# ECONOMICS TEST 9 MCQs

Question # 00652384 Posted By: Prof.Longines Updated on: 02/18/2018 07:12 AM Due on: 02/18/2018
Subject Economics Tutorials:
Question
CHAPTER 9 TESTName: __________________________ Date: _____________
1. Individuals in a market who must take the market price as given are:
A) quantity minimizers.
B) quantity takers.
C) price takers.
D) price searchers.
2. An assumption of the model of perfect competition is:
A) difficult entry and exit.
C) complete information.
D) different goods.
3. In the short run, a perfectly competitive firm produces output and earns zero economic profit if:
A) P > ATC.
B) P = ATC.
C) P < AVC.
D) AVC > P > ATC.
4. The Case in Point on Videocassette Rentals showed that if firms can't make an economic profit in the long run:
A) they will leave the industry.
B) there is no incentive for other firms to enter the industry, assuming that there are economic profits to be made in the short run.
C) they will be content to stay in the industry making zero economic profit.
D) all of the firms in the industry will leave and the industry will shut down.
Use the following to answer question 5:Total Cost for a Perfectly Competitive Firm
Quantity
per period Total Cost
0 \$10
1 \$16
2 \$20
3 \$22
4 \$24
5 \$25
6 \$27
7 \$30
8 \$34
9 \$39
10 \$45
5. (Exhibit: Total Cost for a Perfectly Competitive Firm) The firm will produce at a profit in the short run if the price is:
A) \$2.00.
B) \$2.50.
C) \$3.50.
D) \$4.50.
6. If a perfectly competitive firm sells 30 units of output at a price of \$10 per unit, its marginal revenue is:
A) \$10.
B) more than \$10.
C) less than \$10.
D) \$300.
Use the following to answer question 7:
7. (Exhibit: Perfectly Competitive Firm) The exhibit shows a perfectly competitive firm that faces demand curve d, has the cost curves shown, and maximizes profit. The firm is experiencing:
A) diminishing marginal returns to its variable input.
B) increasing marginal returns to its variable input.
C) negative economic profit.
D) zero economic profit.
Use the following to answer question 8:Total Cost for a Perfectly Competitive Firm
Quantity
per period Total Cost
0 \$10
1 \$16
2 \$20
3 \$22
4 \$24
5 \$25
6 \$27
7 \$30
8 \$34
9 \$39
10 \$45
8. (Exhibit: Total Cost for a Perfectly Competitive Firm) If the market price is \$4.50, profit at the profit-maximizing quantity of output is:
A) \$2.00.
B) \$4.50.
C) \$5.00.
D) \$34.00.
9. A firm's total revenue in perfect competition is:
A) found by multiplying its output by the price at which it sells that output.
B) a linear, horizontal line.
C) a linear, downward-sloping line.
D) perfectly elastic.
Use the following to answer question 10:
10. (Exhibit: Total Revenue and Cost) The most profitable level of output occurs at quantity:
A) F.
B) K.
C) L.
D) M.
Use the following to answer question 11:
11. (Exhibit: Perfectly Competitive Firm) The exhibit shows a perfectly competitive firm that faces demand curve d, has the cost curves shown, and maximizes profit. The firm's total profit per day is:
A) zero.
B) \$250.
C) \$275.
D) \$300.
12. A firm's shut-down point is the minimum value of:
A) total cost.
B) average variable cost.
C) average total cost.
D) marginal cost.
13. Discuss and explain how the marginal decision rule, MR = MC, will result in profit maximization for the firm in perfect competition. Why can economic profit exist in the short run but not in the long run?
14. In perfect competition:
A) price and marginal cost are the same.
B) price and marginal revenue are the same.
C) price and total revenue are the same.
D) total revenue and total variable cost are the same.
Use the following to answer question 15:
15. (Exhibit: Profit Maximizing) The exhibit shows cost curves for a firm operating in a perfectly competitive market. At quantity q5, AVC is the same as: _______ .
A) P4.
B) P3.
C) P2.
D) P1.
Use the following to answer question 16:
16. (Exhibit: Marginal Decision Rule) To the left of Point C (e.g., at q1):
A) economic profit is the vertical distance between Curve B and MC.
B) the firm is not maximizing profits.
C) the firm is maximizing profits.
D) the firm should produce less.
17. If P > ATC the firm will shut down.
A) True
B) False
18. If a perfectly competitive firm is producing a quantity that generates MC > MR, then profit:
A) is maximized.
B) can be increased by increasing production.
C) can be increased by decreasing production.
D) can be increased by increasing the price.
19. When a perfectly competitive industry is in long-run equilibrium, its firms are:
A) earning more than zero economic profits.
B) combining their variable and fixed resources inefficiently.
C) not in short-run equilibrium.
D) allocating all their resources efficiently.
20. The competitive model assumes all of the following EXCEPT:
A) a great number of buyers.
B) easy entry into and easy exit from the market.
C) complete information on the part of buyers and sellers.
D) that firms attempt to maximize their total revenue.
21. The Case in Point on Kitty Litter showed that:
A) if demand for a new product is sufficient, new firms will enter the industry and/or existing firms will reallocate their resources toward satisfying that demand.
B) once a firm has shut down, it can't reopen in the same or a similar industry.
C) an increase in demand will induce an increase in supply in the short run.
D) both B and C are true.
22. An increase in demand in a perfectly competitive market will cause a permanent increase in economic profit.
A) True
B) False
23. Which of the following is (are) true?
A) In perfect competition, price will be less than marginal cost.
B) In perfect competition, price will seldom adjust to reflect changes in production costs in the long run.
C) In perfect competition, to maximize profits, a firm will operate where P = MR = MC.
D) All of the above are true.
Use the following to answer question 24:
24. (Exhibit: Perfectly Competitive Firm) The exhibit shows a perfectly competitive firm that faces demand curve d, has the cost curves shown, and maximizes profit. The firm's total revenue per day is:
A) \$475.
B) \$600.
C) \$900.
D) \$1,200.
Use the following to answer question 25:
25. (Exhibit: Profit Maximizing) The exhibit shows cost curves for a firm operating in a perfectly competitive market. Which of the following statements is true?
A) AFC is represented in this exhibit by the vertical distance between Curve M and Curve N at any level of output.
B) AFC is represented in this exhibit by the vertical distance between Curve N and Curve O at any level of output.
C) This exhibit illustrates the long run because all costs are variable.
D) Quantity q2 is to the left of the shutdown point.
26. Shutting down:
A) is the same thing as going out of business.
B) means closing the doors but not going out of business.
C) may be a decision to close overnight.
D) is properly described by B and C.
Use the following to answer question 27:Total Cost for a Perfectly Competitive Firm
Quantity
per period Total Cost
0 \$10
1 \$16
2 \$20
3 \$22
4 \$24
5 \$25
6 \$27
7 \$30
8 \$34
9 \$39
10 \$45
27. (Exhibit: Total Cost for a Perfectly Competitive Firm) The firm will produce, but at a loss in the short run if the price is:
A) \$2.00.
B) \$2.50.
C) \$3.50.
D) \$4.50.
28. If a perfectly competitive firm is producing a quantity that generates P < MC, then profit:
A) is maximized.
B) can be increased by increasing the price.
C) can be increased by increasing production.
D) can be increased by decreasing production.
Use the following to answer question 29:
29. (Exhibit: Short-Run Costs) If the price declines, production will continue in the short run, even though the firm incurs a loss, between quantities:
A) O and Q.
B) Q and R.
C) R and S.
D) S and T.
30. The supply curve found by summing up the short-run supply curves of all the firms in a perfectly competitive industry is called the:
A) firm's marginal cost curve.
B) short-run market supply curve.
C) the interim market supply curve.
D) competitive curve.
Use the following to answer question 31:
31. (Exhibit: A Perfectly Competitive Firm in the Short Run) The firm will produce in the short run if the price is at least as much as the price indicated by the distance:
A) 0F.
B) 0E.
C) 0N.
D) 0P.
32. Suppose that the market for candy canes operates under conditions of perfect competition, that it is initially in long-run equilibrium, and that the price of each candy cane is \$0.10. Now suppose that the price of sugar rises, increasing the marginal and average total costs of producing candy canes by \$0.05. Based on the information given, we can conclude that in the short run a typical producer of candy canes will be making:
A) an economic profit.
B) zero economic profit.
C) negative economic profits.
D) It is impossible to determine based on the information given.
33. Suppose that the market for candy canes operates under conditions of perfect competition, that it is initially in long-run equilibrium, and that the price of each candy cane is \$0.10. Based on the information given, we can conclude that a typical producer of candy canes is experiencing:
A) diminishing marginal returns to its variable factors of production.
B) increasing marginal returns to its variable factors of production.
C) negative economic profits
D) It is not possible to answer based on the information given.
34. A perfectly competitive firm's supply curve in the short run is the rising portion of the marginal cost curve:
A) for prices less than minimum of the AVC curve.
B) for prices above the minimum of the AVC curve.
C) for prices above the minimum of the ATC curve.
D) below the minimum of the ATC curve.
35. Firms in the model of perfect competition will:
A) maximize total revenue by using the marginal decision rule.
B) increase output up to the point that the marginal benefit of an additional unit of output is greater than the marginal cost.
C) increase output up to the point that the marginal benefit of an additional unit of output is equal to the marginal cost.
D) always attempt to minimize average variable cost.
36. If price is less than average variable cost at the profit-maximizing quantity of output in the short run, a perfectly competitive firm will:
A) produce at a loss.
B) produce at a profit.
C) shut down production.
D) produce more than the profit-maximizing quantity.
Use the following to answer question 37:
37. (Exhibit: Supply: Short and Long Run) S3 would be the _______-run supply curve if _______.
A) long; expanded production leaves production costs unchanged
B) short; expanded production changes production costs
C) long; there is no entry into or exit from the industry
D) medium; costs are changed if there is easy entry
38. If an industry's long-run supply curve is upward sloping, the industry is characterized by:
A) increasing cost.
B) decreasing cost.
C) constant cost.
Use the following to answer question 39:
39. (Exhibit: Profit Maximizing) The exhibit shows cost curves for a firm operating in a perfectly competitive market. If the market price is P4:
A) firms will leave the industry and the price will fall in the long run.
B) there will be economic profits and firms will enter the industry in the long run.
C) the market supply curve will shift to the left and price will fall in the long run.
D) the firm will continue producing q3 and will continue to make economic profits in the long run.
40. Suppose that pasta is produced under conditions of perfect competition and that the constant-cost industry is initially in long-run equilibrium. Now suppose there is an increase in the price of wheat, which is a key ingredient in producing pasta. Further assume that the price elasticity of demand for pasta is -1.8. In the short run, we would expect to see a:
A) higher price and a smaller quantity of pasta.
B) higher price and a greater quantity of pasta.
C) lower price and a greater quantity of pasta.
D) lower price and a smaller quantity of pasta.
41. Suppose that automobile buyers in the southern part of a town have no idea what prices are being paid in the northern part of town. This situation violates the perfect competition assumption of:
B) identical goods.
C) complete information.
D) no discrimination.
42. The market for breakfast cereal contains hundreds of similar products, such as Fruit Loops, Corn Flakes, and Rice Krispies, that are considered to be different products by different buyers. This situation violates the perfect competition assumption of:
B) identical goods.
C) complete information.
D) ease of entry and exit.
43. Charges that must be paid for the use of factors of production such as labor and capital, together with estimated depreciation costs, are:
A) explicit costs.
B) accounting profits.
C) implicit costs.
D) economic profits.
44. In the short run, a perfectly competitive firm produces output and incurs an economic loss if:
A) P > ATC.
B) P < AVC.
C) AVC > P > ATC.
D) AVC < P < ATC.
45. Suppose that some firms in a perfectly competitive industry are earning positive economic profits. At this time, the:
A) industry supply curve is shifting to the left.
B) number of firms in the industry will change in the short run.
C) number of firms in the industry will decrease.
D) industry is not in long-run equilibrium.
46. Price in a perfectly competitive industry:
A) is determined by each firm depending on its costs of production.
B) is always equal to marginal revenue for the firm.
C) must be greater than ATC or the firm will shut down in the short run.
D) is indeterminate in the short run.
47. A perfectly competitive firm will continue producing in the short run as long as it can cover its:
A) total cost.
B) average total cost.
C) average variable cost.
D) average fixed cost.
48. Suppose that some firms in a perfectly competitive industry are incurring negative economic profits. In the long run, the:
A) industry supply curve will not shift.
B) industry supply curve will shift to the left.
C) number of firms in the industry will not change.
D) number of firms in the industry will increase.
49. A perfectly competitive industry's market supply curve is the sum of the supply curves of all firms in the industry.
A) True
B) False
50. Economic profit:
A) exists when total revenue exceeds marginal revenue.
B) is the horizontal distance between total cost and total revenue.
C) is the vertical distance between total revenue and total cost at a particular level of output.
D) can't exist in perfectly competitive markets.
51. In the model of perfect competition:
A) the market forces of supply determine the price.
B) individual firms can influence the price, but only slightly.
C) no individual or firm has enough power to have any impact on price.
D) the market forces of demand determine the price.
52. Suppose that the market for candy canes operates under conditions of perfect competition, that it is initially in long-run equilibrium, and that the price of each candy cane is \$0.10. Based on the information given, we can conclude that the marginal cost of producing candy canes:
A) is less than \$0.10.
B) equals \$0.10.
C) is greater than \$0.10.
D) It is not possible to answer based on the information given.
53. Perfect competition is characterized by:
B) fierce quality competition.
C) the inability of any one firm to influence price.
D) widely recognized brands.
54. Suppose that the market for candy canes operates under conditions of perfect competition, that it is initially in long-run equilibrium, and that the price of each candy cane is \$0.10. Based on the information given, we can conclude that the average total cost of producing candy canes:
A) is less than \$0.10.
B) equals \$0.10.
C) is greater than \$0.10.
D) It is not possible to answer based on the information given.
55. Which of the following is not an assumption economists make when using the model of perfect competition?
A) Firms seek to maximize profits.
B) The products of each firm in a particular market are identical.
C) Each firm sets it price equal to its average total cost.
D) There is easy entry and exit.
56. If price is greater than average total cost at the profit-maximizing quantity of output in the short run, a perfectly competitive firm will:
A) produce at a loss.
B) produce at a profit.
C) shut down production.
D) produce more than the profit-maximizing quantity.
57. A reduction in _______ leads to a _______ , shifting each firm's _______ curve _______ .
A) demand; fall in price; marginal revenue; downward
B) supply; fall in price; marginal revenue; upward
C) demand; fall in price; average revenue; upward
D) price; decrease in demand; marginal revenue; upward
58. Suppose that the market for haircuts in a community is perfectly competitive and that the market is initially in long-run equilibrium. Subsequently, an increase in population increases the demand for haircuts. In the short run, we expect that the market price will _______ and the output of a typical firm will _______ .
A) rise; rise
B) rise; fall
C) fall; rise
D) fall; fall
59. If a perfectly competitive firm is producing a quantity that generates P = MC, then profit:
A) is maximized.
B) can be increased by increasing the price.
C) can be increased by decreasing the price.
D) can be increased by increasing production.
60. In the long run, provided that there are no external benefits or costs, perfect competition will result in an efficient allocation of resources because:
A) P > MR.
B) P = MC.
C) P = MR
D) economic profits are greater than zero.
Use the following to answer question 61:
61. (Exhibit: The Market for Carrots) If this is a perfectly competitive market, each firm:
A) will be a price setter.
B) can sell all it wants to sell at the price determined by demand and supply.
C) has an incentive to sell at a price lower than the market price.
D) will attempt to maximize its total revenue.
62. The slope of the total cost curve is marginal cost.
A) True
B) False
Use the following to answer question 63:Total Cost for a Perfectly Competitive Firm
Quantity
per period Total Cost
0 \$10
1 \$16
2 \$20
3 \$22
4 \$24
5 \$25
6 \$27
7 \$30
8 \$34
9 \$39
10 \$45
63. (Exhibit: Total Cost for a Perfectly Competitive Firm) If the market price is \$3.50, the profit-maximizing quantity of output is _______ units.
A) 5
B) 7
C) 8
D) 9
64. In a perfectly competitive industry, all firms will have equal marginal costs.
A) True
B) False
65. Economic profit in the long run in perfect competition is positive.
A) True
B) False
66. For a firm producing at any level of output greater than the most profitable one, a reduction in output decreases total:
A) cost more than total revenue.
B) revenue more than total cost.
C) revenue by the same amount as total cost.
D) revenue but not total cost.
Use the following to answer question 67:
67. (Exhibit: Total Revenue, Total Costs, and Economic Profit) As long as the total revenue curve is ________ than the total cost curve, economic profit _______ as output _______.
A) steeper; increases; decreases
B) less steep; increases; decreases
C) steeper; increases; increases
D) less steep; increases; increases
68. Economic profit in long-run equilibrium in perfect competition will be:
A) less than accounting profit.
B) equal to accounting profit.
C) greater than accounting profit.
D) negative.
69. An increase in demand in a perfectly competitive industry characterized by constant costs will cause a(n):
A) permanent increase in price.
B) economic loss for firms.
C) increase in the quantity supplied in the short run and an increase in market supply in the long run.
D) decrease in firms' marginal revenue.
70. If a perfectly competitive industry is characterized by increasing cost in the long run, its long-run:
A) industry supply curve is upward sloping.
B) marginal revenue curve is upward sloping.
C) marginal cost curve is downward sloping.
D) average fixed cost curve is downward sloping.
Use the following to answer question 71:
71. (Exhibit: Marginal Decision Rule) If P1 is the market price, and if this firm has decided to produce any output, it should produce:
A) where MR > MC.
B) quantity q2.
C) quantity q1 where MR > MC.
D) a quantity greater than q1 but less than q2.
72. The slope of the total revenue curve is marginal revenue.
A) True
B) False
73. A price taker is a market participant who is able to accept or reject the market price but cannot alter it.
A) True
B) False
74. An increase in variable costs:
A) will result in the firm's marginal, average total, and average variable cost curves shifting upward by less than the cost increase.
B) will result in the firm's marginal, average total, and average variable cost curves shifting upward by the amount of the cost increase.
C) will shift the industry supply curve upward (to the left) by a smaller amount.
D) will shift the industry supply curve upward (to the left) by a larger amount.
75. If a perfectly competitive firm is producing a quantity that generates MC < MR, then profit:
A) is maximized.
B) can be increased by increasing production.
C) can be increased by decreasing production.
D) can be increased by increasing the price.
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1. ## Solution: ECONOMICS TEST 9 MCQs

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