Econ chapter 12 Practice Quiz

18. Which of the following statements is not characteristic of a perfectly competitive industry in long-run equilibrium? a. All firms earn a positive economic profit. b. Every firm produces at an output level at which MC=LRATC. c. Ceteris paribus, there is no tendency for firms to either enter or exit the industry. d. No firm earns an economic profit.

a. All firms earn a positive economic profit.

Exhibit 12-1 In short run, a perfectly competitive firm will maximize profit by producing where: a. MC= MR b. MC= ATC c. ATC= MR d. AVC= MC

a. MC= MR

20. If input costs remain the same as industry output expands, what would you expect to be the long-run impact of an increase in demand on an industry currently in long-run equilibrium? a. There will be more firms but the price will remain the same. b. There will be fewer firms but the price will remain the same. c. There will be more firms and the price will increase. d. There will be fewer firms and the price will decrease.

a. There will be more firms but the price will remain the same.

Suppose a decrease in demand causes industry Z to contract, and as a result, the prices of inputs used intensively in the industry's production process fall. We know, as a result, that industry Z is: a. an increasing cost industry b. a constant cost industry c. a decreasing cost industry d. experiencing diminishing returns

a. an increasing cost industry

Refer to Exhibit 12-1. In graph A, the market demand has increased from D0 to D1, and as a result: a. both the market price and the price of the price-taking firm have risen to $6 b. both the market price and thee price of the price-taking firm have fallen to $5 c. the quantity of goods transacted in the market has fallen from Q1 to Q0 d. at the new equilibrium price, the firm will be unable to sell any of its output

a. both the market price and the price of the price-taking firm have risen to $6

28. Which market structure is characterized by many sellers, easy entry, and homogeneous products a. perfect competition b. monopolistic competition c. oligopoly d. monopoly

a. perfect competition

If a profit-maximizing firm finds that price exceeds average variable cost and marginal cost is greater than marginal revenue, it should: a. reduce output, but continue producing in the short run b. increase output c. shut down d. not alter its production level since it is earning a profit

a. reduce output, but continue producing in the short run

4. If a profit-maximizing firm finds that price exceeds average variable cost and marginal cost is greater than marginal revenue, it should: a. reduce output, but continue producing in the short run. b. increase output. c. shut down. d. not alter its production level since it is earning a profit

a. reduce output, but continue producing in the short run.

21. When perfectly competitive firms in an industry are earning positive economic profits, a. we would expect entry into the industry. b. we would expect stability in the industry, since it is in long run equilibrium. c. we would expect exit from the industry. d. we do not know whether there would tend to be entry, exit, or stability in the industry.

a. we would expect entry into the industry.

17. When economic profits are positive in a perfectly competitive industry, a. we would expect the market supply curve to shift to the left as a result. b. we would expect the market supply curve to shift to the right as a result. c. we would not expect any change in the market supply curve to result. d. we would expect that the market demand curve to shift right as a result

b. we would expect the market supply curve to shift to the right as a result.

24. In a perfectly competitive market, producers efficiently use their scarce resources to produce what consumers want and as a result they achieve: a. productive efficiency. b. allocative efficiency. c. economic efficiency. d. constant returns of scale.

b. allocative efficiency

13. Refer to Exhibit 12-1. In Graph B, the market demand has decreased from D0 to D1, and as a result: a. both the market price and the price of the price-taking firm have increased to $5. b. both the market price and the price of the price-taking firm have fallen to $4. c. the quantity of goods transacted in the market has fallen from Q1 to Q0. d. at the new equilibrium price, the firm will be unable to sell any of its output

b. both the market price and the price of the price-taking firm have fallen to $4.

5. Refer to Exhibit 12-9. When the market price for lawn care services decreases from P1 to P0, the firm will most likely: a. continue providing q1 units of services. b. decrease its production of services. c. leave the industry. d. increase its production of services.

b. decrease its production of services.

2. The long-run supply curve for a decreasing-cost industry is: a. upward sloping. b. downward sloping. c. vertical. d. horizontal.

b. downward sloping

Refer to Exhibit 12-8. A firm expanding from producing 1,000 to 2,000 pounds of walnuts in the long run is experiencing: a. Diseconomies of scale b. economies of scale c. an increasing average fixed cost d. constant returns to scale

b. economies of scale

6. Exhibit 12-8- The long-run total cost schedule of a perfectly competitive firm that produces walnuts is as follows: Pounds of Walnuts 1,000 2,000 3,000 4,000 5,000 6,000 Total Cost $3,000 $5,500 $7,500 $8,000 $11,000 $15,000 Refer to Exhibit 12-8. A firm expanding from producing 1,000 to 2,000 pounds of walnuts in the long run is experiencing: a. diseconomies of scale. b. economies of scale. c. an increasing average fixed cost. d. constant returns to scale.

b. economies of scale.

In short run equilibrium in a perfectly competitive industry whose firms are earning economic profits, a firm: a. has no incentive to change its output b. has no incentive to change its plant size c. has no incentive to expand its factory d. has no incentive to leave the industry

b. has no incentive to change its plant size

12. If a profit-maximizing firm finds that price exceeds average variable cost and marginal revenue is greater than marginal cost, it should: a. reduce output, but continue producing in the short run. b. increase output. c. shut down. d. not alter its production level since it is earning a profit.

b. increase output.

Refer to Exhibit 12-2. When the market price equals $105, and the firm sells 675 units of output, the firm: a. is earning a normal profit b. is earning positive economic profits c. is experiencing a loss, but should continue operating temporarily because business conditions may improve d. is experiencing a loss and should shut down

b. is earning positive economic profits

The demand curve facing a perfectly competitive firm is: a. perfectly inelastic b. perfectly elastic c. unit elastic d. downward sloping

b. perfectly elastic

14. The shape of the long-run industry supply curve in a perfectly competitive industry is largely determined by: a. the shape of the short-run industry supply curve. b. the price of inputs as the industry expands. c. the price elasticity of market demand. d. the shape of the average fixed cost curve.

b. the price of inputs as the industry expands.

10. Exhibit 12-4: Revenue and Cost Data for a Perfectly Competitive Firm Daily Output Price Total Revenue TFC TVC TC Profit 0 $20 $ 0 V $ 0 $50 -$50 1 $20 $20 $50 $12 $W -$42 2 X $40 $50 Y $78 -$38 3 $20 $60 $50 $45 $95 Z Refer to Exhibit 12-4. What is the value of the variable X shown in the table? a. $0 b. $50 c. $20 d. $40

c. $20

29. Revenue and Cost Data for a Perfectly Competitive Firm Daily Output Price Total Revenue TFC TVC TC Profit 0 $20 $ 0 V $ 0 $50 -$50 1 $20 $20 $50 $12 $W -$42 2 X $40 $50 Y $78 -$38 3 $20 $60 $50 $45 $95 Z Refer to Exhibit 12-4. What is the value of the variable Z shown in the table? a.$0 b.-$38 c.-$35 d.-$40

c. -$35

26. If the market price was $9.50, how many units should the perfectly competitive firm depicted below produce in order to maximize profits? Quantity 10 11 12 13 14 Total Cost $50.00 $57.00 $66.00 $77.00 $90.00 a. 10 b. 11 c. 12 d. 13 e. 14

c. 12

1. Assuming a price was $2.00, how many units should this perfectly competitive firm produce and sell in order to maximize profits? Quantity 24 25 26 27 28 Total Cost $24.00 $25.00 $26.50 $29.00 $33.50 a. 24 b. 25 c. 26 d. 27

c. 26

Refer to Exhibit 12-5. The firm's short-run supply curve corresponds to which segment of the marginal cost curve in the diagram? a. ABCDE b. BCDE c. CDE d. DE

c. CDE

23. If the typical firm in a perfectly competitive market was depicted in the graph below, what would be most likely to occur? a. New firms would be likely to enter, increasing the market price. b. New firms would be likely to enter, decreasing the market price. c. Existing firms would be likely to exit, increasing the market price. d. Existing firms would be likely to exit, decreasing the market price.

c. Existing firms would be likely to exit, increasing the market price.

16. "I'm losing money, but since my fixed costs are so high, I simply cannot afford to shut down." If the firm were attempting to maximize profit, this decision may be: a. correct if price is less than average variable cost. b. incorrect because a firm experiencing economic losses should never continue to operate. c. correct if the firm is covering all of its variable costs. d. incorrect since a firm should shut down whenever price falls below average total cost in the short run.

c. correct if the firm is covering all of its variable costs.

19. Refer to Exhibit 12-7. In the short run, if the market price is higher than $5 but less than $10, the competitive firm will earn: a. positive economic profits. b. zero economic profits. c. economic losses but will not shut down. d. economic losses and will shut down.

c. economic losses but will not shut down.

Firms will continue to enter a competitive industry until: a. the supply curve is vertical b. the market price falls below average variable cost c. firms make $0 economic profit d. all resources are fully employed

c. firms make $0 economic profit

If a particular perfectly competitive industry uses only small fraction of the supply of any of its inputs, the long run supply curve for that industry will tend to be: a. vertical b. upward sloping c. horizontal d. downward sloping

c. horizontal

7. If a particular perfectly competitive industry uses only a small fraction of the supply of any of its inputs, the long run supply curve for that industry will tend to be: a. vertical. b. upward sloping. c. horizontal. d. downward sloping.

c. horizontal.

A profit-maximizing firm in a perfectly competitive market will always produce a quantity of output that: a. minimizes the per-unit cost of production b. is expected to maximize total revenue c. maximizes the amount by which total revenue exceeds total cost d. brings average total cost and price into equality

c. maximizes the amount by which total revenue exceeds total cost

27. If a perfectly competitive industry uses a large proportion of the available inputs in a resource market, then the long- run market supply curve for the industry will most likely be: a. vertical. b. horizontal. c. upward sloping. d. downward sloping.

c. upward sloping

If a perfectly competitive industry uses a large proportion of the available inputs in a resource market, then the long-run market supply curve for the industry will most likely be: a. vertical b. horizontal c. upward sloping d. downward sloping

c. upward sloping

15. Which of the following is true about increasing cost industries? a. They use a large portion of available specialized input resources in production. b. In order for the industry to expand, the prices of inputs will increase. c. Expansion of the industry leads to a higher equilibrium price in the long run. d. All of the above are generally true of increasing cost industries.

d. All of the above are generally true of increasing cost industries.

30. If the typical firm in a perfectly competitive market was depicted in the graph below, what would be most likely to occur? a. New firms would be likely to enter, increasing the market price. b. New firms would be likely to enter, decreasing the market price. c. Existing firms would be likely to exit, increasing the market price. d. Existing firms would be likely to exit, decreasing the market price.

d. Existing firms would be likely to exit, decreasing the market price.

11. Assume that a firm's total revenue is less than its total cost for the level of output it is producing. In the short run, this firm should: a. expand output. b. contract output. c. shut down. d. There is not enough information to answer the question.

d. There is not enough information to answer the question.

22. Which of the following is false of perfectly competitive firms? a. As new firms enter an industry where sellers are earning economic profits, the result will include a reduction in the equilibrium price. b. In a constant-cost industry, the industry does not use inputs in sufficient quantities to affect input prices. c. In a constant-cost competitive industry, the long-run effect of an increase in demand is an increase in industry output but no change in the industry price. d. All are true.

d. all are true

Which of the following is false of perfectly competitive firms? a. as new firms enter an industry where sellers are earning economic profits, the result will include a reduction in the equilibrium price b. in a constant-cost industry, the industry does not use inputs in sufficient quantities to affect input prices c. in a constant-cost competitive industry, the long-run effect of an increase in demand is an industry output but no change in the industry price d. all are true

d. all are true

Which of the following is a characteristic of perfect competition? a. Homogenous products b. many sellers c. many buyers d. all of the above

d. all of the above

In the short run, a perfectly competitive firm can earn: a. positive economic profit b. zero economic profit c. negative economic profit d. any of the above

d. any of the above

9. In the short run, a perfectly competitive firm can earn: a. positive economic profits. b. zero economic profits. c. negative economic profits. d. any of the above.

d. any of the above.

3. Extractive industries such as farming, mining, or lumbering typically: a. are considered to be decreasing cost industries. b. are considered to be constant cost industries. c. use only small portions of the total supply of specialized resources. d. are considered to be increasing cost industries

d. are considered to be increasing cost industries

Refer to Exhibit 12-6. If P represents the market price for a price-taking firm, the best action in the short run for the firm is to: a. shut down immediately b. continue operating because average total cost exceeds price c. continue operating because price exceeds average total cost d. continue operating because price exceeds average variable cost

d. continue operating because price exceeds average variable cost

8. In the short run, if a firm's price is greater than its AVC but less than its ATC, the firm should: a. shut down immediately because it is generating an economic loss. b. shut down temporarily because it is generating an economic loss. c. continue operating because it is generating an economic profit. d. continue operating even though it is generating an economic loss.

d. continue operating even though it is generating an economic loss.

25. Refer to Exhibit 12.8. Competitive firms will operate at an economic loss and will shut down in the short run if the market price a. is greater than $3. b. is less than $2 but greater than $1. c. is less than $3 but greater than $2. d. is less than $1.

d. is less than $1

Refer to Exhibit 12-8. Competitive firms will operate at an economic loss and will shut down in the short run if the market price a. is greater than $3 b. is less than $2 but greater than $1 c. is less than $3 but greater than $2 d. is less than $1

d. is less than $1

Which of the following is a characteristic of perfect competition? a. substantial barriers to entry b. differentiated products c. few sellers d. none of the above

d. none of the above

Assume that a firm's total revenue is less than its total cost for the level of output it is producing. In the short run, this firm should: a. expand output b. contract output c. shut down d. there is not enough information to answer the question

d. there is not enough information to answer the question