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Suppose a firm is trying to decide whether or not to temporarily shut down to minimize total loss.If price equals average variable cost,then


A) total revenue equals total fixed cost,and the loss equals total variable cost.
B) total revenue equals total variable cost,and the loss equals total fixed cost.
C) total fixed cost is zero.
D) total variable cost equals total fixed cost.
E) total cost equals total variable cost.

F) C) and E)
G) B) and C)

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In a perfectly competitive market,the market price is $8.An individual firm is producing the output at which MC = $8.AVC at that output is $10.What should the firm do to maximize its economic profit in the short run?


A) shut down
B) expand output
C) contract output
D) leave output unchanged
E) raise the price

F) D) and E)
G) C) and E)

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Use the table below to answer the following questions. Table 12.1.1  Quantity Price  (units)   (dollars)  515615715\begin{array}{l}\begin{array} { c c } \hline\text { Quantity} & \text { Price }\\\text { (units) } & \text { (dollars) } \\\hline 5 & 15 \\6 & 15 \\7 & 15\end{array}\end{array} -Refer to Table 12.1.1 which gives the demand schedule for a perfectly competitive firm.If the firm sells 5 units of output,total revenue is


A) $15.
B) $30.
C) $75.
D) $90.
E) $105.

F) A) and B)
G) A) and C)

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In a perfectly competitive market,the market demand curve is illustrated by


A) a downward-sloping curve.
B) a line that is vertical at the market output.
C) an upward-sloping curve.
D) a line that is horizontal at the market price.
E) a curve that is bowed towards the origin.

F) B) and E)
G) All of the above

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Use the figure below to answer the following questions. Use the figure below to answer the following questions. Figure 12.3.5 -Refer to Figure 12.3.5,which shows the cost curves and the marginal revenue curve for a perfectly competitive firm.To maximize its profit,the firm produces ________ units of output and the price is ________ a unit. A) 30;$40 B) 30;$30 C) 20;$40 D) 20;$30 E) 30;$32.50 Figure 12.3.5 -Refer to Figure 12.3.5,which shows the cost curves and the marginal revenue curve for a perfectly competitive firm.To maximize its profit,the firm produces ________ units of output and the price is ________ a unit.


A) 30;$40
B) 30;$30
C) 20;$40
D) 20;$30
E) 30;$32.50

F) A) and E)
G) All of the above

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For perfect competition to arise,it is necessary that market demand be


A) inelastic.
B) elastic.
C) perfectly elastic.
D) large relative to the minimum efficient scale of a single firm.
E) small relative to the minimum efficient scale of a single firm.

F) B) and D)
G) B) and C)

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In a perfectly competitive industry,the market price is $5.An individual firm is producing the level of output where marginal cost is $5 and is increasing,and average total cost is $25.What should the firm do to maximize its economic profit in the short run?


A) shut down
B) expand output
C) contract output
D) leave output unchanged
E) insufficient information to answer

F) A) and B)
G) A) and C)

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Use the table below to answer the following questions. Table 12.2.1  Output  Total Revenue Total Cost  (units)   (dollars)   (dollars)  00251304926069390864120100515011461801287210170\begin{array} { c c c } \hline\text { Output } &\text { Total Revenue} & \text { Total Cost } \\\text { (units) }&\text { (dollars) }&\text { (dollars) }\\\hline 0 & 0 & 25 \\1 & 30 & 49 \\2 & 60 & 69 \\3 & 90 & 86 \\4 & 120 & 100 \\5 & 150 & 114 \\6 & 180 & 128 \\7 & 210 & 170 \\\hline\end{array} -Refer to Table 12.2.1,which gives the total revenue schedule and total cost schedule of a perfectly competitive firm.The marginal cost of increasing production from 4 units to 5 units is


A) $14.
B) $128.
C) $100.
D) $25.
E) $30.

F) All of the above
G) None of the above

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Consider a perfectly competitive market with long-run external diseconomies.When demand increases permanently,the equilibrium price


A) remains constant and the equilibrium quantity increases.
B) remains constant and the equilibrium quantity decreases.
C) rises and the equilibrium quantity increases.
D) falls and the equilibrium quantity decreases.
E) rises and the equilibrium quantity remains the same.

F) A) and B)
G) B) and D)

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Initially,a perfectly competitive market that has 1,000 firms is in long-run equilibrium.Then 100 firms in the industry adopt a new technology that reduces the average cost of producing the good.In the short run,the price ________,firms with the new technology make ________ economic profit,and firms with the old technology ________.


A) remains the same;zero;incur an economic loss
B) remains the same;positive;break even
C) falls;positive;incur an economic loss
D) remains the same;positive;incur an economic loss
E) falls;break even;incur an economic loss

F) None of the above
G) A) and B)

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Choose the correct statement.


A) Resources are used efficiently when marginal social benefit equals marginal social cost.
B) Competitive equilibrium achieves an efficient outcome.
C) Competitive equilibrium maximizes the gains from trade.
D) When firms in perfect competition are away from long-run equilibrium,either entry or exit is taking place and the market is still efficient.
E) All of the above

F) A) and D)
G) B) and E)

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Economic profit equals


A) total fixed cost plus total variable cost.
B) total revenue minus marginal cost.
C) marginal revenue minus marginal cost.
D) total revenue minus total cost.
E) total revenue minus total variable cost.

F) B) and C)
G) A) and E)

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Firms will stop exiting an market only when


A) marginal revenue equals price.
B) marginal revenue equals marginal cost.
C) all remaining firms are making an economic profit.
D) all remaining firms are making zero economic profit.
E) marginal revenue equals average fixed cost.

F) A) and C)
G) A) and B)

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Use the table below to answer the following questions. Table 12.1.1  Quantity Price  (units)   (dollars)  515615715\begin{array}{l}\begin{array} { c c } \hline\text { Quantity} & \text { Price }\\\text { (units) } & \text { (dollars) } \\\hline 5 & 15 \\6 & 15 \\7 & 15\end{array}\end{array} -Refer to Table 12.1.1 which gives the demand schedule for a perfectly competitive firm.If the firm sells 6 units of output,marginal revenue is


A) $15.
B) $30.
C) $75.
D) $90.
E) $105.

F) B) and E)
G) A) and E)

Correct Answer

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In a perfectly competitive market,a firm maximizes its profit by producing the quantity of output at which


A) market price equals average fixed cost.
B) market price equals marginal cost.
C) average variable cost equals average fixed cost.
D) market price equals minimum average variable cost.
E) market price equals marginal revenue.

F) A) and B)
G) D) and E)

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Lin's fortune cookies are identical to the fortune cookies made by dozens of other firms,and there is free entry in the fortune cookie market.Buyers and sellers are well informed about prices.The price of a fortune cookie is determined by ________.The marginal revenue of a fortune cookie equals ________.


A) market demand and market supply;price
B) the ingredients that Lin's uses to produce his fortune cookies;average total cost
C) the number of cookies that Lin's produces;average variable cost
D) the freshness of the fortune cookies;average fixed cost
E) market demand and market supply;the price elasticity of demand

F) A) and E)
G) A) and D)

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Marginal revenue is


A) the change in total quantity that results from a one-unit increase in the price of the good.
B) the change in total revenue that results from a one-unit increase in the quantity sold.
C) economic profit divided by the quantity sold.
D) the change in economic profit that results from a one-unit increase in the quantity sold.
E) total revenue minus total cost.

F) C) and E)
G) C) and D)

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Use the table below to answer the following questions. Table 12.2.3  Output  Total Cost  (balloons per hour)   (dollars per hour)  04.0017.0028.00312.50417.20522.00629.00\begin{array}{l}\begin{array} { c c } \hline\text { Output } & \text { Total Cost }\\\text { (balloons per hour) } & \text { (dollars per hour) } \\\hline 0 & 4.00 \\1 & 7.00 \\2 & 8.00 \\3 & 12.50 \\4 & 17.20 \\5 & 22.00 \\6 & 29.00\end{array}\end{array} -Refer to Table 12.2.3,which gives the total cost schedule for Brenda's Balloon Shop,a perfectly competitive firm.The average fixed cost of producing the 4th balloon is


A) $4.30.
B) $4.80.
C) $4.70.
D) $4.50.
E) $1.00.

F) A) and E)
G) A) and D)

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Use the figure below to answer the following questions. Use the figure below to answer the following questions. Figure 12.1.1 -Refer to Figure 12.1.1.The firm competes in a perfectly competitive market.Curve A is a straight line because the firm A) is a price taker. B) faces constant returns to scale. C) wants to maximize profits. D) has perfect information. E) has constant marginal cost. Figure 12.1.1 -Refer to Figure 12.1.1.The firm competes in a perfectly competitive market.Curve A is a straight line because the firm


A) is a price taker.
B) faces constant returns to scale.
C) wants to maximize profits.
D) has perfect information.
E) has constant marginal cost.

F) B) and E)
G) C) and D)

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A market with constant costs is in long-run equilibrium when it experiences a permanent increase in demand. In the short run,firms in the market ________.In the long run,some firms ________ the market.


A) make zero economic profit;exit
B) make an economic profit;enter
C) incur an economic loss;exit
D) make zero economic profit;enter
E) none of the above

F) A) and C)
G) None of the above

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