Econ chapter 8

27) Suppose TC = 10 + (0.1 * q2). If p = 10, the firm's profits will be A) 240. B) 250. C) 260. D) -10 because the firm will shut down.

A) 240.

45)Long-run economic rent or profit do not exist for fixed factors like land because, A) bidding drives up the price of the factor until no economic rent exists. B) there is no market for such factors. C) these factors have L-shaped isoquants. D) these factors will earn economic profits.

A) bidding drives up the price of the factor until no economic rent exists.

11)If a firm makes zero economic profit, then the firm A) has total revenues greater than its costs. B) must shut down. C) can be earning positive business profit. D) must have no fixed costs.

A) can be earning positive business profit.

6) Many car owners and car dealers describe their different cars for sale in the local newspapers and list their asking price. Many people shopping for a used car consider the different choices listed in the paper. The market for used cars could be described as A) competitive. B) perfectly competitive. C) non-competitive. D) having high transaction costs.

A) competitive.

21)If a profit-maximizing firm finds that, at its current level of production, MR < MC, it will A) decrease output. B) increase output. C) shut down. D) operate at a loss.

A) decrease output.

4) In a perfectly competitive market, A) firms can freely enter and exit. B) firms sell a differentiated product. C) transaction costs are high. D) All of the above.

A) firms can freely enter and exit.

32)Suppose that once a well is dug, water flows out of it continuously without any additional effort. Customers collect their water and pay a per gallon fee when they leave the site of the well. In the short run, the competitive firm in this market A) has no variable costs. B) has no fixed costs. C) will shut down. D) can produce water at no cost.

A) has no variable costs.

19)If a firm finds that it maximizes short-run profits by shutting down, which of the following must be true? A) p < AVC for all levels of output. B) p < AVC only for the level of output at which p = MC. C) p < AVC only if the firm has no fixed costs. D) The firm will earn zero profit.

A) p < AVC for all levels of output.

23)If a firm is a price taker, then its marginal revenue will always equal A) price. B) total cost. C) zero. D) one.

A) price.

10)The demand curve an individual competitive firm faces is known as its A) excess demand curve. B) market demand curve. C) residual demand curve. D) leftover demand curve.

A) residual demand curve.

25)When the production of a good involves several inputs, an increase in the cost of one input will cause total costs to A) rise more than in proportion. B) rise less than in proportion. C) remain unchanged. D) rise by the exact amount of the input price increase.

A) rise less than in proportion.

3) In the absence of any government regulation on price, if a firm has no power to set price on its own, one can safely conclude A) the demand curve for the firm's product is horizontal. B) there are many firms in the industry. C) the market is in long-run equilibrium. D) the firms in this industry are not profitable.

A) the demand curve for the firm's product is horizontal.

44)In the long run, competitive firms MUST be profit maximizers because if they do not maximize profits A) they will not survive. B) they will not be price takers. C) they will attract entry. D) the profits that they do earn will only cover variable costs.

A) they will not survive.

31)Suppose that once a well is dug, water flows out of it continuously without any additional effort. Customers collect their water and pay a per gallon fee when they leave the site of the well. In the short run, the competitive firm in this market A) will not shut down because variable costs are zero. B) has no fixed costs. C) faces diminishing marginal returns. D) can act as a price setter.

A) will not shut down because variable costs are zero.

14)Figure 8.1 shows the cost curves for a competitive firm. If the firm is to operate in the short run, price must exceed A) $0. B) $5. C) $10. D) $11.

B) $5.

41)Suppose that for each firm in the competitive market for potatoes, long-run average cost is minimized at $0.20 per pound when 500 pounds are grown. The demand for potatoes is Q = 10,000/p. If the long-run supply curve is horizontal, then how many firms will this industry sustain in the long run? A) 0 B) 100 C) 50,000 D) There is not enough information to answer.

B) 100

28)Suppose TC = 10 + (0.1 * q2). If there are 100 identical firms in the market, the market supply curve is A) Q = 1000 * p. B) Q = 500 * p. C) Q = 100 * p. D) Q = 10.

B) Q = 500 * p

34)In deciding whether to operate in the short run, the firm must be concerned with the relationship between price of the output and A) total cost. B) average variable cost. C) total fixed cost. D) the number of buyers.

B) average variable cost.

20)If a profit-maximizing firm finds that, at its current level of production, MR > MC, it will A) earn greater profits than if MR = MC. B) increase output. C) decrease output. D) shut down.

B) increase output.

12)If marginal revenue equals marginal cost, the firm is maximizing profits as long as A) the resulting profits are positive. B) marginal cost exceeds marginal revenue for greater levels of output. C) the average cost curve lies above the demand curve. D) All of the above are required.

B) marginal cost exceeds marginal revenue for greater levels of output.

8) If a firm operates in a perfectly competitive market, then it will most likely A) advertise its product on television. B) settle for whatever price is offered. C) have a difficult time obtaining information about the market price. D) have an easy time keeping other firms out of the market.

B) settle for whatever price is offered.

40)Suppose that for each firm in the competitive market for potatoes, long-run average cost is minimized at $0.20 per pound when 500 pounds are grown. If the long-run supply curve is horizontal, then A) some firms will enjoy long-run profits because they operate at minimum average cost. B) the long-run price will be $0.20 per pound. C) each consumer will purchase $100 worth of potatoes. D) the long-run price will be set just above $0.20 per pound.

B) the long-run price will be $0.20 per pound.

37)Long-run market supply curves are upward sloping if A) firms are identical. B) the number of firms is restricted in the long run. C) input prices fall as the industry expands. D) All of the above.

B) the number of firms is restricted in the long run.

39)If firms in a competitive market are not identical, then the long-run market supply curve will be A) horizontal. B) upward sloping. C) downward sloping. D) undetermined.

B) upward sloping

If consumers view the output of any firm in a market to be identical to the output of any other firm in the market, the demand curve for the output of any given firm A) will be identical to the market demand curve. B) will be horizontal. C) will be vertical. D) cannot be determined from the information given.

B) will be horizontal.

42)Suppose that for each firm in the competitive market for potatoes, long-run average cost is minimized at $0.20 per pound when 500 pounds are grown. The demand for potatoes is Q = 10000/p. If the long-run supply curve is horizontal, then how much will consumers spend, in total, on potatoes? A) $0 B) $500 C) $10,000 D) $50,000

C) $10,000

13)Figure 8.1 shows the cost curves for a competitive firm. If the firm is to earn economic profit, price must exceed A) $0. B) $5. C) $10. D) $11.

C) $10.

30)If a firm is currently in short-run equilibrium earning a profit, what impact will a lump-sum tax have on its production decision? A) The firm will decrease output to earn a higher profit. B) The firm will increase output but earn a lower profit. C) The firm will not change output but earn a lower profit. D) The firm will not change output and earn a higher profit.

C) The firm will not change output but earn a lower profit.

1) Economists define a market to be competitive when the firms A) spend large amounts of money on advertising to lure customers away from the competition. B) watch each other's behavior closely. C) are price takers. D) All of the above.

C) are price takers.

29)Figure 8.2 shows the cost curves for a typical firm in a market and three possible market supply curves. If there are 100 identical firms, the market supply curve is best represented by A) curve A. B) curve B. C) curve C. D) Either curve A or B, but definitely not C.

C) curve C.

5) In a competitive market, if buyers did not know all the prices charged by the many firms, A) all firms still face horizontal demand curves. B) firms sell a differentiated product. C) demand curves can be downward sloping for some or all firms. D) the number of firms will most likely decrease.

C) demand curves can be downward sloping for some or all firms.

38)Long-run market supply curves are downward sloping if A) firms are identical. B) the number of firms is restricted in the long run. C) input prices fall as the industry expands. D) All of the above.

C) input prices fall as the industry expands.

18)If a competitive firm maximizes short-run profits by producing some quantity of output, which of the following must be true at that level of output? A) p > MC. B) MR > MC. C) p >AVC. D) All of the above.

C) p >AVC.

22)The competitive firm's supply curve is equal to A) its marginal cost curve. B) the portion of its marginal cost curve that lies above AC. C) the portion of its marginal cost curve that lies above AVC. D) the portion of its marginal cost curve that lies above AFC.

C) the portion of its marginal cost curve that lies above AVC.

16)A firm will shut down in the short run if A) total fixed costs are too high. B) total revenue from operating would not cover all costs. C) total revenue from operating would not cover variable costs. D) total revenue from operating would not cover fixed costs.

C) total revenue from operating would not cover variable costs.

15)Figure 8.1 shows the cost curves for a competitive firm. If the market price is $15 per unit, the firm will earn profits of A) $0. B) $4. C) $40. D) $160.

D) $160.

43)Suppose that for each firm in the competitive market for potatoes, long-run average cost is minimized at $0.20 per pound when 500 pounds are grown. The demand for potatoes is Q = 10000/p. If the long-run supply curve is horizontal, then how many pounds of potatoes will be consumed in total? A) 0 B) 500 C) 10,000 D) 50,000

D) 50,000

17)If a competitive firm maximizes short-run profits by producing some quantity of output, which of the following must be true at that level of output? A) p = MC. B) MR = MC. C) p >AVC. D) All of the above.

D) All of the above.

24)An increase in the cost of an input will result in A) a leftward shift in the firm's supply curve. B) an upward shift of the firm's marginal cost curve. C) a leftward shift of the market supply curve. D) All of the above.

D) All of the above.

36)Assuming a horizontal long-run market supply curve, which of the following statements is (are) TRUE about competitive firms in the long run? A) p = MC B) p = AC C) profit = 0 D) All of the above.

D) All of the above.

7) Many car owners and car dealers describe their different cars for sale in the local newspapers and list their asking price. Many people shopping for a used car consider the different choices listed in the paper. The absence of which condition prohibits this market from being described as perfectly competitive? A) Buyers and sellers know the prices. B) Firms freely enter and exit. C) Transaction costs are low. D) Consumer believes all firms sell identical products.

D) Consumer believes all firms sell identical products.

33)If a competitive firm cannot earn profit at any level of output during a given short-run period, then which of the following is LEAST likely to occur? A) It will shut down in the short run and wait until the price increases sufficiently. B) It will exit the industry in the long run. C) It will operate at a loss in the short run. D) It will minimize its loss by decreasing output so that price exceeds marginal cost.

D) It will minimize its loss by decreasing output so that price exceeds marginal cost.

26)If a competitive firm is in short-run equilibrium, then A) profits equal zero. B) it will not operate at a loss. C) an increase in its fixed cost will have no effect on profit. D) an increase in its fixed cost will have no effect on output.

D) an increase in its fixed cost will have no effect on output.

35)In the long run, profits will equal zero in a competitive market because of A) constant returns to scale. B) identical products being produced by all firms. C) the availability of information. D) free entry and exit.

D) free entry and exit.

9) If a firm happened to be the only seller of a particular product, it might behave as a price taker as long as A) buyers have full information about the firm's price. B) the transaction costs of doing business with this firm are low. C) there are many buyers. D) there is free entry and exit.

D) there is free entry and exit.