Question 1

In the short run, a competitive firm will always choose to shut down if product price is less than the lowest attainable average total cost.

Accepted Answer

A) True 
 B)False

Question 2

The market for milk can be characterized as a purely competitive industry. How might a decrease in the cost of corn that is sold to dairy farmers as feed for the cows affect the short-run costs and output for a farm in the industry? How this will affect the profit of the individual dairy?

Accepted Answer

If the price of corn falls for the dairy...

Question 3

According to the accompanying diagram, at the profit-maximizing output, the firm will realize

Accepted Answer

A)  a loss equal to BCFG.
B)  a loss equal to ACFH.
C)  an economic profit of ACFH.
D)  an economic profit of ABGH.E) A) and B)
F) A) and C)

Question 4

Sinking funds

Accepted Answer

A)  represent unrecoverable costs for firms.
B)  essentially turn ongoing fixed costs into occasional variable costs.
C)  are reserves used to manage the closing of a bankrupt firm.
D)  essentially turn occasional variable costs into ongoing fixed costs.E) A) and B)
F) A) and C)

Question 5

Farmer Jones is producing wheat and must accept the market price of $6.00 per bushel. At this time, her average total costs and her marginal costs both equal $8.00 per bushel. Her minimum average variable costs are $5.00 per bushel. In order to maximize profits or minimize losses in the short run, farmer Jones should

Accepted Answer

A)  increase output.
B)  increase selling price.
C)  produce zero output and shut down.
D)  continue producing, but reduce output.E) None of the above
F) A) and B)

Question 6

As president and owner of the Sour Grapes Lemonade Company, you face the costs shown. To maximize your financial well-being, you should

Accepted Answer

A)  continue to operate in the short run because rent is less than sales.
B)  shut down because variable costs exceed fixed costs.
C)  shut down because the company is losing money.
D)  continue operating in the short run.E) A) and B)
F) All of the above

Question 7

Compare and contrast the types of products produced across the four types of market structures. Are they similar or differentiated?

Accepted Answer

The types of products produced in purely...

Question 8

A perfectly elastic demand curve implies that the firm

Accepted Answer

A)  must lower price to sell more output.
B)  can sell as much output as it chooses at the existing price.
C)  realizes an increase in total revenue that is less than product price when it sells an extra unit.
D)  is selling a differentiated (heterogeneous) product.E) A) and B)
F) B) and C)

Question 9

The soft drink and automobile industries would be examples of which market model?

Accepted Answer

A)  monopolistic competition
B)  pure competition
C)  pure monopoly
D)  oligopolyE) All of the above
F) B) and C)

Question 10

A firm sells a product in a purely competitive market. The marginal cost of the product at the current output is $4 and the market price is $4.5. What should the firm do?

Accepted Answer

A)  shut down if the minimum possible average variable cost is below $4.5
B)  decrease output if the minimum possible average variable cost is below $4.5
C)  increase output if the minimum possible average variable cost is below $4.50
D)  increase output if the minimum possible average variable cost is above $4.5E) A) and B)
F) A) and C)

Question 11

The marginal revenue curve of a purely competitive firm

Accepted Answer

A)  lies below the firm's demand curve.
B)  is downsloping because price must be reduced to sell more output.
C)  is horizontal at the market price.
D)  has all of these characteristics.E) A) and B)
F) All of the above

Question 12

According to the accompanying diagram, at the profit-maximizing output, total variable cost is equal to

Accepted Answer

A)  0 AHE.
B)  0 CFE.
C)  0 BGE.
D)  ABGH.E) B) and C)
F) A) and D)

Question 13

A purely competitive firm can be identified by the fact that

Accepted Answer

A)  there are other firms in the industry producing similar products.
B)  it is making only normal profits in the short run.
C)  its average revenue equals its marginal revenue.
D)  it experiences diminishing marginal returns.E) B) and D)
F) B) and C)

Question 14

An unprofitable motel will stay open in the short run if

Accepted Answer

A)  price (average nightly room rate) exceeds average variable cost.
B)  marginal revenue exceeds marginal cost.
C)  price (average nightly room rate) exceeds average fixed cost.
D)  marginal revenue exceeds price.E) A) and D)
F) C) and D)

Question 15

Why might a business owner keep their business open but let it deteriorate, rather than shut it down? Will this profitability last?

Accepted Answer

When demand falls for a business, it may...

Question 16

Consider the purely competitive firm whose data are shown in the accompanying graph. The firm is earning

Accepted Answer

A)  normal profits, since its price is above AVC.
B)  economic profits, since its price is above AVC.
C)  normal profits, since its price just covers ATC.
D)  losses, since it is operating at the shutdown point.E) None of the above
F) C) and D)

Question 17

At what price will the firm shown in the accompanying graph make just a normal profit?

Accepted Answer

A)  $2
B)  $5
C)  $7
D)  $10E) B) and C)
F) A) and C)

Question 18

The fallacy of composition is essentially the error of

Accepted Answer

A)  omitting relevant variables in constructing a model.
B)  conflating correlation with causation.
C)  confusing cause and effect in economic relationships.
D)  generalizing from the particular to the general.E) B) and C)
F) A) and D)

Question 19

Refer to the data in the accompanying table. If the firm's minimum average variable cost is $11, the firm's profit-maximizing level of output would be

Accepted Answer

A)  0.
B)  5.
C)  4.
D)  3.E) B) and C)
F) A) and D)

Question 20

Which point in the accompanying graph is definitely not on the competitive firm's short-run supply curve?

Accepted Answer

A)  A
B)  B
C)  C
D)  DE) All of the above
F) A) and B)

Exam 10: Pure Competition in the Short Run

The marginal revenue curve of a purely competitive firm

Correct Answer
verified

As president and owner of the Sour Grapes Lemonade Company, you face the costs shown. To maximize your financial well-being, you should

Correct Answer
verified

Which point in the accompanying graph is definitely not on the competitive firm's short-run supply curve?

Correct Answer
verified

According to the accompanying diagram, at the profit-maximizing output, the firm will realize

Correct Answer
verified

Refer to the data in the accompanying table. If the firm's minimum average variable cost is $11, the firm's profit-maximizing level of output would be

Correct Answer
verified

A perfectly elastic demand curve implies that the firm

Correct Answer
verified

Consider the purely competitive firm whose data are shown in the accompanying graph. The firm is earning

Correct Answer
verified

In the short run, a competitive firm will always choose to shut down if product price is less than the lowest attainable average total cost.

Correct Answer
verified

Sinking funds

Correct Answer
verified

The market for milk can be characterized as a purely competitive industry. How might a decrease in the cost of corn that is sold to dairy farmers as feed for the cows affect the short-run costs and output for a farm in the industry? How this will affect the profit of the individual dairy?

Correct Answer
verified
If the price of corn falls for the dairy...
View Answer

Correct Answer
verified

Compare and contrast the types of products produced across the four types of market structures. Are they similar or differentiated?

Correct Answer
verified
The types of products produced in purely...
View Answer

A purely competitive firm can be identified by the fact that

Correct Answer
verified

The fallacy of composition is essentially the error of

Correct Answer
verified

A firm sells a product in a purely competitive market. The marginal cost of the product at the current output is $4 and the market price is $4.5. What should the firm do?

Correct Answer
verified

An unprofitable motel will stay open in the short run if

Correct Answer
verified

At what price will the firm shown in the accompanying graph make just a normal profit?

Correct Answer
verified

Why might a business owner keep their business open but let it deteriorate, rather than shut it down? Will this profitability last?

Correct Answer
verified
When demand falls for a business, it may...
View Answer

The soft drink and automobile industries would be examples of which market model?

Correct Answer
verified

According to the accompanying diagram, at the profit-maximizing output, total variable cost is equal to

Correct Answer
verified

Exam 10: Pure Competition in the Short Run

The marginal revenue curve of a purely competitive firm

Correct AnswerverifiedShow Answer

As president and owner of the Sour Grapes Lemonade Company, you face the costs shown. To maximize your financial well-being, you should

Correct AnswerverifiedShow Answer

Which point in the accompanying graph is definitely not on the competitive firm's short-run supply curve?

Correct AnswerverifiedShow Answer

According to the accompanying diagram, at the profit-maximizing output, the firm will realize

Correct AnswerverifiedShow Answer

Refer to the data in the accompanying table. If the firm's minimum average variable cost is $11, the firm's profit-maximizing level of output would be

Correct AnswerverifiedShow Answer

A perfectly elastic demand curve implies that the firm

Correct AnswerverifiedShow Answer

Consider the purely competitive firm whose data are shown in the accompanying graph. The firm is earning

Correct AnswerverifiedShow Answer

In the short run, a competitive firm will always choose to shut down if product price is less than the lowest attainable average total cost.

Correct AnswerverifiedShow Answer

Sinking funds

Correct AnswerverifiedShow Answer

The market for milk can be characterized as a purely competitive industry. How might a decrease in the cost of corn that is sold to dairy farmers as feed for the cows affect the short-run costs and output for a farm in the industry? How this will affect the profit of the individual dairy?

Correct AnswerverifiedIf the price of corn falls for the dairy...View AnswerShow Answer

Correct AnswerverifiedShow Answer

Compare and contrast the types of products produced across the four types of market structures. Are they similar or differentiated?

Correct AnswerverifiedThe types of products produced in purely...View AnswerShow Answer

A purely competitive firm can be identified by the fact that

Correct AnswerverifiedShow Answer

The fallacy of composition is essentially the error of

Correct AnswerverifiedShow Answer

A firm sells a product in a purely competitive market. The marginal cost of the product at the current output is $4 and the market price is $4.5. What should the firm do?

Correct AnswerverifiedShow Answer

An unprofitable motel will stay open in the short run if

Correct AnswerverifiedShow Answer

At what price will the firm shown in the accompanying graph make just a normal profit?

Correct AnswerverifiedShow Answer

Why might a business owner keep their business open but let it deteriorate, rather than shut it down? Will this profitability last?

Correct AnswerverifiedWhen demand falls for a business, it may...View AnswerShow Answer

The soft drink and automobile industries would be examples of which market model?

Correct AnswerverifiedShow Answer

According to the accompanying diagram, at the profit-maximizing output, total variable cost is equal to

Correct AnswerverifiedShow Answer

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verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified
If the price of corn falls for the dairy...
View Answer

Correct Answer
verified

Correct Answer
verified
The types of products produced in purely...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
When demand falls for a business, it may...
View Answer

Correct Answer
verified

Correct Answer
verified