Online Review Copy. AP Micro Chapter 8 Test. Multiple Choice Identify the choice that best completes the statement or answers the question.

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1 AP Micro Chapter 8 Test Multiple Choice Identify the choice that best completes the statement or answers the question. 1. There would be some control over price within rather narrow limits in which market model? a. Monopolistic competition b. Pure competition c. Pure monopoly d. Oligopoly 2. Refer to the above graph for a purely competitive firm in the short run. The price of the firm's product is given by: a. 0F/0C b. 0G/0C c. 0F/0B d. 0E/0A 3. The steel and automobile industries would be examples of which market model? a. Monopolistic competition b. Pure competition c. Pure monopoly d. Oligopoly 4. Which is not a basic market model? a. Pure competition b. Free enterprise c. Oligopoly d. Monopoly 5. The table below shows cost data for a firm that is selling in a purely competitive market.

2 Refer to the above table. If the market price for the firm's product is $180, the competitive firm will produce: a. 5 units and earn economic profits of $100 b. 6 units and earn economic profits of $120 c. 7 units and earn economic profits of $238 d. 8 units and earn economic profits of $ Refer to the above graph. The firm will earn maximum total profits if it produces and sells quantity: a. 0A b. 0B c. 0C d. 0K 7. If a firm is a price taker, then the demand curve for the firm's product is: a. Equal to the total revenue curve b. Perfectly inelastic c. Perfectly elastic d. Unit elastic 8. Which characteristic would best be associated with pure competition? a. Few sellers b. Price takers c. Nonprice competition

3 d. Product differentiation 9. Refer to the above graph for a purely competitive firm operating at a loss in the short run. Which of the following changes in its market would allow the firm to earn positive profits again? a. An increase in the market demand b. An increase in the wages of workers in the industry c. A decrease in the price of raw materials used by firms in the industry d. A decrease in the price of the industry's product 10. Refer to the above graph. It shows the cost curves for a competitive firm. What is the lowest price at which the firm will start producing output in the short run? a. $1.25 b. $1.05 c. $0.90 d. $ Which is true under conditions of pure competition? a. There are differentiated products b. The market demand curve is perfectly elastic c. No single firm can influence the market price by changing its output

4 d. Firms that cannot make pure or economic profits go bankrupt 12. The total revenue of a purely competitive firm from 8 units of output is $48. Based on this information, total revenue for 9 units of output must be: a. $52 b. $54 c. $58 d. $ Refer to the above graph for a purely competitive firm in the short run. The firm would suffer losses if it operates at which of the following range of output? a. 0A b. AB c. BC d. Any level below C 14. Refer to the above graph. At what price will the firm make an economic profit? a. $2 b. $5 c. $7 d. $10

5 15. A firm sells a product in a purely competitive market. The marginal cost of the product at the current output is $4.00 and the market price is $4.50. What should the firm do? a. Shut down if the minimum possible average variable cost is $3.00 b. Decrease output if the minimum possible average variable cost is $3.00 c. Increase output if the minimum possible average variable cost is $3.75 d. Decrease output if the minimum possible average variable cost is $ Mutual interdependence would tend to limit control over price in which market model? a. Monopolistic competition b. Pure competition c. Pure monopoly d. Oligopoly 17. The demand curve faced by a purely competitive firm: a. Has unitary elasticity b. Yields constant total revenues even when price changes c. Is identical to the market demand curve d. Is the same as its marginal revenue curve 18. Refer to the above graph for a purely competitive firm in the short run. What minimum output level should the firm produce just for it to break even? a. A b. B c. C d. Greater than C 19. A purely competitive firm currently producing 20 units of output earns marginal revenues of $12 from each extra unit of output it sells. If it sells 30 units, then its total revenues would be: a. $120 b. $240 c. $360 d. Indeterminate based on the given information 20. Average revenue is conceptually equivalent to the:

6 a. Unit price of the product b. Average cost of the product c. Marginal cost of the product d. Marginal revenue of the product 21. Refer to the above graph for a purely competitive firm in the short run. Profits would be maximum if the firm produces which level of output? a. A b. B c. C d. Greater than C 22. The table shows cost data for a firm that is selling in a purely competitive market. Refer to the above cost table. The firm will produce its output only if the price is at least equal to what minimum level? a. $3 b. $4 c. $6 d. $9 23. Under which market model are the conditions of entry into the market easiest? a. Pure competition b. Pure monopoly c. Monopolistic competition d. Oligopoly

7 24. In pure competition, each extra unit of output that a firm sells will yield a marginal revenue that is: a. Equal to the price b. Less than the price c. Greater than the price d. Equal to the average cost 25. Which market model assumes the least number of firms in an industry? a. Monopolistic competition b. Pure competition c. Pure monopoly d. Oligopoly 26. A firm should always continue to operate at a loss in the short run if: a. The firm will show a profit b. The owner enjoys helping her customers c. It can cover its variable costs and some of its fixed costs d. The firm cannot produce any other products more profitably 27. Assume the price of a product sold by a purely competitive firm is $5. Given the data in the accompanying table, at what output level is total profit highest in the short run? a. 20 b. 30 c. 40 d Refer to the above graph. To maximize profits, the firm should produce the quantity:

8 a. 0A b. 0B c. 0C d. 0K 29. Use the table below to answer the next question(s) for a purely competitive firm. Refer to the above table. The marginal revenue from the third unit of output is: a. $40 b. $50 c. $120 d. $ The table shows cost data for a firm that is selling in a purely competitive market. Refer to the above cost table. If the price of the product is $6, what output level will the firm produce? a. 0 b. 12 c. 14 d. 16

9 31. Refer to the above graph. The firm should shut down if the quantity of output that it could sell falls below: a. 0A b. 0B c. 0C d. 0K 32. A purely competitive firm will be willing to produce even at a loss in the short run, as long as: a. The loss is smaller than its total variable costs b. The loss is smaller than its marginal costs c. The loss is smaller than its total fixed costs d. Price exceeds marginal costs 33. Refer to the cost table above. If a competitive firm faced with these costs finds that it can sell its product at $60 per unit, it will: a. Produce 5 units and incur a loss of $50 b. Produce 6 units and incur a loss of $30 c. Produce 7 units and realize a profit of $32 d. Close down in the short run 34. The fast-food restaurant industry would be an example of which market model?

10 a. Monopolistic competition b. Pure competition c. Pure monopoly d. Oligopoly 35. In pure competition, the demand for the product of a single firm is perfectly: a. Elastic because the firm produces a unique product b. Inelastic because the firm produces a unique product c. Elastic because many other firms produce the same product d. Inelastic because many other firms produce the same product 36. Consider the purely competitive firm pictured above. At its short-run equilibrium point, the firm is earning: a. Zero normal profits b. Zero economic profits c. Zero accounting profits d. We can say nothing about this firm's profit or loss situation 37. Refer to the above graph. The amount of profit is measured by the difference between: a. A and c b. B and c

11 c. D and e d. A and f 38. The resource cost falls in a purely competitive industry. This change will result in a(n): a. Increase in marginal cost for firms in the industry and an increase in the industry supply curve b. Decrease in marginal cost for firms in the industry and a decrease in the industry supply curve c. Decrease in marginal cost for firms in the industry and an increase in the industry supply curve d. Increase in marginal cost at each output level for firms in the industry and an increase in the industry supply curve 39. The table shows the total costs for a purely competitive firm. Refer to the above table. If the firm shuts down in the short run, the total cost will be: a. $1,350 b. $2,500 c. $2,700 d. $3, Refer to the above graph. At what price will the firm make just a normal profit? a. $2 b. $5 c. $7 d. $10

12 41. Refer to the above graph for a purely competitive firm in the short run. If the firm increases its output level from B to C, then its total profits will be: a. Negative and decreasing b. Negative and increasing c. Positive and increasing d. Positive and decreasing 42. Local electric or gas utility companies mostly operate in which market model? a. Monopolistic competition b. Pure competition c. Pure monopoly d. Oligopoly 43. Refer to the above diagram. All data are for the short run. The firm represented in this diagram is selling under conditions of: a. Pure monopoly b. Pure competition c. Monopolistic competition d. Oligopoly

13 44. Farmer Unger is producing wheat, and must accept the market price of $6.00 per bushel. At this time, her average total costs and her marginal costs both equal $8.00 per bushel. Her average variable costs are $5 per bushel. In choosing her optimal output, farmer Unger should: a. Increase output b. Increase selling price c. Produce zero output and close down d. Reduce output but continue production 45. Answer the question based on the table below. At what point on the table would a purely competitive firm cover all of its costs and earn only normal profits? a. Q = 5 b. Q = 10 c. Q = 15 d. Q = Price is constant or "given" to the individual firm selling in a purely competitive market because: a. The firm's demand curve is downsloping b. There are no good substitutes for the firm's product c. Each seller supplies a negligible fraction of total demand and supply d. Product differentiation is reinforced by extensive advertising 47. In which two market models would advertising be used most often? a. Pure competition and monopolistic competition b. Pure competition and pure monopoly c. Monopolistic competition and oligopoly d. Pure monopoly and oligopoly 48.

14 Refer to the above graph for a purely competitive firm. When the firm is in equilibrium in the short run, its average fixed cost is: a. EH b. DE c. DH d. DB 49. Given the diagram above, which level of output should the entrepreneur choose? a. Either X 1 or X 3 since the profit level will be the same b. X 3 since any increase in output will reduce profits c. X 1 since any decrease in output will reduce profits d. X 2 since at this level the difference between MR and MC is maximized 50. Under which market model are the conditions of entry the most difficult? a. Monopolistic competition b. Pure competition c. Pure monopoly d. Oligopoly 51. A firm sells a product in a purely competitive market. The marginal cost of the product at the current output is $5.00 and the market price is $5.00. What should the firm do? a. Shut down if the minimum possible average variable cost is $5.25 b. Shut down if the minimum possible average variable cost is $4.75 c. Increase output if the minimum possible average variable cost is $5.25 d. Decrease output if the minimum possible average variable cost is $4.75

15 52. Given the above graph, the competitive firm's supply curve is the: a. MC curve above F b. MC curve above G c. MC curve above H d. MC curve above J 53. Refer to the cost table above. Now suppose that there are 600 identical firms in this industry, each with the same cost data as the single firm discussed above. Suppose, too, that the demand curve for this industry is as follows: Based on all these data, the equilibrium price of the product in the market will be: a. $60 b. $95 c. $120 d. $75

16 54. Refer to the above graph. At the profit-maximizing level of output, the firm earns profits given by the area: a. 0AHE b. ACFH c. BCFG d. ABGH 55. Refer to the above graph. It shows short-run cost curves for a competitive firm. At what price would the firm face the same profit or loss whether it chooses to produce or not? a. P 1 b. P 2 c. P 3 d. P A purely competitive firm can be identified by the fact that: a. There are other firms in the industry producing close substitutes b. It is making only normal profits in the short run c. Its average revenue equals marginal revenue d. It experiences diminishing marginal returns

17 57. Refer to the above graph for a purely competitive firm. When the firm is in equilibrium in the short run, the amount of economic profit per unit is: a. EH b. DE c. DH d. DB 58. Refer to the above graph. It shows the cost curves for a competitive firm. If the market price falls to $.55, the optimal output rate is: a. 0 b. 15 c. 20 d. More than 20, but less than 35

18 59. Refer to the above graph. It shows short-run cost curves for a competitive firm. At what price would the firm break even? a. P 1 b. P 2 c. P 3 d. P In pure competition, price is determined where the industry: a. Demand and supply curves intersect b. Total cost is greater than total revenue c. Demand intersects the individual firm's marginal cost curve d. Average total cost equals total variable costs

19 AP Micro Chapter 8 Test Answer Section MULTIPLE CHOICE 1. A 2. C 3. D 4. B 5. C 6. C 7. C 8. B 9. A 10. D 11. C 12. B 13. A 14. D 15. C 16. D 17. D 18. A 19. C 20. A 21. B 22. B 23. A 24. A 25. C 26. C 27. C 28. C 29. A 30. C 31. A 32. C 33. A 34. A 35. C 36. B 37. C 38. C 39. B 40. C 41. D

20 42. C 43. B 44. D 45. C 46. C 47. C 48. B 49. B 50. C 51. A 52. B 53. B 54. D 55. C 56. C 57. A 58. A 59. D 60. A