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Micro Test 3 HW Questions

question
C. constant at the market price of the product
answer
In price-taker markets, individual firms have no control over price. Therefore, the firm's marginal revenue curve is

A. a downward-sloping curve.
B. indeterminate.
C. constant at the market price of the product.
D. precisely the same as the firm's total revenue curve.
question
B. continue operating during winter months if it is able to cover its variable costs
answer
Suppose a restaurant that is highly profitable during the summer months is unable to cover its total cost during the winter months. If it wants to maximize profits, the restaurant should

A. shut down during the winter, even if it is able to cover its variable costs during that period.
B. continue operating during the winter months if it is able to cover its variable costs.
C. go a out of business immediately; losses should never be tolerated.
D. lower its prices during the summer months.
question
A. many other sellers are offering a product that is essentially identical
answer
In a competitive price-taker market,

A. many other sellers are offering a product that is essentially identical.
B. consumers have more influence over the market price than producers do.
government
C. intervention prevents firms from influencing price.
D. producers agree not to change the price.
question
A. There is free entry into and exit from the market
answer
Which of the following is characteristic of a competitive price-taker market?

A. There is free entry into and exit from the market.
B. Individual firms can exert a perceptible influence on the market price.
C. The firms in the market produce differentiated products.
D. All of the above are true.
question
C. there are opportunities to increase profit by increasing production
answer
When price is greater than marginal cost for a firm in a competitive market,

A. marginal cost must be falling.
B. the firm must be minimizing its losses.
C. there are opportunities to increase profit by increasing production.
D. the firm should decrease output to maximize profit.
question
B. The firm will stop production to minimize its losses
answer
Which of the following statements best reflects the production decision of a profit-maximizing firm in a competitive price-taker market when price falls below the minimum of average variable cost?

A. The firm will continue to produce to attempt to pay fixed costs.
B. The firm will stop production to minimize its losses.
C. The firm will stop production as soon as it is able to pay its sunk costs.
D. The firm will continue to produce in the short run but will likely exit the market in the long run.
question
B. perfectly elastic
answer
The demand for the product of a competitive price-taker firm is

A. perfectly inelastic.
B. perfectly elastic.
C. greater than zero but less than one.
D. dependent on the availability of substitutes for the firm's product.
question
B. reduce output
answer
When the marginal cost of a price-taker firm is more than the market price of its product, the firm should

A. expand output.
B. reduce output.
C. maintain output.
D. charge more than the market price.
question
C. 4
answer
The schedule of total costs for a chair-manufacturing firm is presented in the table below. If the market price of chairs is $200, which output should this price-taker firm produce to maximize profit?

Units TC
0 50
1 120
2 200
3 290
4 395
5 600

A. 2
B. 3
C. 4
D.5
question
C. $5 profit
answer
The schedule of total costs for a table-manufacturing company is presented in the table below. The firm sells its product in a price-taker market at $120 per table. What is the maximum monthly profit (or minimum loss) that the firm will be able to earn?

Units TC
8 975
9 1080
10 1195
11 1320

A. $15 loss
B. zero
C. $5 profit
D. $10 profit
question
D. increase quantity to 16 units
answer
Q MC MR
12 5 9
13 6 9
14 7 9
15 8 9
16 9 9

Refer to above table. This table provides information on a competitive price-taker firm's output, marginal revenue, and marginal cost. If the firm is currently producing 14 units, what would you advise them to do?

A. Decrease quantity to 13 units.
B. Increase quantity to 17 units.
C. Continue to operate at 14 units.
D. Increase quantity to 16 units.
question
C. Shut down operations
answer
Suppose product price is fixed at $24; MR = MC at Q = 200; AFC = $6; AVC = $25. What do you advise this firm to do?

A. Increase output.
B. Decrease output.
C. Shut down operations.
D. Stay at the current output; the firm is earning a profit of $1,400.
E. Stay at the current output; the firm is losing $1,400.
question
A. the firm's MC curve (above the minimum AVC)
answer
In the short run, the supply curve of a firm in a price-taker market is

A. the firm's MC curve (above the minimum AVC).
B. the firm's ATC curve (above the minimum AVC).
C. the firm's AVC curve (to the right of MC).
D. a horizontal line at the market price.
question
B. making zero economic profit
answer
If long-run equilibrium is present in a competitive market, the typical firm in the market will be

A. making economic losses.
B. making zero economic profit.
making economic profit.
C. making a rate of return that is higher than the rate earned in other industries.
D. both c and d are correct.
question
D. The price of ice cream will rise initially, inducing the existing firms to expand output and new firms to enter the industry
answer
If the ice cream industry is a competitive price-taker market and all ice cream producers are earning zero economic profit, what will be the impact of an increase in the demand for ice cream?

A. Firms will exit the ice cream industry in the long run since they are earning zero economic profit.
B. The firms will now be able to earn long-run economic profit assuming that barriers to entry remain low and new firms can enter the market.
C. A shortage of ice cream will develop.
D. The price of ice cream will rise initially, inducing the existing firms to expand output and new firms to enter the industry.
question
B. $5
answer
The above graph shows the marginal and average total cost curves for a firm producing product A. What would be the minimum price this firm could charge and still continue to supply A to the market in the long run?
$4 (MC below ATC)
$5 (MC=ATC)
$6 (MC above ATC)
$8 (MC above ATC)
question
D. output, 6; maximum profit, slightly less than $6
answer
If the market price in the above graph increases to $4, what output should the firm produce, and what would be the firm's maximum profit?

A. output, 3; maximum profit, $3 loss
B. output, 5; maximum profit, zero
C. output, 5; maximum profit, slightly less than $5
D. output, 6; maximum profit, slightly less than $6 (intersects the MC after movement)
question
C. Continue operating in the short run
answer
If the market price in the above graph fell to $2.50, what should the firm do?

A. raise its price
B. shut down and wait for conditions to improve
C. continue operating in the short run. (above AVC)
D. go out of business immediately
question
B. $2
answer
The minimum price this firm would need to stay open in the short run is
A. $1
B. $2 (AVC = MC)
C. $3
D. $4
question
B. expand output to 20 (so expanding MC=ATC to maximize)
answer
If the market price in above graph increases to $20, what should the firm do?

A. produce an output of 15
B. expand output to 20
C. expand output to 25
D. increase its price to $25
question
C. $70; Since on the graph, price is $20 and average total cost appears to be approximately $16.50:
Profit = ($20 - $16.50) x 20 = ($3.50 x 20) = $70 or something close to it and definitely not the other answers.
answer
When the market price in above graph is $20, the firm's maximum profit will be approximately
A. zero.
B. $3.
C. $70.
D. $400.
question
A. BCFG; Profit = Total Revenue - Total Cost.
On the graph, TR is represented by the area 0CFK and TC is represented by the are 0BGK. When we subtract out the TC area from the TR area, we get BCFG. (0 stands for the origin at the lower left corner of the graph.)
answer
Which of the following indicates the firm's profit (or loss) at the profit-maximizing output in the above graph?

A. profit BCFG
B. profit OCDM
C. zero economic profit
D. loss AEFC
question
B. producing 9 units and experiencing a loss
answer
When the market price is $40 in the above graph, the firm's will end up

A. breaking even (profit = 0).
B. producing 9 units and experiencing a loss.
C. producing 20 units and earning a profit.
D. producing 2 units and earning a profit.
1 of 23
question
C. constant at the market price of the product
answer
In price-taker markets, individual firms have no control over price. Therefore, the firm's marginal revenue curve is

A. a downward-sloping curve.
B. indeterminate.
C. constant at the market price of the product.
D. precisely the same as the firm's total revenue curve.
question
B. continue operating during winter months if it is able to cover its variable costs
answer
Suppose a restaurant that is highly profitable during the summer months is unable to cover its total cost during the winter months. If it wants to maximize profits, the restaurant should

A. shut down during the winter, even if it is able to cover its variable costs during that period.
B. continue operating during the winter months if it is able to cover its variable costs.
C. go a out of business immediately; losses should never be tolerated.
D. lower its prices during the summer months.
question
A. many other sellers are offering a product that is essentially identical
answer
In a competitive price-taker market,

A. many other sellers are offering a product that is essentially identical.
B. consumers have more influence over the market price than producers do.
government
C. intervention prevents firms from influencing price.
D. producers agree not to change the price.
question
A. There is free entry into and exit from the market
answer
Which of the following is characteristic of a competitive price-taker market?

A. There is free entry into and exit from the market.
B. Individual firms can exert a perceptible influence on the market price.
C. The firms in the market produce differentiated products.
D. All of the above are true.
question
C. there are opportunities to increase profit by increasing production
answer
When price is greater than marginal cost for a firm in a competitive market,

A. marginal cost must be falling.
B. the firm must be minimizing its losses.
C. there are opportunities to increase profit by increasing production.
D. the firm should decrease output to maximize profit.
question
B. The firm will stop production to minimize its losses
answer
Which of the following statements best reflects the production decision of a profit-maximizing firm in a competitive price-taker market when price falls below the minimum of average variable cost?

A. The firm will continue to produce to attempt to pay fixed costs.
B. The firm will stop production to minimize its losses.
C. The firm will stop production as soon as it is able to pay its sunk costs.
D. The firm will continue to produce in the short run but will likely exit the market in the long run.
question
B. perfectly elastic
answer
The demand for the product of a competitive price-taker firm is

A. perfectly inelastic.
B. perfectly elastic.
C. greater than zero but less than one.
D. dependent on the availability of substitutes for the firm's product.
question
B. reduce output
answer
When the marginal cost of a price-taker firm is more than the market price of its product, the firm should

A. expand output.
B. reduce output.
C. maintain output.
D. charge more than the market price.
question
C. 4
answer
The schedule of total costs for a chair-manufacturing firm is presented in the table below. If the market price of chairs is $200, which output should this price-taker firm produce to maximize profit?

Units TC
0 50
1 120
2 200
3 290
4 395
5 600

A. 2
B. 3
C. 4
D.5
question
C. $5 profit
answer
The schedule of total costs for a table-manufacturing company is presented in the table below. The firm sells its product in a price-taker market at $120 per table. What is the maximum monthly profit (or minimum loss) that the firm will be able to earn?

Units TC
8 975
9 1080
10 1195
11 1320

A. $15 loss
B. zero
C. $5 profit
D. $10 profit
question
D. increase quantity to 16 units
answer
Q MC MR
12 5 9
13 6 9
14 7 9
15 8 9
16 9 9

Refer to above table. This table provides information on a competitive price-taker firm's output, marginal revenue, and marginal cost. If the firm is currently producing 14 units, what would you advise them to do?

A. Decrease quantity to 13 units.
B. Increase quantity to 17 units.
C. Continue to operate at 14 units.
D. Increase quantity to 16 units.
question
C. Shut down operations
answer
Suppose product price is fixed at $24; MR = MC at Q = 200; AFC = $6; AVC = $25. What do you advise this firm to do?

A. Increase output.
B. Decrease output.
C. Shut down operations.
D. Stay at the current output; the firm is earning a profit of $1,400.
E. Stay at the current output; the firm is losing $1,400.
question
A. the firm's MC curve (above the minimum AVC)
answer
In the short run, the supply curve of a firm in a price-taker market is

A. the firm's MC curve (above the minimum AVC).
B. the firm's ATC curve (above the minimum AVC).
C. the firm's AVC curve (to the right of MC).
D. a horizontal line at the market price.
question
B. making zero economic profit
answer
If long-run equilibrium is present in a competitive market, the typical firm in the market will be

A. making economic losses.
B. making zero economic profit.
making economic profit.
C. making a rate of return that is higher than the rate earned in other industries.
D. both c and d are correct.
question
D. The price of ice cream will rise initially, inducing the existing firms to expand output and new firms to enter the industry
answer
If the ice cream industry is a competitive price-taker market and all ice cream producers are earning zero economic profit, what will be the impact of an increase in the demand for ice cream?

A. Firms will exit the ice cream industry in the long run since they are earning zero economic profit.
B. The firms will now be able to earn long-run economic profit assuming that barriers to entry remain low and new firms can enter the market.
C. A shortage of ice cream will develop.
D. The price of ice cream will rise initially, inducing the existing firms to expand output and new firms to enter the industry.
question
B. $5
answer
The above graph shows the marginal and average total cost curves for a firm producing product A. What would be the minimum price this firm could charge and still continue to supply A to the market in the long run?
$4 (MC below ATC)
$5 (MC=ATC)
$6 (MC above ATC)
$8 (MC above ATC)
question
D. output, 6; maximum profit, slightly less than $6
answer
If the market price in the above graph increases to $4, what output should the firm produce, and what would be the firm's maximum profit?

A. output, 3; maximum profit, $3 loss
B. output, 5; maximum profit, zero
C. output, 5; maximum profit, slightly less than $5
D. output, 6; maximum profit, slightly less than $6 (intersects the MC after movement)
question
C. Continue operating in the short run
answer
If the market price in the above graph fell to $2.50, what should the firm do?

A. raise its price
B. shut down and wait for conditions to improve
C. continue operating in the short run. (above AVC)
D. go out of business immediately
question
B. $2
answer
The minimum price this firm would need to stay open in the short run is
A. $1
B. $2 (AVC = MC)
C. $3
D. $4
question
B. expand output to 20 (so expanding MC=ATC to maximize)
answer
If the market price in above graph increases to $20, what should the firm do?

A. produce an output of 15
B. expand output to 20
C. expand output to 25
D. increase its price to $25
question
C. $70; Since on the graph, price is $20 and average total cost appears to be approximately $16.50:
Profit = ($20 - $16.50) x 20 = ($3.50 x 20) = $70 or something close to it and definitely not the other answers.
answer
When the market price in above graph is $20, the firm's maximum profit will be approximately
A. zero.
B. $3.
C. $70.
D. $400.
question
A. BCFG; Profit = Total Revenue - Total Cost.
On the graph, TR is represented by the area 0CFK and TC is represented by the are 0BGK. When we subtract out the TC area from the TR area, we get BCFG. (0 stands for the origin at the lower left corner of the graph.)
answer
Which of the following indicates the firm's profit (or loss) at the profit-maximizing output in the above graph?

A. profit BCFG
B. profit OCDM
C. zero economic profit
D. loss AEFC
question
B. producing 9 units and experiencing a loss
answer
When the market price is $40 in the above graph, the firm's will end up

A. breaking even (profit = 0).
B. producing 9 units and experiencing a loss.
C. producing 20 units and earning a profit.
D. producing 2 units and earning a profit.
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