Chapter 8 AN PDF

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chapter 8 review with Fatma El-Hamidi...

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Chapter 8_revQ_AN

Indicate the answer choice that best completes the statement or answers the question. 1. In Connecticut, the apple market is perfectly competitive. Suppose that consumer tastes change so that the market demand for apples increases. In that case, the demand curves faced by individual firms will a. not change b. become less elastic c. shift upward d. shift leftward e. shift downward 2. The slope of the total revenue curve equals a. marginal revenue, which equals price for a perfectly competitive firm b. marginal revenue, which is greater than price for a perfectly competitive firm c. marginal revenue, which is less than price for a perfectly competitive firm d. average revenue, which is greater than price for a perfectly competitive firm e. average revenue, which is less than price for a perfectly competitive firm 3. If average revenue equals average total cost, a. total revenue is maximized b. average revenue is maximized c. average total cost is minimized d. economic profit is maximized e. economic profit is zero 4. Farmer Fanny sells her crops in a perfectly competitive market. If she produces 500 bushels for total revenue of $3,000 and if harvesting the 501st bushel would raise her total cost from $2,500 to $2,510, her a. revenue will increase by $4 if she harvests the 501st bushel b. revenue will fall by $4 if she harvests the 501st bushel c. average fixed cost will rise if she harvests the 501st bushel d. profit will fall by $10 if she harvests the 501st bushel e. profit will fall by $4 if she harvests the 501st bushel 5. Suppose a price-taking firm produces 400 units at its optimal output level. At that output rate marginal cost is $200, average total cost is $240, and average variable cost is $170. What can you determine about the market price that would force the firm to shut down in the short run? a. It equals $200. b. It is between $170 and $240. c. It is less than $170. d. It is between $170 and $200. e. It equals $240.

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Chapter 8_revQ_AN

Exhibit 8-1 Demand Price $60 80 100 120

Cost Q 5 4 3 2

Q 1 2 3 4

Marginal cost $50 60 100 140

6. The perfectly competitive firewood market is composed of 1,000 identical consumers and 1,000 identical firms. Exhibit 8-1 shows cost data for one firm and demand data for one consumer. What does the demand curve facing a single firm look like? a. horizontal at a price of $120 b. horizontal at a price of $100 c. horizontal at a price of $80 d. horizontal at a price of $60 e. same as the demand for a single consumer Exhibit 8-2 Total cost and total revenue for a firm in a perfectly competitive wool blanket market Cost Q 0 1 2 3 4 5 6

TC $30 33 37 42 51 60 90

Demand Q 0 1 2 3 4 5 6

TR $0 10 20 30 40 50 60

7. How much profit is the firm in Exhibit 8-2 earning (or how much of a loss is it suffering) when five wool blankets are sold? a. -$17 b. $10 c. zero profit or loss d. -$10 e. $30

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Chapter 8_revQ_AN

8. A perfectly competitive firm finds that: Average total cost is $25; Average variable cost is $15; Marginal cost is $20 and increasing; Price of the product is $22. This firm should a. produce more output b. raise the price of its product c. reduce production without shutting down d. shut down (reduce output to zero) e. do nothing (it is currently maximizing profit) Exhibit 8-13

9. For the market shown in Exhibit 8-13, at what price will a perfectly competitive firm earn zero profit? a. $4 b. $6 c. $8 d. $9 e. more than $9 10. We say that equilibrium in a perfectly competitive market is allocatively efficient because a. the sum of consumer and producer surplus is maximized b. the sum of consumer and producer surplus is minimized c. the sum of consumer and producer surplus is zero d. consumer surplus is maximized Cengage Learning Testing, Powered by Cognero

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Chapter 8_revQ_AN e. producer surplus is zero

11. Suppose, as a result of a long-run adjustment in a perfectly competitive industry to a change in demand, price and output both rose. Therefore, demand must have __________ in this __________ industry a. fallen; increasing cost b. fallen; decreasing cost c. increased; increasing cost d. increased; decreasing cost e. decreased; constant cost 12. What is always true at the quantity at which average total cost equals average revenue? a. economic profit is zero b. marginal cost equals marginal revenue c. economic profit is maximized d. revenue is maximized e. cost is minimized Exhibit 8-1 Demand Price $60 80 100 120

Cost Q 5 4 3 2

Q 1 2 3 4

Marginal cost $50 60 100 140

13. The perfectly competitive firewood market is composed of 1,000 identical consumers and 1,000 identical firms. Exhibit 8-1 shows cost data for one firm and demand data for one consumer. How many cords of firewood wil be bought and sold in equilibrium? a. 5,000 b. 4,000 c. 3,000 d. 2,000 e. 1,000 14. The perfectly competitive firewood market is composed of 1,000 identical consumers and 1,000 identical firms. Exhibit 8-1 shows cost data for one firm and demand data for one consumer. What is the equilibrium price? a. $60 b. $80 c. $100 d. $120 Cengage Learning Testing, Powered by Cognero

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Chapter 8_revQ_AN e. It is impossible to determine the equilibrium price because there is no information on market demand or supply.

15. The significance of the minimum point on the average variable cost curve is that a. it is the profit-maximizing level b. it is the selling price c. it is the point of indifference between producing at a loss or shutting down d. if the firm produces one more unit, its AVC will be less than MC e. it shows the amount of total cost Exhibit 8-2 Total cost and total revenue for a firm in a perfectly competitive wool blanket market Cost Q 0 1 2 3 4 5 6

TC $30 33 37 42 51 60 90

Demand Q 0 1 2 3 4 5 6

TR $0 10 20 30 40 50 60

16. Given the information in Exhibit 8-2, what is the profit-maximizing (or loss-minimizing) quantity? a. zero blankets b. one blanket c. two blankets d. three blankets e. five blankets 17. Farmer Fanny sells her crops in a perfectly competitive market. If she produces 500 bushels for total revenue of $2,500 and if harvesting the 501st bushel would raise her total cost from $2,500 to $2,505, her a. revenue will increase by $10 if she harvests the 501st bushel b. revenue will fall by $5 if she harvests the 501st bushel c. average fixed cost will rise if she harvests the 501st bushel d. profit will fall by $10 if she harvests the 501st bushel e. profit will remain unchanged if she harvests the 501st bushel 18. Claude's Copper Clappers sells clappers for $65 each in a perfectly competitive market. At its present rate of output, Claude's marginal cost is $65, average variable cost is $45, and average total cost is $67. To maximize his profit or minimize his loss, Claude should a. increase output Cengage Learning Testing, Powered by Cognero

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Chapter 8_revQ_AN b. reduce output but not to zero c. maintain the present rate of output d. shut down e. raise the price

19. A perfectly competitive firm producing 100 units of output per period finds that: Average total cost is $20; Average variable cost is $12; Marginal cost is $18 and increasing; Price of the product is $15. This firm should a. produce more output b. raise the price of its product c. reduce production without shutting down d. shut down (reduce output to zero) e. do nothing (it is currently maximizing profit) 20. If you were to put the following effects of a decrease in demand into the sequence in which they occur, which would be last? a. The demand curve facing each individual firm drops. b. Each firm reduces quantity supplied to the point where marginal cost equals its now-lower marginal revenue. c. In the short run, the market price drops. d. Market output falls. e. A short-run loss forces some firms out of business in the long run. 21. A firm in perfectly competitive industry is maximizing profit at Q = 3,000. Then its fixed cost increases. The profitmaximizing output is now a. greater than 3,000 and profit decreases b. less than 3,000 and profit decreases c. greater than 3,000 and profit is unchanged d. equal to 3,000 and profit decreases e. equal to 3,000 and profit increases Exhibit 8-13

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Chapter 8_revQ_AN

22. If the market price in Exhibit 8-13 is $6, what is the greatest possible short-run profit for this perfectly competitive firm? a. $3 b. $30 c. -$3 d. -$30 e. $20 23. Suppose, as a result of a long-run adjustment in a perfectly competitive industry to a change in demand, price and output both fell. Therefore, demand must have __________ in this __________ industry. a. fallen; increasing cost b. fallen; decreasing cost c. increased; increasing cost d. increased; decreasing costs e. decreased; constant cost 24. Claude's Copper Clappers sells clappers for $60 each in a perfectly competitive market. At its present rate of output, Claude's marginal cost is $65, average variable cost is $25, and average total cost is $62. To improve his profit/loss situation, Claude should a. increase output b. reduce output but not to zero c. maintain the present rate of output d. shut down e. raise the price 25. The price that represents the shutdown point for a perfectly competitive firm is the a. highest point on the marginal cost curve b. lowest point on the marginal cost curve c. highest point on the average variable cost curve d. lowest point on the average variable cost curve Cengage Learning Testing, Powered by Cognero

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Chapter 8_revQ_AN e. lowest point on the average total cost curve 26. The Hound Dog Bus Company contemplates expanding its New Mexico operations by offering service from Raton to Milk-of-Magnesia. The total cost of the trip would be $400, of which $150 is fixed cost, which it has already paid. The firm expects to earn $275 in revenue from the trip. The Hound Dog Bus Co. should a. offer this service because it will earn a positive economic profit b. not offer this service because the marginal revenue is less than the marginal cost c. offer this service because the revenue exceeds fixed cost d. not offer this service because the total cost exceeds the total revenue e. offer this service because the added revenue exceeds the added cost of this service

27. Which of the following is most likely to be an increasing-cost industry? a. An industry whose firms experience diseconomies of scale b. An industry whose firms experience economies of scale c. An industry that is a major buyer in the markets for the inputs it uses d. An industry that is a very small buyer in the markets for the inputs it uses e. An industry that is a major seller in the markets for its outputs 28. If an industry is a constant-cost industry a. prices of its inputs increase even though output remains constant b. it uses inputs at higher levels of output c. prices of its inputs rise at a constant rate as it uses more inputs d. prices of its inputs remain constant as the number of firms increases e. firms in the industry experience economies of scale 29. Firm A and B are producers in the same perfectly competitive industry. If Firm A earns a marginal revenue of $17, a. it earns an average revenue less than $17 b. Firm B earns an average revenue of $17 c. Firm B will try to charge $16 per unit d. it earns an average revenue greater than $17 e. Firm B earns an average revenue greater than $17 Exhibit 8-1 Demand Price $60

Cost Q 5

Q 1

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Marginal cost $50 Page 8

Chapter 8_revQ_AN 80 100 120

4 3 2

2 3 4

60 100 140

30. The perfectly competitive firewood market is composed of 1,000 identical consumers and 1,000 identical firms. Exhibit 8-1 shows cost data for one firm and demand data for one consumer. What is the profit-maximizing quantity for each firm? a. zero cords of wood b. one cord of wood c. two cords of wood d. three cords of wood e. four cords of wood

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Chapter 8_revQ_AN Answer Key 1. c 2. a 3. e 4. e 5. c 6. b 7. d 8. a 9. c 10. a 11. c 12. a 13. c 14. c 15. c 16. e 17. e 18. c 19. c 20. e 21. d 22. d 23. a 24. b 25. d Cengage Learning Testing, Powered by Cognero

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Chapter 8_revQ_AN 26. e 27. c 28. d 29. b 30. d

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