Deck 9: The Nature and Creation of Money

Question 1

A perfectly competitive firm is a:

A)price taker.
B)price searcher.
C)cost maximizer.
D)quantity taker.

Answer 1

A

Question 2

Suppose that automobile buyers in the southern part of a town have no idea what prices are being paid in the northern part of town.This situation violates the perfect competition assumption of:

A)many buyers and sellers.
B)identical goods.
C)complete information.
D)no discrimination.

Answer 2

C

Question 3

The market for breakfast cereal contains hundreds of similar products, such as Fruit Loops, Corn Flakes, and Rice Krispies, that are considered to be different products by different buyers.This situation violates the perfect competition assumption of:

A)many buyers and sellers.
B)identical goods.
C)complete information.
D)ease of entry and exit.

Answer 3

B

Question 4

In the model of perfect competition:

A)the market forces of supply determine the price.
B)individual firms can influence the price, but only slightly.
C)no individual or firm has enough power to have any impact on price.
D)the market forces of demand determine the price.

Question 5

An assumption of the model of perfect competition is:

A)difficult entry and exit.
B)few buyers and sellers.
C)complete information.
D)different goods.

Question 6

The assumptions of perfect competition imply that:

A)individuals in the market accept the market price as given.
B)individuals can influence the market price.
C)the price will be a fair price.
D)the price will be low.

Question 7

Suppose that the market for computers is dominated by a single firm, like Dell, that is able to exert influence over prices and output.This situation violates the perfect competition assumption of:

A)many buyers and sellers.
B)easy entry and exit.
C)complete information.
D)no discrimination.

Question 8

Price takers:

A)are those individuals in a competitive market who must accept the market price as given.
B)is a term that implies that whatever the price is, an individual will accept it as fair.
C)is a term that essentially means that prices have nothing to do with individuals or groups.
D)is a term that refers to buyers not sellers.

Question 9

Which of the following is false?

A)Economists believe that they can understand most markets by applying the model of demand and supply.
B)When economists apply the model of demand and supply, they are using the model of perfect competition.
C)Many changes in the past 20 years have made markets more competitive by increasing ease of entry.
D)Price-taking firms produce differentiated goods.

Question 10

Which of the following is true in a perfectly competitive market?

A)One unit of a good or service cannot be differentiated from any other on any basis.
B)Brand preferences exist but are very slight.
C)Barriers to entry are relatively strong.
D)Information is costly.

Question 11

An assumption of the model of perfect competition is:

A)identical goods.
B)difficult entry and exit.
C)few buyers and sellers.
D)limited information.

Question 12

People in the eastern part of Beirut are prevented by border guards from traveling to the western part of Beirut to shop for food.This situation violates the perfect competition assumption of:

A)price-setting behavior.
B)a small number of buyers and sellers.
C)differentiated goods.
D)ease of entry and exit.

Question 13

An assumption of the model of perfect competition is:

A)discrimination.
B)ease of entry and exit.
C)few buyers and sellers.
D)limited information.

Question 14

Price takers are individuals in a market who:

A)select a price from a wide range of alternatives.
B)select the lowest price available in a competitive market.
C)select the average of prices available in a competitive market.
D)have no ability to affect the price of a good in a market.

Question 15

The competitive model assumes all of the following EXCEPT:

A)a great number of buyers.
B)easy entry into and easy exit from the market.
C)complete information on the part of buyers and sellers.
D)that firms attempt to maximize their total revenue.

Question 16

An assumption of the model of perfect competition is:

A)discrimination.
B)difficult entry and exit.
C)many buyers and sellers.
D)limited information.

Question 17

Which of the following is not an assumption economists make when using the model of perfect competition?

A)Firms seek to maximize profits.
B)The products of each firm in a particular market are identical.
C)Each firm sets it price equal to its average total cost.
D)There is easy entry and exit.

Question 18

Perfect competition is a model of the market that assumes all of the following EXCEPT:

A)a large number of firms.
B)firms face downward-sloping demand curves.
C)firms produce identical goods.
D)many buyers.

Question 19

Individuals in a market who must take the market price as given are:

A)quantity minimizers.
B)quantity takers.
C)price takers.
D)price searchers.

Question 20

Perfect competition is characterized by:

A)rivalry in advertising.
B)fierce quality competition.
C)the inability of any one firm to influence price.
D)widely recognized brands.

Question 21

In a perfectly competitive market:

A)there are barriers to easy entry and exit.
B)ease of entry is related to the sustainability of economic profits.
C)one seller may have more information than others.
D)no firm can shut down or go out of business in the short run.

Question 22

Use the following to answer questions 23-28:
(Exhibit: The Market for Carrots)If this is a perfectly competitive market, each firm:

A)will be a price setter.
B)can sell all it wants to sell at the price determined by demand and supply.
C)has an incentive to sell at a price lower than the market price.
D)will attempt to maximize its total revenue.

Question 23

Perfect competition is best considered a:

A)realistic model that exists in the real world in thousands of different markets.
B)realistic model that exists in the real world in only a handful of different markets.
C)theoretical extreme that does not exist in the real world but that can provide useful insights.
D)theoretical extreme that does not exist in the real world and that does not provide any useful insights.

Question 24

Suppose life is discovered on Mars and that it turns out to be quite sophisticated.In fact, perfect competition prevails everywhere on the planet.Which of the following characteristics of Martian firms are we likely to observe?

A)None of them ever experiences diminishing marginal returns.
B)They all try to operate where price equals average variable cost.
C)They all try to operate where price equals total cost.
D)The are all price takers.

Question 25

Economic profit:

A)exists when total revenue exceeds marginal revenue.
B)is the horizontal distance between total cost and total revenue.
C)is the vertical distance between total revenue and total cost at a particular level of output.
D)can't exist in perfectly competitive markets.

Question 26

A firm's total output times the price at which it sells that output is:

A)net revenue.
B)total revenue.
C)average revenue.
D)marginal revenue.

Question 27

Use the following to answer questions 23-28:
(Exhibit: The Market for Carrots)If demand is D₁, the price of carrots will be _______ cents, the quantity demanded will be _______ , and the quantity supplied will be
_______ .

A)20; 100; 90
B)20; 100; 100
C)30; 160;160
D)30; 100; 160

Question 28

In perfect competition:

A)a firm's total revenue is found by multiplying market price by the firm's quantity of output.
B)the firm's total revenue curve is a linear, upward-sloping line.
C)at any price, the greater the quantity sold, the greater is a firm's total revenue.
D)all of the above are true.

Question 29

Perfect competition is important to study because it:

A)is a theoretical extreme used for analysis.
B)is a realistic model of a few key markets.
C)is a realistic model of many different markets.
D)avoids all real-world problems and complexities.

Question 30

Which of the following is true?

A)Since there are few firms that match the conditions assumed in perfect competition, the model is not very useful.
B)The model of perfect competition is a good example of the old adage, "That's O.K.in theory, but not in practice."
C)Although few world markets meet the assumptions of perfect competition, the model is useful in analyzing real world forces that affect prices and outputs.
D)The model of perfect competition comes very close to describing the real world.

Question 31

The marginal revenue received by a firm in a perfectly competitive market:

A)is greater than the market price.
B)is less than the market price.
C)is equal to its average revenue.
D)increases with the quantity of output sold.

Question 32

Use the following to answer questions 23-28:
(Exhibit: The Market for Carrots)If this is a perfectly competitive market, when the demand is D₁ and the supply is S, any firm could enter and sell carrots for:

A)20 cents a pound.
B)25 cents a pound.
C)30 cents a pound.
D)any price above 20 cents a pound.

Question 33

The price received by a firm in a perfectly competitive market:

A)is equal to the market price.
B)is less than the market price.
C)is greater than the market price.
D)decreases with the quantity of output sold by the firm.

Question 34

Total revenue is a firm's:

A)change in revenue resulting from a unit change in output.
B)ratio of revenue to quantity.
C)difference between revenue and cost.
D)total output times the price at which it sells that output.

Question 35

A firm's total revenue in perfect competition is:

A)found by multiplying its output by the price at which it sells that output.
B)a linear, horizontal line.
C)a linear, downward-sloping line.
D)perfectly elastic.

Question 36

A perfectly competitive firm's total revenue:

A)curve is a straight, downward sloping line
B)curve has a slope equal to marginal cost.
C)is found by multiplying price by quantity sold by the firm.
D)is always above its total cost.

Question 37

Use the following to answer questions 23-28:
(Exhibit: The Market for Carrots)If this is a perfectly competitive market, which of the following is true?

A)The supply curve is linear and is determined by average total cost.
B)The equilibrium price and output are determined by demand and supply.
C)Each firm in this market is a price setter.
D)The price is too high.

Question 38

Use the following to answer questions 23-28:
(Exhibit: The Market for Carrots)Assume that this is a perfectly competitive market and the original price is determined by D₁ and S.If the demand shifts to D₂, any firm could enter this market and:

A)sell all it wants to sell at 40 cents a pound.
B)sell all it wants to sell at 30 cents a pound.
C)be a price setter.
D)would probably set its price just above 30 cents a pound.

Question 39

Marginal revenue:

A)is the slope of the average revenue curve.
B)equals the market price in perfect competition.
C)is the change in quantity divided by the change in total revenue.
D)is the price divided by the changes in quantity.

Question 40

Use the following to answer questions 23-28:
(Exhibit: The Market for Carrots)The movement from D₁ to D₂ could be a result of:

A)more firms moving in because of easy entry and profit expectations.
B)a decline in supply.
C)an increase in supply.
D)an increase in the number of buyers.

Question 41

Firms in the model of perfect competition will:

A)maximize total revenue by using the marginal decision rule.
B)increase output up to the point that the marginal benefit of an additional unit of output is greater than the marginal cost.
C)increase output up to the point that the marginal benefit of an additional unit of output is equal to the marginal cost.
D)always attempt to minimize average variable cost.

Question 42

Use the following to answer questions 55-57:
(Exhibit: Total Revenue and Cost)Total cost at the most profitable level of output is given by point:

A)G.
B)H.
C)I.
D)J.

Question 43

Use the following to answer questions $$\begin{array}{l}\text { Total Cost for a Perfectly Competitive Firm }\\\\\begin{array} { c c } \begin{array} { cc } \text { Quantity } \\\text { per } &\end{array} & \text { Total } \\\text { period }&\text { Cost } \\0 & \$ 10 \\1 & \$ 16 \\2 & \$ 20 \\3 & \$ 22 \\4 & \$ 24 \\5 & \$ 25 \\6 & \$ 27 \\7 & \$ 30 \\8 & \$ 34 \\9 & \$ 39 \\10 & \$ 45\end{array}\end{array}$$

-(Exhibit: Total Cost for a Perfectly Competitive Firm)If the market price is $4.50, the profit-maximizing quantity of output is _______ units.

A)5
B)7
C)8
D)9

Question 44

Use the following to answer questions $$\begin{array}{l}\text { Total Cost for a Perfectly Competitive Firm }\\\\\begin{array} { c c } \begin{array} { cc } \text { Quantity } \\\text { per } &\end{array} & \text { Total } \\\text { period }&\text { Cost } \\0 & \$ 10 \\1 & \$ 16 \\2 & \$ 20 \\3 & \$ 22 \\4 & \$ 24 \\5 & \$ 25 \\6 & \$ 27 \\7 & \$ 30 \\8 & \$ 34 \\9 & \$ 39 \\10 & \$ 45\end{array}\end{array}$$

-(Exhibit: Total Cost for a Perfectly Competitive Firm)If the market price is $3.50, the profit-maximizing quantity of output is _______ units.

A)5
B)7
C)8
D)9

Question 45

Use the following to answer questions $$\begin{array}{l}\text { Total Cost for a Perfectly Competitive Firm }\\\\\begin{array} { c c } \begin{array} { cc } \text { Quantity } \\\text { per } &\end{array} & \text { Total } \\\text { period }&\text { Cost } \\0 & \$ 10 \\1 & \$ 16 \\2 & \$ 20 \\3 & \$ 22 \\4 & \$ 24 \\5 & \$ 25 \\6 & \$ 27 \\7 & \$ 30 \\8 & \$ 34 \\9 & \$ 39 \\10 & \$ 45\end{array}\end{array}$$

-(Exhibit: Total Cost for a Perfectly Competitive Firm)If the market price is $5.50, the profit-maximizing quantity of output is _______ units.

A)5
B)7
C)8
D)9

Question 46

Marginal revenue is a firm's:

A)ratio of profit to quantity.
B)ratio of average revenue to quantity.
C)price per unit times the number of units sold.
D)increase in total revenue when it sells an additional unit of output.

Question 47

If a perfectly competitive firm sells 300 units of output at a market price of $1 per unit, its marginal revenue is:

A)less than $1.
B)$1.
C)more than $1 but less than $300.
D)$300.

Question 48

The difference between total revenue and total cost is:

A)economic profit.
B)nominal revenue.
C)average revenue.
D)marginal revenue.

Question 49

If a perfectly competitive firm sells 30 units of output at a price of $10 per unit, its marginal revenue is:

A)$10.
B)more than $10.
C)less than $10.
D)$300.

Question 50

Which of the following is true?

A)If price falls below average total cost the firm will shut down in the short run.
B)Price and marginal revenue are the same in perfect competition.
C)Economic profit per unit is found by subtracting AVC from price.
D)Economic profit is always positive in the short run.

Question 51

If a perfectly competitive firm increases production from 10 units to 11 units, and the market price is $20 per unit, total revenue for 10 units is:

A)$10.
B)$20.
C)$200.
D)$210.

Question 52

The slope of the total revenue curve is:

A)marginal revenue.
B)the change in total revenue divided by the change in price.
C)the amount by which total revenue increases as output decreases by one unit.
D)variable in perfect competition.

Question 53

Use the following to answer questions 55-57:
(Exhibit: Total Revenue and Cost)Total revenue at the most profitable level of output is given by point:

A)F.
B)G.
C)H.
D)J.

Question 54

If a firm in perfect competition sells 10 units of output at a market price of $5 per unit, its marginal revenue is:

A)$5.
B)more than $5 but less than $50.
C)$50.
D)$250.

Question 55

Price in a perfectly competitive industry:

A)is determined by each firm depending on its costs of production.
B)is always equal to marginal revenue for the firm.
C)must be greater than ATC or the firm will shut down in the short run.
D)is indeterminate in the short run.

Question 56

Use the following to answer questions 55-57:
(Exhibit: Total Revenue and Cost)The most profitable level of output occurs at quantity:

A)F.
B)K.
C)L.
D)M.

Question 57

The slope of the total revenue curve is:

A)net revenue.
B)marginal profit.
C)net profit.
D)marginal revenue.

Question 58

Which of the following is true?

A)Price and average revenue are never equal.
B)Price and marginal revenue are seldom equal under conditions of perfect competition.
C)When a firm is operating under perfectly competitive market conditions, price and marginal cost will always be equal if the firm is maximizing profits.
D)Average revenue equals price times quantity.

Question 59

For a firm in a perfectly competitive market:

A)marginal revenue equals total revenue.
B)marginal revenue equals price and average revenue.
C)net revenue equals price.
D)net revenue equals marginal revenue.

Question 60

If a perfectly competitive firm increases production from 10 units to 11 units, and the market price is $20 per unit, total revenue for 11 units is:

A)$10.
B)$20.
C)$200.
D)$220.

Question 61

Use the following to answer questions $$\begin{array}{l}\text { Total Cost for a Perfectly Competitive Firm }\\\\\begin{array} { c c } \begin{array} { cc } \text { Quantity } \\\text { per } &\end{array} & \text { Total } \\\text { period }&\text { Cost } \\0 & \$ 10 \\1 & \$ 16 \\2 & \$ 20 \\3 & \$ 22 \\4 & \$ 24 \\5 & \$ 25 \\6 & \$ 27 \\7 & \$ 30 \\8 & \$ 34 \\9 & \$ 39 \\10 & \$ 45\end{array}\end{array}$$

-(Exhibit: Total Cost for a Perfectly Competitive Firm)The firm will produce at a profit in the short run if the price is:

A)$2.00.
B)$2.50.
C)$3.50.
D)$4.50.

Question 62

Use the following to answer questions

-(Exhibit: Total Revenue, Total Costs, and Economic Profit)Which of the following is (are)true?

A)Total revenue and total cost are equal at approximately 8,300 pounds of output.
B)Marginal cost and marginal revenue are equal at approximately 8,300 pounds of output.
C)At approximately 4,500 pounds of output, marginal cost is zero and increasing returns sets in.
D)All of the above are true.

Question 63

Use the following to answer questions

-(Exhibit: Total Revenue, Total Costs, and Economic Profit)As long as the total revenue curve is ________ than the total cost curve, economic profit _______ as output _______.

A)steeper; increases; decreases
B)less steep; increases; decreases
C)steeper; increases; increases
D)less steep; increases; increases

Question 64

Use the following to answer questions

-(Exhibit: Total Revenue, Total Costs, and Economic Profit)At approximately 4,500 pounds of carrots:

A)total economic profit is the greatest.
B)total revenue is equal to total cost.
C)marginal revenue is equal to marginal cost.
D)marginal cost is at its maximum.

Question 65

Use the following to answer questions $$\begin{array}{l}\text { Total Cost for a Perfectly Competitive Firm }\\\\\begin{array} { c c } \begin{array} { cc } \text { Quantity } \\\text { per } &\end{array} & \text { Total } \\\text { period }&\text { Cost } \\0 & \$ 10 \\1 & \$ 16 \\2 & \$ 20 \\3 & \$ 22 \\4 & \$ 24 \\5 & \$ 25 \\6 & \$ 27 \\7 & \$ 30 \\8 & \$ 34 \\9 & \$ 39 \\10 & \$ 45\end{array}\end{array}$$

-(Exhibit: Total Cost for a Perfectly Competitive Firm)The firm will stop production and shut down if the price is:

A)$2.50.
B)$3.50.
C)$4.50.
D)$5.00.

Question 66

Use the following to answer questions 80-84:
(Exhibit: Marginal Decision Rule)If P₁ is the market price, and if this firm has decided to produce any output, it should produce:

A)where MR > MC.
B)quantity q₂.
C)quantity q₁ where MR > MC.
D)a quantity greater than q₁ but less than q₂.

Question 67

Use the following to answer questions $$\begin{array}{l}\text { Total Cost for a Perfectly Competitive Firm }\\\\\begin{array} { c c } \begin{array} { cc } \text { Quantity } \\\text { per } &\end{array} & \text { Total } \\\text { period }&\text { Cost } \\0 & \$ 10 \\1 & \$ 16 \\2 & \$ 20 \\3 & \$ 22 \\4 & \$ 24 \\5 & \$ 25 \\6 & \$ 27 \\7 & \$ 30 \\8 & \$ 34 \\9 & \$ 39 \\10 & \$ 45\end{array}\end{array}$$

-(Exhibit: Total Cost for a Perfectly Competitive Firm)If the market price is $3.50, profit at the profit-maximizing quantity of output is:

A)-$7.50.
B)-$6.00.
C)-$5.50.
D)$4.50.

Question 68

Use the following to answer questions

-(Exhibit: Total Revenue, Total Costs, and Economic Profit)Total revenue and total cost are equal at approximately _______ pounds and $_______ .

A)2,000; 1,400
B)5,000; 1,600
C)10,000; 2,800
D)15,000,2,800

Question 69

Economic profit is maximized when:

A)the slope of the total revenue curve is equal to the slope of the total cost curve.
B)marginal revenue is more than marginal cost.
C)an additional unit of output yields a benefit to the firm greater than the additional cost.
D)no more output can be sold at the market price.

Question 70

Use the following to answer questions $$\begin{array}{l}\text { Total Cost for a Perfectly Competitive Firm }\\\\\begin{array} { c c } \begin{array} { cc } \text { Quantity } \\\text { per } &\end{array} & \text { Total } \\\text { period }&\text { Cost } \\0 & \$ 10 \\1 & \$ 16 \\2 & \$ 20 \\3 & \$ 22 \\4 & \$ 24 \\5 & \$ 25 \\6 & \$ 27 \\7 & \$ 30 \\8 & \$ 34 \\9 & \$ 39 \\10 & \$ 45\end{array}\end{array}$$

-(Exhibit: Total Cost for a Perfectly Competitive Firm)The firm will produce, but at a loss in the short run if the price is:

A)$2.00.
B)$2.50.
C)$3.50.
D)$4.50.

Question 71

Use the following to answer questions

-(Exhibit: Total Revenue, Total Costs, and Economic Profit)The firm maximizes economic profit when the _______ of the total revenue and total cost curves are _______ and when _______ and ________ are equal.

A)slopes; as far apart as possible; marginal revenue; marginal cost
B)quantities; equal; marginal product; marginal cost
C)slopes; equal; marginal revenue; marginal cost
D)slopes; equal; marginal revenue; marginal product

Question 72

Use the following to answer questions

-(Exhibit: Total Revenue, Total Costs, and Economic Profit)Economic profit will be the greatest when approximately _______ pounds are sold.

A)2,000
B)4,300
C)7,300
D)8,300

Question 73

The slope of the total revenue curve is:

A)marginal cost.
B)net revenue.
C)constant under perfect competition.
D)varying under perfect competition.

Question 74

Use the following to answer questions

-(Exhibit: Total Revenue, Total Costs, and Economic Profit)As output exceeds approximately ________ pounds, economic profits _______ as long as _______ rise faster than _______ .

A)8,300; fall; revenues; costs
B)4,300; increase; revenues; costs
C)8,300; rise; costs; revenues
D)4,300; decrease; revenues; costs

Question 75

Use the following to answer questions $$\begin{array}{l}\text { Total Cost for a Perfectly Competitive Firm }\\\\\begin{array} { c c } \begin{array} { cc } \text { Quantity } \\\text { per } &\end{array} & \text { Total } \\\text { period }&\text { Cost } \\0 & \$ 10 \\1 & \$ 16 \\2 & \$ 20 \\3 & \$ 22 \\4 & \$ 24 \\5 & \$ 25 \\6 & \$ 27 \\7 & \$ 30 \\8 & \$ 34 \\9 & \$ 39 \\10 & \$ 45\end{array}\end{array}$$

-(Exhibit: Total Cost for a Perfectly Competitive Firm)If the market price is $4.50, profit at the profit-maximizing quantity of output is:

A)$2.00.
B)$4.50.
C)$5.00.
D)$34.00.

Question 76

Use the following to answer questions

-(Exhibit: Total Revenue, Total Costs, and Economic Profit)At zero level of output, total costs are ________ and total revenue is _______ .

A)0; 0
B)300; 0
C)800; 300
D)0; 300

Question 77

Use the following to answer questions

-(Exhibit: Total Revenue, Total Costs, and Economic Profit)Which of the following is true?

A)As output increases the slope of the total revenue curve does not change.
B)The total cost curve becomes steeper and steeper as output increases from 0 to 10,000 pounds of output.
C)Total revenue and total cost curves never have the same slope.
D)None of the above is true.

Question 78

The slope of the total cost curve is:

A)marginal cost.
B)marginal revenue.
C)constant under perfect competition.
D)always negative.

Question 79

Use the following to answer questions

-(Exhibit: Total Revenue, Total Costs, and Economic Profit)Total revenue and total cost are equal at approximately _______ pounds and $ _______ .

A)0; 300
B)2,000; 1,200
C)4,500; 1,300
D)8,300; 2,250

Question 80

Use the following to answer questions

-(Exhibit: Total Revenue, Total Costs, and Economic Profit)Total economic profit:

A)at its maximum is approximately $550.
B)is at its maximum when output is approximately 4,300 pounds.
C)is maximized at an output of approximately 1,500 pounds.
D)is at a maximum at total revenue of $2,800 and an output of 10,000 pounds.