373 chp 10

I get $200 revenue from the sale of my product each day. I rent the factory that I use for $90 a day. The raw materials of the operation cost $115 a day. I do all the work myself. Both jobs are equally attractive as far as the work is concerned. Recently, a competitor offered me $30 a day to work for him. My accounting profit is ____, and my economic profit is _____. A. -5; -35 B. -35; -35 C. 25; -5 D. 110; -30

A. -5; -35

Suppose an industry has 100 firms, each with supply curve P = 50 + 10Q. Furthermore, suppose the market demand curve is given by P = 200 - 0.9Q. How many units of output will be produced by a firm operating in this market with a MC = 130Q? A. 2 B. 5 C. 0.70 D. It is impossible to answer with the information given

A. 2

The profit maximizing output level for a perfectly competitive firm is always where A. P = MC. B. P = AVC. C. MC = ATC. D. MC = AVC.

A. P = MC.

Producer surplus is given by the area A. above the supply curve but below the price. B. below the supply curve. C. below the demand curve but above the price. D. below the demand curve.

A. above the supply curve but below the price.

Competitive markets result in allocative efficiency because they A. exhaust all possibilities for mutually beneficial trade. B. exhaust all possible benefits for the consumer. C. generate all possible benefits for the consumers. D. distribute resources in the most equitable way.

A. exhaust all possibilities for mutually beneficial trade.

Ceteris paribus, in the long run, a tax placed on a perfectly competitive industry will A. increase the price of the good by an amount equal to the tax. B. increase the price of the good by an amount less than the tax. C. be borne entirely by the firm. D. be entirely borne by the consumer.

A. increase the price of the good by an amount equal to the tax.

The demand curve facing a perfectly competitive firm is A. infinitely elastic. B. perfectly inelastic. C. downward sloping. D. perfectly elastic.

A. infinitely elastic.

In a decreasing cost industry, as output grows over time, A. prices will fall. B. prices will rise. C. prices will stay the same. D. prices are zero.

A. prices will fall.

Joe is self-employed in a store that has a rental value of $500 a month which he pays, but he can vacate the building without giving notice. His other expenses are $100 a month for maintenance. He makes $25,000 a year on net sales (total revenue minus the wholesale cost of the product). If he quit his job and worked the same number of hours elsewhere at a job he liked equally well, he estimates that he could make $20,000 a year. No one else can be hired to work in the store. Joe should A. quit his job. B. keep the job. C. work part-time. D. It is impossible to say with the information given in the problem.

A. quit his job.

Joe is self-employed in a store that has a rental value of $500 a month which he pays, but he can vacate the building without giving notice. His other expenses are $100 a month for maintenance. He makes $25,000 a year on net sales (total revenue minus the wholesale cost of the product). If he quit his job and worked the same number of hours elsewhere at a job he liked equally well, he estimates that he could make $20,000 a year. No one else can be hired to work in the store. Suppose that the store owner gave Joe the store. Now what should he do? A. Quit his job. B. Keep the job. C. Work part-time. D. It is impossible to say with the information given in the problem.

A. quit his job.

In the long run, any perfectly competitive firm that produces will choose a quantity such that A. short run average cost is minimized. B. long run total cost is minimized. C. long run marginal cost is less than short run marginal cost. D. price is greater marginal cost.

A. short run average cost is minimized.

If a firm's demand curve falls below its AVC curve, then the firm should A. shut down now. B. operate in the short run but not the long run. C. set price = marginal cost. D. shutdown in the long-run.

A. shut down now.

A firm is currently selling its product at $20 each. It estimates that its average total cost of production is $100 and its average fixed cost is $40. In the short run the firm should A. shutdown. B. continue production at a point where P = MC. C. hire more employees. D. buy more capital.

A. shutdown

The output where MC = AVC is called the A. shutdown point. B. break-even point. C. profit maximizing point. D. revenue maximizing point.

A. shutdown point.

Other things remaining the same, in the long-run as compared to the short-run A. supply elasticity will increase. B. supply elasticity will decrease. C. supply elasticity will remain the same. D. one cannot tell.

A. supply elasticity will increase.

A standardized product is a product A. that has many perfect substitutes. B. that is unique to one producer. C. which is produced according to government regulations. D. where the demand function is downward sloping for both the firm and the industry.

A. that has many perfect substitutes.

In the long run for a competitive firm, A. the firm is at the bottom of its short run average cost curve. B. the firm is at the top of its long run average cost curve. C. the marginal cost is greater price. D. the firm is making economic profits.

A. the firm is at the bottom of its short run average cost curve.

In a competitive industry, the industry's short-run supply curve is A. the horizontal sum of the marginal cost curves. B. the vertical sum of the marginal cost curves. C. determined by the average total cost curve. D. determined by the average variable cost curve.

A. the horizontal sum of the marginal cost curves.

Suppose an industry has 100 firms, each with supply curve P = 50 + 10Q. Furthermore, suppose the market demand curve is given by P = 200 - 0.9Q. What is the industry supply curve? A. P = 500 + Q B. P = 50 + 0.1Q C. P = -500 + 10P D. P = 50 + 10 Q

B. P = 50 + 0.1Q

Assume a perfectly competitive economy would use an assortment of nails that weighs a total of 100 tons. However, the economy is controlled by the government and it sets a ton limit of 100 tons. When production is complete there is only one nail that weighs 100 tons. Which of the following describes what was wrong when government did the planning? A. Producers did not follow their personal interest in planning production. B. The wishes of consumers were not represented in the producer's actions. C. The government miscalculated the correct tonnage that the economy needed. D. All of these are true.

B. The wishes of consumers were not represented in the producer's actions.

Which is not true of a perfectly competitive market? A. The typical industry demand curve is downward sloping. B. There is no incentive to innovate since economic profit is zero in the long-run. C. If the long-run average total cost curve is horizontal in the relevant range of production, perfectly competitive firms can be various sizes in long-run equilibrium. D. At long-run equilibrium, economic profit is less than accounting profit.

B. There is no incentive to innovate since economic profit is zero in the long-run.

The expansion of the car manufacturing industry causes an improvement in the assembly line system, thus reducing costs to each firm in that industry. This is an example of A. constant returns to scale. B. a decreasing-cost industry. C. a decreasing returns to scale. D. an increasing-cost industry.

B. a decreasing-cost industry

In a competitive industry in the long-run, it is likely that A. firms with the advantage of location or an especially skilled work crew will be the lone survivors in equilibrium. B. all firms giving their best effort will have the same LAC regardless of location or the unique skills of some workers. C. the firms with the poorest location will be the lone survivors in equilibrium because their location cost will be lowest. D. only one large efficient firm can survive.

B. all firms giving their best effort will have the same LAC regardless of location or the unique skills of some workers.

A pecuniary diseconomy occurs when A. supply exceeds demand. B. an expansion of industry output increases the price of an input. C. higher output levels results in lower unit costs. D. higher output levels results in the same unit costs.

B. an expansion of industry output increases the price of an input.

In the long run, a tax placed on a perfectly competitive industry should A. increase the number of firms. B. decrease the number of firms. C. not affect the number of firms. D. One cannot tell

B. decrease the number of firms.

In the long run, a tax placed on a perfectly competitive industry should have what effect on the entire market? A. Increase the total amount of the good sold. B. Decrease the total amount of the good sold. C. Not affect the total amount of the good sold. D. One cannot tell.

B. decrease the total amount of the good sold.

In the short run, a tax placed on a perfectly competitive industry should A. increase the total amount of the good sold. B. decrease the total amount of the good sold. C. not affect the total amount of the good sold. D. always increase the price.

B. decrease the total amount of the good sold.

At the output where MC = ATC = P, the firm A. should shutdown. B. has no economic profit. C. is profit maximizing. D. should raise output.

B. has no economic profit.

In general, economists assume that firms A. maximize accounting profit. B. maximize economic profit. C. maximize sales. D. maximize revenue.

B. maximize economic profit.

If the demand curve falls below the ATC curve but lies above AVC, then the firm should A. should shut down. B. operate in the short run but not the long run. C. set price = marginal cost. D. operate in the short run and the long run.

B. operate in the short run but not the long run.

Some people advocate price ceilings in certain markets because they seek to A. expand the total of consumer and producer surplus which the market generates. B. redistribute welfare from the producer to the consumer even if overall welfare is sacrificed. C. redistribute welfare from the consumer to the producer even if welfare is sacrificed. D. enhance both efficiency and distribution goals with the price ceiling.

B. redistribute welfare from the producer to the consumer even if overall welfare is sacrificed.

If firms are price takers this implies that A. in the short-run economic profits will be zero. B. the demand curve facing the firm is perfectly elastic. C. the total revenue curve is horizontal. D. the marginal revenue curve is upward sloping.

B. the demand curve facing the firm is perfectly elastic.

Suppose that the supply curve is given by P = Q. What is the elasticity of supply? A. 10 B. 1/10 C. 1 D. Cannot be determined from these information

C. 1

Which of the following is not a condition for perfect competition? A. Firms take prices as given. B. Firms sell a standardized product. C. Firms are protected by barriers to entry. D. Firms have perfect information.

C. Firms are protected by barriers to entry.

Joe is self-employed in a store that has a rental value of $500 a month which he pays, but he can vacate the building without giving notice. His other expenses are $100 a month for maintenance. He makes $25,000 a year on net sales (total revenue minus the wholesale cost of the product). If he quit his job and worked the same number of hours elsewhere at a job he liked equally well, he estimates that he could make $20,000 a year. No one else can be hired to work in the store. Suppose that Joe had a long term lease which requires him to pay the rent even if he doesn't operate the store. What should Joe do? A. Quit immediately. B. Keep the job permanently. C. Keep the job until the lease expires. D. It is impossible to say with the information given in the problem.

C. Keep the job until the lease expires.

Which statement is true of the market supply curve? A. It is the vertical summation of all the individual supply curves. B. It is the horizontal summation of the upward sloping portion of the AVC function of all firms in the industry. C. One must know the marginal cost information of firms in order to construct a supply function. D. In perfect competition the slope of the curve is horizontal.

C. One must know the marginal cost information of firms in order to construct a supply function.

Say a competitive firm is producing at point where ATC = $10, AVC = $2. If the firm charges $5 for its output, then in the short-run this firm should A. shutdown production. B. exit the industry. C. continue to operate. D. try to reduce its fixed costs.

C. continue to operate.

At market equilibrium, the total benefit that results from all the transactions is A. the consumer surplus minus the producer surplus. B. the producer surplus minus the consumer surplus. C. the sum of the producer surplus and the consumer surplus. D. the entire area under the demand curve up to the quantity exchanged

C. the sum of the producer surplus and the consumer surplus.

When the perfectly competitive firm maximizes profits the price of its product always equals A. average revenue. B. marginal revenue. C. marginal costs. D. All of the choices are correct

D. All of the choices are correct

The elasticity of supply is given by A. (deltaQ/deltaP)(P/Q) B. (P/Q)(1/slope) C. (deltaQ/Q)(deltaP/P) D. All of these are correct.

D. All of these are correct.

If free entry and exit were not possible, A. in the long run firms would lose money. B. in the long run firms would make money. C. in the long run firms would break even. D. It is impossible to tell what would happen without more cost and revenue information.

D. It is not possible to tell what would happen without most cost and revenue information.

If a firm is producing where its LMC = price and the LMC is equal to LAC, then it would do better in the long run by A. increasing output with its existing plant until LMC equals price. B. increasing plant size until LMC and SAC are identical and equal to price. C. decreasing plant size until LAC, SAC and price are equal. D. changing nothing because it is already at the long run profit maximizing point.

D. changing nothing because it is already at the long run profit maximizing point.

You have a small business that makes $50,000 accounting and economic profit for you. As a disabled person, you must work at home and you did not have other opportunities until your neighbor offers you a job you like equally well for $50,000 and you can do it at home. This means A. your economic profit has gone down and your accounting profit has gone up. B. both your accounting and economic profit have gone down. C. both your accounting and economic profit have gone up. D. your economic profit has gone down and your accounting profit has stayed the same.

D. your economic profit has gone down and your accounting profit has stayed the same.