economics data bank
101) Suppose a perfectly competitive market is in long-run equilibrium and then there is a
permanent increase in the demand for that product. The new long-run equilibrium will have
A) a permanent decrease in supply.
B) fewer firms in the market.
C) the same number of firms in the market.
D) probably a different number of firms, but it is not possible to determine if there will be
more or fewer firms.
E) more firms in the market.
102) The cranberry market is perfectly competitive. Reports that consuming cranberries can lead to
improved health result in a permanent increase in the demand for cranberries and an immediate
upward jump in the price of cranberries. As time passes, the price of cranberries ________ and
the initial firms' economic ________.
A) rises still higher; loss will be eliminated
B) rises still higher; profit will not change
C) falls; profit will not change
D) falls; loss will be increased
E) falls; profit will be eliminated
103) In the long run, a perfectly competitive firm
A) makes zero economic profit.
B) makes an economic profit.
C) can make an economic profit, zero economic profit, or incur an economic loss.
D) incurs an economic loss.
E) can make either an economic profit or a normal profit.
104) Juan's Software Service Company is in a perfectly competitive market. Juan has total fixed cost of
$25,000, average variable cost for 1,000 service calls is $45, and marginal revenue is $75. Juan's
makes 1,000 service calls a month. What is his economic profit?
A) $25,000 B) $45,000 C) $75,000 D) $5,000 E) $50,000
105) A perfectly competitive firm definitely earns an economic profit in the short run if price is
A) equal to average total cost.
B) greater than average total cost.
C) greater than average variable cost.
D) equal to marginal cost.
E) greater than marginal cost.
106) In the short run, a perfectly competitive firm
A) must make zero economic profit.
B) must make an economic profit.
C) None of the above answers is correct.
D) must incur an economic loss.
E) might make an economic profit, an economic loss, or a normal profit.
107) The above figure shows a perfectly competitive firm. If the market price is $20 per unit, the firm
A) will stay open to produce and will earn a normal profit.
B) will definitely shut down to minimize its losses.
C) will stay open to produce and will incur an economic loss.
D) might shut down but more information is needed about the fixed cost.
E) will stay open to produce and will earn an economic profit.
108) The above figure shows a perfectly competitive firm. If the market price is $15, the firm
A) is earning an economic profit.
B) is incurring an economic loss.
C) is earning a normal profit.
D) might shut down but more information is needed about theAVC.
E) will immediately shut down.
109) A perfectly competitive firm is producing 50 units of output and selling at the market price of
$23. The firm's average total cost is $20. What is the firm's total cost?
A) $20 B) $150 C) $23 D) $1,000 E) $1,150
110) Suppose that marginal revenue for a perfectly competitive firm is $20 . When the firm produces
10 units, its marginal cost is $20, its average total cost is $22, and its average variable cost is $17.
Then to maximize its profit in the short run, the firm
A) must decrease its output to increase its profit.
B) should shut down.
C) must increase its output to increase its profit.
D) should not change its production because it is already maximizing its profit and is earning
a normal profit.
E) should stay open and incur an economic loss of $20.
111) Peter's Pencils is a perfectly competitive company producing pencils. Suppose Peter is
producing 1,000 pencils an hour. If the total cost of 1,000 pencils is $500, the market price per
pencil is $2, and the marginal cost is $2, then Peter
A) has an economic profit because marginal revenue is equal to marginal cost at this output
B) should decrease his output to increase his profit.
C) is not maximizing his profit but is earning a normal profit anyway.
D) should increase his output to increase his profit.
E) is maximizing his profit and is earning an economic profit.
112) In the short run, a perfectly competitive firm can experience which of the following?
i. an economic profit
ii. an economic loss but it continues to stay open
iii. an economic loss equal to its total fixed cost when it shuts down
A) i and ii
B) i, ii, and iii
C) i and iii
D) only i
E) ii and iii
113) For a perfectly competitive corn grower in Nebraska, the marginal revenue curve is
A) the same as its demand curve.
B) upward sloping.
C) downward sloping.
D) vertical at the profit maximizing quantity of production.
114) Suppose a perfectly competitive firm's minimum average variable cost is $3 when it produces
50. If the price is $2 and the firm's marginal cost is $2, the firm should
A) continue to produce 50.
B) continue to operate, but to determine the amount of production needs more information
than is given.
C) continue to produce, but produce less than 50.
D) shut down.
E) continue to produce, but produce more than 50.
115) A perfectly competitive firm will continue to operate in the short run when the market price is
below its average total cost if the
A) marginal cost is minimized.
B) price is at least equal to the minimum average variable cost.
C) price is also less than the minimum average variable cost.
D) marginal revenue is greater than marginal cost.
E) total fixed costs are less than total revenue.
116) A perfectly competitive firm will shutdown when the price is just below the minimum point on
A) marginal revenue curve.
B) average fixed cost curve.
C) average total cost curve.
D) average variable cost curve.
E) marginal cost curve.
117) The above figure illustrates a perfectly competitive firm. If the market price is $40 a unit, to
maximize its profit (or minimize its loss) the firm should
A) produce more than 10 and less than 30 units.
B) produce more than 30 units and less than 40 units..
C) produce 40 units.
D) shut down.
E) produce 30 units.
118) In a perfectly competitive industry, when a firm is producing so that its total revenue equals its
total cost, the firm is
A) definitely not maximizing its profit.
B) earning zero economic profit, that is, earning a normal profit.
C) incurring an economic loss.
D) earning an economic profit.
E) None of the above answers is correct because the relationship between total revenue and
total cost has nothing to do with the firm's profit or loss.
119) For a perfectly competitive firm, marginal revenue is
A) equal to the change in profit from selling one more unit.
B) less than the price.
C) equal to the price.
D) undefined because the firm's demand curve is horizontal.
E) greater than the price.
120) If the market price of a product is $14 and all sellers are price takers, then which of the following
A) Each seller can earn more total revenue by raising the price he or she charges above $14.
B) The demand curve for each seller's product is a downward-sloping straight line.
C) Each seller's total revenue is graphed as an upside-down U-shaped curve.
D) The demand curve for each seller's product is a downward-sloping but not necessarily a
E) Each seller's total revenue line is graphed as an upward-sloping straight line.
121) For the perfectly competitive broccoli producers in California, themarketdemand curve for
A) a horizontal line.
C) downward sloping.
D) the same as the demand curve each firm faces.
E) upward sloping.