Econ Module 9 quizzes

Damien produces 400 gallons of milk a day in a very competitive industry. The market price for a gallon of milk is $2. Damien's marginal revenue per gallon of milk is: $0. $2. $200. $800.

$2

Price equals marginal revenue for a competitive firm because: the production of marginal units affects the value of other units. the price does not change when the firm changes output. marginal cost is constant. total revenue is constant.

the price does not change when the firm changes output.

In the short run, perfectly (or purely) competitive firms will maximize their profit by producing which of the choices? Select all that apply. any quantity where marginal revenue > marginal cost the quantity where marginal revenue = marginal cost the largest quantity possible, not considering costs or revenues a small quantity to drive up the price the quantity where price equals marginal cost

the quantity where marginal revenue = marginal cost the quantity where price equals marginal cost

Average cost equals: total revenue divided by quantity. price. the cost of producing one additional unit. total cost divided by output.

total cost divided by output.

A firm's ___________________ are costs that increase as quantity produced increases. These costs often show _______________________ by increasing at an increasing rate. fixed costs; opportunity costs variable costs; diminishing marginal returns variable costs; constant returns to scale fixed costs; technological changes

variable costs; diminishing marginal returns

Which statement is false? A marginal cost curve will always intersect the average variable cost curve at the minimum average variable cost. Marginal cost and marginal productivity are inversely related. Marginal cost is the change in a firm's variable cost due to a one unit change in output. Costs that are small and unimportant with little impact on profits are called marginal costs.

Costs that are small and unimportant with little impact on profits are called marginal costs.

Victor owns a shoe store that is losing money, and several other shoe stores in his market are also losing money. Which of the following guidelines will help him decide whether to remain in business or exit the market? Remain in the market only if average costs are greater than average revenue. Remain in the market only if average costs exceed marginal revenue. Exit the market if price is expected to be less than average costs. Exit the market if price is less than average revenue.

Exit the market if price is expected to be less than average costs.

Scott and Nareh just purchased a piece of land and a tractor. They plan to start growing and selling organic jalapeno peppers. They have heard that the market for organic jalapeno peppers is perfectly competitive. What does that mean in terms of long‑run profit? Firms will earn zero accounting profit in the long run. Firms will earn negative economic profit in the long run. Firms will earn zero economic profit in the long run. Firms will earn positive economic profit in the long run. Scott and Nareh want to know the quantity they should produce to maximize profit. As their economic advisor, you recommend that they produce until price falls below average variable cost. produce as much as possible, regardless of cost. produce until marginal cost is equal to marginal revenue. produce until marginal revenue is equal to price.

Firms will earn zero economic profit in the long run. produce until marginal cost is equal to marginal revenue.

Suppose that the price of corn, a crop produced in a perfectly (or purely) competitive industry, increased 208% last year as demand for corn‑based ethanol fuel increased. What do you expect to happen in the long run for the corn industry given this recent success? The price per bushel of corn will continue to increase, yielding higher profits. Thus, more firms will enter the market indefinitely. Profits will become negative due to overfarming, which will result in the corn farming industry going under. Profits will be equal to zero. None of the above. Suppose the firms in the market for bacon, also a perfectly (or purely) competitive industry, experienced losses last quarter due to people becoming increasingly concerned about how high-fat diets negatively impact health. What do you expect to happen in the long run for the bacon industry? Seeing this as an opportunity to monopolize a fledging industry, firms will enter the industry, shifting supply to the right. Profits will remain negative, which will result in the closing down of the industry as a whole. Profits will be equal to zero. None of the above.

Profits will be equal to zero. Profits will be equal to zero.

Which of the given factors is an assumption of perfect competition? There are a large number of producers in the market. Firms sell differentiated goods. There are high barriers to entry. Firms have price setting power.

There are a large number of producers in the market.

total cost / quantity

average total cost

on a graph, where is the average total cost, average variable cost, and marginal cost?

average total cost is top U shaped line, average variable cost is bottom U shaped line, and marginal cost cuts through both

The sum of all costs that change as output changes divided by the number of units produced:

average variable cost

variable cost/ quantity

average variable cost

If market price exceeds ______ cost, profit will be ___

average, positive

In the graph, the slope of the total cost (TC) curve is calculated as ??? This value is also referred to as???

change in total cost / change in quantity marginal cost

Price takers can control the market prices of the products they sell. set their market prices. charge the prevailing prices and do not have any effect on the market price. produce only agricultural items in the market.

charge the prevailing prices and do not have any effect on the market price.

Which scenario is MOST likely to cause firms to exit an industry? Consumer preferences for the product strengthen. A technological advance allows firms to produce more efficiently. The price of a key input falls. Consumer incomes fall.

consumer incomes fall

In the long run, each firm in an industry will: earn only enough to cover the opportunity costs of all resources used in production. produce where MR is less than MC. offer more than one variation of the same good. set price in coordination with other producers in the market.

earn only enough to cover the opportunity costs of all resources used in production.

Average fixed costs will rise then fall as output rises. fall then rise as output rises. fall as output rises. rise as output rises.

fall as output rises

A firm's ___________________ are costs that are incurred even if there is no output. In the short run, these costs ___________________ as production increases. fixed costs; do not change variable costs; do not change variable costs; increase fixed costs; increase

fixed costs; do not change

The main difference between the short run and the long run is that in the short run all inputs are fixed, while in the long run all inputs are variable. in the long run, the firm is making a constrained decision about how to use existing plant and equipment efficiently. in the short run the firm varies all of its inputs to find the least-cost combination of inputs. in the short run, at least one of the firm's inputs is fixed.

in the short run, at least one of the firm's inputs is fixed.

Erika is the owner of a cherry orchard. The price of cherries is high enough that Erika is earning positive economic profits. In the long run, Erika should expect _____ cherry prices due to the _____ firms. lower; entry of new higher; exit of existing lower; exit of existing higher; entry of new

lower; entry of new

A perfectly competitive industry is characterized by many firms with control over the market price producing differentiated products. many firms with no control over the market price producing identical products. a single firm with limited control over the market price producing a product with many close substitutes. a single firm with control over the market price producing a product with no close substitutes.

many firms with no control over the market price producing identical products.

The amount by which total cost increases when an additional unit is produced:

marginal cost

The change in total cost divided by the change in output

marginal cost

The change in total variable cost which accompanies one extra unit of output is the average fixed cost. the average total cost. marginal cost. the average variable cost.

marginal cost

Economists assume that the goal of a firm is to be the largest firm in its industry. maximize economic profits. maximize gross revenues. sell as many units as possible.

maximize economic profits

Harrison owns a flower shop. Generally, when preferences for a good rise, demand for the good rises. Holding all else constant, this will result in a higher market price, which will lead to _____ in the industry. The latter will in turn _____, leading the price to _____. positive economic profits; attract new firms into; fall economic losses; attract new firms into; fall positive economic profits; cause some firms to leave; rise further economic losses; cause some firms to leave; rise further

positive economic profits; attract new firms into; fall

A company's profit margin per unit sold equals: total revenue minus total cost. total cost minus total revenue. price minus average cost. average cost minus price.

price minus average cost

Which of the following conditions is present for all sellers in a perfectly competitive market? All sellers have an equal and high level of market power. All sellers are selling identical products. The product price varies across the sellers. The number of sellers is small.

All sellers are selling identical products.

Which of the following markets is an example of a perfectly competitive market? Shares of McDonald's stock Dining chairs Apple computers Fast-food hamburgers

shares of McDonalds stock

When firms in a market with free entry and exit experience economic losses, then: new sellers will enter the market, reducing average seller losses. some sellers will exit the market, reducing average seller losses. new sellers will enter the market, raising average seller losses. some sellers will exit the market, raising average seller losses.

some sellers will exit the market, reducing average seller losses.

The marginal cost curve intersects the average fixed cost curve at its minimum. the average total cost curve at its maximum. the minimum of the average fixed cost, average variable cost and the average total cost curves. the minimum of the average variable cost and average total cost curves.

the minimum of the average variable cost and average total cost curves.

When marginal cost is rising, the average total costs: must be constant. must be rising. could be rising or falling. must be falling.

could be rising or falling

Jennifer's Bakery Shop produces baked goods in a perfectly competitive market. If Jennifer decides to produce her 100th batch of cookies, the marginal cost is $120. She can sell this batch of cookies at a market price of $110. To maximize her profit, Jennifer should produce this batch of cookies because they will help lower her average fixed cost. produce this batch of cookies because their MR exceeds their MC. shut down. charge $120 for this batch. not produce this additional batch.

not produce this additional batch.