Lesson 6 Quiz

25 July 2022
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question
Use the following statements to answer this question: I. The firm's decision to produce zero output when the price is less than the average variable cost of production is known as the shutdown rule. II. The firm's supply decision is to generate zero output for all prices below the minimum AVC. I and II are false. I and II are true. II is true and I is false. I is true and II is false.
answer
I and II are true.
question
A firm maximizes profit by operating at the level of output where marginal revenue exceeds marginal cost by the greatest amount. average revenue equals average variable cost. average revenue equals average cost. total costs are minimized. marginal revenue equals marginal cost.
answer
marginal revenue equals marginal cost.
question
In the short run, a perfectly competitive firm earning negative economic profit is above its ATC curve. at the minimum of its ATC curve. on the downward-sloping portion of its ATC curve. on the upward-sloping portion of its ATC curve.
answer
on the downward-sloping portion of its ATC curve.
question
Consider the following statements when answering this question I. Increases in the demand for a good, which is produced by a competitive industry, will raise the short-run market price. II. Increases in the demand for a good, which is produced by a competitive industry, will raise the long-run market price. I and II are true. I is true, and II is false. I is false, and II is true. I and II are false.
answer
I is true, and II is false.
question
Marginal revenue, graphically, is the slope of a line from the origin to the end of the total revenue curve. the slope of a line from the origin to a point on the total revenue curve. the vertical intercept of a line tangent to the total revenue curve at a given point. the horizontal intercept of a line tangent to the total revenue curve at a given point. the slope of the total revenue curve at a given point.
answer
the slope of the total revenue curve at a given point.
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Revenue is equal to price times quantity. price times quantity minus average cost. expenditure on production of output. price times quantity minus marginal cost. price times quantity minus total cost.
answer
price times quantity.
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Scenario 8.1: Two soft-drink firms, Fizzle & Sizzle, operate on a river. Fizzle is farther upstream, and gets cleaner water, so its cost of purifying water for use in the soft drinks is lower than Sizzle's by $500,000 yearly. Scenario 8.1: Two soft-drink firms, Fizzle & Sizzle, operate on a river. Fizzle is farther upstream, and gets cleaner water, so its cost of purifying water for use in the soft drinks is lower than Sizzle's by $500,000 yearly. According to Scenario 8.1, Fizzle and Sizzle cannot be perfect competitors because they are not identical firms. would be perfectly competitive if it costs Fizzle $500,000 yearly to keep that land. would be perfectly competitive if their purification costs were equal; otherwise, not. may or may not be perfect competitors, but their position on the river has nothing to do with it.
answer
may or may not be perfect competitors, but their position on the river has nothing to do with it.
question
The demand curve facing a perfectly competitive firm is the same as its average revenue curve and its marginal revenue curve. the same as its average revenue curve, but not the same as its marginal revenue curve. the same as its marginal revenue curve, but not its average revenue curve. not the same as either its marginal revenue curve or its average revenue curve. not defined in terms of average or marginal revenue.
answer
the same as its average revenue curve and its marginal revenue curve.
question
The shutdown decision can be restated in terms of producer surplus by saying that a firm should produce in the short run as long as revenue exceeds producer surplus. profit and producer surplus are equal. producer surplus is positive. producer surplus exceeds fixed cost. producer surplus exceeds variable cost.
answer
producer surplus is positive.
question
A decreasing-cost industry has a downward-sloping long-run industry supply curve. short-run marginal cost curve. long-run marginal cost curve. short-run average cost curve. long-run average cost curve.
answer
long-run industry supply curve
question
Suppose the state legislature in your state imposes a state licensing fee of $100 per year to be paid by all firms that file state tax revenue reports. This new business tax: decreases marginal revenue. decreases marginal cost. increases marginal cost. increases marginal revenue. none of the above
answer
none of the above
question
If a graph of a perfectly competitive firm shows that the point occurs where MR is above AVC but below ATC, the firm can cover all of fixed costs but only a portion of variable costs. the firm is earning negative profit, and will shut down rather than produce that level of output. the firm is still earning positive profit, as long as variable costs are covered. the firm is earning negative profit, but will continue to produce where MR = MC in the short run. the firm is covering explicit, but not implicit, costs.
answer
the firm is earning negative profit, but will continue to produce where MR = MC in the short run.
question
Use the following statements to answer this question: I. Markets that have only a few sellers cannot be highly competitive. II. Markets with many sellers are always perfectly competitive. I and II are true. I and II are false. II is true and I is false. I is true and II is false.
answer
I and II are false.
question
In long-run competitive equilibrium, a firm that owns factors of production will have an economic profit > $0 and accounting profit = $0. economic and accounting profit can take any value. economic profit = $0 and accounting profit > $0. economic and accounting profit > $0. economic and accounting profit = $0.
answer
economic profit = $0 and accounting profit > $0.
question
In a constant-cost industry, an increase in demand will be followed by no increase in supply. an increase in supply that will bring price down to the level it was before the demand shift. an increase in supply that will bring price down below the level it was before the demand shift. an increase in supply that will not change price from the higher level that occurs after the demand shift. a decrease in demand to keep price constant.
answer
an increase in supply that will bring price down to the level it was before the demand shift.
question
Consider the following statements when answering this question I. If the cost of producing each unit of output falls $5, then the short-run market price falls $5. II. If the cost of producing each unit of output falls $5, then the long-run market price falls $5. I is true, and II is false. I is false, and II is true. I and II are false. I and II are true.
answer
I is false, and II is true.
question
Producer surplus in a perfectly competitive industry is the difference between profit at the profit-maximizing output and profit at the profit-minimizing output. the difference between revenue and variable cost. the difference between revenue and fixed cost. the difference between revenue and total cost. the same thing as revenue.
answer
the difference between revenue and variable cost.
question
If current output is less than the profit-maximizing output, which must be true? Average revenue is greater than average cost. Average revenue is less than average cost. Marginal revenue is less than marginal cost. Marginal revenue is greater than marginal cost. Total revenue is less than total cost.
answer
Marginal revenue is greater than marginal cost.
question
The demand curve facing a perfectly competitive firm is not the same as either its marginal revenue curve or its average revenue curve. not defined in terms of average or marginal revenue. the same as its average revenue curve and its marginal revenue curve. the same as its average revenue curve, but not the same as its marginal revenue curve. the same as its marginal revenue curve, but not its average revenue curve.
answer
the same as its average revenue curve and its marginal revenue curve.
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Marginal profit is negative when: marginal revenue is negative. profit is negative. output exceeds the profit-maximizing level. total cost exceeds total revenue.
answer
output exceeds the profit-maximizing level.
question
If managers do not choose to maximize profit, but pursue some other goal such as revenue maximization or growth, they are less likely to be replaced by the board of directors. their companies are more likely to survive in the long run. they are more likely to become takeover targets of profit-maximizing firms. they are less likely to be replaced by stockholders. they are more likely to have higher profit than if they had pursued that policy explicitly
answer
they are more likely to become takeover targets of profit-maximizing firms.
question
Bette's Breakfast, a perfectly competitive eatery, sells its "Breakfast Special" (the only item on the menu) for $5.00. The costs of waiters, cooks, power, food etc. average out to $3.95 per meal; the costs of the lease, insurance and other such expenses average out to $1.25 per meal. Bette should continue producing in the short and long run. raise her prices above the perfectly competitive level. lower her output. continue producing in the short run, but plan to go out of business in the long run. close her doors immediately.
answer
continue producing in the short run, but plan to go out of business in the long run.
question
The perfectly competitive firm's marginal revenue curve is vertical. exactly the same as the marginal cost curve. upward-sloping. downward-sloping, at twice the (negative) slope of the market demand curve. horizontal.
answer
horizontal.
question
What happens in a perfectly competitive industry when economic profit is greater than zero? New firms may enter the industry. Existing firms may get larger. Firms may move along their LRAC curves to new outputs. There may be pressure on prices to fall. All of the above may occur.
answer
All of the above may occur.
question
Consider the following statements when answering this question I. In the long run, if a firm wants to remain in a competitive industry, then it needs to own resources that are in limited supply. II. In this competitive market our firm's long-run survival depends only on the efficiency of our production process. I is false, and II is true. I is true, and II is false. I and II are true. I and II are false.
answer
I is false, and II is true.