Question 1

Suppose the cost of insecticide (a variable input)  decreases for broccoli farmers.In order to maximize profits, ceteris paribus, broccoli farmers should

Accepted Answer

A)   Decrease output.
B)   Keep output the same since the market price did not change.
C)   Increase output.
D)   Increase prices.E) None of the above
F) A) and D)

Question 2

Most of the 20 million businesses in the United States are perfectly competitive firms.

Accepted Answer

A) True 
 B)False

Question 3

Normal profit implies that

Accepted Answer

A)   Economic profit must be positive.
B)   Economic profit must be negative.
C)   The factors employed are earning as much as they could in the best alternative employment.
D)   Firms will expand their scale of production.E) B) and D)
F) B) and C)

Question 4

Refer to Figure 22.3 for a perfectly competitive firm.This firm should shut down at any price below

Accepted Answer

A)   $4.
B)   $10.
C)   $15.
D)   $23.E) A) and B)
F) A) and C)

Question 5

Normal profit is zero when a firm's revenues just cover its economic cost.

Accepted Answer

A) True 
 B)False

Question 6

The short run is the time period

Accepted Answer

A)   Over which an investment decision can be made.
B)   Necessary so that profits can be earned from production.
C)   In which some costs are fixed.
D)   In which only the amount of capital may be altered.E) A) and D)
F) B) and D)

Question 7

An increased tax on profits leaves the optimal rate of output unchanged in the short run.

Accepted Answer

A) True 
 B)False

Question 8

If price is less than marginal cost, a perfectly competitive firm should decrease output because

Accepted Answer

A)   Marginal costs are increasing.
B)   Total revenues are decreasing.
C)   The firm is producing units that cost more to produce than the firm receives in revenue, thus reducing profits (or increasing losses) .
D)   Marginal revenue is decreasing.E) None of the above
F) B) and C)

Question 9

The demand curve confronting a competitive firm is

Accepted Answer

A)   Horizontal, as is market demand.
B)   Horizontal, while market demand is downward-sloping.
C)   Downward-sloping, while market demand is flat.
D)   Downward-sloping, as is market demand.E) C) and D)
F) A) and C)

Question 10

A firm maximizes total profit when

Accepted Answer

A)   Total costs exceed total revenue by the largest amount.
B)   Total revenues are maximized.
C)   Marginal costs are greater than marginal revenues.
D)   Total revenue exceeds total cost by the greatest amount.E) All of the above
F) A) and C)

Question 11

Economic profit is

Accepted Answer

A)   Greater than accounting profit by the amount of implicit cost.
B)   Greater than accounting profit by the amount of explicit cost.
C)   Less than accounting profit by the amount of implicit cost.
D)   Less than accounting profit by the amount of explicit cost.E) None of the above
F) B) and D)

Question 12

Refer to Figure 22.3 for a perfectly competitive firm.The law of diminishing returns takes effect at an output of

Accepted Answer

A)   39.
B)   31.
C)   25.
D)   13.E) A) and B)
F) B) and C)

Question 13

A change in which of the following will change the optimal rate of output?

Accepted Answer

A)   Payroll taxes.
B)   Profit taxes.
C)   Property taxes.
D)   Inflation taxes.E) All of the above
F) A) and B)

Question 14

The primary objective of the producer is to find the rate of output that maximizes profit.

Accepted Answer

A) True 
 B)False

Question 15

In defining economic costs, economists emphasize

Accepted Answer

A)   Explicit and implicit costs while accountants recognize only implicit costs.
B)   Explicit and implicit costs while accountants recognize only explicit costs.
C)   Only explicit costs while accountants recognize only implicit costs.
D)   Only explicit costs while accountants recognize explicit and implicit costs.E) B) and D)
F) C) and D)

Question 16

The demand curve for each perfectly competitive firm is

Accepted Answer

A)   Downward-sloping.
B)   Horizontal.
C)   Vertical.
D)   Upward-sloping.E) None of the above
F) All of the above

Question 17

When businesses earn zero economic profit, they have no incentive to stay in business.

Accepted Answer

A) True 
 B)False

Question 18

Refer to the data in Figure 22.1.The total fixed costs for this firm are approximately

Accepted Answer

A)   $50.
B)   $100.
C)   $600.
D)   $200.E) C) and D)
F) B) and C)

Question 19

If a business owner uses a warehouse he owns to store his inventory, then his total costs will be less than if he rented warehouse space from someone else.

Accepted Answer

A) True 
 B)False

Question 20

A catfish farmer will shut down production when

Accepted Answer

A)   He is losing money.
B)   Price falls below AVC.
C)   Total revenue falls below total costs.
D)   The best he can do is break even.E) A) and B)
F) A) and C)

Exam 8: The Competitive Firm

If a business owner uses a warehouse he owns to store his inventory, then his total costs will be less than if he rented warehouse space from someone else.

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When businesses earn zero economic profit, they have no incentive to stay in business.

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The demand curve for each perfectly competitive firm is

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Refer to Figure 22.3 for a perfectly competitive firm.The law of diminishing returns takes effect at an output of

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A catfish farmer will shut down production when

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Normal profit implies that

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Refer to Figure 22.3 for a perfectly competitive firm.This firm should shut down at any price below

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Economic profit is

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In defining economic costs, economists emphasize

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An increased tax on profits leaves the optimal rate of output unchanged in the short run.

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Refer to the data in Figure 22.1.The total fixed costs for this firm are approximately

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Most of the 20 million businesses in the United States are perfectly competitive firms.

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Normal profit is zero when a firm's revenues just cover its economic cost.

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Suppose the cost of insecticide (a variable input) decreases for broccoli farmers.In order to maximize profits, ceteris paribus, broccoli farmers should

Correct AnswerverifiedShow Answer

If price is less than marginal cost, a perfectly competitive firm should decrease output because

Correct AnswerverifiedShow Answer

The short run is the time period

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A change in which of the following will change the optimal rate of output?

Correct AnswerverifiedShow Answer

The primary objective of the producer is to find the rate of output that maximizes profit.

Correct AnswerverifiedShow Answer

The demand curve confronting a competitive firm is

Correct AnswerverifiedShow Answer

A firm maximizes total profit when

Correct AnswerverifiedShow Answer

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