Question 1

For a perfectly competitive firm, when P = MC = ATC, the most profit the firm can earn is zero.

Accepted Answer

A) True 
 B)False

Question 2

The ________ that a firm takes in when it increases output by one additional unit is marginal revenue.

Accepted Answer

A)  total revenue 
B)  added revenue 
C)  extra resources 
D)  additional labor

Question 3

Assume Robbie's Robots operates in a perfectly competitive market producing 3,000 robots per day. At this output level, the selling price is $800 per robot and the marginal cost is $625 per robot. To maximize profits, Robbie's Robots should

Accepted Answer

A)  make no adjustments as they are already maximizing their profits. 
B)  increase their output. 
C)  decrease their output. 
D)  stop producing since it is earning a loss.

Question 4

Refer to the information provided in Figure 8.8 below to answer the question(s) that follow.  Figure 8.8
-Refer to Figure 8.8. What is the total cost of producing the profit-maximizing level of output?

Accepted Answer

A)  $9 
B)  $1,000 
C)  $5,600 
D)  $9,000

Question 5

Perfectly competitive firms will produce as long as marginal revenue exceeds marginal cost.

Accepted Answer

A) True 
 B)False

Question 6

The relationship between the price that a perfectly competitive firm can charge buyers and the firm's marginal revenue is that the price is ________ marginal revenue over all output.

Accepted Answer

A)  above 
B)  below 
C)  equal to 
D)  sometimes above and sometimes below

Question 7

At an output ________ of a firm's short run average total cost curve, a firm can use its fixed capital input at a lower average cost but only by using its variable input at a higher average cost.

Accepted Answer

A)  beyond the minimum point 
B)  beyond the maximum point 
C)  prior to the minimum point 
D)  equal to the highest level

Question 8

Refer to the information provided in Figure 8.6 below to answer the question(s) that follow.  Figure 8.6
-Refer to Figure 8.6. Curve 3 is Outdoor Equipment's

Accepted Answer

A)  marginal cost curve. 
B)  average variable cost curve. 
C)  average total cost curve. 
D)  average fixed cost curve.

Question 9

The Framing Gallery frames posters. The Framing Gallery has total fixed costs of $500. The Framing Gallery's average variable cost is $20 and its average total cost is $25. The Framing Gallery is currently framing

Accepted Answer

A)  5 posters. 
B)  25 posters. 
C)  100 posters. 
D)  a number of posters that is indeterminate from this information.

Question 10

At an output level of zero, total cost is zero.

Accepted Answer

A) True 
 B)False

Question 11

If a perfectly competitive firm's average total cost curve is below its demand schedule at any level of output, then the firm will earn ________ profits.

Accepted Answer

A)  positive 
B)  break-even 
C)  negative 
D)  zero

Question 12

The marginal cost curve intersects the ________ at its minimum.

Accepted Answer

A)  average variable cost curve 
B)  average total cost curve 
C)  average fixed cost curve 
D)  A and B are both correct.

Question 13

Refer to the short-run information provided in Figure 8.5 below to answer the question(s) that follow.  Figure 8.5
-Refer to Figure 8.5. The total fixed costs for Blackstar Drones are

Accepted Answer

A)  $0. 
B)  $50. 
C)  $150. 
D)  indeterminate from this information.

Question 14

Twenty-five students in a class take a test for which the average grade is 75. Then a twenty-sixth student enters the class, takes the same test, and scores 70. The test average grade calculated with 26 students will

Accepted Answer

A)  rise above 75. 
B)  fall below 75. 
C)  change from 75 but the direction is unclear. 
D)  still equal 75.

Question 15

Refer to the information provided in Figure 8.6 below to answer the question(s) that follow.  Figure 8.6
-Refer to Figure 8.6. Curve 2 is Outdoor Equipment's

Accepted Answer

A)  marginal cost curve. 
B)  average variable cost curve. 
C)  average total cost curve. 
D)  average fixed cost curve.

Question 16

If a profit-maximizing firm is currently producing output where MR = MC in the short run, it should

Accepted Answer

A)  increase output. 
B)  decrease output. 
C)  not change output. 
D)  shut down.

Question 17

Refer to the information provided in Figure 8.3 below to answer the question(s) that follow.  Figure 8.3
-Refer to Figure 8.3. If the total fixed cost is $50, then average total cost of producing 10 basketballs is

Accepted Answer

A)  $3. 
B)  $5. 
C)  $8. 
D)  $80.

Question 18

Refer to the information provided in Table 8.4 below to answer the question(s) that follow.
Table 8.4
 
-Refer to Table 8.4. Assume that the relevant time period is the short run. Assuming the price of labor (L) is $5 per unit and the price of capital (K) is $10 per unit, the average total cost of producing two units of output is

Accepted Answer

A)  $10. 
B)  $20. 
C)  $45. 
D)  $50.

Question 19

The added revenue that a firm takes in when it increases output by one additional unit is ________ revenue.

Accepted Answer

A)  total 
B)  marginal 
C)  variable 
D)  fixed

Question 20

If a firm in a perfectly competitive industry lowers its price below the market price, its

Accepted Answer

A)  total revenue will increase. 
B)  profit will decrease. 
C)  sales will drop to zero. 
D)  demand curve will become downward sloping.

Exam 8: Short-Run Costs and Output Decisions

For a perfectly competitive firm, when P = MC = ATC, the most profit the firm can earn is zero.

The ________ that a firm takes in when it increases output by one additional unit is marginal revenue.

Assume Robbie's Robots operates in a perfectly competitive market producing 3,000 robots per day. At this output level, the selling price is $800 per robot and the marginal cost is $625 per robot. To maximize profits, Robbie's Robots should

Refer to the information provided in Figure 8.8 below to answer the question(s) that follow. Figure 8.8 -Refer to Figure 8.8. What is the total cost of producing the profit-maximizing level of output?

Perfectly competitive firms will produce as long as marginal revenue exceeds marginal cost.

The relationship between the price that a perfectly competitive firm can charge buyers and the firm's marginal revenue is that the price is ________ marginal revenue over all output.

At an output ________ of a firm's short run average total cost curve, a firm can use its fixed capital input at a lower average cost but only by using its variable input at a higher average cost.

Refer to the information provided in Figure 8.6 below to answer the question(s) that follow. Figure 8.6 -Refer to Figure 8.6. Curve 3 is Outdoor Equipment's

The Framing Gallery frames posters. The Framing Gallery has total fixed costs of $500. The Framing Gallery's average variable cost is $20 and its average total cost is $25. The Framing Gallery is currently framing

At an output level of zero, total cost is zero.

If a perfectly competitive firm's average total cost curve is below its demand schedule at any level of output, then the firm will earn ________ profits.

The marginal cost curve intersects the ________ at its minimum.

Refer to the short-run information provided in Figure 8.5 below to answer the question(s) that follow. Figure 8.5 -Refer to Figure 8.5. The total fixed costs for Blackstar Drones are

Twenty-five students in a class take a test for which the average grade is 75. Then a twenty-sixth student enters the class, takes the same test, and scores 70. The test average grade calculated with 26 students will

Refer to the information provided in Figure 8.6 below to answer the question(s) that follow. Figure 8.6 -Refer to Figure 8.6. Curve 2 is Outdoor Equipment's

If a profit-maximizing firm is currently producing output where MR = MC in the short run, it should

Refer to the information provided in Figure 8.3 below to answer the question(s) that follow. Figure 8.3 -Refer to Figure 8.3. If the total fixed cost is $50, then average total cost of producing 10 basketballs is

The added revenue that a firm takes in when it increases output by one additional unit is ________ revenue.

If a firm in a perfectly competitive industry lowers its price below the market price, its