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- 1. Multiple Choice
If the price of its product falls below the minimum point on the AVC curve, the best a perfectly competitive firm can do is to
shut down and incur a loss equal to its total variable cost
shut down and incur a loss equal to its total fixed cost
keep producing and incur a loss equal to its total variable cost
keep producing and incur a loss equal to its total fixed cost
- 2. Multiple Choice
Based on the table which shows Chip's costs, if rice sells for $600 a ton, Chip's
profit-maximizing output is
less than one ton
between one and two tons
between two and three tons
between three and four tons
- 3. Multiple Choice
Based on the table which shows Chip's costs, if rice sells for $600 a ton, Chip will
stay open because he earns an economic profit
stay open because the price is above his minimum average variable cost
shut down because the price is below his minimum average variable cost
shut down because he incurs an economic loss
- 4. Multiple Choice
In the above figure, if the price is P1, the firm will produce
where ATC equals P1
where MC equals P1
nothing
where MC equals ATC
- 5. Multiple Choice
In the figure, if the firm increases its output from Q1 to Q2, it will
increase its profit
reduce its marginal revenue
decrease its profit
increase its marginal revenue
- 6. Multiple Choice
In the above figure, if the price is P1, the firm is
incurring an economic loss
shut down
breaking even
making an economic profit
- 7. Multiple Choice
In the above figure, if the firm produced Q1, the firm's economic profit is ________ than if it produced Q2 and ________ than if it produced Q3
more; less
less; more
more; more
less; less
- 8. Multiple Choice
A perfectly competitive firm will have an economic profit of zero if, at its profit-maximizing output, its marginal revenue equals its
marginal cost
average variable cost
average total cost
average fixed cost
- 9. Multiple Choice
The figure above shows short-run cost curves for a perfectly competitive firm. If the price of the
product is $8, in the short run the firm will
incur an economic loss
earn an economic profit
earn a normal profit
more information is needed to determine the
firm's profit or loss
- 10. Multiple Choice
If there are 1,000 rutabaga farms, all perfectly competitive, an increase in the price of fertilizer used for growing rutabagas will
have no effect on the total quantity of rutabagas supplied, because each farm's supply curve is
a vertical line
reduce the total quantity of rutabagas supplied, because each farm's supply curve is a
horizontal line and will shift upward
have no effect on the total quantity of rutabagas supplied, because no farm has enough market
power to raise the price
decrease the total quantity of rutabagas supplied, because each farm's supply curve shifts
leftward
- 11. Multiple Choice
Suppose the cost curves in the above figure apply to all firms in the industry. If the initial price is
P1, firms are
making an economic profit and some firms will leave the industry
incurring an economic loss and some firms will leave the industry
making an economic profit and some firms will enter the industry
incurring an economic loss and some firms will enter the industry
- 12. Multiple Choice
New reports indicate that eating turnips helps people remain healthy. The news shifts the demand curve for turnips rightward. In response, new farms enter the turnip industry. During the period in which the new farms are entering, the price of a turnip ________ and the profit of each existing firm ________.
falls; rises
rises; falls
rises; rises
falls; falls
- 13. Multiple Choice
If firms exit an industry, the
profits of the remaining firms decrease
industry supply curve shifts leftward
price of the product falls
output of the industry increases
- 14. Multiple Choice
As firms leave an industry because they are incurring an economic loss, the economic loss of each remaining firm
increases and the price of the product rises
decreases and the price of the product falls
decreases and the price of the product rises
increases and the price of the product falls
- 15. Multiple Choice
In a perfectly competitive industry, a permanent decrease in demand initially brings a lower price, economic
profit, and entry into the industry
profit, and exit from the industry
loss, and entry into the industry
loss, and exit from the industry
- 16. Multiple Choice
In a perfectly competitive industry, a permanent increase in demand initially brings a higher price, economic
profit, and entry into the industry
profit, and exit from the industry
loss, and entry into the industry
loss, and exit from the industry
- 17. Multiple Choice
In the long run, the economic profits of a firm in a perfectly competitive industry
will equal zero
will be below zero
will be above zero
can be above, below, or equal to zero
- 18. Multiple Choice
Which of the following characterizes a perfectly competitive industry?
Each firm produces a product slightly different from that of its competitors
The industry demand curve is vertical
The demand for each individual firm is perfectly elastic
Each firm sets a different price
- 19. Multiple Choice
Paul runs a shop that sells printers. Paul is a perfect competitor and can sell each printer for a price of $300. The marginal cost of selling one printer a day is $200; the marginal cost of selling a second printer is $250; and the marginal cost of selling a third printer is $350. To maximize his profit, Paul should sell
two printers a day
more than three printers a day
three printers a day
one printer a day
- 20. Multiple Choice
A perfectly competitive firm is definitely earning an economic profit when
P > ATC
P > AVC
P < ATC
MR < MC
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