Chapter 8

In a free market economy, firms operating in a perfectly competitive industry are said to have only one major choice to make. Which of the following correctly sets out that choice? A. what quantity to produce B. what price to charge C. what quantity of labor is needed D. what quality to produce

A. what quantity to produce

For a perfectly competitive firm, the marginal cost curve is identical to the firm�s ________________ . A. demand curve B. supply curve C. average total cost curve D. average variable cost curve

B. supply curve

The term _________________ refers to a firm operating in a perfectly competitive market that must take the prevailing market price for its product. A. price setter B. business entity C. price taker D. trend setter

C. price taker

If the price that a firm charges is lower than its ____________ of production, the firm will suffer losses. A. average cost B. marginal cost C. fixed cost D .variable cost

A. average cost

If a perfectly competitive firm is a price taker, then A. pressure from competing firms will force acceptance of the prevailing market price. B. it must be a relatively small player compared to its competitors in the overall market. C. it can increase or decrease its output without affecting overall quantity supplied in the market. D. quality differences will be very perceptible and will play a major role in purchasers' decisions.

A. pressure from competing firms will force acceptance of the prevailing market price.

If the quality differences of similar products are mostly imperceptible to the average consumer's eyes, which of the following will most likely play a major role in influencing the decisions of purchasers? A. price of competing products B. size of competing products C. purchaser's opportunity cost D. geographic origin of products

A. price of competing products

Economic profit can be derived from calculating total revenues minus all of the firm�s costs, A. excluding its opportunity costs. B. including its opportunity costs. C. including its marginal revenue. D. excluding its marginal revenue.

B. including its opportunity costs.

Temperatures have persisted below freezing levels in Florida throughout the months of December and January. As a result, demand for electricity sharply increased and the price of electricity rose sharply. The price of coal also rose. In these circumstances, any resulting shifts in the supply curves for coal miners and electricity producers A. will determine what price to produce at given the market demand. B. at all levels of output shifts marginal costs to the right. C. can also be interpreted as shifts of their respective marginal cost curves. D. shifts marginal costs to the right enabling both to produce more at any given market price.

B. at all levels of output shifts marginal costs to the right.

When a business adopts a strategy of reducing and/or discontinuing production in response to a sustained pattern of losses, it is A. considering opportunity costs. B. preparing to exit operations. C. preparing to reach its shutdown point. D. considering capital investments.

B. preparing to exit operations.

It is said that in a perfectly competitive market, raising the price of a firm's product from the prevailing market price of $179.00 to $199.00, ____________________. A. will likely cause the firm to reach its shutdown point immediately B. will cause the firm to recover some of its opportunity costs C. could likely result in a notable loss of sales to competitors D. is a sure sign the firm is raising the given price in the market

C. could likely result in a notable loss of sales to competitors