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| 1 | |
Firms in purely competitive markets: |
| | A) | have unit elastic demand curves. |
| | B) | are "price takers". |
| | C) | engage in significant advertising. |
| | D) | face significant barriers to entry. |
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| 2 | |
Use the following diagram to answer the next question.
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At which of the following prices will the firm produce a positive amount but incur a loss? |
| | A) | P1 |
| | B) | P2 |
| | C) | P3 |
| | D) | P3 and P4 |
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| 3 | |
A purely competitive firm's output is currently such that its marginal cost is $225 and marginal revenue is $210. Assuming profit maximization, this firm should: |
| | A) | cut its price and increase production |
| | B) | raise its price and cut production |
| | C) | cut its price and cut production |
| | D) | leave price unchanged and cut production |
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| 4 | |
Use the following diagram to answer the next question.
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What output level would we expect this perfectly competitive firm to produce? |
| | A) | A |
| | B) | B |
| | C) | C |
| | D) | D |
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| 5 | |
Competitive firms maximize: |
| | A) | total profits by producing where price exceeds average total cost by the greatest amount |
| | B) | per unit profits by producing where marginal revenue equals marginal cost |
| | C) | total profits by producing where price equals marginal cost |
| | D) | market share by producing where price equals average total cost |
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| 6 | |
A competitive firm is currently producing 2000 units per month at a total cost of $12,000. Its fixed costs are $1,000 and its marginal cost is $5. If the market price is $5.60, this firm: |
| | A) | should shut down |
| | B) | should increase production |
| | C) | is making an economic profit, but not an accounting profit |
| | D) | is maximizing profits |
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| 7 | |
If the market price is $28 in a competitive market, the marginal revenue from selling the fourth unit is: |
| | A) | $112. |
| | B) | $7. |
| | C) | $28. |
| | D) | $32. |
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| 8 | |
Firms will tend to exit an industry if: |
| | A) | they fail to earn an economic profit |
| | B) | they fail to earn a normal profit |
| | C) | they fail to form strategic alliances with other firms in the industry |
| | D) | demand for the good or service fails to increase |
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| 9 | |
For all values above minimum average variable cost, a competitive firm's: |
| | A) | supply curve coincides with its marginal cost curve |
| | B) | supply curve coincides with its average total cost curve |
| | C) | demand curve coincides with its average total cost curve |
| | D) | demand curve coincides with its supply curve |
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| 10 | |
Use the following data to answer the next question.
Output | Marginal
Revenue | Marginal
Cost | 0 | -- | -- | 1 | $22 | $28 | 2 | 22 | 20 | 3 | 22 | 21 | 4 | 22 | 25 | 5 | 22 | 30 |
Refer to the table. Suppose the firm's goal is either maximum profits or minimum losses. If this firm's minimum average variable cost is $23, the firm will produce: |
| | A) | 0 units |
| | B) | 2 units |
| | C) | 3 units |
| | D) | 4 units |
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