Before Doing this go to http://www.reffonomics.com/TRB/INPROGRESS/Microeconomicsindex1PerfectCompetition.html

And complete power points for confusing parts (right column) and then test yourself using the left columns interactive graphs.

PCP...No not that kind... Perfect Competition Practice... Modules 58/59/60

Multiple Choice

Identify the choice that best completes the statement or answers the question.

____ 1. Suppose a perfectly competitive firm can increase its profits by increasing its output. Then it must be the case that the firm's:

a. / marginal revenue exceeds its marginal cost.
b. / price exceeds its average variable cost, but is less than average total cost.
c. / marginal cost exceeds its marginal revenue.
d. / price exceeds its marginal revenue.
e. / price is less than marginal revenue.

____ 2. A perfectly competitive firm is definitely earning an economic profit when:

a. / MR > MC.
b. / P > ATC.
c. / P > MC.
d. / P > AVC.
e. / MR > AVC.

Figure 58-1: Marginal Revenue, Costs, and Profits

____ 3. (Figure 58-1: Marginal Revenue, Costs, and Profits) In the figure, if market price decreases to $16, marginal revenue ______and profit-maximizing output ______.

a. / increases; decreases
b. / increases; increases
c. / decreases; increases
d. / decreases; decreases
e. / remains constant; remains constant

____ 4. The slope of the total cost curve is:

a. / marginal cost.
b. / marginal revenue.
c. / constant under perfect competition.
d. / always negative.
e. / increasing at a decreasing rate.

____ 5. In the short run, a perfectly competitive firm produces output and earns zero economic profit if:

a. / P > ATC.
b. / AVC < P < ATC.
c. / P < AVC.
d. / AVC > P > ATC.
e. / P = ATC.
Quantity
of Soybeans
(bushels) / Total Cost
(TC)
0 / 12
1 / 26
2 / 33
3 / 42
4 / 54
5 / 69
6 / 84
7 / 104
Table 58-1 : Soybean Cost

____ 6. (Table 58-1: Soybean Cost) The costs of production of a perfectly competitive soybean farmer are given in the table. If the market price of a bushel of soybeans is $15, how many bushels will the farmer produce to maximize short-run profit?

a. / 4
b. / 5
c. / 3
d. / 7
e. / 2

____ 7. (Table 58-1: Soybean Cost) The costs of production of a perfectly competitive soybean farmer are given in the table. If the market price of a bushel of soybeans is $15, what will be the farmer's short-run maximum profit?

a. / $75
b. / $69
c. / $6
d. / $5
e. / $15

____ 8. If a perfectly competitive firm sells 10 units of output at a price of $30 per unit, its marginal revenue is:

a. / $10.
b. / $30.
c. / $20.
d. / $300.
e. / $3.

____ 9. Price in a perfectly competitive industry:

a. / is determined by each firm, depending on its costs of production.
b. / falls as the firm increases output.
c. / must be greater than ATC or the firm will shut down in the short run.
d. / is equal to ATC in the short run.
e. / is always equal to marginal revenue for the firm.
Quantity
per Period / Total Cost
0 / $10
1 / 16
2 / 20
3 / 22
4 / 24
5 / 25
6 / 27
7 / 30
8 / 34
9 / 39
10 / 45
Table 58-3: Total Cost for a
Perfectly Competitive Firm

____ 10. (Table 58-3: Total Cost for a Perfectly Competitive Firm) If the market price is $3.50, the profit-maximizing quantity of output is ______units.

a. / five
b. / ten
c. / eight
d. / nine
e. / seven

____ 11. In the short run, a perfectly competitive firm produces output and breaks even if:

a. / the firm produces a quantity at which P < ATC.
b. / the firm produces a quantity at which P = AVC.
c. / the firm produces a quantity at which P > ATC.
d. / the firm produces a quantity at which P = (TR/Q + TC/Q) ´ Q.
e. / the firm produces a quantity at which P = ATC.

____ 12. Firms will make a profit if price is:

a. / equal to marginal revenue.
b. / greater than MC.
c. / less than MC.
d. / greater than AVC.
e. / greater than ATC.

____ 13. During the summer, Alex runs a lawn-mowing service, and lawn-mowing is a perfectly competitive industry. In the short run, Alex will shut down his lawn-mowing service rather than continue with it if:

a. / the total revenues can't cover the total fixed costs.
b. / the total revenues can't cover the total variable costs.
c. / the total revenues can't cover the total cost.
d. / the price exceeds the average total cost.
e. / losses are smaller than the total fixed costs.

____ 14. Many furniture stores run “Going out of Business” sales but never go out of business. In order for the shut-down decision to be the appropriate one, the price of furniture must be ______the ______average variable cost.

a. / higher than; maximum
b. / lower than; minimum
c. / higher than; minimum
d. / lower than; maximum
e. / the same as; maximum

Figure 59-2: Prices, Cost Curves, and Profits

____ 15. (Figure 59-2: Cost Curves and Profits) In the figure, if the market price is $18, this firm will:

a. / minimize its losses by shutting down.
b. / minimize its losses by continuing to produce.
c. / break even.
d. / earn an economic profit.
e. / exit the market in the long run.

____ 16.

In the figure, total cost at the profit-maximizing quantity of bushels is $______.

a. / 3.50
b. / 14
c. / 56
d. / 72
e. / 4

Figure 59-3 : Profit Maximizing

____ 17. (Figure 59-3: Profit Maximizing) The figure shows cost curves for a firm operating in a perfectly competitive market. M is the ______curve.

a. / ATC
b. / MR
c. / Profit
d. / AVC
e. / MC

____ 18. (Figure 59-3: Profit Maximizing) The figure shows cost curves for a firm operating in a perfectly competitive market. N is the ______curve.

a. / ATC
b. / MR
c. / MC
d. / AVC
e. / Profit

Figure 59-4: A Perfectly Competitive Firm in the Short Run

____ 19. (Figure 59-4: A Perfectly Competitive Firm in the Short Run) The firm will produce in the short run if the price is at least as much as the price indicated by the distance:

a. / F.
b. / E.
c. / N.
d. / P.
e. / G.

____ 20. (Figure 59-4: A Perfectly Competitive Firm in the Short Run) If market price is G, the firm's total revenue from the sale of its most profitable level of output is:

a. / 0GLD.
b. / 0GHB.
c. / BH.
d. / DL.
e. / GHSE.

____ 21. For a perfectly competitive firm, the short-run supply curve is the:

a. / entire MC curve.
b. / rising part of the MC curve beginning at the shut-down point.
c. / rising part of the MC curve beginning at the point at which the firm starts earning economic profit.
d. / MC curve below the shut-down point.
e. / rising part of the MC curve beginning at the shut-down point and ending at the break-even point.

Figure 59-5: Perfectly Competitive Firm

____ 22. (Figure 59-5: Perfectly Competitive Firm) The figure shows a perfectly competitive firm that faces demand curve d, has the cost curves shown, and maximizes profit. If the market price is $3.00, the firm will produce ______units of output per day.

a. / 100
b. / 250
c. / 300
d. / 400
e. / 0

Figure 59-7: Perfectly Competitive Firm II

____ 23. (Figure 59-7: Perfectly Competitive Firm II) If this firm's MR curve is MR1, the firm will profit-maximize by producing ______units of output and its economic profit will be ______.

a. / Q1; positive
b. / Q2; negative
c. / Q3; positive
d. / Q4; negative
e. / Q2; zero

____ 24. (Figure 59-7: Perfectly Competitive Firm II) If this firm's MR curve is MR2, then this firm will profit-maximize by producing ______units of output and its economic profit will be ______.

a. / Q1; positive
b. / Q2; negative
c. / Q3; positive
d. / Q4; negative
e. / zero; negative

Figure 59-2: Cost Curve and Profits

____ 25. (Figure 59-2: Cost Curves and Profits) The market for corn is perfectly competitive, and an individual corn farmer faces the cost curves shown in the figure. If the price of a bushel of corn in the market is $14, then the farmer will produce ______of corn and earn an economic ______equal to ______.

a. / 4 bushels; profit; $0
b. / 4 bushels; profit; just less than $80 per bushel
c. / 2 bushels; profit; $0
d. / 2 bushels; loss; just more than $80 per bushel
e. / 4 bushels; loss; just less than $20 per bushel

____ 26. (Figure 59-2: Cost Curves and Profits) The market for corn is perfectly competitive, and an individual corn farmer faces the cost curves shown in the figure. If the price of a bushel of corn in the market is $4, then the farmer will produce ______of corn and earn an economic ______equal to ______.

a. / 0 bushels; loss; average fixed costs
b. / 0 bushels; loss; average total costs
c. / 3 bushels; loss; $30 per bushel
d. / 3 bushels; profit; $20 per bushel
e. / 0 bushels; loss; total fixed costs

____ 27. In perfectly competitive long-run equilibrium:

a. / all firms make positive economic profits.
b. / all firms produce at the minimum point of their average total cost curves.
c. / the industry supply curve must be upward-sloping.
d. / all firms face the same price, but the value of marginal cost will vary directly with firm size.
e. / the price will equal average variable cost.

____ 28. Suppose that some firms in a perfectly competitive industry are incurring negative economic profits. In the long run, the:

a. / industry supply curve will not shift.
b. / industry supply curve will shift to the left.
c. / number of firms in the industry will not change.
d. / number of firms in the industry will increase.
e. / market price will decrease.

____ 29. When economic profits in an industry are zero:

a. / firms are really doing badly.
b. / it means that firms are doing as well as they could do in other markets.
c. / firms should exit, so they can make an economic profit in some other market.
d. / the industry is not in long-run equilibrium.
e. / the price will tend to decrease as more firms enter the market.

____ 30. Suppose that the market for haircuts in a community is perfectly competitive and that the market is initially in long-run equilibrium. Subsequently, an increase in population increases the demand for haircuts. In the short run, we expect that the market price will ______and the output of a typical firm will ______.

a. / rise; rise
b. / rise; fall
c. / fall; rise
d. / fall; fall
e. / rise; remain constant

____ 31. Provided that there are no external benefits or costs, resources are efficiently allocated when:

a. / P = MR.
b. / P = AVC.
c. / P = MC.
d. / MC = AVC.
e. / P = ATC.

____ 32. Lilly is the price-taking owner of an apple orchard. Currently the price of apples is high enough that Lilly is earning positive economic profits. In the long run, Lilly should expect:

a. / lower apple prices due to entry of new firms.
b. / higher apple prices due to exit of existing firms.
c. / lower apple prices due to exit of existing firms.
d. / higher apple prices due to entry of new firms.
e. / no change in apple prices.

____ 33. If some firms in a perfectly competitive industry are earning positive economic profits, then in the long run, the:

a. / industry is in long-run equilibrium.
b. / industry supply curve will shift to the right.
c. / number of firms in the industry will not change.
d. / number of firms in the industry will decrease.
e. / industry demand curve will shift to the right.

____ 34. Suppose that the market for haircuts in a community is perfectly competitive and that the market is initially in long-run equilibrium. Subsequently, a decrease in population decreases the demand for haircuts. In the short run, we expect that the market price will ______and the output of a typical firm will ______.

a. / rise; rise
b. / rise; fall
c. / fall; rise
d. / fall; fall
e. / fall; be unchanged

____ 35. In the long run, firms in a perfectly competitive industry will:

a. / minimize average total cost.
b. / earn a positive economic profit.
c. / exit the industry if price is greater than average total cost.
d. / produce an output level at which price is greater than average total cost.
e. / produce a differentiated product.