Question 1

Maximizing profits also means that a firm is attempting to:

Accepted Answer

Maximizing profits means that the firm is producing at the output level where the difference between total revenue and total cost is the greatest. This is because at this output level, the marginal revenue equals marginal cost, which is the condition for profit maximization. Making as much output as possible (option A) may not necessarily result in the highest profits as it may incur additional costs that outweigh the additional revenue earned. Changing the market price (option B) may not be feasible for the firm as it is usually determined by market forces. Producing below its break-even price (option D) means that the firm is incurring losses instead of maximizing profits. Maximizing profits means a firm is producing at the output level where the difference between total revenue and total cost is the greatest. This is the point where profits are maximized, as any increase or decrease in output will lead to a decrease in profits. Therefore, option C is the correct answer. A is incorrect because producing as much output as possible may not lead to maximum profits if the cost of production exceeds the revenue generated. B is incorrect because a firm cannot change the market price, it can only adjust its own price strategy. D is incorrect because producing below the break-even price will result in losses instead of profits.

Question 2

In the short run, a firm will continue to sell its product as long as:

Accepted Answer

In the short run, a firm will continue to operate as long as it can cover its average variable costs, even if it's not covering its total costs. This is because, in the short run, some costs are fixed and cannot be avoided, so as long as the firm can cover its variable costs, it can contribute to covering some of its fixed costs, minimizing losses.

Question 3

If the long-run market supply curve for a perfectly competitive market is horizontal, then this industry is one that exhibits:
A.constant costs.
B.decreasing costs.
C.increasing costs.
D.the absence of marginal costs.

Accepted Answer

The answer of If the long-run market supply curve for...

Question 4

In the long run, all of the firms in a perfectly competitive industry will:
A.produce at an output level at which average total cost equals marginal cost.
B.earn an economic profit greater than zero.
C.exit the industry if price is greater than average total cost.
D.produce an output level at which price is greater than average total cost.

Accepted Answer

In the long run, firms in a perfectly competitive industry will produce at the output level at which average total cost equals marginal cost because of the free entry and exit of firms in the industry. This means that firms cannot earn an economic profit greater than zero in the long run. If price is greater than average total cost, new firms will enter the industry, increasing supply and driving down prices until they are equal to average total cost. If price is less than average total cost, firms will exit the industry, decreasing supply and driving up prices until they are equal to average total cost.

Question 5

In the long run, each firm in a perfectly competitive industry will:
A.earn only enough to cover the opportunity costs of the resources used in production.
B.produce where MR is greater than MC.
C.differentiate its goods.
D.increase its price.

Accepted Answer

The answer of In the long run, each firm in...

Question 6

Hank operates a perfectly competitive firm in the long run.For several periods the market price has been $20, and he knows his break-even price is $22.Hank should:
A.stay in the industry, since he can cover his fixed costs.
B.exit the industry, since he is making losses.
C.stay in the industry, since he is a perfect competitor and must take the price as given.
D.wait for the short-run period.

Accepted Answer

The answer of Hank operates a perfectly competitive firm in...

Question 7

If a firm's economic profits are equal to zero, its accounting profits are most likely:

Accepted Answer

Economic profits account for both explicit and implicit costs, while accounting profits only consider explicit costs. Therefore, if economic profits are zero, accounting profits are likely positive, making them greater than economic profits.

Question 8

The horizontal sum of individual firms' MC curves at and above the shut-down price is the:

Accepted Answer

The horizontal sum of individual firms' MC curves at and above the shut-down price represents the level of production at which firms are willing to produce in the short-run, which in turn determines the short-run industry supply curve. Therefore, the correct choice is B. The short-run industry demand curve is determined by the market demand for the product, while the long-run fixed cost and long-run average variable cost curves are not relevant for determining short-run industry supply.

Question 9

A perfectly competitive firm will produce:

Accepted Answer

A perfectly competitive firm will produce in the short run even with a loss if the price is greater than average variable cost (AVC) but less than average total cost (ATC), as it can cover its variable costs and some fixed costs.

Question 10

Bob runs a pedicure business in a perfectly competitive industry.He knows that he will break even if the price of pedicures is $15 but that he will have to shut down if the price is $11.If the market demand in the industry is P = 30 - (0.2)Q and the market supply is P = (0.2)Q, then in the short run, Bob will:
A.shut down, since he cannot cover any of his variable costs.
B.produce, since he is at his break-even level.
C.produce with a loss, since he is operating at a price below his break-even level.
D.shut down, although he is making a positive economic profit.

Accepted Answer

The answer of Bob runs a pedicure business in a...

Question 11

Figure: The Perfectly Competitive Firm II
(Figure: The Perfectly Competitive Firm II) Look at the figure The Perfectly Competitive Firm
II.If this firm's MR curve is MR2, then this firm will maximize profit by producing ________
units of output and its economic profit will be _.
A.Q₁; positive
B.Q₂; negative
C.Q₃; positive
D.Q4; negative

Accepted Answer

The answer of Figure: The Perfectly Competitive Firm II
(Figure: The...

Question 12

In the short run, fixed costs:
A.are an important feature in a firm's decision to produce or not produce.
B.have no impact on a firm's profit level.
C.do not exist.
D.remain constant.

Accepted Answer

Fixed costs are costs that do not vary with the level of output or production, such as rent or salaries. In the short run, these costs remain constant and do not change with changes in output. Therefore, option D is the correct answer. Option A is incorrect because fixed costs are taken into consideration when making production decisions. Option B is incorrect because fixed costs affect a firm's profit level in the short run. Option C is incorrect because fixed costs do exist.

Question 13

In a perfectly competitive industry, there are 10 firms, each with an MC curve that can be expressed as follows: MC = 5q, where q is the level of output for each firm.The minimum point of the AVC curve is $5.Which of the following equations would describe the industry supply curve for the industry, where Q is the market quantity and P is the market price?
A.P = Q for Q ≥ 10
B.P = 0.5Q for Q ≥ 10
C.P = 2Q for Q ≥ 10
D.P = Q for Q ≥ 20

Accepted Answer

The answer of In a perfectly competitive industry, there are...

Question 14

A firm produces at the output level at which its average total costs are minimized.At this output level, its average total costs are equal to all of the following except:
A.price.
B.MC.
C.MR.
D.AVC.

Accepted Answer

The answer of A firm produces at the output level...

Question 15

In the short run, a firm will produce as long as the price is greater than its:
A.ATC.
B.MC.
C.MR.
D.AVC.

Accepted Answer

The answer of In the short run, a firm will...

Question 16

In the short run, for a perfectly competitive firm, the portion of the MC curve at or above the shut-down price is also its:
A.individual short-run supply curve.
B.ATC curve.
C.AVC curve.
D.individual demand curve.

Accepted Answer

The portion of the Marginal Cost (MC) curve that lies at or above the shutdown price represents the firm's short-run supply curve in perfect competition. This is because, in the short run, a perfectly competitive firm will produce where price equals marginal cost (P=MC) as long as the price is above the minimum average variable cost (shutdown condition).

Question 17

In a perfectly competitive market, tastes and preferences lead to an increase in the demand for the good.Holding everything else constant, this will lead to an increase in price that will result in:
A.positive economic profits for firms, which will attract new firms, which in turn will result in a reduction in the price.
B.economic losses for firms, which will attract new firms, which in turn will result in a reduction in the price.
C.positive economic profits for firms, which will lead some firms to leave the industry and thus result in an even greater price increase.
D.economic losses, which will lead some firms to leave the industry and thus result in an even greater price increase.

Accepted Answer

The answer of In a perfectly competitive market, tastes and...

Question 18

A perfectly competitive industry with constant costs initially operates in long-run equilibrium.When demand increases, one will observe that in the long and short runs:
A.positive economic profits will result for all firms.
B.higher prices will result.
C.output will increase.
D.negative economic profits will result for some firms.

Accepted Answer

The answer of A perfectly competitive industry with constant costs...

Question 19

Figure: The Perfectly Competitive Firm II
   (Figure: The Perfectly Competitive Firm II) Look at the figure The Perfectly Competitive Firm
II.If this firm's MR curve is MR1, the firm will maximize profit by producing units of
output and its economic profit will be _. 
A.Q₁; positive
B.Q₂;
Negative
C.Q₃; positive
D.Q4; negative

Accepted Answer

The answer of Figure: The Perfectly Competitive Firm II
 ...

Question 20

A perfectly competitive industry with constant costs initially operates in long-run equilibrium.When demand increases, one will observe that:
A.in the short run, prices and profits will be higher, but in the long run, price will fall back to its original level and firms will again earn zero economic profit.
B.in the long and short runs, prices and profits will be higher relative to what they were before the demand increase.
C.in the short run, prices and profits will fall, but in the long run, price will rise back to its initial level, as will profits.
D.in the long and short runs, prices and profits will be lower relative to what they were before the demand increase.

Accepted Answer

The answer of A perfectly competitive industry with constant costs...

Quiz 12: Perfect Competition and the Supply Curve

Maximizing profits also means that a firm is attempting to:

In the short run, a firm will continue to sell its product as long as:

If the long-run market supply curve for a perfectly competitive market is horizontal, then this industry is one that exhibits: A.constant costs. B.decreasing costs. C.increasing costs. D.the absence of marginal costs.

In the long run, each firm in a perfectly competitive industry will: A.earn only enough to cover the opportunity costs of the resources used in production. B.produce where MR is greater than MC. C.differentiate its goods. D.increase its price.

If a firm's economic profits are equal to zero, its accounting profits are most likely:

The horizontal sum of individual firms' MC curves at and above the shut-down price is the:

A perfectly competitive firm will produce:

In the short run, fixed costs: A.are an important feature in a firm's decision to produce or not produce. B.have no impact on a firm's profit level. C.do not exist. D.remain constant.

A firm produces at the output level at which its average total costs are minimized.At this output level, its average total costs are equal to all of the following except: A.price. B.MC. C.MR. D.AVC.

In the short run, a firm will produce as long as the price is greater than its: A.ATC. B.MC. C.MR. D.AVC.

In the short run, for a perfectly competitive firm, the portion of the MC curve at or above the shut-down price is also its: A.individual short-run supply curve. B.ATC curve. C.AVC curve. D.individual demand curve.