ECON 8

Revenue is equal to A) price times quantity. B) price times quantity minus total cost. C) price times quantity minus average cost. D) price times quantity minus marginal cost. E) expenditure on production of output.

A

Suppose your firm operates in a perfectly competitive market and decides to double its output. How does this affect the firm's marginal profit? A) Marginal revenue and marginal cost increase B) Marginal revenue increases but marginal cost remains the same C) Marginal cost may change but marginal revenue remains the same D) Marginal revenue and marginal cost decrease

B

The demand curve facing a perfectly competitive firm is A) the same as its average revenue curve, but not the same as its marginal revenue curve. B) the same as its average revenue curve and its marginal revenue curve. C) the same as its marginal revenue curve, but not its average revenue curve. D) not the same as either its marginal revenue curve or its average revenue curve. E) not defined in terms of average or marginal revenue.

B

The shutdown decision can be restated in terms of producer surplus by saying that a firm should produce in the short run as long as A) revenue exceeds producer surplus. B) producer surplus is positive. C) producer surplus exceeds fixed cost. D) producer surplus exceeds variable cost. E) profit and producer surplus are equal.

B

A perfectly competitive hardware manufacturer has total revenue of $85 million, total variable costs of $45 million, and fixed costs of $10 million. What is the firm's producer surplus? A) $85 million B) $70 million C) $40 million D) $30 million

C

Refer to Figure 8.1. At 67 units of output, profit is A) maximized and zero. B) maximized and negative. C) maximized and positive. D) not maximized, and zero. E) not maximized, and negative

C

Refer to Figure 8.1. At the profit-maximizing level of output, ATC is A) $26. B) $30. C) $31. D) $40. E) $44.

C

Refer to Figure 8.2. At P = $80, how much is profit in the short run? A) $88 B) $306 C) $351 D) $1000 E) $1024

C

Refer to Figure 8.2. At P = $80, the profit-maximizing output in the short run is A) 22. B) 34. C) 39. D) 50. E) 64.

C

Ronny's Pizza House operates in the perfectly competitive local pizza market. If the price of pizza cheese increases (ceteris paribus), what is the expected impact on Ronny's profit-maximizing output decision? A) Output increases to cover the higher input cost B) Output increases because the marginal cost curve shifts upward C) Output decreases because the marginal cost curve shifts upward D) Output decreases because the price of pizza must also increase

C

A firm never operates A) at the minimum of its ATC curve. B) at the minimum of its AVC curve. C) on the downward-sloping portion of its ATC curve. D) on the downward-sloping portion of its AVC curve. E) on its long-run marginal cost curve.

D

If a competitive firm's marginal cost curve is U-shaped then A) its short run supply curve is U-shaped too B) its short run supply curve is the downward-sloping portion of the marginal cost curve C) its short run supply curve is the upward-sloping portion of the marginal cost curve D) its short run supply curve is the upward-sloping portion of the marginal cost curve that lies above the short run average variable cost curve E) its short run supply curve is the upward-sloping portion of the marginal cost curve that lies above the short run average total cost curve

D

Higher input prices result in A) upward shifts of MC and reductions in output. B) upward shifts of MC and increases in output. C) downward shifts of MC and reductions in output. D) downward shifts of MC and increases in output. E) increased demand for the good the input is used for.

A

If managers do not choose to maximize profit, but pursue some other goal such as revenue maximization or growth, A) they are more likely to become takeover targets of profit-maximizing firms. B) they are less likely to be replaced by stockholders. C) they are less likely to be replaced by the board of directors. D) they are more likely to have higher profit than if they had pursued that policy explicitly. E) their companies are more likely to survive in the long run.

A

In the long run, a firm's producer surplus is equal to the A) economic rent it enjoys from its scarce inputs. B) revenue it earns in the long run. C) positive economic profit it earns in the long run. D) difference between total revenue and total variable costs. E) difference between total revenue and total fixed costs.

A

In the short run, a perfectly competitive firm earning negative economic profit is A) on the downward-sloping portion of its ATC curve. B) at the minimum of its ATC curve. C) on the upward-sloping portion of its ATC curve. D) above its ATC curve.

A

Marginal profit is equal to A) marginal revenue minus marginal cost. B) marginal revenue plus marginal cost. C) marginal cost minus marginal revenue. D) marginal revenue times marginal cost. E) marginal revenue divided by marginal cost.

A

Suppose a firm has unavoidable fixed costs of $500,000 per year, and it decides to shut down. What is the firm's producer surplus? A) PS is positive in this case, but we cannot determine the value based on the given information B) PS is negative in this case, but we cannot determine the value based on the given information C) PS = -$500,000 D) PS = 0

A

Suppose your firm has a U-shaped average variable cost curve and operates in a perfectly competitive market. If you produce where the product price (marginal revenue) equals average variable cost (on the upward sloping portion of the AVC curve), then your output will: A) exceed the profit-maximizing level of output. B) be smaller than the profit-maximizing level of output. C) equal the profit-maximizing level of output. D) generate zero economic profits.

A

The total revenue graph consistent with Table 8.1 is A) linear and upward-sloping. B) linear and horizontal. C) linear and vertical. D) linear and downward-sloping. E) concave downwards.

A

When the TR and TC curves have the same slope, A) they are the furthest from each other. B) they are closest to each other. C) they intersect each other. D) profit is negative. E) profit is zero.

A

Use the following statements to answer this question: I. Under perfect competition, an upward shift in the marginal cost curve (perhaps due to a higher price for a variable input) also shifts the average variable cost curve upward. II. Under perfect competition., an upward shift in the marginal cost curve (perhaps due to a higher price for a variable input) reduces firm output but may increase firm profits. A) I and II are true. B) I is true and II is false. C) II is true and I is false. D) I and II are false.

B

An association of businesses that are jointly owned and operated by members for mutual benefit is a: A) condominium. B) corporation. C) cooperative. D) joint tenancy.

C

Bette's Breakfast, a perfectly competitive eatery, sells its "Breakfast Special" (the only item on the menu) for $5.00. The costs of waiters, cooks, power, food etc. average out to $3.95 per meal; the costs of the lease, insurance and other such expenses average out to $1.25 per meal. Bette should A) close her doors immediately. B) continue producing in the short and long run. C) continue producing in the short run, but plan to go out of business in the long run. D) raise her prices above the perfectly competitive level. E) lower her output.

C

Consider the following statements when answering this question I. In the long run, if a firm wants to remain in a competitive industry, then it needs to own resources that are in limited supply. II. In this competitive market our firm's long-run survival depends only on the efficiency of our production process. A) I and II are true. B) I is true, and II is false. C) I is false, and II is true. D) I and II are false.

C

If a competitive firm's marginal costs always increase with output, then at the profit maximizing output level, producer surplus is A) zero because marginal costs equal marginal revenue. B) zero because price equals marginal costs. C) positive because price exceeds average variable costs. D) positive because price exceeds average total costs. E) positive because revenues are increasing faster than variable costs.

C

If current output is less than the profit-maximizing output, then the next unit produced A) will decrease profit. B) will increase cost more than it increases revenue. C) will increase revenue more than it increases cost. D) will increase revenue without increasing cost. E) may or may not increase profit.

C

Imposition of an output tax on all firms in a competitive industry will result in A) a downward shift in each firm's marginal cost curve. B) a downward shift in each firm's average cost curve. C) a leftward shift in the market supply curve. D) the entry of new firms into the industry. E) higher profits for the industry as price rises.

C

Marginal revenue, graphically, is A) the slope of a line from the origin to a point on the total revenue curve. B) the slope of a line from the origin to the end of the total revenue curve. C) the slope of the total revenue curve at a given point. D) the vertical intercept of a line tangent to the total revenue curve at a given point. E) the horizontal intercept of a line tangent to the total revenue curve at a given point.

C

Owners and managers A) must be the same people. B) may be different people with different goals, and in the long run firms that do best are those in which the managers are allowed to pursue their own independent goals. C) may be different people with different goals, but in the long run firms that do best are those in which the managers pursue the goals of the owners. D) may be different people with different but exactly complementary goals. E) may be different people with the same goals.

C

Producer surplus in a perfectly competitive industry is A) the difference between profit at the profit-maximizing output and profit at the profit-minimizing output. B) the difference between revenue and total cost. C) the difference between revenue and variable cost. D) the difference between revenue and fixed cost. E) the same thing as revenue.

C

Refer to Table 8.1. The maximum profit available to the firm is A) $20. B) $30. C) $35. D) $155. E) $180.

C

The supply curve for a competitive firm is A) its entire MC curve. B) the upward-sloping portion of its MC curve. C) its MC curve above the minimum point of the AVC curve. D) its MC curve above the minimum point of the ATC curve. E) its MR curve.

C

Two soft-drink firms, Fizzle & Sizzle, operate on a river. Fizzle is farther upstream, and gets cleaner water, so its cost of purifying water for use in the soft drinks is lower than Sizzle's by $500,000 yearly. 27) According to Scenario 8.1, Fizzle and Sizzle A) would be perfectly competitive if their purification costs were equal; otherwise, not. B) would be perfectly competitive if it costs Fizzle $500,000 yearly to keep that land. C) may or may not be perfect competitors, but their position on the river has nothing to do with it. D) cannot be perfect competitors because they are not identical firms.

C

Which of the following statements identifies a key difference between condominiums and cooperative housing? A) Condos tends to be less expensive. B) Condo owners are not responsible for maintaining the common spaces in the building. C) Co-op owners have more control over who can move into their building. D) Co-op owners generally commit less time to the building governance.

C

An improvement in technology would result in A) upward shifts of MC and reductions in output. B) upward shifts of MC and increases in output. C) downward shifts of MC and reductions in output. D) downward shifts of MC and increases in output. E) increased quality of the good, but little change in MC.

D

An industry analyst observes that in response to a small increase in price, a competitive firm's output sometimes rises a little and sometimes a lot. The best explanation for this finding is that A) the firm's marginal cost curve is random. B) the firm's marginal cost curve has a very small positive slope. C) the firm's marginal cost has a very large positive slope. D) the firm's marginal cost curve is horizontal for some ranges of output and rises in steps. E) the firm's marginal cost curve is downward sloping.

D

Because of the relationship between a perfectly competitive firm's demand curve and its marginal revenue curve, the profit maximization condition for the firm can be written as A) P = MR. B) P = AVC. C) AR = MR. D) P = MC. E) P = AC.

D

If any of the assumptions of perfect competition are violated, A) supply-and-demand analysis cannot be used to study the industry. B) graphs with flat demand curves cannot be used to study the firm. C) graphs with downward-sloping demand curves cannot be used to study the firm. D) there may still be enough competition in the industry to make the model of perfect competition usable. E) one must use the monopoly model instead.

D

Refer to Figure 8.1. The profit-maximizing output is A) 30. B) 54. C) 60. D) 67. E) 79.

D

Refer to Figure 8.2. As the competitive industry, not just the firm in question, moves toward long-run equilibrium, the firm will be forced to operate at what level of output? A) 22 B) 34 C) 38. D) 50 E) 64

D

Refer to Figure 8.2. As the firm makes its long-run adjustment, which must be true? A) It takes advantage of increasing returns to scale. B) It suffers from decreasing returns to scale. C) It takes advantage of increasing marginal product. D) It takes advantage of economies of scale. E) It takes advantage of diseconomies of scale.

D

Ronny's Pizza House is a profit maximizing firm in a perfectly competitive local restaurant market, and their optimal output is 80 pizzas per day. The local government imposes a new tax of $250 per year on all restaurants that operate in the city. How does this affect Ronny's profit maximizing decisions? A) No impact on the restaurant's decisions B) Ronny's will remain in business but will definitely produce less pizza C) Ronny's will definitely shut down D) Ronny's decision depends on the circumstances -- if their profits are larger than $250 per year, then the tax does not impact output; otherwise, Ronny's Pizza House will shut down.

D

Short-run supply curves for perfectly competitive firms tend to be upward sloping because: A) there is diminishing marginal product for one or more variable inputs. B) marginal costs increase as output increases. C) marginal fixed costs equal zero. D) A and B are correct. E) B and C are correct.

D

Suppose a technological innovation shifts the marginal cost curve downward. Which one of the following cost curves does NOT shift? A) Firm's short-run supply curve B) Average total cost curve C) Average variable cost curve D) Average fixed cost curve

D

Suppose all firms have constant marginal costs that are the same for each firm in the short run. In this case, the market level supply curve is ________ and producer surplus equals ________: A) perfectly inelastic, fixed costs B) perfectly inelastic, zero C) perfectly elastic, fixed costs D) perfectly elastic, zero

D

Suppose we plot the total revenue curve with quantity on the horizontal axis and revenue on the vertical axis (as in Figure 8.1 in the book). Under price-taking behavior, the total revenue curve should be: A) an inverted U-shaped curve (first increasing and then decreasing). B) a U-shaped curve (first decreasing and then increasing). C) a horizontal line with vertical axis intercept equal to the market price. D) a straight line from the origin with slope equal to the market price.

D

The "perfect information" assumption of perfect competition includes all of the following except one. Which one? A) Consumers know their preferences. B) Consumers know their income levels. C) Consumers know the prices available. D) Consumers can anticipate price changes. E) Firms know their costs, prices and technology.

D

The authors note that the goal of maximizing the market value of the firm may be more appropriate than maximizing short-run profits because: A) the market value of the firm is based on long-run profits. B) managers will not focus on increasing short-run profits at the expense of long-run profits. C) this would more closely align the interests of owners and managers. D) all of the above

D

The demand curve facing a perfectly competitive firm is A) the same as the market demand curve. B) downward-sloping and less flat than the market demand curve. C) downward-sloping and more flat than the market demand curve. D) perfectly horizontal. E) perfectly vertical.

D

The perfectly competitive firm's marginal revenue curve is A) exactly the same as the marginal cost curve. B) downward-sloping, at twice the (negative) slope of the market demand curve. C) vertical. D) horizontal. E) upward-sloping.

D

The textbook for your class was not produced in a perfectly competitive industry because A) there are so few firms in the industry that market shares are not small, and firms' decisions have an impact on market price. B) upper-division microeconomics texts are not all alike. C) it is not costless to enter or exit the textbook industry. D) of all of the above reasons.

D

Three hundred firms supply the market for paint. For fifty of the firms, their short-run average variable costs are minimized at $10 and short-run total costs are minimized at $15. For the remaining firms, the short-run average variable costs and short-run average total costs are minimized at $20 and $25, respectively. If each firm has a U-shaped marginal cost curve then the short-run market supply curve is A) U-shaped too B) kinked at $10 C) kinked at $15 D) kinked at $20 E) kinked at $25

D

Two soft-drink firms, Fizzle & Sizzle, operate on a river. Fizzle is farther upstream, and gets cleaner water, so its cost of purifying water for use in the soft drinks is lower than Sizzle's by $500,000 yearly. Refer to the information in Scenario 8.1. If Fizzle and Sizzle sell the same output at the same price and are otherwise identical, Fizzle's profit will be A) higher than Sizzle's by $500,000 yearly. B) higher than Sizzle's by just less than $500,000 yearly. C) zero in the long run, and Sizzle will be out of business. D) the same as Sizzle's, because Fizzle must be assigned an implicit cost of $500,000 yearly for economic rent. E) the same as Sizzle's, because Sizzle will move to a more advantageous location in order to compete.

D

Use the following statements to answer this question: I. An increase in the firm's fixed costs will also shift the firm's short-run supply curve to the left. II. An increase in the firm's fixed costs will not shift the firm's short-run supply curve to the right or left, but it may alter how much of the marginal cost curve is used to form the short-run supply curve. A) I and II are true. B) I is true and II is false. C) II is true and I is false. D) I and II are false.

D

Use the following statements to answer this question: I. Markets that have only a few sellers cannot be highly competitive. II. Markets with many sellers are always perfectly competitive. A) I and II are true. B) I is true and II is false. C) II is true and I is false. D) I and II are false.

D

What do cooperative firms do if they make a profit? A) Cooperatives never earn profits, so this issue does not occur. B) Cooperatives must pay their profits to the federal governments as a windfall profit tax. C) Cooperatives must keep half of the profits and return the other half to their members. D) Cooperatives generally return the profits to their members as a dividend.

D

Which of following is a key assumption of a perfectly competitive market? A) Firms can influence market price. B) Commodities have few sellers. C) It is difficult for new sellers to enter the market. D) Each seller has a very small share of the market. E) none of the above

D

Which of the following costs may provide barriers to entry in a market? A) High research and development expenditures B) License fees C) I is false and II is true D) I and II are false

D

When the price faced by a competitive firm was $5, the firm produced nothing in the short run. However, when the price rose to $10, the firm produced 100 tons of output. From this we can infer that A) the firm's marginal cost curve must be flat. B) the firm's marginal costs of production never fall below $5. C) the firm's average cost of production was less than $10. D) the firm's total cost of producing 100 tons is less than $1000. E) the minimum value of the firm's average variable cost lies between $5 and $10.

E

Which of following is an example of a homogeneous product? A) Gasoline B) Copper C) Personal computers D) Winter parkas E) both A and B

E

A firm maximizes profit by operating at the level of output where A) average revenue equals average cost. B) average revenue equals average variable cost. C) total costs are minimized. D) marginal revenue equals marginal cost. E) marginal revenue exceeds marginal cost by the greatest amount.

D

A firm's producer surplus equals its economic profit when A) average variable costs are minimized. B) average fixed costs are minimized. C) marginal costs equal marginal revenue. D) fixed costs are zero. E) total revenues equal total variable costs.

D

In a constant-cost industry, price always equals A) LRMC and minimum LRAC. B) LRMC and LRAC, but not necessarily minimum LRAC. C) minimum LRAC, but not LRMC. D) LRAC and minimum LRMC. E) minimum LRAC and minimum LRMC.

A

In an increasing-cost industry, expansion of output A) causes input prices to rise as demand for them grows. B) leaves input prices constant as input demand grows. C) causes economies of scale to occur. D) occurs under conditions of increasing returns to scale. E) occurs without diminishing marginal product.

A

In long-run competitive equilibrium, a firm that owns factors of production will have an A) economic profit = $0 and accounting profit > $0. B) economic profit > $0 and accounting profit = $0. C) economic and accounting profit = $0. D) economic and accounting profit > $0. E) economic and accounting profit can take any value.

A

Refer to Figure 8.2. As the competitive industry, not just the firm in question, moves toward long-run equilibrium, how much profit will the firm earn? A) $0 B) $306 C) $312 D) $1000. E) $1024

A

Refer to Figure 8.2. As the competitive industry, not just the firm in question, moves toward long-run equilibrium, what will the price be? A) $60 B) $64 C) $70 D) $71 E) $80

A

Use the following statements to answer this question: I. Markets may be highly (but not perfectly) competitive even if there are a few sellers. II. There is no simple indicator that tells us when markets are highly competitive. A) I and II are true B) I is true and II is false C) I is false and II is true D) I and II are false

A

Use the following statements to answer this question: I. The firm's decision to produce zero output when the price is less than the average variable cost of production is known as the shutdown rule. II. The firm's supply decision is to generate zero output for all prices below the minimum AVC. A) I and II are true. B) I is true and II is false. C) II is true and I is false. D) I and II are false.

A

Yachts are produced by a perfectly competitive industry in Dystopia. Industry output (Q) is currently 30,000 yachts per year. The government, in an attempt to raise revenue, places a $20,000 tax on each yacht. Demand is highly, but not perfectly, elastic. 1) Refer to Scenario 8.2. The result of the tax in the long run will be that A) Q falls from 30,000; P rises by less than $20,000. B) Q falls from 30,000; P rises by $20,000. C) Q falls from 30,000; P does not change. D) Q stays at 30,000; P rises by $20,000. E) Q stays at 30,000; P rises by less than $20,000.

A

A few sellers may behave as if they operate in a perfectly competitive market if the market demand is: A) highly inelastic. B) very elastic. C) unitary elastic. D) composed of many small buyers.

B

Although the long-run equilibrium price of oil is $80 per barrel, some producers have much lower costs because their oil reserves are relatively close to the surface and are easier to extract. If the low-cost producers have a minimum LAC equal to $20 per barrel, then the difference ($60 per barrel) is: A) an above-normal economic profit. B) an economic rent due to the scarcity of low-cost oil reserves. C) a profit that will go to zero as new oil producers enter the market. D) none of the above

B

An industry has 1000 competitive firms, each producing 50 tons of output. At the current market price of $10, half of the firms have a short-run supply curve with a slope of 1; the other half each have a short-run supply curve with slope 2. The short-run elasticity of market supply is A) 1/50 B) 3/10 C) 1/5 D) 2/5 E) none of the above

B

Consider the following statements when answering this question I. Increases in the demand for a good, which is produced by a competitive industry, will raise the short-run market price. II. Increases in the demand for a good, which is produced by a competitive industry, will raise the long-run market price. A) I and II are true. B) I is true, and II is false. C) I is false, and II is true. D) I and II are false.

B

Firms often use patent rights as a: A) barrier to exit. B) barrier to entry. C) way to achieve perfect competition. D) none of the above

B

If a graph of a perfectly competitive firm shows that the MR = MC point occurs where MR is above AVC but below ATC, A) the firm is earning negative profit, and will shut down rather than produce that level of output. B) the firm is earning negative profit, but will continue to produce where MR = MC in the short run. C) the firm is still earning positive profit, as long as variable costs are covered. D) the firm is covering explicit, but not implicit, costs. E) the firm can cover all of fixed costs but only a portion of variable costs.

B

If the market price for a competitive firm's output doubles then A) the profit maximizing output will double B) the marginal revenue doubles C) at the new profit maximizing output, price has increased more than marginal cost D) at the new profit maximizing output, price has risen more than marginal revenue E) competitive firms will earn an economic profit in the long-run.

B

Refer to Figure 8.1. At the profit-maximizing level of output, AVC is A) $22. B) $26. C) $30. D) $32. E) $40.

B

Refer to Figure 8.1. The firm earns zero profit at what output? A) 0. B) 34 and 79. C) 54. D) 60. E) 67.

B

Suppose the market demand curve is perfectly elastic in an increasing-cost industry. If an output tax of t per unit is imposed on all producers of the good, what happens to the market equilibrium outcome? A) The price paid by buyers increases and output declines B) The price paid by buyers does not change and output decrease C) The price paid by buyers and output increase D) The price paid by buyers and output decrease

B

Consider the following statements when answering this question I. If the cost of producing each unit of output falls $5, then the short-run market price falls $5. II. If the cost of producing each unit of output falls $5, then the long-run market price falls $5. A) I and II are true. B) I is true, and II is false. C) I is false, and II is true. D) I and II are false.

C

Economic rents are typically counted as: A) accounting costs but not economic costs. B) accounting and economic costs. C) economic costs but not accounting costs. D) none of the above

C

Generally, long-run elasticities of supply are A) greater than short-run elasticities, because existing inventories can be exploited during shortages. B) greater than short-run elasticities, because consumers have time to find substitutes for the good. C) greater than short-run elasticities, because firms can make alterations to plant size and input combinations to be more flexible in production. D) smaller than short-run elasticities, because the firm has made long-term commitments it cannot easily modify. E) the same as short-run elasticities, because technology is not assumed to change in the long-run adjustment process.

C

In a constant-cost industry, an increase in demand will be followed by A) no increase in supply. B) an increase in supply that will not change price from the higher level that occurs after the demand shift. C) an increase in supply that will bring price down to the level it was before the demand shift. D) an increase in supply that will bring price down below the level it was before the demand shift. E) a decrease in demand to keep price constant.

C

Which of the following cases are examples of industries that have potentially increasing costs due to scarce inputs? A) Petroleum production B) Medical care C) Legal services D) all of the above

D

In many rural areas, electric generation and distribution utilities were initially set up as cooperatives in which the electricity customers were member-owners. Like most cooperatives, the objective of these firms was to: A) maximize profits for the member-owners. B) maximize total revenue that could be redistributed to the member-owners. C) operate at zero profit in order to provide low electricity prices for the member-owners. D) minimize the costs of production.

C

In the short run, a perfectly competitive firm earning negative economic profit A) is on the downward-sloping portion of its AVC. B) is at the minimum of its AVC. C) is on the upward-sloping portion of its AVC. D) is not operating on its AVC. E) can be at any point on its AVC.

C

In the short run, a perfectly competitive firm earning positive economic profit is A) on the downward-sloping portion of its ATC. B) at the minimum of its ATC. C) on the upward-sloping portion of its ATC. D) above its ATC. E) below its ATC.

C

In the short run, a perfectly competitive profit maximizing firm that has not shut down A) is operating on the downward-sloping portion of its AVC curve. B) is operating at the minimum of its AVC curve. C) is operating on the upward-sloping portion of its AVC curve. D) is not operating on its AVC curve. E) can be at any point on its AVC curve.

C

Marginal profit is negative when: A) marginal revenue is negative. B) total cost exceeds total revenue. C) output exceeds the profit-maximizing level. D) profit is negative.

C

One practical implication of a kinked market supply curve is that: A) producer surplus is not defined at the kink point. B) the MC = MR rule does not hold at the kink point. C) the market supply elasticity for a price increase may be different than the market supply elasticity for a price decrease at the kink point. D) All of the above are true.

C

Suppose a plant manager ignores some implicit marginal costs of production so that the perceived MC curve is below the actual MC curve. What is the likely outcome from this error? A) Firm produces less than optimal quantity and earns lower profits B) Firm produces less than optimal quantity and earns higher profits C) Firm produces more than optimal quantity and earns lower profits D) Firm produces more than optimal quantity and earns higher profits

C

The amount of output that a firm decides to sell has no effect on the market price in a competitive industry because A) the market price is determined (through regulation) by the government B) the firm supplies a different good than its rivals C) the firm's output is a small fraction of the entire industry's output D) the short run market price is determined solely by the firm's technology E) the demand curve for the industry's output is downward sloping

C

The authors explain that a firm earning a zero economic profit in the long run has earned a competitive return on their investment. What do they mean by "competitive" return in this context? A) The firm's return could only be earned under perfect competition and would be smaller under imperfect competition. B) The firm's return is at least as larger as the returns earned by other firms. C) The firm's return is at least as larger as could be earned in another investment. D) The firm's return is negative, which initiates stronger competition among firms in the market.

C

The long-run supply curve in a constant-cost industry is linear and A) upward-sloping. B) downward-sloping. C) horizontal. D) vertical. E) could have any constant slope.

C

Under what conditions will a firm's long-run producer surplus exceed their economic rents? A) The firm requires land resources in the production process. B) The firm has access to specialized tools or technology that other firms do not own. C) The firm has access to knowledge or human capital that other firms do not own. D) The firm is operating in an imperfectly competitive market.

C

Which of the following is NOT a necessary condition for long-run equilibrium under perfect competition? A) No firm has an incentive to enter the market. B) No firm has an incentive to exit the market. C) Prices are relatively low. D) Each firm earns zero economic profit. E) Each firm is maximizing profit.

C

Yachts are produced by a perfectly competitive industry in Dystopia. Industry output (Q) is currently 30,000 yachts per year. The government, in an attempt to raise revenue, places a $20,000 tax on each yacht. Demand is highly, but not perfectly, elastic. A) the more Q will fall and the more P will rise. B) the less Q will fall and the more P will rise. C) the more Q will fall and the less P will rise. D) the less Q will fall and the less P will rise. E) the closer is the new equilibrium point to the old.

C

Following Example 8.8 in the book, the long-run supply of rental housing in most U.S. communities is more inelastic than the long-run supply of owner-occupied housing. Why? A) Local rental housing regulations B) Limited demand for rental housing C) Limitations on the urban land available for rental housing D) A and C above are correct

D

Refer to Figure 8.1. At the profit-maximizing level of output, total revenue is A) $1200. B) $2160. C) $2400. D) $2680. E) $3160.

D

That Table 8.1 shows a short-run situation is evident from A) the linear marginal revenue function. B) the constant price. C) the increasing marginal cost. D) the presence of positive costs at Q = 0. E) the absence of marginal values at Q = 0.

D

Which of the following events does NOT occur when market demand shifts leftward in an increasing-cost industry? A) Initially, the output produced by existing firms declines along the short-run market supply curve. B) The market price declines below the minimum LAC due to the short-run supply response. C) The market supply curve shifts leftward as some firms exit the market when the market price is below the minimum LAC. D) As firms exit, the market price rises and attracts other firms to enter the market. E) The LAC curve shifts downward as output falls.

D

A decreasing-cost industry has a downward-sloping A) long-run average cost curve. B) long-run marginal cost curve. C) short-run average cost curve. D) short-run marginal cost curve. E) long-run industry supply curve

E

An increasing-cost industry is so named because of the positive slope of which curve? A) Each firm's short-run average cost curve B) Each firm's short-run marginal cost curve C) Each firm's long-run average cost curve D) Each firm's long-run marginal cost curve E) The industry's long-run supply curve

E

Refer to Figure 8.2. How much profit will the firm earn if price stays at $80? A) $0 B) $306 C) $312 D) $1000 E) $1024

E

What happens in a perfectly competitive industry when economic profit is greater than zero? A) Existing firms may get larger. B) New firms may enter the industry. C) Firms may move along their LRAC curves to new outputs. D) There may be pressure on prices to fall. E) All of the above may occur.

E

Suppose the state legislature in your state imposes a state licensing fee of $100 per year to be paid by all firms that file state tax revenue reports. This new business tax: A) increases marginal cost. B) decreases marginal cost. C) increases marginal revenue. D) decreases marginal revenue. E) none of the above

E

At the profit-maximizing level of output, marginal profit A) is also maximized. B) is zero. C) is positive. D) is increasing. E) may be positive, negative or zero.

B

Consider the following statements when answering this question I. In the long-run equilibrium of a perfectly competitive market, a firm's producer surplus equals the sum of the economic rents earned on its inputs to production. II. In the long-run equilibrium of a perfectly competitive market, the amount of economic profit earned can differ across firms, but not the amount of producer surplus. A) I and II are true. B) I is true, and II is false. C) I is false, and II is true. D) I and II are false.

B

A price taker is A) a firm that accepts different prices from different customers. B) a consumer who accepts different prices from different firms. C) a perfectly competitive firm. D) a firm that cannot influence the market price. E) both C and D

E

At the profit-maximizing level of output, what is relationship between the total revenue (TR) and total cost (TC) curves? A) They must intersect, with TC cutting TR from below. B) They must intersect, with TC cutting TR from above. C) They must be tangent to each other. D) They cannot be tangent to each other. E) They must have the same slope.

E

Average cost for the firm in Table 8.1 A) cannot be determined from the information given. B) is upward-sloping for all output values shown. C) is constant for all output values shown. D) is downward-sloping for all output values shown. E) is U-shaped.

E

If a competitive firm has a U-shaped marginal cost curve then A) the profit maximizing output will always generate positive economic profit. B) the profit maximizing output will always generate positive producer surplus. C) the profit maximizing output is found where MC = MR and MC is decreasing. D) the profit maximizing output is found where MC = MR and MC is constant. E) the profit maximizing output is found where MC = MR and MC is increasing.

E

If current output is less than the profit-maximizing output, which must be true? A) Total revenue is less than total cost. B) Average revenue is less than average cost. C) Average revenue is greater than average cost. D) Marginal revenue is less than marginal cost. E) Marginal revenue is greater than marginal cost.

E

If price is between AVC and ATC, the best and most practical thing for a perfectly competitive firm to do is A) raise prices. B) lower prices to gain revenue from extra volume. C) shut down immediately, but not liquidate the business. D) shut down immediately and liquidate the business. E) continue operating, but plan to go out of business.

E

In a supply-and-demand graph, producer surplus can be pictured as the A) vertical intercept of the supply curve. B) area between the demand curve and the supply curve to the left of equilibrium output. C) area under the supply curve to the left of equilibrium output. D) area under the demand curve to the left of equilibrium output. E) area between the equilibrium price line and the supply curve to the left of equilibrium output.

E

Refer to Figure 8.1. At the profit-maximizing level of output, A) AVC is minimized. B) ATC is minimized. C) MC is minimized. D) total cost is minimized. E) no costs are minimized.

E

Refer to Figure 8.1. At the profit-maximizing level of output, total profit is A) -$120. B) $0. C) $432. D) $600. E) $603.

E

Refer to Figure 8.2. If the firm expects $80 to be the long-run price, how many units of output will it plan to produce in the long run? A) 22 B) 34 C) 38 D) 50 E) 64

E

Refer to Table 8.1. That the firm is perfectly competitive is evident from its A) increasing marginal cost. B) increasing total cost. C) zero economic profits. D) constant marginal revenue. E) absence of marginal values at Q = 0.

E

Several years ago, Alcoa was effectively the sole seller of aluminum because the firm owned nearly all of the aluminum ore reserves in the world. This market was not perfectly competitive because this situation violated the: A) price-taking assumption. B) homogeneous product assumption. C) free entry assumption. D) A and B are correct. E) A and C are correct.

E