Question 1

Producer surplus in a perfectly competitive industry is

Accepted Answer

A)  the difference between profit at the profit-maximizing output and profit at the profit-minimizing output.
B)  the difference between revenue and total cost.
C)  the difference between revenue and variable cost.
D)  the difference between revenue and fixed cost.
E)  the same thing as revenue.F) B) and E)
G) B) and D)

Question 2

Suppose a technological innovation shifts the marginal cost curve downward.Which one of the following cost curves does NOT shift?

Accepted Answer

A)  Firm's short-run supply curve
B)  Average total cost curve
C)  Average variable cost curve
D)  Average fixed cost curveE) A) and C)
F) B) and D)

Question 3

Three hundred firms supply the market for paint.For fifty of the firms,their short-run average variable costs are minimized at $10 and short-run total costs are minimized at $15.For the remaining firms,the short-run average variable costs and short-run average total costs are minimized at $20 and $25,respectively.If each firm has a U-shaped marginal cost curve then the short-run market supply curve is

Accepted Answer

A)  U-shaped too
B)  kinked at $10
C)  kinked at $15
D)  kinked at $20
E)  kinked at $25F) C) and D)
G) All of the above

Question 4

In a constant-cost industry,price always equals

Accepted Answer

A)  LRMC and minimum LRAC.
B)  LRMC and LRAC,but not necessarily minimum LRAC.
C)  minimum LRAC,but not LRMC.
D)  LRAC and minimum LRMC.
E)  minimum LRAC and minimum LRMC.F) A) and B)
G) B) and C)

Question 5

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:

Accepted Answer

A)  increases marginal cost.
B)  decreases marginal cost.
C)  increases marginal revenue.
D)  decreases marginal revenue.
E)  none of the aboveF) C) and E)
G) None of the above

Question 6

Table 8.1 
-Refer to Table 8.1.The maximum profit available to the firm is

Accepted Answer

A)  $20.
B)  $30.
C)  $35.
D)  $155.
E)  $180.F) B) and D)
G) B) and E)

Question 7

If any of the assumptions of perfect competition are violated,

Accepted Answer

A)  supply-and-demand analysis cannot be used to study the industry.
B)  graphs with flat demand curves cannot be used to study the firm.
C)  graphs with downward-sloping demand curves cannot be used to study the firm.
D)  there may still be enough competition in the industry to make the model of perfect competition usable.
E)  one must use the monopoly model instead.F) None of the above
G) All of the above

Question 8

Consider the following diagram where a perfectly competitive firm faces a price of $40.  Figure 8.1
-Refer to Figure 8.1.The profit-maximizing output is

Accepted Answer

A)  30.
B)  54.
C)  60.
D)  67.
E)  79.F) A) and E)
G) A) and B)

Question 9

If a competitive firm's marginal cost curve is U-shaped then

Accepted Answer

A)  its short run supply curve is U-shaped too
B)  its short run supply curve is the downward-sloping portion of the marginal cost curve
C)  its short run supply curve is the upward-sloping portion of the marginal cost curve
D)  its short run supply curve is the upward-sloping portion of the marginal cost curve that lies above the short run average variable cost curve
E)  its short run supply curve is the upward-sloping portion of the marginal cost curve that lies above the short run average total cost curveF) A) and E)
G) All of the above

Question 10

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.

Accepted Answer

A)  I and II are true.
B)  I is true,and II is false.
C)  I is false,and II is true.
D)  I and II are false.E) B) and D)
F) A) and B)

Question 11

Short-run supply curves for perfectly competitive firms tend to be upward sloping because:

Accepted Answer

A)  there is diminishing marginal product for one or more variable inputs.
B)  marginal costs increase as output increases.
C)  marginal fixed costs equal zero.
D)  A and B are correct.
E)  B and C are correct.F) B) and E)
G) All of the above

Question 12

In an increasing-cost industry,expansion of output

Accepted Answer

A)  causes input prices to rise as demand for them grows.
B)  leaves input prices constant as input demand grows.
C)  causes economies of scale to occur.
D)  occurs under conditions of increasing returns to scale.
E)  occurs without diminishing marginal product.F) B) and C)
G) A) and E)

Question 13

Consider a competitive market in which the market demand for the product is expressed as
P = 75 - 1.5Q,
and the supply of the product is expressed as
P = 25 + 0.50Q.
Price,P,is in dollars per unit sold,and Q represents rate of production and sales in hundreds of units per day.The typical firm in this market has a marginal cost of
MC = 2.5 + 10q.
a.Determine the equilibrium market price and rate of sales.
b.Determine the rate of sales of the typical firm,given your answerto part (a)above.
c.If the market demand were to increase to P = 100 - 1.5Q,what would the new price and rate of sales in the market be? What would the new rate of sales for the typical firm be?
d.If the original supply and demand represented a long-run equilibrium condition in the market,would the new equilibrium (c)represent a new long-run equilibrium for the typical firm? Explain.

Accepted Answer

a. The equilibrium price and rate of sal...

Question 14

The squishy industry is competitive and the market price is $0.80.Apu's long-run cost function is:  where r is the price Apu pays to lease a squishy machine and q is squishy output.The long-run marginal cost curve is:  What is Apu's optimal output if the price Apu pays to lease a squishy machine is $1.10? Suppose the lease price of squishy machines falls by $0.55.What happens to Apu's optimal output if the market price for a squishy remains at $0.80? Did profits increase for Apu when the lease rate of squishy machines fell?

Accepted Answer

The profit maximizing output level is wh...

Question 15

One practical implication of a kinked market supply curve is that:

Accepted Answer

A)  producer surplus is not defined at the kink point.
B)  the MC = MR rule does not hold at the kink point.
C)  the market supply elasticity for a price increase may be different than the market supply elasticity for a price decrease at the kink point.
D)  All of the above are true.E) A) and D)
F) B) and C)

Question 16

What happens in a perfectly competitive industry when economic profit is greater than zero?

Accepted Answer

A)  Existing firms may get larger.
B)  New firms may enter the industry.
C)  Firms may move along their LRAC curves to new outputs.
D)  There may be pressure on prices to fall.
E)  All of the above may occur.F) A) and B)
G) B) and D)

Question 17

If the market price for a competitive firm's output doubles then

Accepted Answer

A)  the profit maximizing output will double
B)  the marginal revenue doubles
C)  at the new profit maximizing output,price has increased more than marginal cost
D)  at the new profit maximizing output,price has risen more than marginal revenue
E)  competitive firms will earn an economic profit in the long-run.F) C) and D)
G) B) and C)

Question 18

Scenario 8.2:
Yachts are produced by a perfectly competitive industry in Dystopia.Industry output (Q) is currently 30,000 yachts per year.The government,in an attempt to raise revenue,places a $20,000 tax on each yacht.Demand is highly,but not perfectly,elastic.
-Refer to Scenario 8.2.The result of the tax in the long run will be that

Accepted Answer

A)  Q falls from 30,000; P rises by less than $20,000.
B)  Q falls from 30,000; P rises by $20,000.
C)  Q falls from 30,000; P does not change.
D)  Q stays at 30,000; P rises by $20,000.
E)  Q stays at 30,000; P rises by less than $20,000.F) C) and D)
G) B) and E)

Question 19

The supply curve for a competitive firm is

Accepted Answer

A)  its entire MC curve.
B)  the upward-sloping portion of its MC curve.
C)  its MC curve above the minimum point of the AVC curve.
D)  its MC curve above the minimum point of the ATC curve.
E)  its MR curve.F) D) and E)
G) B) and D)

Question 20

Suppose all firms have constant marginal costs that are the same for each firm in the short run.In this case,the market level supply curve is __________ and producer surplus equals __________:

Accepted Answer

A)  perfectly inelastic,fixed costs
B)  perfectly inelastic,zero
C)  perfectly elastic,fixed costs
D)  perfectly elastic,zeroE) A) and D)
F) A) and C)

Exam 8: Profit Maximization and Competitive Supply

The supply curve for a competitive firm is

Correct Answer
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In an increasing-cost industry,expansion of output

Correct Answer
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One practical implication of a kinked market supply curve is that:

Correct Answer
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If any of the assumptions of perfect competition are violated,

Correct Answer
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In a constant-cost industry,price always equals

Correct Answer
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Producer surplus in a perfectly competitive industry is

Correct Answer
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Table 8.1 -Refer to Table 8.1.The maximum profit available to the firm is

Correct Answer
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a. The equilibrium price and rate of sal...
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If the market price for a competitive firm's output doubles then

Correct Answer
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If a competitive firm's marginal cost curve is U-shaped then

Correct Answer
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Suppose all firms have constant marginal costs that are the same for each firm in the short run.In this case,the market level supply curve is and producer surplus equals :

Correct Answer
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Consider the following diagram where a perfectly competitive firm faces a price of $40. Figure 8.1 -Refer to Figure 8.1.The profit-maximizing output is

Correct Answer
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Short-run supply curves for perfectly competitive firms tend to be upward sloping because:

Correct Answer
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What happens in a perfectly competitive industry when economic profit is greater than zero?

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Suppose a technological innovation shifts the marginal cost curve downward.Which one of the following cost curves does NOT shift?

Correct Answer
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The profit maximizing output level is wh...
View Answer

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:

Correct Answer
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Exam 8: Profit Maximization and Competitive Supply

The supply curve for a competitive firm is

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In an increasing-cost industry,expansion of output

Correct AnswerverifiedShow Answer

One practical implication of a kinked market supply curve is that:

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If any of the assumptions of perfect competition are violated,

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In a constant-cost industry,price always equals

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Producer surplus in a perfectly competitive industry is

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Table 8.1 -Refer to Table 8.1.The maximum profit available to the firm is

Correct AnswerverifiedShow Answer

Correct Answerverifieda. The equilibrium price and rate of sal...View AnswerShow Answer

If the market price for a competitive firm's output doubles then

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If a competitive firm's marginal cost curve is U-shaped then

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Suppose all firms have constant marginal costs that are the same for each firm in the short run.In this case,the market level supply curve is __________ and producer surplus equals __________:

Correct AnswerverifiedShow Answer

Consider the following diagram where a perfectly competitive firm faces a price of $40. Figure 8.1 -Refer to Figure 8.1.The profit-maximizing output is

Correct AnswerverifiedShow Answer

Short-run supply curves for perfectly competitive firms tend to be upward sloping because:

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Correct AnswerverifiedShow Answer

What happens in a perfectly competitive industry when economic profit is greater than zero?

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Suppose a technological innovation shifts the marginal cost curve downward.Which one of the following cost curves does NOT shift?

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Correct AnswerverifiedThe profit maximizing output level is wh...View AnswerShow Answer

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:

Correct AnswerverifiedShow Answer

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a. The equilibrium price and rate of sal...
View Answer

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Suppose all firms have constant marginal costs that are the same for each firm in the short run.In this case,the market level supply curve is and producer surplus equals :

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The profit maximizing output level is wh...
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