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ECON 302 EXAM 3

question
The law of diminishing returns refers to diminishing

average returns.

total returns.

marginal returns.

all of these.
answer
marginal returns
question
Which of the following costs always declines as output increases?

Fixed cost

Average variable cost

Average cost

Average fixed cost

Marginal cost
answer
average fixed cost
question
According to the diagram below, where each isoquant's output level is marked to the right of the isoquant, production is characterized by



increasing, constant and decreasing returns to scale.

decreasing returns to scale.

constant returns to scale.

increasing returns to scale.
answer
increasing returns to scale
question
Assume that a firm spends $500 on two inputs, labor (graphed on the horizontal axis) and capital (graphed on the vertical axis). If the wage rate is $20 per hour and the rental cost of capital is $25 per hour, the slope of the isocost curve will be

25/500.

25/20 or 1.25.

500.

-4/5.
answer
-4/5
question
Use the following two statements to answer this question:
I. Isoquants cannot cross one another.
II. An isoquant that is twice the distance from the origin represents twice the level of output.

I is true, and II is false.

Both I and II are true.

Both I and II are false.

I is false, and II is true.
answer
I is true, and II is false.
question
A variable cost function of the form: implies a marginal cost curve that is

quadratic.

upward sloping.

constant.

U-shaped.
answer
upward sloping
question
Which of the following statements demonstrates an understanding of the importance of sunk costs for decision making?
I. "Even though I hate my MBA classes, I can't quit because I've spent so much money on tuition."
II. "To break into the market for soap our firm needs to spend $10M on creating an image that is unique to our new product. When deciding whether to develop the new soap, we need to take this marketing cost into account."

Both I and II

Neither I nor II

I only

II only
answer
II only
question
A construction company builds roads with machinery (capital, K) and labor (L). If we plot the isoquants for the production function so that labor is on the horizontal axis, then a point on the isoquant with a small MRTS (in absolute value) is associated with high ________ use and low ________ use.

concrete, gravel

labor, capital

capital, labor

none of the above
answer
labor, capital
question
Scenario 7.3:
Use the production function: Q = 4L1/2K1/2.


Refer to Scenario 7.3. Suppose that the price of labor is $5 and the price of capital is $20. Your firm desires to produce 200 units of output. How much labor will be hired to minimize the costs of producing 200 units of output?

100

25

200

50

none of the above
answer
100
question
The function which shows combinations of inputs that yield the same output is called a(n)

isocost curve.

production function.

production possibilities frontier.

isoquant curve.
answer
isoquant curve
question
Marginal profit is negative when:

total cost exceeds total revenue.

profit is negative.

marginal revenue is negative.

output exceeds the profit-maximizing level.
answer
output exceeds the profit-maximizing level.
question
Consider the following statements when answering this question
I. In the long run, if a firm wants to remain in a competitive industry, then it needs to own resources that are in limited supply.
II. In this competitive market our firm's long-run survival depends only on the efficiency of our production process.

I is true, and II is false.

I is false, and II is true.

I and II are true.

I and II are false.
answer
I is false, and II is true
question
If current output is less than the profit-maximizing output, which must be true?

Marginal revenue is less than marginal cost.

Total revenue is less than total cost.

Average revenue is less than average cost.

Average revenue is greater than average cost.

Marginal revenue is greater than marginal cost.
answer
Marginal revenue is greater than marginal cost.
question
Suppose the state legislature in your state imposes a state licensing fee of $100 per year to be paid by all firms that file state tax revenue reports. This new business tax:

decreases marginal revenue.

decreases marginal cost.

increases marginal cost.

increases marginal revenue.

none of the above
answer
none of the above
question
A decreasing-cost industry has a downward-sloping

short-run average cost curve.

short-run marginal cost curve.

long-run marginal cost curve.

long-run industry supply curve.

long-run average cost curve.
answer
long-run industry supply curve.
question
In the short run, a perfectly competitive firm earning negative economic profit is

on the upward-sloping portion of its ATC curve.

on the downward-sloping portion of its ATC curve.

above its ATC curve.

at the minimum of its ATC curve.
answer
on the downward-sloping portion of its ATC curve.
question
Producer surplus in a perfectly competitive industry is

the same thing as revenue.

the difference between revenue and total cost.

the difference between profit at the profit-maximizing output and profit at the profit-minimizing output.

the difference between revenue and fixed cost.

the difference between revenue and variable cost.
answer
the difference between revenue and variable cost.
question
Revenue is equal to

price times quantity.

price times quantity minus average cost.

expenditure on production of output.

price times quantity minus total cost.

price times quantity minus marginal cost.
answer
price times quantity.
question
Use the following statements to answer this question:
I. The firm's decision to produce zero output when the price is less than the average variable cost of production is known as the shutdown rule.
II. The firm's supply decision is to generate zero output for all prices below the minimum AVC.

I and II are true.

I and II are false.

I is true and II is false.

II is true and I is false.
answer
I and II are true.
question
The perfectly competitive firm's marginal revenue curve is

horizontal.

vertical.

exactly the same as the marginal cost curve.

upward-sloping.

downward-sloping, at twice the (negative) slope of the market demand curve.
answer
horizontal
question
A decreasing-cost industry has a downward-sloping

long-run industry supply curve.

short-run average cost curve.

long-run marginal cost curve.

long-run average cost curve.

short-run marginal cost curve.
answer
long-run industry supply curve.
question
Refer to Figure 8.2. At P = $80, the profit-maximizing output in the short run is

39.

50.

22.

34.

64.
answer
39
question
If managers do not choose to maximize profit, but pursue some other goal such as revenue maximization or growth,

they are more likely to have higher profit than if they had pursued that policy explicitly.

they are more likely to become takeover targets of profit-maximizing firms.

their companies are more likely to survive in the long run.

they are less likely to be replaced by the board of directors.

they are less likely to be replaced by stockholders.
answer
they are more likely to become takeover targets of profit-maximizing firms.
question
Suppose the state legislature in your state imposes a state licensing fee of $100 per year to be paid by all firms that file state tax revenue reports. This new business tax:

decreases marginal revenue.

decreases marginal cost.

increases marginal cost.

increases marginal revenue.

none of the above
answer
none of the above
question
The shutdown decision can be restated in terms of producer surplus by saying that a firm should produce in the short run as long as

producer surplus is positive.

producer surplus exceeds fixed cost.

profit and producer surplus are equal.

producer surplus exceeds variable cost.

revenue exceeds producer surplus
answer
producer surplus is positive.
question
Consider the following statements when answering this question
I. In the long run, if a firm wants to remain in a competitive industry, then it needs to own resources that are in limited supply.
II. In this competitive market our firm's long-run survival depends only on the efficiency of our production process.

I and II are false.

I is false, and II is true.

I is true, and II is false.

I and II are true.
answer
I is false, and II is true.
question
In long-run competitive equilibrium, a firm that owns factors of production will have an

economic and accounting profit = $0.

economic and accounting profit > $0.

economic profit > $0 and accounting profit = $0.

economic profit = $0 and accounting profit > $0.

economic and accounting profit can take any value.
answer
economic profit = $0 and accounting profit > $0.
question
In a constant-cost industry, an increase in demand will be followed by

no increase in supply.

an increase in supply that will bring price down below the level it was before the demand shift.

an increase in supply that will bring price down to the level it was before the demand shift.

a decrease in demand to keep price constant.

an increase in supply that will not change price from the higher level that occurs after the demand shift.
answer
an increase in supply that will bring price down to the level it was before the demand shift.
question
Bette's Breakfast, a perfectly competitive eatery, sells its "Breakfast Special" (the only item on the menu) for $5.00. The costs of waiters, cooks, power, food etc. average out to $3.95 per meal; the costs of the lease, insurance and other such expenses average out to $1.25 per meal. Bette should

continue producing in the short and long run.

continue producing in the short run, but plan to go out of business in the long run.

raise her prices above the perfectly competitive level.

close her doors immediately.

lower her output.
answer
continue producing in the short run, but plan to go out of business in the long run.
question
If current output is less than the profit-maximizing output, which must be true?

Total revenue is less than total cost.

Average revenue is less than average cost.

Marginal revenue is less than marginal cost.

Average revenue is greater than average cost.

Marginal revenue is greater than marginal cost.
answer
Marginal revenue is greater than marginal cost.
question
Use the following statements to answer this question:
I. Markets that have only a few sellers cannot be highly competitive.
II. Markets with many sellers are always perfectly competitive.

I is true and II is false.

II is true and I is false.

I and II are true.

I and II are false.
answer
I and II are false.
question
The demand curve facing a perfectly competitive firm is

not the same as either its marginal revenue curve or its average revenue curve.

the same as its average revenue curve, but not the same as its marginal revenue curve.

not defined in terms of average or marginal revenue.

the same as its marginal revenue curve, but not its average revenue curve.

the same as its average revenue curve and its marginal revenue curve.
answer
the same as its average revenue curve and its marginal revenue curve.
question
Scenario 8.1:
Two soft-drink firms, Fizzle & Sizzle, operate on a river. Fizzle is farther upstream, and gets cleaner water, so its cost of purifying water for use in the soft drinks is lower than Sizzle's by $500,000 yearly.


According to Scenario 8.1, Fizzle and Sizzle

would be perfectly competitive if their purification costs were equal; otherwise, not.

would be perfectly competitive if it costs Fizzle $500,000 yearly to keep that land.

may or may not be perfect competitors, but their position on the river has nothing to do with it.

cannot be perfect competitors because they are not identical firms.
answer
may or may not be perfect competitors, but their position on the river has nothing to do with it.
question
A firm maximizes profit by operating at the level of output where

total costs are minimized.

marginal revenue equals marginal cost.

average revenue equals average variable cost.

marginal revenue exceeds marginal cost by the greatest amount.

average revenue equals average cost.
answer
marginal revenue equals marginal cost.
question
Revenue is equal to

expenditure on production of output.

price times quantity minus average cost.

price times quantity minus marginal cost.

price times quantity minus total cost.

price times quantity.
answer
price times quantity.
question
In a constant-cost industry, an increase in demand will be followed by

no increase in supply.

an increase in supply that will bring price down below the level it was before the demand shift.

an increase in supply that will bring price down to the level it was before the demand shift.

an increase in supply that will not change price from the higher level that occurs after the demand shift.

a decrease in demand to keep price constant.
answer
an increase in supply that will bring price down to the level it was before the demand shift.
question
Consider the following statements when answering this question
I. If the cost of producing each unit of output falls $5, then the short-run market price falls $5.
II. If the cost of producing each unit of output falls $5, then the long-run market price falls $5.

I and II are true.

I is false, and II is true.

I is true, and II is false.

I and II are false.
answer
I is false, and II is true
question
Refer to Figure 8.2. At P = $80, the profit-maximizing output in the short run is

64.

22.

50.

39.

34.
answer
39
question
A firm maximizes profit by operating at the level of output where

average revenue equals average cost.

marginal revenue exceeds marginal cost by the greatest amount.

marginal revenue equals marginal cost.

average revenue equals average variable cost.

total costs are minimized.
answer
marginal revenue equals marginal cost.
question
In the short run, a perfectly competitive firm earning negative economic profit is

on the upward-sloping portion of its ATC curve.

at the minimum of its ATC curve.

above its ATC curve.

on the downward-sloping portion of its ATC curve.
answer
on the downward-sloping portion of its ATC curve.
question
If a graph of a perfectly competitive firm shows that the point occurs where MR is above AVC but below ATC,

the firm is still earning positive profit, as long as variable costs are covered.

the firm is earning negative profit, and will shut down rather than produce that level of output.

the firm can cover all of fixed costs but only a portion of variable costs.

the firm is covering explicit, but not implicit, costs.

the firm is earning negative profit, but will continue to produce where in the short run.
answer
the firm is earning negative profit, but will continue to produce where in the short run.
question
Consider the following statements when answering this question
I. Increases in the demand for a good, which is produced by a competitive industry, will raise the short-run market price.
II. Increases in the demand for a good, which is produced by a competitive industry, will raise the long-run market price.

I is false, and II is true.

I is true, and II is false.

I and II are true.

I and II are false.
answer
I is true, and II is false.
question
The demand curve facing a perfectly competitive firm is

not the same as either its marginal revenue curve or its average revenue curve.

not defined in terms of average or marginal revenue.

the same as its average revenue curve, but not the same as its marginal revenue curve.

the same as its marginal revenue curve, but not its average revenue curve.

the same as its average revenue curve and its marginal revenue curve.
answer
the same as its average revenue curve and its marginal revenue curve.
question
Refer to Figure 8.2. As the competitive industry, not just the firm in question, moves toward long-run equilibrium, the firm will be forced to operate at what level of output?

34

38.

50

22

64
answer
50
question
Bette's Breakfast, a perfectly competitive eatery, sells its "Breakfast Special" (the only item on the menu) for $5.00. The costs of waiters, cooks, power, food etc. average out to $3.95 per meal; the costs of the lease, insurance and other such expenses average out to $1.25 per meal. Bette should

continue producing in the short run, but plan to go out of business in the long run.

continue producing in the short and long run.

close her doors immediately.

raise her prices above the perfectly competitive level.

lower her output.
answer
continue producing in the short run, but plan to go out of business in the long run.
1 of 45
question
The law of diminishing returns refers to diminishing

average returns.

total returns.

marginal returns.

all of these.
answer
marginal returns
question
Which of the following costs always declines as output increases?

Fixed cost

Average variable cost

Average cost

Average fixed cost

Marginal cost
answer
average fixed cost
question
According to the diagram below, where each isoquant's output level is marked to the right of the isoquant, production is characterized by



increasing, constant and decreasing returns to scale.

decreasing returns to scale.

constant returns to scale.

increasing returns to scale.
answer
increasing returns to scale
question
Assume that a firm spends $500 on two inputs, labor (graphed on the horizontal axis) and capital (graphed on the vertical axis). If the wage rate is $20 per hour and the rental cost of capital is $25 per hour, the slope of the isocost curve will be

25/500.

25/20 or 1.25.

500.

-4/5.
answer
-4/5
question
Use the following two statements to answer this question:
I. Isoquants cannot cross one another.
II. An isoquant that is twice the distance from the origin represents twice the level of output.

I is true, and II is false.

Both I and II are true.

Both I and II are false.

I is false, and II is true.
answer
I is true, and II is false.
question
A variable cost function of the form: implies a marginal cost curve that is

quadratic.

upward sloping.

constant.

U-shaped.
answer
upward sloping
question
Which of the following statements demonstrates an understanding of the importance of sunk costs for decision making?
I. "Even though I hate my MBA classes, I can't quit because I've spent so much money on tuition."
II. "To break into the market for soap our firm needs to spend $10M on creating an image that is unique to our new product. When deciding whether to develop the new soap, we need to take this marketing cost into account."

Both I and II

Neither I nor II

I only

II only
answer
II only
question
A construction company builds roads with machinery (capital, K) and labor (L). If we plot the isoquants for the production function so that labor is on the horizontal axis, then a point on the isoquant with a small MRTS (in absolute value) is associated with high ________ use and low ________ use.

concrete, gravel

labor, capital

capital, labor

none of the above
answer
labor, capital
question
Scenario 7.3:
Use the production function: Q = 4L1/2K1/2.


Refer to Scenario 7.3. Suppose that the price of labor is $5 and the price of capital is $20. Your firm desires to produce 200 units of output. How much labor will be hired to minimize the costs of producing 200 units of output?

100

25

200

50

none of the above
answer
100
question
The function which shows combinations of inputs that yield the same output is called a(n)

isocost curve.

production function.

production possibilities frontier.

isoquant curve.
answer
isoquant curve
question
Marginal profit is negative when:

total cost exceeds total revenue.

profit is negative.

marginal revenue is negative.

output exceeds the profit-maximizing level.
answer
output exceeds the profit-maximizing level.
question
Consider the following statements when answering this question
I. In the long run, if a firm wants to remain in a competitive industry, then it needs to own resources that are in limited supply.
II. In this competitive market our firm's long-run survival depends only on the efficiency of our production process.

I is true, and II is false.

I is false, and II is true.

I and II are true.

I and II are false.
answer
I is false, and II is true
question
If current output is less than the profit-maximizing output, which must be true?

Marginal revenue is less than marginal cost.

Total revenue is less than total cost.

Average revenue is less than average cost.

Average revenue is greater than average cost.

Marginal revenue is greater than marginal cost.
answer
Marginal revenue is greater than marginal cost.
question
Suppose the state legislature in your state imposes a state licensing fee of $100 per year to be paid by all firms that file state tax revenue reports. This new business tax:

decreases marginal revenue.

decreases marginal cost.

increases marginal cost.

increases marginal revenue.

none of the above
answer
none of the above
question
A decreasing-cost industry has a downward-sloping

short-run average cost curve.

short-run marginal cost curve.

long-run marginal cost curve.

long-run industry supply curve.

long-run average cost curve.
answer
long-run industry supply curve.
question
In the short run, a perfectly competitive firm earning negative economic profit is

on the upward-sloping portion of its ATC curve.

on the downward-sloping portion of its ATC curve.

above its ATC curve.

at the minimum of its ATC curve.
answer
on the downward-sloping portion of its ATC curve.
question
Producer surplus in a perfectly competitive industry is

the same thing as revenue.

the difference between revenue and total cost.

the difference between profit at the profit-maximizing output and profit at the profit-minimizing output.

the difference between revenue and fixed cost.

the difference between revenue and variable cost.
answer
the difference between revenue and variable cost.
question
Revenue is equal to

price times quantity.

price times quantity minus average cost.

expenditure on production of output.

price times quantity minus total cost.

price times quantity minus marginal cost.
answer
price times quantity.
question
Use the following statements to answer this question:
I. The firm's decision to produce zero output when the price is less than the average variable cost of production is known as the shutdown rule.
II. The firm's supply decision is to generate zero output for all prices below the minimum AVC.

I and II are true.

I and II are false.

I is true and II is false.

II is true and I is false.
answer
I and II are true.
question
The perfectly competitive firm's marginal revenue curve is

horizontal.

vertical.

exactly the same as the marginal cost curve.

upward-sloping.

downward-sloping, at twice the (negative) slope of the market demand curve.
answer
horizontal
question
A decreasing-cost industry has a downward-sloping

long-run industry supply curve.

short-run average cost curve.

long-run marginal cost curve.

long-run average cost curve.

short-run marginal cost curve.
answer
long-run industry supply curve.
question
Refer to Figure 8.2. At P = $80, the profit-maximizing output in the short run is

39.

50.

22.

34.

64.
answer
39
question
If managers do not choose to maximize profit, but pursue some other goal such as revenue maximization or growth,

they are more likely to have higher profit than if they had pursued that policy explicitly.

they are more likely to become takeover targets of profit-maximizing firms.

their companies are more likely to survive in the long run.

they are less likely to be replaced by the board of directors.

they are less likely to be replaced by stockholders.
answer
they are more likely to become takeover targets of profit-maximizing firms.
question
Suppose the state legislature in your state imposes a state licensing fee of $100 per year to be paid by all firms that file state tax revenue reports. This new business tax:

decreases marginal revenue.

decreases marginal cost.

increases marginal cost.

increases marginal revenue.

none of the above
answer
none of the above
question
The shutdown decision can be restated in terms of producer surplus by saying that a firm should produce in the short run as long as

producer surplus is positive.

producer surplus exceeds fixed cost.

profit and producer surplus are equal.

producer surplus exceeds variable cost.

revenue exceeds producer surplus
answer
producer surplus is positive.
question
Consider the following statements when answering this question
I. In the long run, if a firm wants to remain in a competitive industry, then it needs to own resources that are in limited supply.
II. In this competitive market our firm's long-run survival depends only on the efficiency of our production process.

I and II are false.

I is false, and II is true.

I is true, and II is false.

I and II are true.
answer
I is false, and II is true.
question
In long-run competitive equilibrium, a firm that owns factors of production will have an

economic and accounting profit = $0.

economic and accounting profit > $0.

economic profit > $0 and accounting profit = $0.

economic profit = $0 and accounting profit > $0.

economic and accounting profit can take any value.
answer
economic profit = $0 and accounting profit > $0.
question
In a constant-cost industry, an increase in demand will be followed by

no increase in supply.

an increase in supply that will bring price down below the level it was before the demand shift.

an increase in supply that will bring price down to the level it was before the demand shift.

a decrease in demand to keep price constant.

an increase in supply that will not change price from the higher level that occurs after the demand shift.
answer
an increase in supply that will bring price down to the level it was before the demand shift.
question
Bette's Breakfast, a perfectly competitive eatery, sells its "Breakfast Special" (the only item on the menu) for $5.00. The costs of waiters, cooks, power, food etc. average out to $3.95 per meal; the costs of the lease, insurance and other such expenses average out to $1.25 per meal. Bette should

continue producing in the short and long run.

continue producing in the short run, but plan to go out of business in the long run.

raise her prices above the perfectly competitive level.

close her doors immediately.

lower her output.
answer
continue producing in the short run, but plan to go out of business in the long run.
question
If current output is less than the profit-maximizing output, which must be true?

Total revenue is less than total cost.

Average revenue is less than average cost.

Marginal revenue is less than marginal cost.

Average revenue is greater than average cost.

Marginal revenue is greater than marginal cost.
answer
Marginal revenue is greater than marginal cost.
question
Use the following statements to answer this question:
I. Markets that have only a few sellers cannot be highly competitive.
II. Markets with many sellers are always perfectly competitive.

I is true and II is false.

II is true and I is false.

I and II are true.

I and II are false.
answer
I and II are false.
question
The demand curve facing a perfectly competitive firm is

not the same as either its marginal revenue curve or its average revenue curve.

the same as its average revenue curve, but not the same as its marginal revenue curve.

not defined in terms of average or marginal revenue.

the same as its marginal revenue curve, but not its average revenue curve.

the same as its average revenue curve and its marginal revenue curve.
answer
the same as its average revenue curve and its marginal revenue curve.
question
Scenario 8.1:
Two soft-drink firms, Fizzle & Sizzle, operate on a river. Fizzle is farther upstream, and gets cleaner water, so its cost of purifying water for use in the soft drinks is lower than Sizzle's by $500,000 yearly.


According to Scenario 8.1, Fizzle and Sizzle

would be perfectly competitive if their purification costs were equal; otherwise, not.

would be perfectly competitive if it costs Fizzle $500,000 yearly to keep that land.

may or may not be perfect competitors, but their position on the river has nothing to do with it.

cannot be perfect competitors because they are not identical firms.
answer
may or may not be perfect competitors, but their position on the river has nothing to do with it.
question
A firm maximizes profit by operating at the level of output where

total costs are minimized.

marginal revenue equals marginal cost.

average revenue equals average variable cost.

marginal revenue exceeds marginal cost by the greatest amount.

average revenue equals average cost.
answer
marginal revenue equals marginal cost.
question
Revenue is equal to

expenditure on production of output.

price times quantity minus average cost.

price times quantity minus marginal cost.

price times quantity minus total cost.

price times quantity.
answer
price times quantity.
question
In a constant-cost industry, an increase in demand will be followed by

no increase in supply.

an increase in supply that will bring price down below the level it was before the demand shift.

an increase in supply that will bring price down to the level it was before the demand shift.

an increase in supply that will not change price from the higher level that occurs after the demand shift.

a decrease in demand to keep price constant.
answer
an increase in supply that will bring price down to the level it was before the demand shift.
question
Consider the following statements when answering this question
I. If the cost of producing each unit of output falls $5, then the short-run market price falls $5.
II. If the cost of producing each unit of output falls $5, then the long-run market price falls $5.

I and II are true.

I is false, and II is true.

I is true, and II is false.

I and II are false.
answer
I is false, and II is true
question
Refer to Figure 8.2. At P = $80, the profit-maximizing output in the short run is

64.

22.

50.

39.

34.
answer
39
question
A firm maximizes profit by operating at the level of output where

average revenue equals average cost.

marginal revenue exceeds marginal cost by the greatest amount.

marginal revenue equals marginal cost.

average revenue equals average variable cost.

total costs are minimized.
answer
marginal revenue equals marginal cost.
question
In the short run, a perfectly competitive firm earning negative economic profit is

on the upward-sloping portion of its ATC curve.

at the minimum of its ATC curve.

above its ATC curve.

on the downward-sloping portion of its ATC curve.
answer
on the downward-sloping portion of its ATC curve.
question
If a graph of a perfectly competitive firm shows that the point occurs where MR is above AVC but below ATC,

the firm is still earning positive profit, as long as variable costs are covered.

the firm is earning negative profit, and will shut down rather than produce that level of output.

the firm can cover all of fixed costs but only a portion of variable costs.

the firm is covering explicit, but not implicit, costs.

the firm is earning negative profit, but will continue to produce where in the short run.
answer
the firm is earning negative profit, but will continue to produce where in the short run.
question
Consider the following statements when answering this question
I. Increases in the demand for a good, which is produced by a competitive industry, will raise the short-run market price.
II. Increases in the demand for a good, which is produced by a competitive industry, will raise the long-run market price.

I is false, and II is true.

I is true, and II is false.

I and II are true.

I and II are false.
answer
I is true, and II is false.
question
The demand curve facing a perfectly competitive firm is

not the same as either its marginal revenue curve or its average revenue curve.

not defined in terms of average or marginal revenue.

the same as its average revenue curve, but not the same as its marginal revenue curve.

the same as its marginal revenue curve, but not its average revenue curve.

the same as its average revenue curve and its marginal revenue curve.
answer
the same as its average revenue curve and its marginal revenue curve.
question
Refer to Figure 8.2. As the competitive industry, not just the firm in question, moves toward long-run equilibrium, the firm will be forced to operate at what level of output?

34

38.

50

22

64
answer
50
question
Bette's Breakfast, a perfectly competitive eatery, sells its "Breakfast Special" (the only item on the menu) for $5.00. The costs of waiters, cooks, power, food etc. average out to $3.95 per meal; the costs of the lease, insurance and other such expenses average out to $1.25 per meal. Bette should

continue producing in the short run, but plan to go out of business in the long run.

continue producing in the short and long run.

close her doors immediately.

raise her prices above the perfectly competitive level.

lower her output.
answer
continue producing in the short run, but plan to go out of business in the long run.
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