Ch 7 APEC 1101H Donald Liu UMN Fall 2015 – Flashcards

T-Shirt Enterprises is selling in a purely competitive market. Its output is 300 units, which sell for $1 each. At this level of output, marginal cost is $1 and average variable cost is $1.50. The firm should: Select one: a. produce zero units of output. b. decrease output to 250 units. c. continue to produce 300 units. d. increase output to 350 units.

The entry of new firms into a competitive market will Select one: a. increase market supply and increase market prices. b. increase market supply and decrease market prices. c. decrease market supply and increase market prices. d. decrease market supply and decrease market prices.

1. Refer to the graph for a firm in pure competition. Line B represents: Select one: a. total revenue. b. marginal revenue. c. average total cost. d. average fixed cost.

A purely competitive firm will be willing to produce at a loss in the short run provided: Select one: a. the loss is no greater than its total variable costs. b. the loss is no greater than its marginal costs. c. the loss is no greater than its total fixed costs. d. price exceeds marginal costs.

If there is allocative efficiency in a purely competitive market for a product, the minimum price producers are willing to accept is: Select one: a. less than marginal benefit. b. greater than marginal cost. c. equal to the amount of efficiency or deadweight losses. d. equal to the maximum price consumers are willing to pay.

2. When the output price is P3 = $1, the profit-maximizing firm will earn a _____ of _____. (hint: fixed costs) Select one: a. loss; $150 b. profit; $300 c. loss; $300 d. loss; $450

3. Refer to the graph. At output level H, the area: Select one: a. 0CGH represents the firm's variable cost of production. b. ACGE represents the firm's economic profit. c. 0AEH represents the firm's economic profit. d. 0CGH represents the firm's fixed costs of production.

4. The table below shows cost data for a firm that is selling in a purely competitive market. Refer to the table. If the market price for the firm's product is $180, the competitive firm will produce: Select one: a. 6 units at an economic profit of $100. b. 6 units at an economic profit of $120. c. 7 units at an economic profit of $238. d. 7 units at an economic profit of $278.

The retail trade for clothing would be an example of which market model? Select one: a. Monopolistic competition b. Pure competition c. Pure monopoly d. Oligopoly

5. The industry represented by the graph above where S1 and S2 are short-run supply curves, D1 and D2 are short-run demand curves, and LRS is the long-run supply curve can be said to be: Select one: a. a constant-cost industry. b. an average-cost industry. c. a decreasing-cost industry. d. an increasing-cost industry.

Suppose all firms in a perfectly competitive industry are experiencing economic profits to varying degree. This will cause firms to __________ the industry, which will continue until __________. Select one: a. exit; economic losses occur b. enter; economic profits are zero c. enter; accounting profits are zero d. enter; economic profits are negative

Which is a reason why there is no advertising by individual firms under pure competition? Select one: a. Firms produce a homogeneous product. b. The quantity of the product demanded is very large. c. The market demand curve cannot be increased. d. Firms do not make long-run profits.

A profit-maximizing firm in the short run will expand output: Select one: a. until marginal cost begins to rise. b. until total revenue equals total cost. c. until marginal cost equals average variable cost. d. as long as marginal revenue is greater than marginal cost.

Assume a purely competitive increasing-cost industry is in long-run equilibrium. Now suppose that an increase in consumer demand occurs. After all the resulting adjustments have been completed, the new equilibrium price: Select one: a. and industry output will be less than the initial price and output. b. and industry output will be greater than the initial price and output. c. will be greater, but the new output will be less than initially. d. will be less, but the new output will be greater than initially.

6. When the price is equal to P2, a profit-maximizing perfectly competitive firm's profit will be __________. Select one: a. zero b. positive c. negative d. difficult to tell from the graph

7. Consider the purely competitive firm pictured above. The firm is earning: Select one: 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.

When a purely competitive industry is in long-run equilibrium, which statement is true? Select one: a. Average total cost is less than marginal cost. b. Price and average total cost are equal. c. Marginal cost is at its maximum level. d. Marginal revenue is greater than price.

Under which market model are the conditions of entry into the market easiest? Select one: a. Pure competition b. Pure monopoly c. Monopolistic competition d. Oligopoly

Total revenue for producing eight units of output is $48. Total revenue for producing nine units of output is $63. Given this information, the: Select one: a. average revenue for producing nine units is $1. b. average revenue for producing nine units is $15. c. marginal revenue for producing the ninth unit is $1. d. marginal revenue for producing the ninth unit is $15.

8. Refer to the graph. At output level H, the area: Select one: a. 0CGH represents the firm's total cost of production. b. ACGE represents the firm's economic profit. c. 0AEH represents the firm's economic profit. d. BCGF represents the firm's fixed costs of production.

A single firm in pure competition in the short run has a: Select one: a. vertical supply curve. b. vertical demand curve. c. horizontal supply curve. d. horizontal demand curve.

9. The graph shows the cost functions of Moe's mushroom gathering business, which is perfectly competitive. Moe's supply curve is: Select one: a. curve C to the right of curve A. b. curve B to the right of curve A. c. curve A above curve B. d. curve A above curve C.

The purely competitive firm's supply curve: Select one: a. is perfectly inelastic in the short run. b. is necessarily horizontal in the long run. c. is upward sloping when some inputs are fixed. d. becomes less elastic in the long run.

Candy Cane Corporation (CCC) produces 100,000 boxes of candy bars per year that sell for $3 a box. If variable costs are $2 per box and it has $125,000 in fixed operating costs, in the short run the CCC should: Select one: a. shut down as fixed costs are not being covered. b. keep producing as profits are $25,000. c. keep producing because variable costs are covered. d. reduce production until the break-even point is reached.

Fred runs a fishing lodge, and has a very successful business during the summer. In the fall, the number of guests at the lodge starts to decline, and by November very few people stay at Fred's Lodge. Fred should Select one: a. keep the lodge open all year because his summer profits offset any losses he has in the winter. b. keep the lodge open only during those months in which revenues exceed the variable costs of serving guests. c. keep the lodge open only during those months in which revenues exceed the fixed costs of the lodge. d. keep the lodge open only during those months in which revenues exceed total costs.

The intersection of a firm's marginal revenue and marginal cost curves determines the level of output at which Select one: a. total revenue is equal to fixed cost. b. total revenue is equal to total cost. c. profit is maximized. d. the firm breaks even.

Suppose all firms in a perfectly competitive industry are experiencing economic profits to varying degree. One can predict that Select one: a. the number of firms will fall. b. market supply will increase. c. market demand will increase. d. market price will rise.

In long-run equilibrium under conditions of pure competition and productive efficiency, all firms produce at minimum: Select one: a. average total cost. b. marginal cost. c. total cost. d. average variable cost.

10. Assume the price of a product sold by a purely competitive firm is $5. Given the data in the accompanying table, at what output is total profit highest in the short run? Select one: a. 20 b. 30 c. 40 d. 50

11. Refer to the table. The marginal cost of the third unit of output is: Select one: a. $20. b. $23. c. $24. d. $25.