Question 1

In the small town of Wellsville, there is only one grocery store. Given that everyone needs food, we would expect that:
A) this grocery store is a monopoly and hence highly profitable.
B) this grocery store charges exorbitant prices.
C) this grocery store prices competitively.
D) this grocery store faces a perfectly inelastic demand.

Accepted Answer

Even though there is only one grocery store in town, it doesn't necessarily mean that it is a monopoly. There could be other factors such as transportation costs that make it difficult for other stores to compete. As a result, the grocery store may still need to price competitively to attract customers.

Question 2

At a ski resort located over one hour from the nearest large town, there is only one grocery store and it charges prices more than 200 percent above the typical retail prices. In the long run, we would expect that:
A) another store will open that will charge equally high prices since competition is low.
B) the store will continue to earn high profits even in the long run since the size of the market is small.
C) demand will decrease since people will not want to pay the high prices.
D) another store will open that will charge lower prices.

Accepted Answer

D

Question 3

Marginal cost is:
A) the change in total cost from producing one more unit of output.
B) total cost divided by the change in total output.
C) the change in total output divided by the change in total cost.
D) average cost times output.

Accepted Answer

Marginal cost is the additional cost incurred in producing one more unit of output. It is calculated by taking the change in total cost (TC) divided by the change in the quantity of output (Q): MC = (ΔTC/ΔQ). Therefore, option A is the correct definition of marginal cost.

Question 4

When there are many buyers and sellers of a good, and the product sold is identical across firms:
A) the demand curve for each firm's output is perfectly elastic.
B) the industry demand curve is perfectly elastic.
C) the demand curve for each firm's output is perfectly inelastic.
D) the industry demand curve is perfectly inelastic

Accepted Answer

In a perfectly competitive market, there are many buyers and sellers of a standardized product, so each firm has no market power and must accept the market price. As a result, the demand curve for each firm's output is perfectly elastic, meaning that the firm can sell as much as it wants at the market price, but cannot charge a higher price without losing all its customers. The industry demand curve is not perfectly elastic, but rather downward-sloping, reflecting the fact that as the total quantity demanded increases, the market price decreases.

Question 5

Profit is defined as:
A) net revenue minus depreciation.
B) average revenue minus average total cost.
C) marginal revenue minus marginal cost.
D) total revenue minus total cost.

Accepted Answer

Profit is calculated as the difference between total revenue and total cost. Option A is incorrect because it subtracts only depreciation from net revenue, whereas profit requires all costs to be considered. Option B is incorrect because it subtracts only average total cost from average revenue, whereas profit requires total costs to be considered. Option C is incorrect because it subtracts only marginal cost from marginal revenue, whereas profit requires total costs to be considered.

Question 6

When there are many buyers and sellers of a good, and the product sold is identical across firms:
A) the demand curve for each firm's output is perfectly elastic.
B) the industry demand curve is perfectly elastic.
C) the demand curve for each firm's output is perfectly inelastic.
D) the industry demand curve is perfectly inelastic.

Accepted Answer

When there are many buyers and sellers of a good, and the product sold is identical across firms, each firm is a price taker and cannot affect the market price. Therefore, the demand curve for each firm's output is perfectly elastic because any increase in price above the market-clearing price would cause buyers to switch to a competitor's product.

Question 7

If Homer operates a small bakery and sells donuts for $4/dozen, he should:
A) sell an additional dozen donuts as long as the marginal cost of producing an additional dozen donuts is less than $4.
B) sell an additional dozen donuts as long as the total cost of producing an additional dozen donuts is less than $4.
C) only sell more donuts if his total revenue is greater than his total cost.
D) sell an additional dozen donuts so long as the fixed cost of production is greater than $4.

Accepted Answer

Homer should sell an additional dozen donuts as long as the marginal cost of producing an additional dozen donuts is less than $4. This is because the marginal cost is the additional cost of producing one more unit, and if it is less than the selling price, then it means that Homer will make a profit by selling the additional dozen donuts.

Question 8

When a firm expands output from 10 to 11 units and total revenue increases from $100 to $110, marginal revenue of the 11th unit is:
A) $110.
B) $11.
C) $10.
D) $210.

Accepted Answer

Marginal revenue is the additional revenue gained by producing one more unit. In this case, the increase in total revenue from producing 10 to 11 units is $10 ($110-$100), so the marginal revenue of the 11th unit is $10.

Question 9

A) 40.
B) 3.
C) 6.
D) 9.

Accepted Answer

The given code seems to be a random combination of numbers and alphabets, without any specific pattern. However, the string has a total of 6 characters, and therefore the answer is C, which is the number of characters in the string.

Question 10

A perfectly competitive industry exists under which of the following conditions? I. The product sold is similar across firms. II. There are many sellers, each small relative to the total market. III. There are many sellers, each with total assets less than $2 million. IV. The threat of competition exists from potential sellers that have not yet entered the market.
A) I and II only
B) I, II, and III only
C) I, III, and IV only
D) I, II, and IV only

Accepted Answer

A perfectly competitive industry requires similar products across firms (I), many small sellers in the market (II), and the presence of potential competition from potential sellers (IV). Total assets of sellers (III) is not a determining factor in a perfectly competitive industry.

Question 11

The amount of money that the firm pays for its inputs is called:
A) marginal cost.
B) total cost.
C) variable cost.
D) fixed cost.

Accepted Answer

Variable cost refers to the cost of the inputs that vary with the level of production. It is the amount of money that the firm pays for the raw materials, labor, and other variable inputs needed to produce the output. It is important for the firm to keep track of its variable costs as they directly impact the profitability of the firm.

Question 12

The total amount of money that a firm receives from sales of its output is called:
A) gross profit.
B) net profit.
C) total revenue.
D) net revenue.

Accepted Answer

Total revenue refers to the total amount of money received by a firm from selling its output, before deducting any expenses or costs. Gross profit is the difference between total revenue and the cost of goods sold, while net profit is the residual amount earned after deducting all expenses from total revenue. Net revenue is not a commonly used term in business or finance.

Question 13

Firms in a perfectly competitive industry maximize profits by:
A) eliminating the competition.
B) producing a higher quality good and setting a price higher than the competition.
C) setting a price equal to the market price.
D) setting a price less than the market price and undercutting the competition.

Accepted Answer

Firms in a perfectly competitive industry are price takers, meaning they have no control over the market price. Therefore, in order to maximize profits, they must set their price equal to the market price. Any deviation from the market price would result in lower profits, as consumers would simply switch to the lower-priced competitors.

Question 14

The marginal revenue (MR) for a firm is a constant $45, and the firm's marginal cost (MC) is given by MC = 1.5Q (where Q is quantity of output). What is the firm's profit-maximizing level of output?
A) 67.5
B) 30
C) 45
D) 15

Accepted Answer

To find the profit-maximizing level of output, we need to equate marginal revenue and marginal cost. 
MR = MC
$45 = 1.5Q
Q = 30
Therefore, the profit-maximizing level of output is 30.

Question 15

Reference: Ref 11-1 (Table: Barrels of Oil) Refer to the table. The change in profit from producing the second barrel of oil is ________, and the marginal cost from producing the seventh barrel of oil is ________.
A) $140; $140
B) $100; $20
C) $60; $140
D) $140; $20

Accepted Answer

The answer of  Reference: Ref 11-1 (Table: Barrels of...

Question 16

Firms in competitive industries: I. can only charge a price equal to the market price. II. cannot charge any more than the market price. III. will earn less profit if they charge less than the market price.
A) I only
B) I and III only
C) II only
D) I, II, and III

Accepted Answer

The answer of Firms in competitive industries: I. can only...

Question 17

Which of the following is NOT a key decision that a firm must make?
A) what price to set
B) what quantity to produce
C) where to produce
D) when to enter and exit an industry

Accepted Answer

The answer of Which of the following is NOT a...

Question 18

Reference: Ref 11-1 (Table: Barrels of Oil) Refer to the table. The profit-maximizing level of output is ________ barrels of oil.
A) 1
B) 3
C) 5
D) 7

Accepted Answer

The answer of  Reference: Ref 11-1 (Table: Barrels of...

Question 19

An industry is said to be perfectly competitive when:
A) demand in the industry is high.
B) each firm has virtually no influence over the price of its product.
C) there are many buyers and sellers, and each is large relative to the total market.
D) supply in the industry is highly elastic.

Accepted Answer

In a perfectly competitive market, there are many buyers and sellers, and each is small relative to the total market. Products are homogenous or identical, and there are no entry or exit barriers to the market. As a result, each firm has virtually no influence over the price of its product and must accept the market price.

Question 20

Which of the following statements is TRUE? Economists normally assume that the goal of the firm is to: I. sell as much of their product as possible. II. set the price of their product as high as possible III. maximize profit.
A) I and II only
B) II and III only
C) I and III only
D) III only

Accepted Answer

Economists normally assume that the goal of the firm is to maximize their profit. While selling as much product as possible and setting high prices may contribute to maximizing profit, they are not the primary goal.

Quiz 11: Costs and Profit Maximization Under Competition

In the small town of Wellsville, there is only one grocery store. Given that everyone needs food, we would expect that:

At a ski resort located over one hour from the nearest large town, there is only one grocery store and it charges prices more than 200 percent above the typical retail prices. In the long run, we would expect that:

Marginal cost is:

When there are many buyers and sellers of a good, and the product sold is identical across firms:

Profit is defined as:

When there are many buyers and sellers of a good, and the product sold is identical across firms:

If Homer operates a small bakery and sells donuts for $4/dozen, he should:

When a firm expands output from 10 to 11 units and total revenue increases from $100 to $110, marginal revenue of the 11th unit is:

The amount of money that the firm pays for its inputs is called:

The total amount of money that a firm receives from sales of its output is called:

Firms in a perfectly competitive industry maximize profits by:

The marginal revenue (MR) for a firm is a constant $45, and the firm's marginal cost (MC) is given by MC = 1.5Q (where Q is quantity of output) . What is the firm's profit-maximizing level of output?

Reference: Ref 11-1 (Table: Barrels of Oil) Refer to the table. The change in profit from producing the second barrel of oil is , and the marginal cost from producing the seventh barrel of oil is .

Firms in competitive industries: I. can only charge a price equal to the market price. II. cannot charge any more than the market price. III. will earn less profit if they charge less than the market price.

Which of the following is NOT a key decision that a firm must make?

Reference: Ref 11-1 (Table: Barrels of Oil) Refer to the table. The profit-maximizing level of output is ________ barrels of oil.

An industry is said to be perfectly competitive when:

Which of the following statements is TRUE? Economists normally assume that the goal of the firm is to: I. sell as much of their product as possible. II. set the price of their product as high as possible III. maximize profit.