Economics_MCQs

Chapter 8 Profit Maximization and Competitive Supply

1. Which of following is a key assumption of a perfectly competitive market?
a. Firms can influence market price
b. Commodities have few sellers
c. It is difficult for new sellers to enter the market.
d. Each seller has a very small share of the market.

2. Owners and managers
a.must be the same people.
b.may be different people with different goals, and in the long run firms that do best are those in which the managers are allowed to pursue their own independent goals.
c. may be different people with different goals, but in the long run firms that do best are those in which the managers pursue the goals of the owners.
d. may be different people with different but exactly complementary goals.

3. The "perfect information" assumption of perfect competition includes all of the following except one. Which one?
a. Consumers know their preferences.
b.Consumers know their income levels.
c.Consumers know the prices available.
d.Consumers can anticipate price changes.
e.Firms know their costs, prices and technology.

4. Revenue is equal to
a.price times quantity.
b.price times quantity minus total cost.
c.price times quantity minus average cost.
d.price times quantity minus marginal cost.
5. If current output is less than the profit-maximizing output, then the next unit produced
a.will decrease profit.
b.will increase cost more than it increases revenue.
c.will increase revenue more than it increases cost.
d.will increase revenue without increasing cost.
e.may or may not increase profit.

6. If current output is less than the profit-maximizing output, which must be true?
a.Total revenue is less than total cost.
b.Average revenue is less than average cost.
c.Average revenue is greater than average cost.
d.Marginal revenue is less than marginal cost.
e.Marginal revenue is greater than marginal cost.

7. Marginal profit is equal to
a.marginal revenue minus marginal cost.
b.marginal revenue plus marginal cost.
c.marginal cost minus marginal revenue.
d.marginal revenue times marginal cost.

8. At the profit-maximizing level of output, marginal profit
a.is also maximized.
b.is zero.
c.is positive.
d.is increasing.

9. The demand curve facing a perfectly competitive firm is
a.the same as the market demand curve.
b.downward-sloping and less flat than the market demand curve.
c.downward-sloping and more flat than the market demand curve.
d.perfectly horizontal.

10. Because of the relationship between a perfectly competitive firm's demand curve and its marginal revenue curve,
the profit maximization condition for the firm can be written as
a.P = MR.
b.P = AVC.
c.P = AC.
d.P = MC.

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

12. If price is between AVC and ATC, the best and most practical thing for a perfectly competitive firm to do is
a.raise prices.
b.lower prices to gain revenue from extra volume.
c.shut down immediately, but not liquidate the business.
d.continue operating, but plan to go out of business.

13. An improvement in technology would result in
a.upward shifts of MC and reductions in output.
b.upward shifts of MC and increases in output.
c.downward shifts of MC and reductions in output.
d.downward shifts of MC and increases in output.

14. If a competitive firm's marginal cost curve is U-shaped then
a.its short run supply curve is the downward-sloping portion of the marginal cost curve
b.its short run supply curve is the upward-sloping portion of the marginal cost curve
c.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
d.its short run supply curve is the upward-sloping portion of the marginal cost curve that lies
above the short run average total cost curve


15. A firm never operates
a.at the minimum of its ATC curve.
b.at the minimum of its AVC curve.
c.on the downward-sloping portion of its ATC curve.
d.on the downward-sloping portion of its AVC curve.

16. The supply curve for a competitive firm is
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.

17. 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
a.revenue exceeds producer surplus.
b.producer surplus is positive.
c.producer surplus exceeds fixed cost.
d.producer surplus exceeds variable cost.
e.profit and producer surplus are equal.

18. A firm's producer surplus equals its economic profit when
a.average variable costs are minimized.
b.average fixed costs are minimized.
c.marginal costs equal marginal revenue.
d.fixed costs are zero.

19. Imposition of an output tax on all firms in a competitive industry will result in
a.a downward shift in each firm's marginal cost curve.
b.a downward shift in each firm's average cost curve.
c.a leftward shift in the market supply curve.
d.the entry of new firms into the industry.

20. In long-run competitive equilibrium, a firm that owns factors of production will have an
a.economic profit = $0 and accounting profit > $0.
b.economic profit > $0 and accounting profit = $0.
c.economic and accounting profit = $0.
d.economic and accounting profit > $0.

21. In an increasing-cost industry, expansion of output
a.causes input prices to rise as demand for them grows.
b.leaves input prices constant as input demand grows.
c.causes diseconomies of scale to occur.
d.occurs under conditions of increasing returns to scale.
e.occurs without diminishing marginal product.

22. The long run supply curve in a constant-cost industry is linear and
a.upward-sloping.
b.downward-sloping.
c.horizontal.
d.vertical.
e.could have any constant slope.

23. An increasing-cost industry is so named because of the positive slope of which curve?
a.Each firm's short-run average cost curve
b.Each firm's short-run marginal cost curve
c.Each firm's long-run marginal cost curve
d.The industry's long-run supply curve

24. A decreasing-cost industry has a downward-sloping
a.long-run average cost curve.
b.long-run marginal cost curve.
c.short-run average cost curve.
d.short-run marginal cost curve.