Deck 21: Profit, Loss, and Perfect Competition

Question 1

A profit maximizing firm will always produce at that output at which

A)marginal cost = marginal revenue.
B)it minimizes its costs.
C)it operates at peak efficiency.
D)it maximizes its total revenue.

Answer 1

marginal cost = marginal revenue.

Question 2

If marginal cost is equal to marginal revenue

A)the firm should expand output.
B)the firm should contract output.
C)the firm should hold output constant.
D)there is no way to determine if the firm should expand output, contract output, or hold output constant.

Answer 2

the firm should hold output constant.

Question 3

When MC > MR, the profit maximizing firm should

A)keep production unchanged.
B)increase production.
C)decrease production.
D)shut down.
E)go out of business.

Answer 3

decrease production.

Question 4

When operating, the loss minimization point is

A)when at the minimum point on the average total cost curve.
B)when at the minimum point on the average variable cost curve.
C)where marginal cost equals marginal revenue.
D)when total revenue is maximized.

Question 5

The firm's short-run supply curve runs up the marginal cost curve

A)to the shutdown point.
B)from the shutdown point all the way up the curve.
C)to the break-even point.
D)from the break-even point all the way up the curve.

Question 6

A consultant has advised Consolidated Fish, Inc., a perfectly competitive firm, that it should cut back its production in order to increase its profits. We can conclude from this that

A)CF's total costs must be greater than its total revenues.
B)CF's marginal cost must be greater than the price of its product.
C)fixed costs are not being covered and CF should shut down.
D)CF's costs are increasing at a rate less than its revenues.

Question 7

When a profit maximizing firm produces, they will be producing at that output at which marginal cost = marginal revenue

A)all of the time.
B)some of the time.
C)on rare occasions.
D)none of the time.

Question 8

The lowest point on the firm's long-run supply curve is

A)the shutdown point.
B)the break-even point.
C)between the shutdown point and the break-even point.
D)None of the choices are the lowest point on the firm's long-run supply curve.

Question 9

Total revenue divided by output equals

A)marginal cost.
B)average total cost.
C)price.
D)average variable cost.

Question 10

Marginal analysis is useful to a firm that seeks to

A)maximize its profits, but not minimize its losses.
B)minimize its losses, but not maximize its profits.
C)both maximize its profits and minimize its losses.
D)neither maximize its profits nor minimize its losses.

Question 11

At the level of output where marginal revenue equals marginal cost, assume that the price of a competitive firm's product is between the firm's average total cost curve and its average variable cost curve. In this case the firm would

A)decrease output to reduce the costs.
B)continue to operate in the short run.
C)shut down.
D)increase output to increase profit.
E)continue to operate indefinitely.

Question 12

Which statement is true?

A)The minimum point on the firm's marginal cost curve is the shutdown point.
B)The minimum point on the firm's marginal cost curve is the break-even point.
C)The minimum point on the firm's average variable cost curve is the shutdown point.
D)The minimum point on the firm's average total cost curve is the shutdown point.

Question 13

To maximize profits, a perfectly competitive firm should produce at an output up to the point where

A)the difference between price and marginal cost is at its maximum.
B)total cost equals total revenue.
C)price equals marginal cost.
D)total revenue equals variable cost.

Question 14

The minimum possible average total cost of a computer repair shop is $40 and the minimum possible average variable cost is $30. If you operate this shop, you will shut it down immediately if the equilibrium price of computer repairs falls below

A)$40.
B)$35.
C)$30.
D)$20.
E)$10.

Question 15

Statement I. Marginal revenue is the additional revenue from selling one more unit of output. Statement II. A firm will always produce at an output at which marginal revenue is greater than marginal cost, except when it is minimizing its losses.

A)Statement I is true and statement II is false.
B)Statement I is false and statement II is true.
C)Both statements are true.
D)Both statements are false.

Question 16

The quantity corresponding to the point where the distance between price and ATC is the greatest results in a maximum ____________; but the firm wishes to maximize __________.

A)total profit; profit per unit
B)profit per unit; total profit
C)total profit; total profit
D)profit per unit; profit per unit

Question 17

As output expands beyond the break-even point, the vertical distance between the AVC and ATC will

A)get larger.
B)remain constant.
C)get smaller.

Question 18

Statement I. The minimum point on a firm's short-run supply curve is the break-even point. Statement II The firm's short-run and long-run supply curves are identical.

A)Statement I is true and statement II is false.
B)Statement I is false and statement I is true.
C)Both statements are true.
D)Both statements are false.

Question 19

A firm's long-run supply curve

A)runs up its marginal cost curve starting at the break-even point.
B)runs up its marginal cost curve starting at the shutdown point.
C)is identical to the firm's entire marginal cost curve.
D)runs up the firm's marginal cost curve from the shutdown point to the break-even point.

Question 20

To find the output at which the firm maximizes its profits you MUST know the firm's

A)ATC.
B)AVC.
C)AFC.
D)MC.

Question 21

Use the following figure to answer the question :

This firm's most profitable output is at

A)150.
B)230.
C)300.
D)350.

Question 22

Use the following figure to answer the question :
The firm's break-even point is

A)at point J.
B)at point K.
C)between points J and K.
D)above point K.

Question 23

Use the following figure to answer the question :
This firm's most profitable output is at

A)40.
B)50.
C)60.
D)70.

Question 24

Use the following figure to answer the question :
The firm's shutdown point occurs at an output of

A)30.
B)45.
C)60.
D)65.

Question 25

Which curve tells us the output at which a firm is producing at peak efficiency?

A)AFC
B)AVC
C)ATC
D)Demand

Question 26

Use the following figure to answer the question :
The firm's long-run supply curve begins at an output of

A)30.
B)40.
C)55.
D)70.

Question 27

Use the following figure to answer the question :

Efficiency is measured on the ___________ curve.

A)ATC
B)AVC
C)MC
D)demand
E)marginal revenue

Question 28

Which statement is false?

A)The firm's short-run supply curve runs along the MC curve from the shutdown point to the break-even point.
B)The MC curve intersects the ATC curve at the latter's minimum point.
C)Total revenue = price x output sold.
D)None of these statements are false.

Question 29

Use the following figure to answer the question :

The firm's shutdown point occurs at an output of

A)100.
B)175.
C)250.
D)300.

Question 30

Use the following figure to answer the question :

We say that a business is operating at peak efficiency when its __________ is held to a minimum.

A)average total cost
B)average variable cost
C)marginal cost
D)price

Question 31

Statement I. As output expands beyond the break-even point, the vertical distance between the AVC and ATC will get smaller. Statement II. The minimum point on the firm's AVC curve is the shutdown point.

A)Statement I is true and statement II is false.
B)Statement I is false and statement I is true.
C)Both statements are true.
D)Both statements are false.

Question 32

Which statement is false?

A)The minimum point of the AVC curve is the shutdown point.
B)The minimum point of the ATC curve is the breakdown point.
C)The firm's short-run supply curve runs up the marginal cost curve from the shutdown point all the way up the curve.
D)None of these statements are false.

Question 33

Use the following figure to answer the question :

The firm's break-even point occurs at an output of

A)100.
B)150.
C)215.
D)300.

Question 34

Use the following figure to answer the question :

Which statement is true?

A)A firm always operates at the minimum point of its average total cost curve.
B)A firm always operates at the minimum point of its average variable cost curve.
C)A firm never operates below the minimum point of its average total cost curve.
D)A firm never operates below the minimum point of its average variable cost curve.

Question 35

Use the following figure to answer the question :

The firm's short-run supply curve begins at an output of

A)100.
B)175.
C)250.
D)300.

Question 36

Use the following figure to answer the question :
The firm's short-run supply curve begins at an output of

A)30.
B)45.
C)60.
D)65.

Question 37

Use the following figure to answer the question :
The firm's shutdown point is

A)at point J.
B)at point K.
C)between points J and K.
D)above point K.

Question 38

Use the following figure to answer the question :

A company is operating most efficiently when it is at

A)the break-even point.
B)the shutdown point.
C)both the break-even and shutdown points.
D)neither the break-even nor the shutdown point.

Question 39

Use the following figure to answer the question :

The firm's long-run supply curve begins at an output of

A)100.
B)150.
C)215.
D)300.

Question 40

Use the following figure to answer the question :
The firm's break-even point occurs at an output of

A)30.
B)40.
C)55.
D)70.

Question 41

Use the following figure to answer the question :
Which statement is true?

A)The firm's short-run supply curve is longer than the firm's long-run supply curve.
B)A firm will always try to produce at its most efficient output.
C)The break-even point is usually above the shutdown point.
D)A firm will always produce at least some output when marginal cost = marginal revenue.

Question 42

Use the following figure to answer the question :

The firm's most profitable output is at

A)40.
B)45.
C)50.
D)55.
E)60.

Question 43

Use the following figure to answer the question :
In the long run if the price is below average total cost, the firm will

A)go out of business.
B)stay in business.
C)temporarily shut down.
D)None of the choices are correct.

Question 44

Use the following figure to answer the question :

The minimum price the firm would accept in the long run would be

A)$25.
B)$50.
C)$60.
D)$70.
E)$80.

Question 45

Use the following figure to answer the question :
Which statement is false?

A)The break-even point lies on the firm's short-run supply curve.
B)The firm's short-run and long-run supply curves both run along the marginal cost curve.
C)In the short run a firm losing money will operate if the price is between the break-even point and the shutdown point.
D)The lowest price acceptable to a firm in the short run is at the break-even point.

Question 46

Use the following figure to answer the question :
When a firm is operating at peak efficiency it is at the

A)shutdown point.
B)break-even point.
C)between the shutdown and break-even points.

Question 47

Use the following figure to answer the question :
If price is above the break-even point, in the short run the firm will _____ and in the long run the firm will ____.

A)shut down; stay in business
B)shut down; go out of business
C)operate; go out of business
D)operate; stay in business

Question 48

Use the following figure to answer the question :
If price is between the shutdown and break-even points, in the short run the firm will _____ and in the long run the firm will ____.

A)operate; go out of business
B)operate; stay in business
C)shut down; go out of business
D)shut down; stay in business

Question 49

Use the following figure to answer the question :

The firm's break-even point occurs at an output of

A)40.
B)45.
C)50.
D)55.
E)60.

Question 50

Use the following figure to answer the question :
If the firm operates in the short run and goes out of business in the long run, then the price

A)must be between the shutdown point and the break-even point.
B)above the break-even point.
C)below the shutdown point.
D)may be anywhere.

Question 51

Use the following figure to answer the question :

The minimum price the firm would accept in the short run would be

A)$25.
B)$50.
C)$70.
D)$80.

Question 52

Use the following figure to answer the question :
A firm will go out of business if price is below

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

Question 53

Use the following figure to answer the question :

The firm's short-run supply curve begins at an output of

A)0.
B)40.
C)45.
D)50.
E)55.

Question 54

Use the following figure to answer the question :
Which statement is true?

A)The marginal cost curve is used to determine if a firm is operating at peak efficiency.
B)A firm will always try to maximize its total revenue.
C)A firm's long-run supply curve is identical to its entire marginal cost curve.
D)A firm is operating most efficiently when it is at its break-even point.

Question 55

Use the following figure to answer the question :

The firm's long-run supply curve begins at an output of

A)0.
B)40.
C)45.
D)50.
E)55.

Question 56

Use the following figure to answer the question :
A firm will shut down if price is below

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

Question 57

Use the following figure to answer the question :

The firm's shutdown point occurs at an output of

A)40.
B)45.
C)50.
D)55.
E)60.

Question 58

Use the following figure to answer the question :
In the short run if price is below average variable cost the firm will

A)go out of business.
B)stay in business.
C)shut down.
D)operate.

Question 59

Use the following figure to answer the question :
Which statement is true?

A)A firm will always produce at an output corresponding to the minimum point of its ATC curve.
B)Efficiency and profit maximization always occur at the same output.
C)A firm will operate in the short run if total revenue is greater than variable costs.
D)The rule for maximizing profits is different than the rule for minimizing losses.

Question 60

Use the following figure to answer the question :

All of the following variables are used to calculate total profit except

A)output.
B)price.
C)AVC.
D)ATC.

Question 61

The firm's shutdown point occurs at an output of

A)150.
B)200.
C)225.
D)250.

Question 62

The perfect competitor's demand curve is

A)perfectly elastic.
B)relatively elastic.
C)relatively inelastic.
D)perfectly inelastic.

Question 63

Which statement is true?

A)The perfect competitor has some control over price.
B)The perfect competitor produces at peak efficiency in the long run.
C)The perfect competitor makes a profit in the long run.
D)None of the statements are true.

Question 64

If the price were $25, this firm would _______ in the short run and _______ in the long run.

A)shut down; stay in business
B)shut down; go out of business
C)operate; stay in business
D)operate; go out of business

Question 65

A perfect competitor would

A)never charge above market price but might charge below market price.
B)never charge below market price but might charge above market price.
C)always charge market price.

Question 66

To maximize profits, a firm should produce output up to the point where

A)marginal revenue equals marginal cost.
B)price equals marginal revenue.
C)the gap between the demand curve and the ATC is the greatest.
D)None of the choices are correct.

Question 67

This firm would ______ in the short run and __________ in the long run.

A)shut down; stay in business
B)shut down; go out of business
C)operate; stay in business
D)operate; go out of business

Question 68

Which statement is true?

A)Price is calculated by dividing output by total revenue.
B)The lowest point on the short-run supply curve is at the break-even point.
C)When price exceeds marginal cost, a profit-maximizing firm will decrease production.
D)The marginal cost curve intersects the average total cost curve at the break-even point.

Question 69

Which statement is true?

A)In the short run and the long run the perfect competitor will break-even.
B)In the short run and the long run the perfect competitor will make a profit.
C)In the short run the perfect competitor may make a profit or take a loss.
D)In the long run the perfect competitor will make a profit, but in the short run she will break-even.

Question 70

The profit-maximizing perfect competitor will produce at that output at which

A)marginal cost equals marginal revenue.
B)total revenue is maximized.
C)average total profit is maximized.

Question 71

Use the following figure to answer the question :

Which statement is true?

A)A firm will operate in the short run if total revenue is greater than variable costs.
B)A firm will shut down if variable costs are greater than total revenue.
C)A firm is operating at peak efficiency if its average total cost is held to a minimum.
D)All of the statements are true.

Question 72

Perfect competitors operate at peak efficiency in

A)both the short run and the long run.
B)neither the short run nor the long run.
C)only the short run.
D)only the long run.

Question 73

Which statement is false?

A)A profit-maximizing perfectly competitive firm will increase production when price exceeds marginal cost.
B)The lowest point on a perfectly competitive firm's short-run supply curve is at the shutdown point.
C)A perfectly competitive firm will operate at that output where MC equals MR only when it is minimizing losses.
D)A profit-maximizing perfectly competitive firm will decrease production when marginal cost exceeds price.

Question 74

The firm's break-even point occurs at an output of

A)150.
B)175.
C)200.
D)250.

Question 75

The firm's most profitable output is at

A)150.
B)175.
C)225.
D)300.

Question 76

If the price were $60, this firm would _________ in the short run and __________ in the long run.

A)shut down; stay in business
B)shut down; go out of business
C)operate; stay in business
D)operate; go out of business

Question 77

Under perfect competition there must be

A)perfect mobility of resources and perfect knowledge.
B)neither perfect mobility nor perfect knowledge.
C)perfect mobility but not perfect knowledge.
D)perfect knowledge but not perfect mobility.

Question 78

If all firms in a perfectly competitive market are operating where the MC = MR and there are no economic profits, then

A)the entire industry is about to stop producing since businesses will not operate without economic profits.
B)the industry is in equilibrium with no desire for exit or entry.
C)the industry is in serious disequilibrium where the inefficient producers are likely to go bankrupt.
D)the government is about to move in with subsidies.

Question 79

If firms are making profits under perfect competition, in the long run the industry supply will ______ and price will _____.

A)rise; rise
B)fall; fall
C)fall; rise
D)rise; fall

Question 80

The perfect competitor has a perfectly elastic demand curve

A)only in the short run.
B)only in the long run.
C)in both the short run and the long run.
D)in neither the short run nor the long run.