Principle of Microeconomics
Econ 202-506
chapter 12
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1) Suppose the cost curves in the above figure apply to all firms in the industry. If the initial price is
P1, firms are ________ and some firms will ________ the industry.
1)
2) A perfectly competitive firm's short-run supply curve is
A) horizontal at the going price.
B) its marginal cost curve above the shutdown point.
C) its marginal revenue curve above the shutdown point.
D) its demand curve.
2)
A) making an economic profit; leave
C) incurring an economic loss; enter
B) incurring an economic loss; leave
D) making an economic profit; enter
1
3) In the above figure, below what minimum price will the firm shutdown rather than produce?
A) for any price less than $16 per unit
B) for any price less than $4 per unit
C) for any price less than $12 per unit
D) for any price less than $8 per unit
Output
(tons of rice per
year)
0
1
2
3
4
5
3)
Total cost
(dollars per
ton)
$1,000
$1,200
$1,600
$2,200
$3,000
$4,000
4) Based on the table above which shows Chip's costs, if Chip shuts down in the short run, his
economic loss will be
A) $1,200.
B) $4,000.
C) $1,000.
D) $0.
2
4)
5) In the above figure, if the price is $16 per unit, a profit maximizing perfectly competitive firm will
A) earn an economic profit.
B) shut down.
C) earn a normal profit.
D) incur an economic loss but continue to operate.
3
5)
6) In the above figure, at any price between $8 per unit to $12 per unit, how many units will the profit
maximizing firm produce?
A) None, because the producer will never choose to operate at a loss.
B) Between 20 and 30, because variable costs are covered so the firm's losses will be minimized
by producing rather than shutting down.
C) Less than 20 because this will reduce marginal cost.
D) More than 30, because variable costs are covered so that the producer can earn economic
profits.
6)
7) Suppose a perfectly competitive industry is in a long-run equilibrium when a permanent decrease
in the market demand occurs. In the long run, which of the following definitely occurs?
A) the number of firms decreases.
B) marginal revenue increases.
C) the firms' marginal cost increases.
D) the price decreases.
7)
4
8) The figure above shows the marginal revenue and long-run cost curves for a perfectly competitive
firm. All other firms in the industry have identical curves. Which of the following statements is
true?
A) The firm is earning economic profit.
B) The firm's average cost exceeds the price.
C) Over time, firms will enter this industry.
D) None of the above is true.
8)
9) If there are 1,000 rutabaga farms, all perfectly competitive, an increase in the price of fertilizer used
for growing rutabagas will
A) have no effect on the total quantity of rutabagas supplied, because each farm's supply curve is
a vertical line.
B) have no effect on the total quantity of rutabagas supplied, because no farm has enough
market power to raise the price.
C) reduce the total quantity of rutabagas supplied, because each farm's supply curve is a
horizontal line and will shift upward.
D) decrease the total quantity of rutabagas supplied, because each farm's supply curve shifts
leftward.
9)
10) External economies are factors beyond the control of an individual firm that ________ as the total
industry output increases.
A) raise its costs
B) lower its costs
C) raise its marginal revenue
D) lower its profit
10)
11) If a perfectly competitive firm finds that it is producing an amount of output such that MR > MC
and P > AVC, it will
A) not change its behavior.
B) leave the industry.
C) increase its output.
D) decrease its output.
11)
12) The firm's supply curve is its
A) marginal cost curve, at all points above the minimum average total cost curve.
B) marginal cost curve, at all points above the minimum average fixed cost curve.
C) marginal revenue curve, at all points above the minimum average total cost curve.
D) marginal cost curve, at all points above the minimum average variable cost curve.
12)
5
13) A perfectly competitive firm's short-run supply curve is
A) its average variable cost curve above the breakeven point.
B) horizontal at the market price.
C) its average total cost curve above the minimum of the average variable cost.
D) its marginal cost curve above the shutdown point.
13)
14) The figure above shows depicts the marginal revenue and costs of a perfectly competitive firm.
When 170 units are produced, the firm
A) would increase its price.
B) has total costs less than $2,720.
C) would definitely shut down.
D) would incur an economic loss.
14)
15) In perfect competition, the elasticity of demand for the product of a single firm is
A) infinite because many other firms produce identical products.
B) infinite because the firm produces a unique product.
C) zero because the firm produces a unique product.
D) zero because many other firms produce identical products.
15)
Output
(balloons per hour)
0
1
2
3
4
5
6
Total Cost
(dollars per hour)
$4.00
$7.00
$8.00
$12.50
$17.20
$22.00
$29.00
16) In the above table, the average fixed cost at 4 units of output is
A) $1.00.
B) $4.70.
C) $4.50.
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D) $4.80.
16)
17) In perfect competition, each individual firm faces ________ demand curve.
A) a downward sloping
B) an inelastic
C) a perfectly elastic
D) an upward sloping
17)
18) Fresno County, California is the largest agricultural producing county in the country and almonds
are an important crop with more than 99,000 acres harvested in 2006. Each acre produces about a
ton of almonds and sold at a price of $4300 a ton. The Sagardia Brothers grew 600 acres of almonds
that year and they are price takers. What is the Brother’s total revenue in 2006?
A) $59.4 million
B) $4300
C) $2.58 million
D) $4900
18)
19) In the short run, a perfectly competitive firm NEVER
A) incurs a loss greater than its total fixed costs.
B) earns a normal profit.
C) produces where MR = MC.
D) earns an economic profit.
19)
Quantity
(gloves per day)
0
1
2
3
4
5
6
7
8
Total cost
(dollars)
80
100
105
135
170
210
270
350
450
20) The above table shows the per day total cost for Kiley's Baseball Glove Company. Each glove is
priced at $50 and Kiley's Baseball Glove Company is a perfectly competitive firm. At which of the
following amounts of output is the economic profit maximized for Kiley's Baseball Glove
Company?
A) 0
B) 2
C) 8
D) 5
7
20)
21) In the above figure, the line represented by the "2" is the
A) average variable cost.
B) average total cost.
C) average fixed cost.
D) total cost.
21)
22) The figure above shows a perfectly competitive firm. When the firm maximizes its profit, its
economic profit
A) is more than $300.
B) is less than $300.
C) is $300.
D) The premise of the question is wrong because the firm is incurring an economic loss.
22)
8
23) In the above figure, if the price is P1 and the firm produced Q1 , the firm's economic profit is
________ than if it produced Q2 and ________ than if it produced Q3.
23)
24) Which of the following best describes the short-run supply curve for an individual perfectly
competitive firm?
A) It is the vertical axis at prices less than minimum average variable cost and is the firm's
marginal cost curve at prices above minimum average variable cost.
B) It is the firm's marginal cost curve.
C) It is the upward-sloping part of the firm's marginal cost curve.
D) It is the vertical axis at prices less than minimum average total cost and is the firm's marginal
cost curve at prices above minimum average total cost.
24)
25) A long-run supply curve for a perfectly competitive industry can slope upward because of
A) external diseconomies.
B) external economies.
C) diminishing marginal returns.
D) economic profit.
25)
26) If the donut industry is perfectly competitive and is in long-run equilibrium, then the price of a
donut
A) is greater than long-run average cost.
B) is greater than short-run average cost.
C) equals long-run average cost.
D) is greater than marginal cost.
26)
27) The short-run supply curve for a perfectly competitive firm is its marginal cost curve
A) below its shutdown point.
B) above its shutdown point.
C) above the horizontal axis.
D) everywhere.
27)
28) In a perfectly competitive market, if a firm finds it is producing an amount of output such that its
marginal cost exceeds its price, it will
A) increase its output to increase its profit.
B) be maximizing profits.
C) decrease its output to increase its profit.
D) immediately shut down for the short run.
28)
A) less; less
B) more; more
C) more; less
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D) less; more
29) The section of the marginal cost curve that lies above the average variable cost curve is
A) a perfectly competitive firm's total fixed costs curve.
B) a perfectly competitive firm's supply curve.
C) a perfectly competitive firm's average total cost curve.
D) irrelevant to the firm because it never produces at any point along this curve.
29)
30) The marginal revenue curve for a perfectly competitive firm is
A) a downward sloping curve.
B) a horizontal line.
C) an upward sloping curve.
D) None of the above answers is correct.
30)
31) What is one reason why would corn production, which takes place in a perfectly competitive
market, achieve an efficient use of resources?
A) Because a perfectly competitive firm produces at the lowest possible long run average total
cost
B) Because the goal of a perfectly competitive firm is to profit maximize
C) Because a perfectly competitive firm is a price maker
D) Because a perfectly competitive firm produces where marginal revenue exceeds marginal cost
31)
32) Consider the perfectly competitive firm in the above figure. At what price will long-run
equilibrium occur?
A) $23
B) $22
C) $12
D) $11
32)
33) The price elasticity of demand for any particular perfectly competitive firm's output is
A) infinite.
B) less than 1.
C) equal to zero.
D) 1.
33)
34) The short-run market supply curve for a perfectly competitive industry is obtained by summing
the part of each firm's
A) AVC curve that lies below the MC curve.
B) AVC curve that lies above its MC curve.
C) MC curve that lies above its AVC curve.
D) MC curve that lies below the AVC curve.
34)
10
35) The break-even point is defined as occurring at an output rate at which
A) marginal revenue equals marginal cost.
B) total cost is minimized.
C) total revenue equals total opportunity cost.
D) economic profit is maximized.
Quantity
(tattoos per
hour)
0
1
2
3
4
5
6
35)
Total cost, TC
(dollars per
hour)
10
25
35
50
70
95
125
36) Archibald's Tattoos is a perfectly competitive firm. The firm's costs are shown in the table above. If
the market price of a tattoo is $12.50 and if Archibald's does not shut down, what is the firm's
profit-maximizing output?
A) 2 tattoos per hour
B) 4 tattoos per hour
C) 5 tattoos per hour
D) 3 tattoos per hour
36)
37) In a perfectly competitive industry, the price elasticity of demand for the market demand is
________ and the price elasticity of demand for an individual firm's demand is ________.
A) less than infinite; less than infinite
B) infinite; less than infinite
C) less than infinite; infinite
D) infinite; infinite
37)
38) Factors beyond the control of an individual firm that lower the firm's costs as the industry output
increases are called
A) internal economies.
B) external diseconomies.
C) external economies.
D) internal diseconomies.
38)
11
39) The figure above portrays a total revenue curve for a perfectly competitive firm. The price of the
product in this industry
A) equals $1.00.
B) equals $2.00.
C) equals $0.50.
D) cannot be determined.
39)
40) Given the total cost and total revenue curves in the figure above, what is the profit-maximizing
output level?
A) 80,000 bushels
B) 30,000 bushels
C) 60,000 bushels
D) All output levels occur between 30,000 and 80,000 bushels are profit-maximizing output
levels.
40)
12
41) In the above figure, if the price is $12 per unit, how many units will a profit maximizing perfectly
competitive firm produce?
A) 0
B) 35
C) 30
D) 20
41)
42) The firm's goal is to
A) maximize its total revenue.
C) maximize its industry's revenue.
42)
Quantity sold
5
6
7
B) maximize its economic profit.
D) maximize its normal profit.
Price
$15
$15
$15
43) In the above table, if the quantity sold by the firm rises from 6 to 7, its marginal revenue is
A) $105.
B) $30.
C) $15.
D) $90.
43)
44) Suppose firms in a perfectly competitive industry are incurring an economic loss. As firms exit, the
price ________ and the economic loss of the surviving firms ________.
A) falls; increases
B) rises; decreases
C) rises; increases
D) falls; decreases
44)
13
45) The above figure illustrates a firm's total revenue and total cost curves. Which one of the following
statements is FALSE?
A) Economic profit is the vertical distance between the total revenue curve and the total cost
curve.
B) At output Q1 the firm makes zero economic profit.
45)
C) At output Q2 the firm incurs an economic loss.
D) At an output above Q3 the firm incurs an economic loss.
46) If there are external economies, as demand increases,
A) firms exit from the industry in the long run.
B) the price rises in the long run.
C) the price falls in the long run.
D) output decreases in the long run.
46)
47) A worldwide hops (a flowers used in brewing) shortage will make stouts, ales and other specialty
microbrews more pricy in 2008. Gayle Goshie, a hops farmer, blames overproduction for hops'
previously cheap place on the agricultural market. The glut pushed many hop farmers out
business, which gradually helped hop prices recover. Suppose farming hops is a perfectly
competitive market. Why would some hop farmers go out of business?
A) Because the price of hops was lower than the minimum of average total cost
B) Because the price of hops was higher than the minimum of average variable cost
C) Because the price of hops was below the minimum of average fixed cost
D) Because the price of hops was lower than the minimum of average variable cost
47)
48) In a perfectly competitive market that is in long-run equilibrium, a rightward shift in the market
demand curve results in
A) firms leaving the industry in the long run.
B) the firms' economic profits falling in the short run.
C) the price falling in the short run.
D) None of the events listed above.
48)
14
49) Which of the following is always true for a profit maximizing perfectly competitive firm in
short-run equilibrium?
A) P = ATC
B) MC = MR
C) P = AVC
D) ATC = MC
49)
50) In the above figure, if the price is $10, the profit maximizing firm will
A) produce 25 units.
B) produce 40 units.
C) produce 10 units.
D) choose not to produce.
50)
15
Answer Key
Testname: CHAPTER 12
1) B
ID: mic9pb 5.4-28
2) B
ID: mic9pb 5.2-132
3) A
ID: mic9pb 5.2-160
4) C
ID: mic9pb 5.2-100
5) A
ID: mic9pb 5.3-32
6) B
ID: mic9pb 5.2-159
7) A
ID: mic9pb 5.5-3
8) D
ID: mic9pb 5.6-6
9) D
ID: mic9pb 5.3-1
10) B
ID: mic9pb 5.5-18
11) C
ID: mic9pb 5.2-45
12) D
ID: mic9pb 5.2-130
13) D
ID: mic9pb 5.2-136
14) B
ID: mic9pb 5.3-47
15) A
ID: mic9pb 5.1-44
16) A
ID: mic9pb 5.2-24
17) C
ID: mic9pb 5.1-46
18) C
ID: mic9pb 5.7-4
19) A
ID: mic9pb 5.2-90
20) D
ID: mic9pb 5.3-16
21) A
ID: mic9pb 5.2-58
22) B
ID: mic9pb 5.3-36
23) D
ID: mic9pb 5.3-39
16
Answer Key
Testname: CHAPTER 12
24) A
ID: mic9pb 5.2-140
25) A
ID: mic9pb 5.5-23
26) C
ID: mic9pb 5.6-2
27) B
ID: mic9pb 5.2-127
28) C
ID: mic9pb 5.2-48
29) B
ID: mic9pb 5.2-134
30) B
ID: mic9pb 5.1-86
31) A
ID: mic9pb 5.7-20
32) B
ID: mic9pb 5.4-45
33) A
ID: mic9pb 5.1-40
34) C
ID: mic9pb 5.3-2
35) C
ID: mic9pb 5.2-3
36) A
ID: mic9pb 5.2-104
37) C
ID: mic9pb 5.1-52
38) C
ID: mic9pb 5.5-19
39) B
ID: mic9pb 5.1-70
40) C
ID: mic9pb 5.2-32
41) C
ID: mic9pb 5.2-147
42) B
ID: mic9pb 5.1-64
43) C
ID: mic9pb 5.1-74
44) B
ID: mic9pb 5.4-19
45) C
ID: mic9pb 5.2-28
46) C
ID: mic9pb 5.5-31
17
Answer Key
Testname: CHAPTER 12
47) D
ID: mic9pb 5.7-13
48) D
ID: mic9pb 5.5-9
49) B
ID: mic9pb 5.2-51
50) C
ID: mic9pb 5.2-157
18