Question 1

In long-run competitive equilibrium, a firm that owns factors of production will have an

Accepted Answer

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.
E)   economic and accounting profit can take any value.F) C) and E)
G) B) and D)

Question 2

In many rural areas, electric generation and distribution utilities were initially set up as cooperatives in which the electricity customers were member-owners. Like most cooperatives, the objective of these firms was to:

Accepted Answer

A)   maximize profits for the member-owners.
B)   maximize total revenue that could be redistributed to the member-owners.
C)   operate at zero profit in order to provide low electricity prices for the member-owners.
D)   minimize the costs of production.E) A) and B)
F) None of the above

Question 3

In the short run, a perfectly competitive firm earning negative economic profit is

Accepted Answer

A)   on the downward-sloping portion of its ATC curve.
B)   at the minimum of its ATC curve.
C)   on the upward-sloping portion of its ATC curve.
D)   above its ATC curve.E) A) and D)
F) B) and D)

Question 4

The demand curve facing a perfectly competitive firm is

Accepted Answer

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.
E)   perfectly vertical.F) B) and C)
G) A) and D)

Question 5

The squishy industry is competitive and the market price is $0.80. Apu's long-run cost function is: C(q, r) =

, where r is the price Apu pays to lease a squishy machine and q is squishy output. The long-run marginal cost curve is: MC(r, q) = 0.218  
  
. 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 6

In the short run, a perfectly competitive firm earning negative economic profit

Accepted Answer

A)   is on the downward-sloping portion of its AVC.
B)   is at the minimum of its AVC.
C)   is on the upward-sloping portion of its AVC.
D)   is not operating on its AVC.
E)   can be at any point on its AVC.F) B) and E)
G) A) and B)

Question 7

The market demand for a type of carpet known as KP-7 has been estimated as:
P = 40 - 0.25Q,
where P is price ($/yard) and Q is rate of sales (hundreds of yards per month). The market supply is expressed as:
P = 5.0 + 0.05Q.
A typical firm in this market has a total cost function given as:
C = 100 - 20.0q + 2.0q2.
a. Determine the equilibrium market output rate and price.
b. Determine the output rate for a typical firm.
c. Determine the rate of profit (or loss) earned by the typical firm.

Accepted Answer

a.
Equate supply to demand to get Q.
40 ...

Question 8

A firm never operates

Accepted Answer

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.
E)   on its long-run marginal cost curve.F) D) and E)
G) B) and E)

Question 9

Suppose the market demand curve is perfectly elastic in an increasing-cost industry. If an output tax of t per unit is imposed on all producers of the good, what happens to the market equilibrium outcome?

Accepted Answer

A)   The price paid by buyers increases and output declines
B)   The price paid by buyers does not change and output decrease
C)   The price paid by buyers and output increase
D)   The price paid by buyers and output decreaseE) A) and D)
F) A) and B)

Question 10

Figure 8.2
-Refer to Figure 8.2. As the competitive industry, not just the firm in question, moves toward long-run equilibrium, how much profit will the firm earn?

Accepted Answer

A)   $0
B)   $306
C)   $312
D)   $1000.
E)   $1024F) B) and C)
G) A) and E)

Question 11

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

Accepted Answer

A)   they are more likely to become takeover targets of profit-maximizing firms.
B)   they are less likely to be replaced by stockholders.
C)   they are less likely to be replaced by the board of directors.
D)   they are more likely to have higher profit than if they had pursued that policy explicitly.
E)   their companies are more likely to survive in the long run.F) All of the above
G) B) and E)

Question 12

Marginal profit is negative when:

Accepted Answer

A)   marginal revenue is negative.
B)   total cost exceeds total revenue.
C)   output exceeds the profit-maximizing level.
D)   profit is negative.E) C) and D)
F) None of the above

Question 13

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) B) and E)
G) B) and D)

Question 14

An industry has 1000 competitive firms, each producing 50 tons of output. At the current market price of $10, half of the firms have a short-run supply curve with a slope of 1; the other half each have a short-run supply curve with slope 2. The short-run elasticity of market supply is

Accepted Answer

A)   1/50
B)   3/10
C)   1/5
D)   2/5
E)   none of the aboveF) A) and E)
G) A) and B)

Question 15

Figure 8.2
-Refer to Figure 8.2. As the firm makes its long-run adjustment, which must be true?

Accepted Answer

A)   It takes advantage of increasing returns to scale.
B)   It suffers from decreasing returns to scale.
C)   It takes advantage of increasing marginal product.
D)   It takes advantage of economies of scale.
E)   It takes advantage of diseconomies of scale.F) C) and D)
G) B) and E)

Question 16

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 17

Generally, long-run elasticities of supply are

Accepted Answer

A)   greater than short-run elasticities, because existing inventories can be exploited during shortages.
B)   greater than short-run elasticities, because consumers have time to find substitutes for the good.
C)   greater than short-run elasticities, because firms can make alterations to plant size and input combinations to be more flexible in production.
D)   smaller than short-run elasticities, because the firm has made long-term commitments it cannot easily modify.
E)   the same as short-run elasticities, because technology is not assumed to change in the long-run adjustment process.F) A) and B)
G) B) and C)

Question 18

At the profit-maximizing level of output, marginal profit

Accepted Answer

A)   is also maximized.
B)   is zero.
C)   is positive.
D)   is increasing.
E)   may be positive, negative or zero.F) A) and E)
G) A) and D)

Question 19

In the long run, a firm's producer surplus is equal to the

Accepted Answer

A)   economic rent it enjoys from its scarce inputs.
B)   revenue it earns in the long run.
C)   positive economic profit it earns in the long run.
D)   difference between total revenue and total variable costs.
E)   difference between total revenue and total fixed costs.F) C) and E)
G) A) and C)

Question 20

The table below provides cost information for two firms in a competitive industry. Graph the supply curves of the firms individually and jointly. For these two firms, at any positive output level, marginal cost exceeds average variable cost.

Accepted Answer

<img  loading="lazy" src="/assets/images/blured-textbook.svg" class="d-inline m-1" alt="blured image" width="139" height="30"> Since we know the industry is competiti...

Exam 8: Profit Maximization and Competitive Supply

In the short run, a perfectly competitive firm earning negative economic profit is

Correct Answer
verified

The table below provides cost information for two firms in a competitive industry. Graph the supply curves of the firms individually and jointly. For these two firms, at any positive output level, marginal cost exceeds average variable cost.

Correct Answer
verified
Since we know the industry is competiti...
View Answer

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

Correct Answer
verified

At the profit-maximizing level of output, marginal profit

Correct Answer
verified

In the long run, a firm's producer surplus is equal to the

Correct Answer
verified

In long-run competitive equilibrium, a firm that owns factors of production will have an

Correct Answer
verified

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

Marginal profit is negative when:

Correct Answer
verified

Figure 8.2 -Refer to Figure 8.2. As the competitive industry, not just the firm in question, moves toward long-run equilibrium, how much profit will the firm earn?

Correct Answer
verified

Figure 8.2 -Refer to Figure 8.2. As the firm makes its long-run adjustment, which must be true?

Correct Answer
verified

Generally, long-run elasticities of supply are

Correct Answer
verified

An industry has 1000 competitive firms, each producing 50 tons of output. At the current market price of $10, half of the firms have a short-run supply curve with a slope of 1; the other half each have a short-run supply curve with slope 2. The short-run elasticity of market supply is

Correct Answer
verified

In the short run, a perfectly competitive firm earning negative economic profit

Correct Answer
verified

Suppose the market demand curve is perfectly elastic in an increasing-cost industry. If an output tax of t per unit is imposed on all producers of the good, what happens to the market equilibrium outcome?

Correct Answer
verified

The demand curve facing a perfectly competitive firm is

Correct Answer
verified

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

The supply curve for a competitive firm is

Correct Answer
verified

Correct Answer
verified
a.
Equate supply to demand to get Q.
40 ...
View Answer

In many rural areas, electric generation and distribution utilities were initially set up as cooperatives in which the electricity customers were member-owners. Like most cooperatives, the objective of these firms was to:

Correct Answer
verified

A firm never operates

Correct Answer
verified

Exam 8: Profit Maximization and Competitive Supply

In the short run, a perfectly competitive firm earning negative economic profit is

Correct AnswerverifiedShow Answer

The table below provides cost information for two firms in a competitive industry. Graph the supply curves of the firms individually and jointly. For these two firms, at any positive output level, marginal cost exceeds average variable cost.

Correct Answerverified Since we know the industry is competiti...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

At the profit-maximizing level of output, marginal profit

Correct AnswerverifiedShow Answer

In the long run, a firm's producer surplus is equal to the

Correct AnswerverifiedShow Answer

In long-run competitive equilibrium, a firm that owns factors of production will have an

Correct AnswerverifiedShow Answer

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

Marginal profit is negative when:

Correct AnswerverifiedShow Answer

Figure 8.2 -Refer to Figure 8.2. As the competitive industry, not just the firm in question, moves toward long-run equilibrium, how much profit will the firm earn?

Correct AnswerverifiedShow Answer

Figure 8.2 -Refer to Figure 8.2. As the firm makes its long-run adjustment, which must be true?

Correct AnswerverifiedShow Answer

Generally, long-run elasticities of supply are

Correct AnswerverifiedShow Answer

An industry has 1000 competitive firms, each producing 50 tons of output. At the current market price of $10, half of the firms have a short-run supply curve with a slope of 1; the other half each have a short-run supply curve with slope 2. The short-run elasticity of market supply is

Correct AnswerverifiedShow Answer

In the short run, a perfectly competitive firm earning negative economic profit

Correct AnswerverifiedShow Answer

Suppose the market demand curve is perfectly elastic in an increasing-cost industry. If an output tax of t per unit is imposed on all producers of the good, what happens to the market equilibrium outcome?

Correct AnswerverifiedShow Answer

The demand curve facing a perfectly competitive firm is

Correct AnswerverifiedShow Answer

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

The supply curve for a competitive firm is

Correct AnswerverifiedShow Answer

Correct Answerverifieda.Equate supply to demand to get Q.40 ...View AnswerShow Answer

In many rural areas, electric generation and distribution utilities were initially set up as cooperatives in which the electricity customers were member-owners. Like most cooperatives, the objective of these firms was to:

Correct AnswerverifiedShow Answer

A firm never operates

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified
Since we know the industry is competiti...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified
a.
Equate supply to demand to get Q.
40 ...
View Answer

Correct Answer
verified

Correct Answer
verified