Micro Test 8
Consider the following figure that shows the demand and the cost curves of a perfectly competitive firm. If the price-taking firm is currently producing 6 units, it should _____ to maximize profit in the short run. a. keep producing 6 units b. increase production to 12 units c. increase production to 14 units d. increase production to 8 units e. decrease production below 6 units.
b
Consider the following figure that shows the demand and the cost curves of a perfectly competitive firm. The firm will earn zero economic profit _____. a. at a price of P1 b. at a price of P2 c. at a price of P3 d. at a price between P1 and P2 e. at a price above P1
b
Economists assume that firms seek to: a. maximize accounting profit. b. maximize economic profit. c. maximize total revenue. d. earn normal profit. e. maximize cost.
b
The Hound Dog Bus Company contemplates expanding its Virginia operations by offering services from Fairfax to Arlington. The total cost of the trip would be $120, of which $50 is the fixed cost, which it has already paid. The firm expects to earn $60 in revenue from the trip. The Hound Dog Bus Company should: a. offer this service because it will earn a positive economic profit. b. not offer this service because the marginal revenue is less than the marginal cost. c. offer this service because total revenue exceeds fixed cost. d. not offer this service because total cost exceeds total revenue. e. offer this service because the added revenue exceeds the added cost of this service.
b
The demand curve for the output of a perfectly competitive firm is _____. a. perfectly inelastic b. perfectly elastic c. unit elastic d. downward sloping e. nonlinear
b
The perfectly competitive firewood market is composed of 1,000 identical consumers and 1,000 identical firms. The table given below shows cost for one representative firm and the demand schedule for one representative consumer. The demand curve facing a single firm will be a: a. horizontal line at a price of $120. b. horizontal line at a price of $100. c. vertical line at a quantity of 3 cords of firewood. d. horizontal line at a price of $60. e. vertical line at a quantity of 4 cords of firewood.
b
The price charged by a perfectly competitive firm is determined by: a. each individual firm. b. a group of firms acting together as a cartel. c. market demand and market supply. d. the firm's total costs. e. the firm's average variable cost
c
Adam's Apples, a small firm supplying apples in a perfectly competitive market, decides to cut its production to half this year. Which of the following is likely to occur in this case? a. The market price of apples will increase. b. The market price of apples will decrease. c. The market demand for apples will increase. d. The market price of apples will not be affected. e. The market supply curve of apples will shift rightward.
d
Consider the following figure that shows the demand and the cost curves of a perfectly competitive firm. At a market price of P1, the profit-maximizing quantity for the firm is _____. a. a units of output b. b units of output c. e units of output d. d units of output e. between d and e units of output
d
For perfectly competitive firms, which of the following correctly shows the relationship among market price (P), average revenue (AR), and marginal revenue (MR)? a. Price = Average revenue (AR) = Marginal revenue (MR) b. Price > Average revenue (AR) = Marginal revenue (MR) c. Price = Average revenue AR > Marginal revenue (MR) d. Price = Average revenue (AR) < Marginal revenue (MR) e. Price < Average revenue (AR) = Marginal revenue (MR)
a
Perfectly competitive firms are price takers because: a. each firm is too small compared to the market to be able to affect price. b. one firm determines the market price and all other firms accept this price. c. firms charge the price that government determines. d. firms must accept any price that consumers offer them. e. firms earn high profits by charging different prices to different groups of consumers.
a
Suppose the equilibrium price in a perfectly competitive industry is $100 and a firm in the industry charges $112. Which of the following is likely to happen? a. The firm will not be able to sell any of its output. b. The firm will sell more output than its competitors. c. The firm's profits will increase. d. The firm's revenue will increase. e. The firm will gradually take over the entire industry.
a
Which of the following is not necessarily a characteristic of a perfectly competitive market structure? a. Low prices b. A large number of buyers and sellers c. A homogeneous product d. Perfect information e. Easy entry and exit in the long run
a
_____ is the change in total cost from producing one more unit of the output. a. Marginal cost b. Variable cost c. Opportunity cost d. Average cost e. Fixed cost
a
he table given below shows the output supplied by a firm and its total cost of production. If the market price is $8.50, the profit-maximizing output and profit are _____. a. 40 units and $35, respectively b. 40units and $0, respectively c. 0 units and −$50, respectively d. 30 units and $25, respectively e. 50 units and $30, respectively
a
A perfectly competitive firm that earns an economic profit in the short run choose the output that: a. maximizes its total revenue. b. minimizes its total cost. c. maximizes the difference between total revenue and total cost. d. maximizes the difference between total revenue and explicit cost. e. maximizes the difference between total revenue and implicit cost.
c
Marginal revenue is defined as: a. total revenue divided by quantity. b. total revenue minus total cost. c. the change in total revenue divided by the change in quantity. d. the change in total revenue divided by quantity. e. the change in total revenue divided by the change in per unit price
c
The following figure shows the total cost and total revenue curves of a firm. The firm maximizes a. point a b. point b c. point c d. point d e. a point beyond point d
c
The perfectly competitive firewood market is composed of 1,000 identical consumers and 1,000 identical firms. The table given below shows cost for one representative firm and the demand schedule for one representative consumer. The equilibrium price in this market is _____. a. $60 b. $80 c. $100 d. $120 e. below $60
c
The figure given below shows the demand and the cost curves of a perfectly competitive firm. Total revenue at the profit-maximizing output equals _____. a. $2,400 b. $4,000 c. $5,200 d. $5,600 e. $6,000
d
The shape of the total cost curve between the output levels represented by points a and b in the following figure reflects _____. a. fixed costs b. increasing profits c. diminishing marginal returns d. increasing marginal returns e. economies of scale
d
Which of the following firms is most likely to be a perfectly competitive firm? a. One of the three largest automobile manufacturers in the United States b. One of the "Seven Sisters," which are oil-producing companies c. A public school operated by the government d. A farm that grows soybeans e. A manufacturer of refrigerators
d
The Hound Dog Bus Company contemplates expanding its New Mexico operations by offering services from Raton to Santa Fe. It has estimated that the total cost of the trip will be $400, of which $150 is the fixed cost, which it has already paid. The company expects an increase in revenue by $275 from the trip. The Hound Dog Bus Co. should: a. offer this service because it will earn a positive economic profit. b. not offer this service because marginal revenue is less than marginal cost. c. offer this service because total revenue exceeds fixed cost. d. not offer this service because total cost exceeds total revenue. e. offer this service because the additional revenue exceeds the additional cost of this service.
e
Which of the following is likely to be present in a perfectly competitive market? a. Patents b. Government licenses c. Nonprice competition such as advertising d. High capital costs e. Firms producing identical products
e
Which of the following would not help identify market structure? a. The number of firms in a market b. The type of product produced in a market c. The ease of entry into a market d. The forms of competition among the firms in a market e. The price of a good sold in a market
e