Multiple Choice

[Skip Breadcrumb Navigation]

Home

Chapter 8

Study Guide

Multiple Choice

This activity contains 20 questions.

Which of the following is a basic assumption of the model of perfect competition?

Price taking.Product homogeneity.Free entry and exit.All of the above.

Which of the following is sufficient for an industry to approximate perfect competition?

None of the above. There is no simple rule or indicator of perfect competition.A highly elastic market demand curve.The existence of many firms.Lack of explicit collusion in setting prices.

Suppose that TC = 20 + 10Q + Q² for a firm in a competitive market and that output, Q, sells for a price, P, of $90. How much output will the firm produce to maximize profit?

4090200

Suppose that TC = 20 + 10Q + Q² for a firm in a competitive market. What is the minimum price necessary for this firm to produce any output?

greater than 12greater than 10any positive pricegreater than 20

Suppose that TVC = 100Q –18Q² + 2Q³ and that TFC = 50. If price, P, equals 100, the firm's maximum profit is

600.146.0.196.

In what instance will a firm will shut down if price is less than average total cost?

When there are no sunk costs.When price is also less than average fixed cost.Always.Never.

Suppose that short-run MC = 10 + 2Q for an individual firm in a competitive market. If there are 100 identical firms in this market, then the short-run supply curve can be written as

P = 10 + 200Q.P = 10 + 0.02Q.P = 1000 + 2Q.P = 1000 + 200Q.

If a perfectly competitive, profit-maximizing firm produces a level of output for which P < MC, the firm will

maintain its current level of production.shut down.decrease output.increase output.

If a perfectly competitive firm realizes that ATC> P>AVC, the firm will

earn zero economic profit.operate at a loss in the short run.shut down in the short run.select a level of output where P > MC.

The response of a firm to an increase in input prices in the short run will be to

do nothing.maintain output constant but change the mix of inputs.increase output to increase revenue.reduce output as marginal cost rises.

If market supply is relatively elastic in the short run, marginal costs

are zero.increase rapidly in response to increases in output.remain constant as output increases.increase slowly in response to increases in output.

Producer surplus can be defined as the difference between

Price and marginal cost.revenue and total cost.revenue and total fixed cost.revenue and total variable cost.

Suppose that for the individual firm in a competitive market, LRAC = 100 – 20Q + 2Q². If this is a constant cost industry and demand can be represented as P = 100 – 0.1Q, how much output will the individual firm produce at long-run equilibrium?

0 units50 units5 units1 unit

To find the long run level of output that maximizes profit, we look for the equality of:

long run average total cost and long run marginal cost.long run average total cost and long run average variable cost.long run marginal cost and price.short run costs and long run costs.

When a firm earns zero economic profit,

the firm is performing adequately and should stay in business.the firm is earning a competitive return on its money.the firm is earning normal profit.All of the above.

In the long run, if a perfectly competitive firm does not maximize profit, then that firm

will have to settle for zero economic profit.can still produce at minimum average cost.can still earn some economic profit.will definitely exit the industry.

If input prices increase as an industry expands, then the long-run supply curve will be

vertical.horizontal.positively sloped.negatively sloped.

Accounting profit can be positive when economic profit is zero. Why?

Because resource costs are based on historical values rather than current market value.Because a firm has a patent that other firms don't have.Because opportunity costs are ignored.All of the above.

The amount that firms are willing to pay for an input less the minimum amount necessary to obtain it is called

economic profit.producer surplus.opportunity cost.economic rent.

Which of the following statements about the industry's long-run supply curve is correct?

A constant cost industry has a horizontal long-run supply curve.If inputs are more widely available, the long run market supply curve will be more elastic.In a constant cost industry, the long-run supply elasticity is infinitely large.All of the above.

The Submit Answers for Grading feature requires scripting to function. Your browser either does not support scripting or you have turned scripting off.

So, the Submit Answers for Grading button below will not work.

The following Submit Answers for Grading button is provided in its place and will clear your answers:
The Clear Answers and Start Over feature requires scripting to function. Your browser either does not support scripting or you have turned scripting off.

So, the Clear Answers and Start Over button below will not work.

The following Clear Answers button is provided in its place and will clear your answers:

Your browser either does not support scripting or you have turned scripting off. Because of this, the answer choices will NOT appear in a different order each time the page is loaded, though that is mentioned below. Note that you do not need this feature to use this site.

Answer choices in this exercise appear in a different order each time the page is loaded.

Multiple Choice

Which of the following is a basic assumption of the model of perfect competition?

Which of the following is sufficient for an industry to approximate perfect competition?

Suppose that TC = 20 + 10Q + Q2 for a firm in a competitive market and that output, Q, sells for a price, P, of $90. How much output will the firm produce to maximize profit?

Suppose that TC = 20 + 10Q + Q2 for a firm in a competitive market. What is the minimum price necessary for this firm to produce any output?

Suppose that TVC = 100Q –18Q2 + 2Q3 and that TFC = 50. If price, P, equals 100, the firm's maximum profit is

In what instance will a firm will shut down if price is less than average total cost?

Suppose that short-run MC = 10 + 2Q for an individual firm in a competitive market. If there are 100 identical firms in this market, then the short-run supply curve can be written as

If a perfectly competitive, profit-maximizing firm produces a level of output for which P < MC, the firm will

If a perfectly competitive firm realizes that ATC> P>AVC, the firm will

The response of a firm to an increase in input prices in the short run will be to

If market supply is relatively elastic in the short run, marginal costs

Producer surplus can be defined as the difference between

Suppose that for the individual firm in a competitive market, LRAC = 100 – 20Q + 2Q2. If this is a constant cost industry and demand can be represented as P = 100 – 0.1Q, how much output will the individual firm produce at long-run equilibrium?

To find the long run level of output that maximizes profit, we look for the equality of:

When a firm earns zero economic profit,

In the long run, if a perfectly competitive firm does not maximize profit, then that firm

If input prices increase as an industry expands, then the long-run supply curve will be

Accounting profit can be positive when economic profit is zero. Why?

The amount that firms are willing to pay for an input less the minimum amount necessary to obtain it is called

Which of the following statements about the industry's long-run supply curve is correct?

Suppose that TC = 20 + 10Q + Q² for a firm in a competitive market and that output, Q, sells for a price, P, of $90. How much output will the firm produce to maximize profit?

Suppose that TC = 20 + 10Q + Q² for a firm in a competitive market. What is the minimum price necessary for this firm to produce any output?

Suppose that TVC = 100Q –18Q² + 2Q³ and that TFC = 50. If price, P, equals 100, the firm's maximum profit is

Suppose that for the individual firm in a competitive market, LRAC = 100 – 20Q + 2Q². If this is a constant cost industry and demand can be represented as P = 100 – 0.1Q, how much output will the individual firm produce at long-run equilibrium?