Quiz 4

True

Price and output decisions are two aspects of the same choice.

False

A firm operating at MC=MR must be making a profit.

False

In a long-run equilibrium in a perfectly competitive market, the average firm earns positive economic profits.

False

Perfectly competitive markets feature relatively high barriers to entry.

True

The lowest price that a perfectly competitive firm will accept without closing its doors is found by examining the average variable cost curve.

The addition to total output due to an additional unit of input, holding all other inputs constant

The marginal physical product of an input is:

False

Total fixed cost increases as output increases.

Vertical distance between the two curves is greatest

A company draws its total cost curve and total revenue curve on the same graph. If the firm wishes to maximize profits, it will select the output at which the:

True

A small business owner who is earning a positive economic profit, no matter how small, is doing better than if she sold her business and went to work for another firm.

True

In order to maximize profits, a firm should adjust output until marginal profit is equal to zero.

False

In perfect competition there are differences in the products sold by various firms.

True

In perfect competition, a firm's marginal revenue equals average revenue.

True

In perfect competition, a firm's marginal revenue equals the price of the product.

Firm C

In the above table, which firm is better off staying in business in the short run?

The number of firms

In the long run we would expect an increase in:

Earn economic losses

In the short run, this firm would:

True

Marginal revenue is the addition to total revenue resulting from the addition of one unit to total output.

False

Perfectly competitive firms are known for being "price makers", not price takers.

False

Profit is maximized at the output at which marginal revenue exceeds marginal cost by the greatest margin.

Average revenue curve

The demand curve facing a firm is also the firm's:

Output should be reduced

If MC>MR,

Earning economic profit greater than zero

At S1, the firm is:

False

If the marginal profit of the next unit is negative, the firm should produce more output in order to generate greater profit.

True

If there are many close substitutes available for a good, its elasticity of demand will be higher.

Chooses either output or price, and consumer demand determines the other

In arriving at the quantity of output and pice of its product, a company:

False

Economists and accountants use the same definition of profit.

To establish a benchmark by which to measure the performance of the company

Economists study perfect competition:

False

The law of diminishing marginal returns is the same as increasing returns to scale.

Long-run average cost curve

The long-run supply curve of an industry equals the industry's:

True

The short-run equilibrium output of a competitive firm is found by equating marginal cost with price.

Horizontally summing the supply curves of the firms industry

The supply curve for a perfectly competitive industry is obtained by:

Economic profit

Total profit defined this way is called:

True

Total profit is represented by the vertical distance between a total revenue curve and a total cost curve.

False

Total revenue cannot be derived from the demand curve or a demand schedule.

False

When firm's fixed costs increase it should raise its prices in order to maximize profits.

A large number of small firms

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

Demand curve of the perfectly competitive industry is perfectly elastic

Which of the following observations is not true?