____ 76. Perfectly competitive markets are characterized by: a. firms selling a homogeneous product. b. very strong barriers to entry and exit. c. a small number of very large producers. d. all of the above. ____ 77. Because a competitive firm is a price taker it faces a demand curve that is: a. perfectly elastic. b. perfectly inelastic. c. relatively elastic. d. relatively inelastic. ____ 78. A firm operating in a perfectly competitive market is a price taker because: a. setting a price higher than the going price results in zero sales. b. no firm has a significant market share. c. no firm’s product is perceived as different. d. all of the above. ____ 79. Under perfect competition a firm is a price taker because: a. each firm’s product is perceived as different. b. setting a price higher than the going price results in profits. c. setting a price higher than the going price results in zero sales. d. each firm has a significant market share. ____ 80. The point of maximum profit for a business firm is where: a. MR = AR. b. P = AC. c. TR = TC. d. TR = MR. e. MR = MC. ____ 81. If a firm decreases output when MR > MC then: a. profit will decrease. b. profit will equal zero. c. profit will increase. d. the firm is minimizing losses. e. profit will remain the same. ____ 82. If a firm increases output when MR < MC then: a. profit will equal zero. b. profit will decrease. c. profit will remain the same. d. profit will increase. e. the firm is minimizing losses. ____ 83. If a business firm is not operating at the point where MR = MC then: a. it is not earning the maximum potential profit. b. it should shut down. c. it will incur losses. d. it cannot be earning a profit. e. its profit is zero. ____ 84. If at the point where MR = MC the firm incurs losses in the short run the firm should: a. increase output. b. decrease output. c. shut down. d. continue at its current output if P > AVC. e. continue at its current output if P > ATC. Exhibit 7-9 A firm’s cost and marginal revenue curves ____ 85. In Exhibit 7-9 product price in this market is fixed at $14. This firm is currently operating where MR = MC. What do you advise this firm to do? a. This firm could increase profits by decreasing output. b. This firm should continue to operate at its current output. c. This firm could increase profits by increasing output. d. This firm should decrease price. e. This firm should shut down. ____ 86. In Exhibit 7-9 product price in this market is fixed at $7. This firm is currently operating where MR = MC. What do you advise this firm to do? a. This firm should shut down. b. This firm should decrease price. c. This firm could increase profits by decreasing output. d. This firm could increase profits by increasing output. e. This firm should continue to operate at its current output. Exhibit 7-10 Price and cost data for a firm Q P AVC ATC MC 0 $12 ? ? ? 1 12 3 5 5 2 12 5 6 7 3 12 7.3 8 12 4 12 9.5 10 16 ____ 87. In Exhibit 7-10 following the rule regarding MR and MC the most profitable output level is: a. 0. b. 1. c. 2. d. 3. e. 4. ____ 88. In Exhibit 7-10 the maximum possible total profit is: a. $24. b. $36. c. $12. d. $20. e. $8. ____ 89. In Exhibit 7-10 MR is the same as which column? a. ATC. b. MC. c. Q. d. P. e. AVC. Exhibit 7-11 A firm’s cost and marginal revenue curves ____ 90. In Exhibit 7-11 the profit-maximizing output level at the price of $8 is: a. 0. b. 4. c. 8. d. 7. e. 10. ____ 91. In Exhibit 7-11 when the price is $5 the firm: a. is breaking even. b. should produce output equal to 7. c. is making an economic profit of $21. d. should produce output equal to 10. e. should shut down. ____ 92. In Exhibit 7-11 when the price is $2 the profit-maximizing (or loss-minimizing) firm: a. should try to produce more output. b. has total revenue equal to $20. c. should produce output equal to 4. d. should shut down and produce zero. e. is making an economic profit of $8. ____ 93. In Exhibit 7-11 when the price rises from $5 to $8 the profit-maximizing (or loss-minimizing) firm goes from making a: a. loss to making a smaller loss. b. loss to making a larger loss. c. profit to making a loss. d. profit to making a larger profit. e. loss to making a profit. Exhibit 7-12 Marginal revenue and cost per unit curves ____ 94. As shown in Exhibit 7-12 suppose the firm’s price is OB. The firm’s total economic profit at this price is equal to the area of: a. AEXD. b. zero. c. CGHD. d. BFHD. e. CJID. ____ 95. As shown in Exhibit 7-12 the price that will yield zero economic profit is: a. OA. b. OC. c. OB. d. OD. ____ 96. As shown in Exhibit 7-12 the firm will not produce in the short-run if the price is below: a. OD. b. OA. c. OC. d. OB. ____ 97. As shown in Exhibit 7-12 if the price is OD a perfectly competitive firm maximizes profit at which point on its marginal cost curve? a. F. b. E. c. I. d. Between E and I. ____ 98. As shown in Exhibit 7-12 if the price is OB the firm’s total cost of producing at its most profitable level of output is: a. XL. b. YF. c. OYFB. d. OXEA. ____ 99. As shown in Exhibit 7-12 if the price is OD the firm’s total revenue at its most profitable level of output is: a. OXLD. b. OYFB. c. OZID. d. OYHD. ____ 100. If price is equal to OD for the firm shown in Exhibit 7-12 total profit is maximized when: a. output is Y. b. output is X. c. output is greater than Z. d. output is Z.
