Econ 102 Quiz Ch. 23-24

12. (above figure) the firm will shut down if quantity falls below a. A b. B c. C d. D

A

13. refer to the above table. If the price is $5, the perfectly competitive firm should produce PAGE 156 a. 106 units b. 104 c. 105 d. 107

B

6. refer to the table above. the table represents information on costs for Ajax Corporation. Ajax operates in a perfectly competitive market and the price of the product is $7. what does profit equal when quantity equals 2? PAGE 154 a. $14 b. 16 c. 2 d. -2

D

Marginal Cost

MC = delta TC/ delta q

short run break even point (zero economic profit) PAGE 147

the bottom of the ATC curve

the perfect competitor's short run supply curve PAGE: 148

the individual firm's supply curve is the portion of its marginal cost curve at and above its intersection with the average variable cost curve... Why? a firm will only produce output if the price is no lower than the lowest average variable cost. (MC instersects AVC at the minimum of the average variable cost curve)

identical or standardized product

the product sold by the firms in the industry is homogeneous (from the view point of the consumer/buyer)

zero economic profit

total revenue is equal to the sum of explicit costs and implicit costs. therefore opportunity costs of the business owners' resources (time, forgone income, opportunity cost of capital, etc) are all covered

1. Which of the following is NOT a characteristic of a perfectly competitive industry? a. economci profits must be positive in the short run b. the industry demand curve is downward sloping c. there is free entry and exit in the long run d. each firm produces the same homogeneous product

A

10. which of the following conditions is NOT necessary for a firm to be able to engage in price discrimination? I. The firm must be able to produce to the point at which price equals marginal revenue II. The firm must easily be able to identify consumers with different demand elasticities III. The firm must be able to prevent resale of the item it produces and sells a. I only b. III only c. Both I and II only d. Both II and III only

A

12. Suppose a perfectly competitive firm faces the following costs and revenue conditions: ATC= $25.50; AVC = $20.50; MC = $25.50; MR = $28.50 The firm should a. increase output d. continue to produce its current output c. shut down d. decrease output

A

13. Refer to the above figure. The competitive firm's short run supply curve PAGE 153 a. starts at A and goes along the MC curve as quantity increases b. starts at B and goes along the MC curve as quantity increases c. starts at A and goes along the AVCcurve as quantity increases d. starts at B and goes along the AVC curve as quantity increases

A

14. refer to the above figure. When the price in the market is $4, economic profit will equal PAGE 156 a. $100 b. $200 c. $400 d. $300

A

16. when a firm earn zero economic profits a. it has a positive accounting profit b. it has an average revenue that is less than average cost c. it cannot continue to produce d. it has not covered its opportunity costs

A

17. in the short run, the perfectly competitive firm will always earn an economic profit when a. P > ATC b. P = ATC c. P = MC d. P > AVC

A

19. suppose a perfectly competitive firm faces the following short run cost and revenue conditions: ATC = $6; AVC = $4; MC = $3.50; MR =$3.50 the firm should a. shut down b. increase output c. remain at the same position d. increase price

A

2. clothing retailers have faced greater comeptition in recent years as more firms have entered the clothing market. some of the competition has come from foreign competitors, but much of it is domestic competition. As a result there is much competition in markets for many types of clothing and... a. individual buyers and sellers cannot affect the market price because it is determined by the market forces of demand and supply b. there are no other implications c. firms have a great degree of flexibility in pricing their products because these products can be sold at high profit level d. there are relatively few buyers and sellers in the market, and one individual firm can determine the market price

A

21. the short run supply curve for the perfectly competitve firm is the portion of its a. MC curve above the AVC curve b. MC curve above the MR curve c. MC curve above the AFC curve d. MC curve above the ATC curve

A

22. in the long run when a perfectly competitive firm experiences negative economic profits, a. firms exit the industry, the market supply curve shifts leftward, and the market price rises b. firms enter the industry, the market supply curve shifts rightward, and the market price falls c. firms exit the industry, the market supply curve shifts rightward, and the market price falls d. firms enterthe industry, the market supply curve shifts rightward, and the market price rises

A

3. the demand curve for the product of a perfectly competitive firm is a. perfectly elastic b. perfectly inelastic c. elastic at high prices and inelastic at low prices d. identical to the elasticity of demand on the market demand curve

A

3. under perfect competition, if a firm that sets its price slightly above makret price would a. lose all its customers b. make lower profits than other firms, but the amount would depened on the elasticity of demand c. make a normal rate of return, but on reduced revenues d. earn higher profits as long as the other firms continued to charge the market price

A

7. in the above figure, if the firm is producing Q1 units at price P1, the firm should PAGE 168 a. increase output and decrease price b. decrease output and increase price c. not change output or price d. shut down

A

7. the perfectly competitive firm's profit maximizing rate of production a. occurs at the point at which marginal revenue is equal to marginal cost b. " " the difference between marginal revenue and marginal cost is maximized c. is not measurable for a perfectly competitive firm d. ignores the relationship between total revenues and total costs

A

8. which of the following is true for the perfectly competitive firm? a. Price and MR are always equal b. MR is less than Price c. MR is more than Price d. Price elasticity of demand is equal to 1

A

Average Total Cost

ATC = TC/q

Average Variable Cost

AVC = (TC-TFC)/q

10. Which of the following is always true for a perfectly competitive firm? a. MC = MR = AVC b. P = d = MR c. AVC = ATC = P d. P = d = AVC

B

13. in the above graph, the profit maximizing price and quantity established by a perfectly competitive firm in the figure above are PAGE 169 a. Q1 units of output and a price of P5 b. Q3 units of output and a price of P3 c. Q1 units of output and a price of P1 d. Q4 units of output and a price of P4

B

15. If an industry's long run per unit costs decrease as its output increase then a. the firm's long run economic profits must be less than zero b. the firm is most likely a decreasing cost industry c. the firm is most likely an increasing cost industry d. the firm is most likely a constant cost industry

B

2. being a price taker essentially means a. the firm cannot legally set its price below the market price b. a firm cannot influence the market price c. the firm cannot legally set its price above the market price d. a firm can influence the market price

B

2. which of the following is a characteristic of a monopoly market? a. many firms b. one firm c. easy entry d. firm is a price taker

B

3. the use of a tariff provides monopoly protection since a. it allows more imports into the country b. it reduces competition from impotrs by raising the import price c. it reduces exporters' profits d. it expands tax credits

B

5. if a monopolist lowers its price a. it lowers the barriers to entry b. the quantity demanded increases c. the quantity demanded remains the same d. the quantity demanded decreases

B

5. in the above figure, the market price charged by this profit maximizing, perfectly competitive firm is PAGE 152 a. $5 per unit of output b. $10 c. $8 d. $14

B

5. which of the following is closest to a perfectly competitive market? a. the market for automobiles b. corn c. pizza d. breakfast cereal

B

6. in the figure above, if the firm is producing at Q3 and charging P3, it should PAGE 167 a. increase output and decrease price b. decrease output and increase price c. not change output or price d. shut down

B

7. refer to the above figure. the figure represents the market demand and supply curves for widgets. what statement can be made about the demand curve of an individual firm in this market? a. an individual firm's demand curve will be a smaller version of the market demand curve PAGE 155 b. an individual firm's demand curve will be horizontal at $5 c. an individual firm's demand curve will be horizontal at a price below $5 d. an individual firm's demand curve cannot be determined from the graph above

B

8. according to the figure above, the maximum profit the monopolist can receive is PAGE 168 a. $0 per day b. $1,500 c. $9,000 d. $7,500

B

8. refer to the above figure. profits for this firm are positive a. only for all points less than B PAGE 155 b. for points between B and C c. for all points less than B and greater than C d. only at points B and C

B

9. in the figure above, if the firm is facing demand curve d2, then to maximize profits it will produce at output level PAGE 152 a. A b. B c. C d. D

B

1. Which of the following is NOT a characteristic of a perfectly competitive market? a. the products sold by the firms in the amrket are homogeneous b. there are many buyers and sellers in the market c. it is difficult for a firm to enter or leave the market d. each firm is a price taker

C

10. (figure above) if d3 is the relevant demand curve for this firm, then which level of output will maximizing this firm's profits or minimizing its losses? a. A b. B c. C d. D

C

11. Suppose a perfectly competitive firm faces the following short run cost and revenue conditions: ATC = $12; AVC = $10; MC = $15; MR = $13 The firm should: a. change nothing b. increase output c. decrease output d. increase price

C

11. which of the following is TRUE? a. Monopoly results in a higher quantity of output being sold compared with perfect competition b. Price discrimination occurs when there are differences in prices that reflect differences in marginal costs c. charging all customers the same price when costs vary can actually be a case of price discrimination d. price discrimination guarantees that the monopolist will make a profit

C

12. in the firgure above, the difference between the competitive industry price and that of the monopolist is PAGE 169 a. 0B b. 0A c. AB d. CE

C

14. All of the following are true regarding perfectly competitive price determination EXCEPT a. the market price is determined by the interactions among all buyers (households) and firms b. the individual firm takes the market price as given c. the individual firm is known as a market price maker d. the individual firm's marginal revenue curve is horizontal at the market price

C

15. refer to the above figure. if the market price is equal to A, which statement can be made about profits? PAGE 156 a. Profits are negative and equal to GFQ*0 b. Profits are positive and equal to BCEA c. Profits are negative and equal to BCEA d. Profits are positive and equal to BCFG

C

18. in the above figure, assume d1 is the demand curve faced by this firm. Which is true? PAGE 157 a. this firm is earning an economic profit b. this firm is breaking even c. this firm is experiencing an economic loss d. this firm's total costs equal EJA0

C

24. for a perfectly competitive firm at its long run competitive equilibrium point a. P = AR = MR = LATC > SATC = MC b. P > MR > AR > MC > LATC > SATC c. P = AR = MR = LATC = SATC = MC d. P = AR = MR = MC = LATC = AVC

C

4. in a perfectly competitive market structure both buyers and sellers have equal acces to information. This implies that a. no one buyer or seller has any influence on price b. the products sold will be alike c. consumers are able to find out about lower prices charged by other firms d. firms will move labor and capital in pursuit of profit making opportunities to whatever business venture gives them the highest return on their investment

C

4.refer to the above figure. the market supply and demand curves in a perfectly competitive market intersects at 4$. Which of the graphs represents the situation for an individual firm? PAGE 151 a. A b. B c. C d. D

C

6. For a perfect competitor, price equals a. marginal revenue only b. average revenue only c. both average and marginal revenue d. neither marginal nor average revenue

C

9. according to the above figure, what are the profits of the firm if it produces 50,000 units? PAGE 168 a. $5,000 per day b. $10,000 c. $7,500 d. $17,500

C

marginal revenue curve

MR = P + (slope of demand curve)xQ aka same vertical intercept and twice as steep (double the slope)

Marginal Revenue

MR = delta TR/ delta q

Total revenue

TR = market price (P) x Quantity (q)

Total profit

TR-TC

ownership and control of key resources with no substitutes

a firm develops a market power when it owns and controls a key resource used in the production of a good or service. (diamonds)

Perfect Competition

a market structure in which the decisions of buyers and sellers as individuals have no effect on the market price. Each firm is so small that it cannot significantly affect the price of the product in question and is a price taker

market failure

a situation in which an unrestrained market operation leads to either too few or too many resources going to a specific economic activity

competitive pricing

a system of pricing in which the price charge for the last unit produced is equal to the opportunity cost to society of producing one more unit of the good as measured by marginal cost

the demand curve a monopolist faces

downward sloping demand curve because the industry is a price setter

barriers to entry

obstacles that prevent potential competitors from entering the market

economic profit maximization (loss minimizing) PAGE: 146

occurs at the rate of output at which marginal revenue equals marginal cost (and marginal cost is rising) MR=MC

demand curve for a perfectly competitive firm is

perfectly elastic ( horizontal) because individual sellers are price takers

effect of exit

short run economic losses will signal firms to exit the industry. Firms' exit will *reduce* the number of producers and market supply, ceteris paribus. The decrease in supply will cause the price to *increase* until it's equal to the average total cost (ATC) and firms earn zero economic profit

the effect of entry

short run economic profits will signal firms to enter the industry. Entry into the industry *increases* the number of producers and market supply, ceteris paribus. the increase in supply causes a *drop* in the market price until the price is equal to the firm's average total cost (P=ATC) and the firms earn zero economic profit

monopoly prices

since a monopolist is a single seller, they are able to set the price. *"Price setter"*

economies of scale

sometimes monopolies exist because it's better for both sellers and buyers. As we saw, economies of scale exist when cost per unit decreases as output increases. in this case large scale production is associated with lower per unit costs, and likely lower prices (electricity company)

1. monopoly producers face a. many competitors producing the same product b. only a few competitors producing the same product c. at least one competitive producer of the same product d. no competitive producers of the same product

D

11. (Above figure) the firm will shut down if price falls below a. F b. I c. H d. E

D

20. for a perfectly competitive firm, any price below minimum AVC is a a. negative price b. profit maximizing price c. market price d. shutdown price

D

23. in a perfectly competitve market, positive economic proficts act to a. drive potential competitors away from the industry b. signal resource owners elsewhere not to invest their capital in this industry c. prevent reinvestment on the parts of firms within the industry d. attract new entrants into the industry

D

4. if a monopolist raises its price. a. it raises the barriers to entry b. the quantity demanded increases c. the quantity demanded remains the same d. the quantity demanded decreases

D

9. which is always true at a firm's profit maximizing rate of production? a. Total Revenue = Total Costs b. Marginal Revenue > Marginal Costs c. The total revenue curve lies below the total cost curve d. Marginal Revenue = Marginal Costs

D

monopoly

an industry structure in which a single seller provides a good or service with no close substitutes. Unlike a perfectly competitive industry, where the industry is made up of many producers/sellers, a monopoly industry consists of *1 producer*. The firm and industry are one and the same

freedom of entry and exit

any firm can enter or leave the industry without serious impediments

perfect information

both buyers and sellers have equal access to all relavent information

natural (firm created) barriers to entry

created by the firm itself: ownership and control of a key resource with no substitutes AND economies of scale

legal (government imposed) barriers to entry

enacting laws and forcing regulations: patents and copyrights. because of monopoly power, the individual/ company can charge a higher price than would be charged under perfect competition

natural monopoly

goods and services whose production has economies of scale, it is efficient to have only one firm provide them. usually industry pioneers

patents

gran an individual or company an exclusive right to produce and sell a good or service

copyrights

grant exclusive rights to intellectual property such as books or works of art

long run equilibrium PAGE 150

in the long run, a competitive firm produces where price, marginal revenue, marginal cost, short run minimum average cost, and long run minimum average cost are equal d=MR=P=AR P = MR = MC = SAC = LAC

Long run industry situation: exit and entry

in the long run, perfectly competitive firms earn zero economic proft (aka normal profit) because entry and exit into the industry shift the supply curve and cause market price to equal the average total cost (ATC)

short run shutdown price PAGE: 147

in the short run, the firm will not shut down as long as the loss from staying in business is smaller than the loss from shutting down (Price > AVC average variable cost; the firm is best to stay open) the bottom of the AVC curve