Microeconomics Quiz 8 Questions

In order for a firm to earn economic profits, price must exceed average total cost.

True

Which of the following is not an assumption of the theory of perfect competition?

Each firm produces and sells a differentiated product.

If the firm is producing a quantity of output for which MC > MR, then the firm should increase production to increase its profits.

False

If, for the last unit of a good produced by a perfectly competitive firm, MR > MC, then in producing that unit the firm

NOT added an equal amount to both total revenue and total costs.

If the perfectly competitive firm is producing an output level at which price equals marginal cost, it is

NOT earning normal profit

If a seller is a price taker it means that the seller sells his product at the price

NOT he chooses

When a perfectly competitive firm incurs losses, it follows that price

NOT is less than marginal revenue.

A perfectly competitive firm that wants to maximize profits or minimize losses will produce in the short run as long as

NOT price is above marginal revenue.

At the quantity of output for which total revenue equals total cost,

NOT profit is maximized

A firm operating in a perfectly competitive market finds itself producing a level of output for which marginal revenue is less than marginal cost. In order to maximize profits (or minimize losses), the firm should

NOT raise its price

In the theory of perfect competition, the assumption of easy entry into and exit from the market implies

NOT zero economic profits in both the short run and the long run.

In long-run equilibrium, the perfectly competitive firm earns __________ economic profits.

zero

The market demand curve in a perfectly competitive market is

downward sloping.

A perfectly competitive market is initially in long-run competitive equilibrium. Then, market demand falls. This causes the marginal revenue curves for existing firms to shift __________ and for these firms to produce __________ output. Some of the existing firms will end up __________.

downward, less, exiting the market

A firm that is a price taker will not sell any of its product for less than the equilibrium price because

it can sell all it can produce at the equilibrium price.

In perfect competition, the firm's marginal revenue curve is

NOT a and c

In the theory of perfect competition, the assumptions of many buyers and sellers, the production of a homogeneous product, and the possession of all relevant information by buyers and sellers imply that the perfectly competitive firm

NOT a and c

In the theory of perfect competition,

b and d (b)the single firm faces a horizontal demand curve. d)the market demand curve is downward sloping.)

Which of the following is a characteristic of perfect competition?

buyers and sellers having all relevant information

Equilibrium price is $22 in a perfectly competitive market. For a perfectly competitive firm, MR = MC at 200 units of output. At 200 units, ATC is $23, and AVC is $18. The best policy for this firm is to __________ in the short run. Also, this firm earns __________ of __________ if it produces and sells 200 units.

continue to produce, losses, $200

In the short run, the best policy for a perfectly competitive firm is to

produce and sell its product as long as price is greater than average variable cost.

A perfectly competitive market is initially in long-run competitive equilibrium. Then, market demand increases. This causes existing firms in the market to __________ and __________. As a result of the latter, the market supply curve shifts __________.

produce more output; new firms to enter the market; rightward

Equilibrium price is $8 in a perfectly competitive market. For a perfectly competitive firm, MR = MC at 150 units of output. At 150 units, ATC is $11, and AVC is $10. The best policy for this firm is to __________ in the short run. Also, total fixed cost equals __________ and total variable cost equals __________ for this firm.

shut down; $150; $1,500