Practice Quiz Chp 8

30 Questions

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Questions and Answers
  • 1. 
    • A. 

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

    • B. 

      Their companies are more likely to survive in the long run

    • C. 

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

    • D. 

      They are less likely to be replaced by stockholders

    • E. 

      Theya re less likely to be replaced by the board of directors

  • 2. 
    • A. 

      They must have the same slope

    • B. 

      They must intersect, with TC cutting TR from below

    • C. 

      They must be tangent to each other

    • D. 

      They must intersect, with TC cutting TR from above

    • E. 

      They cannot be tangent to each other

  • 3. 
    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. 

      AR = MR

    • B. 

      P = MR

    • C. 

      P = MC

    • D. 

      P = AC

    • E. 

      P = AVC

  • 4. 
    Consider the following diagram where a perfectly competitive firm faces a price of $40.  Refer to Figure 8.1.  The profit-maximizing output is
    • A. 

      79

    • B. 

      67

    • C. 

      54

    • D. 

      60

    • E. 

      30

  • 5. 
    Refer to Figure 8.1.  At 67 units of output, profit is 
    • A. 

      Not maximized, and zero

    • B. 

      Maximized and zero

    • C. 

      Maximized and negative

    • D. 

      Maximized and positive

    • E. 

      Not maximized, and negative

  • 6. 
    Refer to Figure 8.1.  At the profit-maximizing level of output, total revenue is
    • A. 

      $3160

    • B. 

      $2160

    • C. 

      $1200

    • D. 

      $2680

    • E. 

      $2400

  • 7. 
    • A. 

      Lower prices to gain revenue from extra volume

    • B. 

      Continue operating, but plan to go out of business

    • C. 

      Shut down immediately, but not liquidate the business

    • D. 

      Shut down immediately and liquidate the business

    • E. 

      Raise prices

  • 8. 
    • A. 

      Upward shifts of MC and reductions in output

    • B. 

      Upward shifts of MC and increases in output

    • C. 

      Increased quality of the good, but little change in MC

    • D. 

      Downward shifts of MC and reductions in output

    • E. 

      Downward shifts of MC and increases in output

  • 9. 
    • A. 

      Its short run supply curve is the upward-sloping portion of the marginal cost curve

    • B. 

      Its short run supply curve is U-shaped too

    • C. 

      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

    • 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 downward-sloping portion of the marginal cost curve

  • 10. 
    • A. 

      Upward shifts of MC and reductions in output

    • B. 

      Increased demand for the good the input is used for

    • C. 

      Downward shifts of MC and reductions in output

    • D. 

      Downward shifts of MC and increases in output

    • E. 

      Upward shifts of MC and increases in output

  • 11. 
    In a supply-and-demand graph, producer surplus can be pictured as the
    • A. 

      Vertical intercept of the supply curve

    • B. 

      Area between the equilibrium price line and the supply curve to the left of equilibrium output

    • C. 

      Area between the demand curve and the supply curve to the left of equilibrium output

    • D. 

      Area under the supply curve to the left of equilibrium output

    • E. 

      Area under the demand curve to the left of equilibrium output

  • 12. 
    Refer to Figure 8.2.  At P = $80, the profit-maximizing output in the short run is
    • A. 

      39

    • B. 

      64

    • C. 

      50

    • D. 

      34

    • E. 

      22

  • 13. 
    • A. 

      $1000

    • B. 

      $306

    • C. 

      $88

    • D. 

      $1024

    • E. 

      $351

  • 14. 
    Refer to Figure 8.2.  As the competitive industry, not just the firm in question, moves toward long-run equilibrium, what will the price be?
    • A. 

      $64

    • B. 

      $71

    • C. 

      $70

    • D. 

      $60

    • E. 

      $80

  • 15. 
    • A. 

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

    • B. 

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

    • C. 

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

    • D. 

      A decrease in demand to keep price constant

    • E. 

      No increase in supply

  • 16. 
    In a constant-cost industry, price always equals
    • A. 

      LRAC and minimum LRMC

    • B. 

      LRMC and minimum LRAC

    • C. 

      Minimum LRAC, but not LRMC

    • D. 

      Minimum LRAC and minimum LRMC

    • E. 

      LRMC and LRAC, but not necessarily minimum LRAC

  • 17. 
    Suppose that short-run MC = 10 + 2Q for an individual firm in a competitive market.  If there are 100 identical firms in this market, then the short-run supply curve can be written as
    • A. 

      P = 10 + 0.02Q

    • B. 

      P = 1000 + 2Q

    • C. 

      P = 10 + 200Q

    • D. 

      P = 1000 + 200Q

  • 18. 
    The response of a firm to an increase in input prices in the short run will be to
    • A. 

      Do nothing

    • B. 

      Maintain output constant but change the mix of inputs

    • C. 

      Reduce output as marginal cost rises

    • D. 

      Increase output to increase revenue

  • 19. 
    Suppose that for the individual firm in a competitive market, LRAC = 100 – 20Q + 2Q2. If this is a constant cost industry and demand can be represented as P = 100 – 0.1Q, how much output will the individual firm produce at long-run equilibrium?
    • A. 

      5 units

    • B. 

      50 units

    • C. 

      0 units

    • D. 

      1 unit

  • 20. 
    Suppose that TC = 20 + 10Q + Q2 for a firm in a competitive market and that output, Q, sells for a price, P, of $90. How much output will the firm produce to maximize profit?
    • A. 

      0

    • B. 

      40

    • C. 

      90

    • D. 

      20

  • 21. 
    Suppose that the short-run production function is Q = 10L. If the wage rate is $4 per unit of labor, then average variable cost equals
    • A. 

      40Q

    • B. 

      40

    • C. 

      .4Q

    • D. 

      .4

  • 22. 
    Suppose that short-run total cost can be written as TC = 1000 + 100Q – 10Q2 + Q3. Then, AVC is minimized at what level of production?
    • A. 

      AVC is horizontal

    • B. 

      Q = 100

    • C. 

      Q = 5

    • D. 

      Q = 10

  • 23. 
    • A. 

      $525

    • B. 

      $200

    • C. 

      $233

    • D. 

      $185

    • E. 

      None of the above

  • 24. 
    Suppose a firm’s production function is q= 10X 1/2 in the short run where there are fixed costs of $500 and X is the variable input whose cost is $200 per unit. What is the total cost of producing q= 10 units of output?
    • A. 

      $1000

    • B. 

      $700

    • C. 

      $1500

    • D. 

      $2000

    • E. 

      None of the above

  • 25. 
    In the above diagram profit is maximized at point
    • A. 

      A

    • B. 

      B

    • C. 

      C

    • D. 

      D

  • 26. 
    In the above diagram, at point D
    • A. 

      The firm is maximizing its profit

    • B. 

      The firm is losing money

    • C. 

      The firm is breaking even

    • D. 

      None of the above is true

  • 27. 
    In the above diagram, at point A
    • A. 

      MC = MR

    • B. 

      The firm is making negative economic profit

    • C. 

      The firm could do better by shutting down

    • D. 

      All of the above are true

  • 28. 
    In the long-run, any perfectly competitive firm that produces will choose a quantity such that
    • A. 

      Short-run average cost is minizmized

    • B. 

      Long-run average cost is minimized

    • C. 

      Short-run marginal cost equals long-run marginal cost

    • D. 

      Price equals marginal cost

    • E. 

      All of the above are true

  • 29. 
    A firm's total revenue curve is given by 3Q2 - 7Q . The firm
    • A. 

      Is perfectly competitive

    • B. 

      May be perfectly competitive

    • C. 

      Is not perfectly competitive

    • D. 

      One cannot tell

  • 30. 
    • A. 

      30 and 1250

    • B. 

      25 and 1050

    • C. 

      40 and 1600

    • D. 

      20 and 850

    • E. 

      None of the above