a perfectly competitive firm,shuts down in the short run,Harry must pay _____

A)the variable cost but not the fixed cost of production.
B)the marginal cost but not the variable cost of production.
C)both the variable cost and the fixed cost of production.
D)only the variable cost of production.
E)only the fixed cost of production.

Question 63

If a perfectly competitive firm is incurring losses in the short run,it _____

A)will incur a loss in the long run as well.
B)will shut down.
C)will continue to operate in the short run if its fixed cost is covered.
D)will continue to operate in the short run if its variable cost is covered.
E)will raise its price in the short run.

Question 64

For a perfectly competitive firm,____

A)price equals marginal revenue at all output levels.
B)price equals marginal revenue only at the profit-maximizing quantity.
C)price exceeds marginal revenue at all output levels.
D)price is less than marginal revenue only at the profit-maximizing quantity.
E)price is less than marginal revenue at all output levels.

Question 65

The Hound Dog Bus Company contemplates expanding its New Mexico operations by offering services from Raton to Santa Fe.It has estimated that the total cost of the trip will be $400,of which $150 is the fixed cost,which it has already paid.The company expects an increase in revenue by $275 from the trip.The Hound Dog Bus Co.should _____

A)offer this service because it will earn zero profit.
B)not offer this service because marginal revenue is less than marginal cost.
C)offer this service because total revenue exceeds fixed cost.
D)not offer this service because total cost exceeds total revenue.
E)offer this service because the additional revenue exceeds the additional cost of this service.

Question 66

Exhibit 8.6

Refer to Exhibit 8.6,which shows the demand and the cost curves of a perfectly competitive firm.The market price equals _____

A)$28.
B)$12.
C)$40.
D)$20.
E)$24.

Question 67

Exhibit 8.4

Refer to Exhibit 8.4,which shows the demand and the cost curves of a perfectly competitive firm.The firm will earn zero economic profit _____

A)at a price of P_1.
B)at a price of P_2.
C)at a price of P_3.
D)at a price between P₁ and P_2.
E)at a price above P_1.

Question 68

Exhibit 8.6

Refer to Exhibit 8.6,which shows the demand and the cost curves of a perfectly competitive firm.At the profit-maximizing output level,the firm experiences _____

A)a loss of $3,200.
B)a profit of $1,600.
C)a profit of $1,200.
D)zero profit or loss.
E)a loss of $800.

Question 69

Exhibit 8.5

Refer to Exhibit 8.5,which shows the demand and the cost curves of a perfectly competitive firm.If the price-taking firm is currently producing 6 units,it should _____ to maximize profit in the short run.

A)keep producing 6 units
B)increase production to 12 units
C)increase production to 14 units
D)increase production to 8 units
E)decrease production below 6 units

Question 70

Exhibit 8.6

Refer to Exhibit 8.6,which shows the demand and the cost curves of a perfectly competitive firm.Total cost at the profit-maximizing output equals _____

A)$4,400.
B)$4,800.
C)$5,600.
D)$2,400.
E)$5,200.

Question 71

If Harry's Blueberries,a perfectly competitive firm,is losing money no matter how much it produces because of low market prices,it could _____

A)go out of business.
B)shut down in the short run.
C)increase production.
D)produce something else.
E)raise the price.

Question 72

If a firm is producing at an output level where the total revenue curve intersects the total cost curve,which of the following is true of the firm?

A)Its revenue is maximized.
B)Its cost is maximized.
C)Its cost is minimized.
D)Its profit is maximized.
E)Its profit is zero.

Question 73

If a perfectly competitive firm sells its product at the market price of $14 per unit,_____

A)its marginal revenue is $14 and its average revenue is less than $14 per unit.
B)its marginal revenue is less than $14 per unit and its average revenue is also less than $14 per unit.
C)its average revenue is $14 and its marginal revenue is less than $14 per unit.
D)its average revenue is $14 and its marginal revenue is also $14.
E)its average and marginal revenue are $14 only for the first unit sold.

Question 74

For perfectly competitive firms,which of the following correctly shows the relationship among market price (P),average revenue (AR),and marginal revenue (MR)?

A)price = average revenue (AR) = marginal revenue (MR)
B)price > average revenue (AR) = marginal revenue (MR)
C)price = average revenue AR > marginal revenue (MR)
D)price = average revenue (AR) < marginal revenue (MR)
E)price < average revenue (AR) = marginal revenue (MR)

Question 75

The Hound Dog Bus Company contemplates expanding its Virginia operations by offering services from Fairfax to Arlington.The total cost of the trip would be $120,of which $50 is the fixed cost,which it has already paid.The firm expects to earn an additional $60 in revenue from the trip.The Hound Dog Bus Company should _____

A)offer this service because it will earn a positive economic profit.
B)not offer this service because the marginal revenue is less than the marginal cost.
C)offer this service because total revenue exceeds fixed cost.
D)not offer this service because total cost exceeds total revenue.
E)offer this service because the added revenue exceeds the added cost of this service.

Question 76

In the short run,if a firm shuts down,its loss is equal to _____

A)zero.
B)its variable cost.
C)its fixed cost.
D)its fixed cost minus its variable cost.
E)its fixed cost minus total revenue.

Question 77

Exhibit 8.4

Refer to Exhibit 8.4,which shows the demand and the cost curves of a perfectly competitive firm.At a market price of P₁,the profit-maximizing quantity for the firm is _____

A)a units of output.
B)b units of output.
C)e units of output.
D)d units of output.
E)between d and e units of output.

Question 78

A perfectly competitive firm's profit per unit of output equals _____

A)price minus average variable cost.
B)price minus marginal cost.
C)total revenue minus total cost.
D)price times quantity.
E)price minus average total cost.

Question 79

Average revenue is _____

A)total revenue minus total cost.
B)total revenue divided by the quantity of output.
C)total revenue divided by the quantity of the variable input.
D)the change in total revenue divided by the change in output.
E)the change in total revenue divided by the change in the quantity of an input used.

Question 80

Exhibit 8.6

Refer to Exhibit 8.6,which shows the demand and the cost curves of a perfectly competitive firm.Total revenue at the profit-maximizing output equals _____

A)$2,400.
B)$4,000.
C)$5,200.
D)$5,600.
E)$6,000.