Economics 101 Quiz 3

Assume you look at the graph of a perfectly competitive firm and its average total cost curve is tangent to the horizontal price line. In this case the firm has an economic loss.

False

If a perfectly competitive firm has a loss, it must be true that P > ATC.

False

According to the shut-down rule, a firm should stay open in the short run if _______ P > AVC TR > TFC TR > ATC TR < TVC P = MC

P > AVC

You are told the following information for a perfectly competitive firm: It is producing at the output where MR = MC, and at that output, P = ATC. Which of the following statements is correct? The firm has an economic break even and should shut down in the short run. The firm has an economic break even, but more information is needed to know if it should stay open or shut down in the short run. Correct! The firm has an economic break even and should stay open in the short run.

The firm has an economic break even and should stay open in the short run.

You are told the following information for a perfectly competitive firm: It is producing at the output where MR = MC, and at that output, P > ATC. Which of the following statements is correct?

The firm has an economic profit. It should definitely stay open in the short run.

Which of the following is not correct regarding a monopoly?

The firm's price is below its marginal revenue.

At the profit maximizing output, which of the following statements is correct? There is more than one answer to this question. You must mark all of the correct answers to receive full credit for this question. The slope of the total profit curve is zero. Marginal revenue equals marginal profit. Correct! The slope of the total revenue curve equals the slope of the total cost curve. Marginal profit is equal to one.

The slope of the total profit curve is zero. The slope of the total revenue curve equals the slope of the total cost curve.

If a firm has an economic profit, it must have an accounting profit.

True

In perfect competition, everyone - all firms and all consumers - are price takers.

True

In the graph of a monopoly, the marginal revenue curve and the demand curve are separate curves.

True

The demand curve of a perfectly competitive firm is horizontal.

True

Consider a graph drawn with the average total cost curve and average variable cost curve. The vertical distance between the two curves is _______, and the _______ curve passes through the minimum points of the other two curves.

average fixed cost, marginal cost

In the long run, a perfectly competitive firm produces at the minimum point of its _______ curve which shows that it is efficient and minimizes its per-unit costs of production.

average total cost

Which of the following cost curves is a U-shaped curve? Correct! average total cost total cost average fixed cost total variable cost total fixed cost

average total cost

Which term describes the situation in which a firm increases its use of all inputs by the same percentage and its output increases by a smaller percentage?

decreasing returns to scale

In the range of output where the marginal cost curve slopes up the firm has _______. In the range of output where the long run average total cost curve slopes up the firm has _______.

diminishing marginal returns, decreasing returns to scale

Which two characteristics of perfect competition make it impossible for a perfectly competitive firm to have an economic profit in the long run? easy entry/exit and perfect information perfect information and many buyers/sellers homogeneous product and easy entry/exit perfect information and homogeneous product

easy entry/exit and perfect information

In the long run, a perfectly competitive firm's accounting profit equals its _______ which makes its economic profit equal to _______. total variable cost, its total revenue total revenue, its fixed cost total fixed cost, zero opportunity cost, zero

opportunity cost, zero

Of the choices indicated below, which one could be described as perfectly competitive? the hair salon industry, where each firm offers unique products and/or services the electricity provider industry, where only one firm serves a city Correct! the corn growing industry which is comprised of many farms the automobile industry, which is dominated by a few, large firms

the corn growing industry which is comprised of many farms

Which kind of cost always increases as output increases? total fixed cost total variable cost average variable cost average fixed cost

total variable cost