Question 1

If average revenue equals average total cost,

Accepted Answer

A)   total revenue is maximized
B)   average revenue is maximized
C)   average total cost is minimized
D)   economic profit is maximized
E)   economic profit is zeroF) B) and E)
G) None of the above

Question 2

If price is less than its minimum average variable cost, a perfectly competitive firm that continues to produce in the short run

Accepted Answer

A)   cannot cover any of its variable cost
B)   incurs a loss greater than its fixed cost
C)   can cover all of its fixed cost and some of its variable cost
D)   can cover all of its variable cost and some of its fixed cost
E)   can cover both its fixed costs and its variable costF) C) and E)
G) A) and B)

Question 3

NARRBEGIN: Exhibit 8-5-1
Exhibit 8-5
 
-Consider Exhibit 8-5. If the market price is $15, the minimum loss this perfectly competitive firm can incur is

Accepted Answer

A)   $10
B)   $15
C)   $18
D)   $19
E)   $22F) B) and D)
G) A) and E)

Question 4

If a market is such that, at the market equilibrium quantity, the benefit of the last unit produced just equals its marginal cost

Accepted Answer

A)   it has earned a positive economic profit
B)   it has achieved productive efficiency
C)   it has achieved allocative efficiency
D)   it has achieved economies of scale
E)   there are further trades than can increase producer surplusF) A) and B)
G) A) and C)

Question 5

NARRBEGIN: Exhibit 8-1-1
Exhibit 8-1
 
-The perfectly competitive firewood market is composed of 1,000 identical consumers and 1,000 identical firms. Exhibit 8-1 shows cost data for one firm and demand data for one consumer. How many cords of firewood wil be bought and sold in equilibrium?

Accepted Answer

A)   5,000
B)   4,000
C)   3,000
D)   2,000
E)   1,000F) A) and C)
G) A) and B) C

Question 6

A Midwestern wheat farmer faces a horizontal demand curve because

Accepted Answer

A)   it is so large relative to the market as a whole that it has no impact on market price
B)   it is so small relative to the market as a whole that it has no impact on market price
C)   it produces a good for which there are no substitutes
D)   it produces a good for which there are no complements
E)   it produces a good that no other firm in the industry producesF) A) and E)
G) None of the above

Question 7

NARRBEGIN: Exhibit 8-7
Exhibit 8-7
 
-For the profit maximizing perfectly competitive firm represented in Exhibit 8-7, which of the following is true?

Accepted Answer

A)   the firm will sell its output for $10 per unit and its profit will be zero
B)   the firm will shut down
C)   the firm will sell its output for $8 per unit and its profit will be negative
D)   the firm will sell its output for $8 per unit and its profit will be positive
E)   the firm will sell its output for $8 per unit and break evenF) None of the above
G) A) and B)

Question 8

NARRBEGIN: Exhibit 8-18-1
Exhibit 8-18
 
-Assuming all of the firms are identical, how many firms are in the industry before and after the demand shift depicted in Exhibit 8-18?

Accepted Answer

A)   Fifty firms are in the industry before and after the demand shift.
B)   Forty firms are in the industry before the demand shift; after the shift, the amount can't be determined.
C)   Fifty firms are in the industry after the demand shift; before the shift, the amount can't be determined.
D)   The number of individual firms cannot be determined from the information given.
E)   The exact number of individual firms can't be determined, but more are in the industry after the demand shift than before it.F) B) and E)
G) C) and E)

Question 9

After an increase in demand in a constant-cost industry, firms will find themselves with higher average cost curves.

Accepted Answer

A) True 
 B)False

Question 10

If a perfectly competitive firm charges the market price of $14 per unit,

Accepted Answer

A)   its marginal revenue is $14, and its average revenue is less than $14 per unit
B)   it will sell no output
C)   its average revenue is $14, and its marginal revenue is less than $14 per unit
D)   its average revenue is $14, and its marginal revenue is $14
E)   its average and marginal revenue are $14 only for the first unit soldF) C) and D)
G) A) and C)

Question 11

Many auction markets

Accepted Answer

A)   are perfectly competitive because they involve an identical or nearly identical commodity, many buyers, and because the seller has no influence over the price
B)   are monopolistic because there is only one seller
C)   exist only on the Internet, because of the difficulty of assembling all buyers in a single location
D)   are controlled and run by governments
E)   involve numerous firms, none of which is large enough to influence the market priceF) A) and C)
G) B) and D) A

Question 12

Commodity products are

Accepted Answer

A)   pasteurized
B)   bland
C)   perceived by consumers to be identical
D)   made by one manufacturer
E)   made by handF) None of the above
G) A) and B)

Question 13

Marginal revenue is the change in total revenue from selling one more unit of output.

Accepted Answer

A) True 
 B)False

Question 14

Firms in perfect competition have no control over

Accepted Answer

A)   all of the following
B)   where to operate on their average total cost curves
C)   what price to charge
D)   how many inputs to use
E)   how much to produceF) A) and B)
G) C) and D)

Question 15

NARRBEGIN: Exhibit 8-10
Exhibit 8-10
 
-At the profit-maximizing output level, the firm represented in Exhibit 8-10 experiences

Accepted Answer

A)   a loss of $3,200
B)   a profit of $6,000
C)   a profit of $3,200
D)   zero profit or loss
E)   a loss of $6,000F) B) and C)
G) A) and E)

Question 16

Marginal revenue is the change in total revenue from using one more unit of an input in the short run.

Accepted Answer

A) True 
 B)False

Question 17

Producer surplus is usually less than profit

Accepted Answer

A) True 
 B)False

Question 18

Long-run equilibrium for a perfectly competitive firm occurs when

Accepted Answer

A)   P = MC = MR = ATC
B)   MC = MR = AFC = ATC
C)   MC = MR = P > ATC
D)   P > MC > MR > ATC
E)   TR > TCF) D) and E)
G) B) and D)

Question 19

If a firm is producing at an output where the total revenue curve crosses the total cost curve,

Accepted Answer

A)   revenue is maximized
B)   cost is maximized
C)   cost is minimized
D)   profit is maximized
E)   profit is zeroF) C) and D)
G) A) and B) E

Question 20

Farmer Fanny sells her crops in a perfectly competitive market. If she produces 500 bushels for total revenue of $2,500 and if harvesting the 501st bushel would raise her total cost from $2,500 to $2,505, her

Accepted Answer

A)   revenue will increase by $10 if she harvests the 501st bushel
B)   revenue will fall by $5 if she harvests the 501st bushel
C)   average fixed cost will rise if she harvests the 501st bushel
D)   profit will fall by $10 if she harvests the 501st bushel
E)   profit will remain unchanged if she harvests the 501st bushelF) A) and B)
G) A) and C)

Exam 8: A: Perfect Competition

If average revenue equals average total cost,

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If price is less than its minimum average variable cost, a perfectly competitive firm that continues to produce in the short run

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NARRBEGIN: Exhibit 8-5-1 Exhibit 8-5 -Consider Exhibit 8-5. If the market price is $15, the minimum loss this perfectly competitive firm can incur is

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If a market is such that, at the market equilibrium quantity, the benefit of the last unit produced just equals its marginal cost

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NARRBEGIN: Exhibit 8-1-1 Exhibit 8-1 -The perfectly competitive firewood market is composed of 1,000 identical consumers and 1,000 identical firms. Exhibit 8-1 shows cost data for one firm and demand data for one consumer. How many cords of firewood wil be bought and sold in equilibrium?

Correct AnswerverifiedC

A Midwestern wheat farmer faces a horizontal demand curve because

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NARRBEGIN: Exhibit 8-7 Exhibit 8-7 -For the profit maximizing perfectly competitive firm represented in Exhibit 8-7, which of the following is true?

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NARRBEGIN: Exhibit 8-18-1 Exhibit 8-18 -Assuming all of the firms are identical, how many firms are in the industry before and after the demand shift depicted in Exhibit 8-18?

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After an increase in demand in a constant-cost industry, firms will find themselves with higher average cost curves.

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If a perfectly competitive firm charges the market price of $14 per unit,

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Many auction markets

Correct AnswerverifiedA

Commodity products are

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Marginal revenue is the change in total revenue from selling one more unit of output.

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Firms in perfect competition have no control over

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NARRBEGIN: Exhibit 8-10 Exhibit 8-10 -At the profit-maximizing output level, the firm represented in Exhibit 8-10 experiences

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Marginal revenue is the change in total revenue from using one more unit of an input in the short run.

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Producer surplus is usually less than profit

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Long-run equilibrium for a perfectly competitive firm occurs when

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If a firm is producing at an output where the total revenue curve crosses the total cost curve,

Correct AnswerverifiedE

Farmer Fanny sells her crops in a perfectly competitive market. If she produces 500 bushels for total revenue of $2,500 and if harvesting the 501st bushel would raise her total cost from $2,500 to $2,505, her

Correct AnswerverifiedShow Answer

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C

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A

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E

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