Exam 4 Test 3

33) The industry that produces zangs is in long-run equilibrium. Then the demand for zangs increases permanently. As a result, firms in the industry will ________. Some firms will ________ the industry, and the industry supply curve will shift ________. A) make economic an profit; enter; rightward B) incur economic losses; exit; leftward C) make zero economic profit; exit; leftward D) incur economic losses; exit; rightward

a

1) A perfectly competitive firm has a total revenue curve that is A) upward sloping with a constant slope. B) downward sloping with a constant slope. C) upward sloping with an increasing slope. D) upward sloping with a decreasing slope.

a

13) For a perfectly competitive firm, as its output increases its marginal revenue ________ and its marginal cost ________. A) does not change; changes B) changes; does not change C) does not change; does not change D) changes; changes

a

17) The figure above shows the marginal revenue and costs of a perfectly competitive firm. The marginal cost of the last unit produced is17) ______ A) $16 per unit. B) $8 per unit. C) $4 per unit. D) None of the above answers is correct

a

19) The figure above shows a perfectly competitive firm. The firm is operating; that is, the firm has not shut down. The firm is A) incurring a economic loss of $200. B) incurring an economic loss of $600. C) making an economic profit of $200. D) making zero economic profit.

a

2) The goal of a perfectly competitive firm is to maximize its A) economic profit. B) output. C) normal profit. D) revenue.

a

23) Giuseppe's Pizza is a perfectly competitive firm. The firm's costs are shown in the table above. If the market price is $15, how much economic profit does the firm make? A) $0 B) -$15 C) -$10 D) $30

a

26) In the long-run equilibrium, perfectly competitive firms make zero economic profit because of A) the ability of firms to enter and exit. B) high fixed costs. C) inefficient production processes. D) government regulations.

a

29) In the long run, the economic profit of a firm in a perfectly competitive market A) will equal zero. B) will be below zero. C) can be above, below, or equal to zero. D) will be above zero.

a

30) In the long-run equilibrium in a perfectly competitive market, the economic profit of the firms is A) zero. B) increasing. C) positive. D) negative.

a

31) Homer's Holesome Donuts has determined that its profit-maximizing quantity is 10,000 donuts per year. Homer's earns $12,000 in revenue from the sale of those donuts. Homer's has two costs. First he pays $16,000 in annual rental payments for its five-year lease on its store. Second Homer incurs an additional cost of $5,000 for ingredients. Should Homer's exit the market in the long run? A) yes, because he is incurring an economic loss B) no, because he is making an economic profit C) yes, because all costs are fixed in the long run D) no, because all costs are variable in the long run

a

10) Bob's Lawn Care Services is a perfectly competitive firm that currently mows 22 lawns a week. Bob's marginal cost exceeds the price he charges. Bob can increase his profit if he A) charges a lower price. B) mows fewer than 22 lawns a week. C) mows more than 22 lawns a week. D) charges a higher price.

b

11) If the price exceeds the average variable cost, by producing the level of output such that marginal revenue equals marginal cost, the firm ensures that it will A) not suffer any losses. B) earn the largest profit possible. C) survive in the long run. D) earn an economic profit.

b

12) The donut market is perfectly competitive. The figure shows the costs of a typical donut producer. In the short run, the donut producer's supply curve is the curve running from point ________ to point E. A) A B) B C) C D) D

b

38) In a perfectly competitive market that is in long-run equilibrium, a permanent leftward shift in the market demand curve A) leads to new firms entering the market in the long run. B) raises the price in the short run. C) lowers the price at first but then raises it as firms leave the market. D) raises profits in the short run.

c

35) The figure above shows a typical perfectly competitive corn farm, whose marginal cost curve is MC and average total cost curve is ATC. The market is initially in a long-run equilibrium, where the price is $3.00 per bushel. Then, the market demand for corn decreases and, in the short run, the price falls to $2.50 per bushel. In the new short-run equilibrium, the farm produces ________ bushels of corn and sells corn at ________ per bushel. A) 250,000; $2.50 B) 250,000; $3.00 C) 200,000; $2.50 D) 300,000; $2.50

a

4) The market demand for wheat is ________ and the demand for wheat produced by an individual farm is ________. A) not perfectly elastic; perfectly elastic B) not perfectly inelastic; inelastic C) elastic; unit elastic D) perfectly elastic; perfectly inelastic

a

41) In the long-run equilibrium, perfectly competitive firms produce where A) average total cost is minimized. B) marginal cost is minimized. C) average revenue is zero. D) All of the above are correct.

a

43) Consumer surplus ________. A) plus producer surplus is maximized when resources are used efficiently B) is maximized when the market outcome is efficient C) equals total revenue minus marginal cost D) equals total revenue minus opportunity cost

a

44) If the donut industry is perfectly competitive and is in long-run equilibrium, then the price of a donut A) equals long-run average cost. B) is greater than long-run average cost. C) is greater than marginal cost. D) is greater than short-run average cost.

a

47) The figure above shows the marginal revenue and long-run cost curves for a perfectly competitive firm. Which of the following statements is TRUE? A) The firm is producing at minimum long-run average cost. B) The firm will eventually decrease its production. C) Over time, this firm will leave this industry. D) The firm is earning positive economic profit.

a

7) Marginal revenue is defined as A) the change in total revenue that results from a one-unit increase in the quantity sold. B) total revenue divided by the total quantity sold. C) the value of a firm's sales. D) the total revenue from the total amount the firm sells.

a

8) The economic profit of a perfectly competitive firm A) is less than its total revenue. B) is greater than its total revenue. C) is less than its total revenue if its supply curve is inelastic and is greater than its total revenue if its supply curve is elastic. D) equals its total revenue.

a

18) The figure illustrates the short-run costs of Paul's Picture Frames Inc. The picture frame market is perfectly competitive and the market price is $30 a frame. Paul produces ________ frames each week, makes ________ of total revenue, and makes zero ________ profit. A) 300; $9,000; normal B) 300; $9,000; economic C) 200; $4,000; economic D) 200; $4,000; normal

b

22) The figure above shows the marginal revenue and costs of a perfectly competitive firm. The firm's profit is maximized when the firm produces A) 90 units of output. B) 170 units of output. C) 130 units of output. D) 210 units of output.

b

3) Which of the following is NOT an assumption of perfect competition? A) Established firms have no advantage over new firms. B) Firms compete by making their product different from products produced by other firms. C) Sellers and buyers are well informed about prices. D) There are no restrictions on entry into the market.

b

40) In a perfectly competitive market that is in long-run equilibrium, which of the following will NOT occur? A) The price equals the minimum average total cost. B) Entrepreneurs want to enter this industry. C) Firms make only zero economic profit. D) Firms' owners earn a normal profit.

b

48) In the long-run equilibrium in a perfectly competitive market, the firms produce at the ________ possible average total cost and the price equals the ________ possible average total cost. 48) ______ A) highest; lowest B) lowest; lowest C) lowest; highest D) highest; highest

b

6) If Steve's Apple Orchard, Inc. is a perfectly competitive firm, the demand for Steve's apples has A) elasticity equal to the price of apples. B) infinite elasticity. C) unitary elasticity. D) zero elasticity.

b

20) The figure above shows a perfectly competitive firm. The firm is operating; that is, it has not shut down. The firm produces A) 20 units of output and makes zero economic profit. B) 10 units of output and makes zero economic profit. C) 10 units of output and incurs an economic loss. D) 20 units of output and incurs an economic loss.

c

21) In the short run, an increase in demand for a good that is sold in a perfectly competitive market A) causes more firms to shut down. B) increases the number of firms in the market. C) increases the economic profits of existing firms in the market. D) has no effect on the price.

c

24) The above table shows the per day total cost for Kiley's Baseball Glove Company. Each glove is priced at $50 and Kiley's Baseball Glove Company is a perfectly competitive firm. At which of the following amounts of output is the economic profit maximized for Kiley's Baseball Glove Company? A) 2 B) 8 C) 5 D) 0

c

25) Fast Copy is a perfectly competitive firm. The figure above shows Fast Copy's cost curves. If the market price is 4 cents per page, what is Fast Copy's economic profit? A) between 0 and $0.50 per hour B) more than $1.00 per hour C) between $0.51 and $1.00 per hour D) zero

c

27) In the long run, perfectly competitive firms earn just enough revenue to A) pay all accounting costs. B) pay all fixed costs. C) pay all opportunity costs. D) attract entry.

c

32) The above figure shows the cost curves for a perfectly competitive firm. If all firms in the market have the same cost curves and the price equals $16 per unit A) the firm is making zero economic profit. B) the market is in its long-run equilibrium. C) over time, the price will fall as new firms enter the market. D) over time, firms will leave this market.

c

37) In a perfectly competitive market, a permanent increase in demand initially brings a higher price, economic A) loss, and entry into the market. B) profit, and exit from the market. C) profit, and entry into the market. D) loss, and exit from the market.

c

39) In the long run, perfectly competitive firms make zero economic profit (their owners earn a normal profit) because A) there are many buyers and sellers. B) any economic loss would increase the demand for the good, thereby raising its price. C) any economic profit would attract newcomers to the industry. D) the firms are incompetent.

c

9) Given the total cost and total revenue curves in the above figure, what are the output levels at which the perfect competitor will incur economic losses? A) at 30,000 bushels and at 80,000 bushels B) from 30,000 to 80,000 bushels C) below 30,000 bushels and over 80,000 bushels D) below 80,000 bushels

c

14) In the above figure, if the price is $8 per unit, how many units will a profit maximizing perfectly competitive firm produce? A) 5 B) 30 C) 35 D) 20

d

15) For a perfectly competitive firm, the shutdown point is the A) price at which total opportunity cost is zero. B) amount of output at which price equals minimum average total cost. C) price at which economic profit is zero. D) amount of output at which price equals minimum average variable cost.

d

16) As long as it does not shut down, a profit-maximizing perfectly competitive firm will A) never set its price equal to its marginal revenue. B) produce so that price equals average cost. C) always earn an economic profit. D) produce so that marginal revenue equals marginal cost.

d

28) In the long-run, if firms in a perfectly competitive market are incurring persistent economic losses, some firms will A) exit and the price will fall. B) exit and the price might either rise or fall. C) enter and the price might either rise or fall. D) exit and the price will rise.

d

34) Suppose a perfectly competitive market is in long-run equilibrium. If there is a permanent increase in demand, A) new firms will enter the market. B) at least in the short run, some firms will increase their output. C) at least in the short run, the price will increase initially. D) All of the above answers are correct

d

36) In a perfectly competitive market that is in long-run equilibrium, a rightward shift in the market demand curve results in A) firms leaving the industry in the long run. B) the price falling in the short run. C) the firms' economic profits falling in the short run. D) none of the events listed above.

d

42) In the long-run equilibrium, perfectly competitive firms produce the level of output such that A) marginal cost is minimized. B) marginal cost equals the price. C) average total cost is minimized. D) Both answers B and C are correct.

d

45) The figure above shows the marginal revenue and long-run cost curves for a perfectly competitive firm. All other firms in the industry have identical curves. Which of the following statements is TRUE? A) The firm's average cost exceeds the price. B) The firm is earning economic profit. C) Over time, firms will enter this industry. D) None of the above is true.

d

46) In the long-run equilibrium for a perfectly competitive market A) average total costs of production are minimized. B) the firms' economic profits are zero. C) there is no incentive for entry or exit. D) All of the above are correct.

d

5) A market is perfectly competitive if A) each firm in it can influence the price of its product. B) there are many firms in it, each selling a slightly different product. C) there are few firms in the market. D) there are many firms in it, each selling an identical product

d