Microeconomics Chapter 14

What is the lowest price at which this firm might operate in the short run? a. $2.00 b. $3.00 c. $4.00 d. $5.00

b. $3.00

When market price is P1, a profit-maximizing firm's total profit or loss can be represented by a. P1 × Q3; profit b. (P3 - P1) × Q2 ; loss c. (P2 - P1) × Q1; loss d. We can't tell because we don't know fixed costs.

b. (P3 - P1) × Q2 ; loss

If the market price is $8, how many units should the firm produce to maximize profit? a. 5 b. 6 c. 7 d. 8

b. 6

You purchase a $30, nonrefundable ticket to a play at a local theater. Ten minutes into the show you realize that it is not a very good show and place only a $10 value on seeing the remainder of the show. Alternatively you could leave the theater and go home and watch TV or read a book. You place an $8 value on watching TV and a $6 value on reading a book. a.You should leave the theater since the net benefit from seeing the remainder of the show is -$20, while going home will earn you at least $8 of satisfaction. b. You should stay and watch the remainder of the show. c. You should go home and watch TV. d. You should go home and read a book.

b. You should stay and watch the remainder of the show.

In a competitive market with free entry and exit, if all firms have the same cost curves, then a. all firms will operate at efficient scale in the short run. b. all firms will operate at efficient scale in the long run. c. the price of the product will differ across firms. d. the number of sellers in the market will steadily decrease over time.

b. all firms will operate at efficient scale in the long run.

If the market price is $4, this firm will a. produce two units in the short run b. produce three units in the short run c. produce four units in the short run d. shut down in the short run

b. produce three units in the short run

Which labeled curve best describes the short-run supply curve for this firm? a. ABCE b. CD c. DE d. BCD

a. ABCE (straight, square, slant line)

When market price is P 1, a profit-maximizing firm's total revenue can be represented by a. P1 × Q2. b. P2 × Q2. c. P3 × Q2. d. P1 × Q3.

a. P1 × Q2.

Which of these types of costs can be ignored when an individual or a firm is making decisions? a. Sunk costs b. Marginal costs c. Variable costs d. Information costs

a. Sunk costs

When a firm has little ability to influence market prices it is said to be in a. a competitive market. b. a strategic market. c. a thin market. d. a power market.

a. a competitive market.

When the market is in long-run equilibrium at point A in panel (b), the firm represented in panel (a) will a. have a zero economic profit. b. have a negative accounting profit. c. exit the market. d. choose to increase production to increase profit.

a. have a zero economic profit.

Assume that the market starts in equilibrium at point A in panel (b). An increase in demand from Demand 0 to Demand 1 will result in a. a new market equilibrium at point D. b.an eventual increase in the number of firms in the market and a new long-run equilibrium at point C. c. rising prices and falling profits for existing firms in the market. d. falling prices and falling profits for existing firms in the market.

b.an eventual increase in the number of firms in the market and a new long-run equilibrium at point C.

Suppose you bought a ticket to a football game for $30, and that you place a $35 value on seeing the game. If you lose the ticket, then what is the maximum price you should pay for another ticket? a. $5 b. $30 c. $35 d. $65

c. $35

When market price is P4, a profit-maximizing firm's total cost can be represented by a. P4 × Q1 b. P4 × Q4 c. P2 × Q4 d. Total costs cannot be determined from the information in the figure

c. P2 × Q4

In a perfectly competitive market, the long-run process of entry and exit will end when, for firms in the market, a. price is equal to average variable cost. b. marginal revenue is equal to average variable cost. c. economic profits are zero. d. accounting profits are zero.

c. economic profits are zero.

A firm will shutdown in the short run if, for all positive levels of output, a. its loss exceeds its fixed costs. b. its total revenue is less than its variable costs. c. the price of its product is less than its average variable cost. d. All of the above are correct.

d. All of the above are correct.

A firm in a competitive market might choose to set its price below the market price, because a. this would result in higher average revenue. b. this would result in higher profits. c. this would result in lower total costs. d. None of the above is correct.

d. None of the above is correct.

If a profit-maximizing firm in a competitive market discovers that, at its current level of production, price is greater than marginal cost, it should a. shut down. b. reduce its output, but continue operating. c. keep output the same. d. increase its output.

d. increase its output.

The intersection of a firm's marginal revenue and marginal cost curves determines the level of output at which a. total revenue is equal to variable cost. b. total revenue is equal to fixed cost. c. total revenue is equal to total cost. d. profit is maximized

d. profit is maximized

In a market with 1,000 identical firms, the short-run market supply is the a.marginal cost curve (above average variable cost) for a typical firm in the market. b. quantity supplied by the typical firm in the market. c. sum of the prices charged by each of the 1,000 individual firms. d. sum of the supply curves of the 1,000 firms in the market.

d. sum of the supply curves of the 1,000 firms in the market.