1. Refer to the table above. How many units should the firm produce to maximize its profits? A) 3 units. B) 5 units. C) 7 units. D) 8 units.

Size: px

Start display at page:

Download "1. Refer to the table above. How many units should the firm produce to maximize its profits? A) 3 units. B) 5 units. C) 7 units. D) 8 units."

Barrie Woods
7 years ago
Views:

1 Chapter 11 Practice Questions Ghazalian/Davidson Spring 2009 Use the following to answer questions 1-7: Quantity Marginal Total Total Cost Cost Revenue 1 $24 $68 $ Refer to the table above. How many units should the firm produce to maximize its profits? A) 3 units. B) 5 units. C) 7 units. D) 8 units. 2. Refer to the table above. What is the maximum amount of profits the firm can earn? A) $ B) $ C) $ D) $ Refer to the table above. If a firm is producing 5 units of output, then its marginal revenue is A) less than its marginal cost and it should reduce output to increase profits. B) less than its marginal cost and it should increase output to increase profits. C) is greater than its marginal cost and it should reduce output to increase profits. D) is greater than its marginal cost and it should increase output to increase profits. 4. Refer to the table above. If a firm is producing 9 units of output, then its marginal revenue is A) less than its marginal cost and it should reduce output to increase profits. B) less than its marginal cost and it should increase output to increase profits. C) greater than its marginal cost and it should reduce output to increase profits. D) greater than its marginal cost and it should increase output to increase profits. 5. Refer to the table above. The price this firm sells its output for is A) $35. B) $68. C) $44. D) impossible to determine from the information given. 6. Refer to the table above. Fixed cost is A) $35. B) $68. C) $44. D) impossible to determine from the information given.

2 7. Refer to the table above. The total variable cost of producing 8 units is A) $199. B) $155. C) $280. D) $25. Use the following to answer questions 8-13: marginal cost Cost $7.00 $6.00 $5.00 $4.00 $3.00 $2.00 A B C D E $1.00 $ Quantity 8. Refer to the graph above. If market price is currently $3.00 per unit, this firm will maximize profit by producing A) 450 units of output. C) 850 units of output. B) 650 units of output. D) between 550 and 650 units of output. 9. Refer to the graph above. If market price is currently $5.00 per unit, this firm will maximize profit by producing A) 450 units of output. C) 850 units of output. B) 650 units of output. D) between 550 and 650 units of output. 10. Refer to the graph above. If market price is currently $7.00 per unit, this firm will maximize profit by producing A) 450 units of output. C) 850 units of output. B) 650 units of output. D) between 550 and 650 units of output. 11. Refer to the graph above. If market price increases from $5.00 per unit to $6.00 per unit, a profitmaximizing firm will A) increase output from 650 to 750. C) continue to produce the same level of output. B) decrease output from 750 to 650. D) produce 850 units of output.

3 Price 12. Refer to the graph above. If market price decreases from $7.00 per unit to $6.00 per unit, a profitmaximizing firm will A) increase output from 650 to 750. C) continue to produce the same level of output. B) decrease output from 850 to 750. D) produce 850 units of output. 13. Refer to the graph above. The points A through E represent A) the firm's total cost curve. C) the demand for the firm's product. B) the firm's total revenue curve. D) the firm's supply curve. Use the following to answer questions 14-16: D C M E MC ATC AVC Quantity A B F W P=MR 14. Refer to the graph above. What level of output should the firm produce to maximize profits? A) 7. B) 8. C) 6. D) Refer to the graph above. What distance represents average profits? A) AB. B) BF. C) AF. D) FW. 16. Refer to the graph above. What area represents total economic profits? A) DAFM. B) CBWT. C) MFWT. D) DABC.

4 Use the following to answer questions 17-23: MC Price, Costs P4 P3 P2 P1 ATC AVC 0 Q1 Q2 Q3 Q4 Output 17. Refer to the graph above. If the market price is P1 the firm will A) shut down. B) produce Q1 in the short-run but shut down in the long-run. C) produce Q3, earning a profit. D) produce Q2, breaking even. 18. Refer to the graph above. If the market price is P2 the firm will produce A) Q2 and incur a loss. B) Q3 and earn a profit. C) Q3 and break even. D) Q4 and incur a loss. 19. Refer to the graph above. If the market price is P4 the firm will produce A) Q2 and incur a loss. B) Q3 and break even. C) Q3 and earn a profit. D) Q4 and earn a profit. 20. Refer to the graph above. If the market price is P4, the maximum profit that the firm can earn is A) Q4 multiplied by P4. B) Q3 multiplied by P3. C) Q4 multiplied by the difference between P4 and P3. D) Q3 multiplied by the difference between P3 and P Refer to the graph above. If the market price is P2, the firm's profits are A) negative. B) zero. C) positive. D) impossible to determine from the information given. 22. Refer to the graph above. If the market price is P1, the firm's profits are A) negative. B) zero. C) positive. D) impossible to determine from the information given. 23. Refer to the graph above. If the market price is P3, the firm's profits are A) negative. B) zero. C) positive. D) impossible to determine from the information given.

5 Use the following to answer questions 24-26: Cost TC TR Quantity 24. Refer to the graph above. If the firm is producing 120 units of output, profit is equal to A) $38. B) -$38. C) $0. D) $ Refer to the graph above. Marginal revenue is equal to marginal cost at an output of A) 0. B) 250. C) 450. D) Refer to the graph above. If the firm is producing 250 units of output, profit is equal to A) $38. B) -$38. C) $0. D) $ An increase in the number of firms in a perfectly competitive market causes A) a movement along the market supply curve. C) an increase in the market supply curve. B) an increase in each firm's supply curve. D) a decrease in the market supply curve. 28. A perfectly competitive firm in the long-run A) can earn positive or negative economic profits. B) can earn negative accounting profits as long as economic profits are positve. C) makes zero economic profits. D) makes zero accounting profits. 29. The zero profit condition for a perfectly competitive market exists in the long-run because A) barriers to entry arise in the long-run. B) prices rise in the long-run. C) firms can freely enter or exit industries in the long-run. D) prices fall in the long-run.

6 30. The firms in the oat industry are currently receiving a price of $2 per bushel for their product. The minimum possible average total cost of producing oats in the long-run is $1 per bushel. It follows that A) the oat industry is in equilibrium. B) new firms will enter the oat industry. C) the price of oats will remain $2 per bushel in the long-run. D) firms in the oat industry will earn economic profits in both the long-run and in the short-run. 31. The firms in the oat industry are currently receiving a price of $2 per bushel for their product and there are constant returns to scale. The minimum possible average total cost of producing oats in the longrun is $1 per bushel. Other things being equal, it follows that A) the price of oats will be $2 in the long-run. B) the price of oats will be somewhere between $1 and $2 in the long-run. C) the price of oats will be $1 in the long-run. D) it is not possible to determine the price of oats in the long-run from the information given. Use the following to answer questions 32-37: 32. Refer to the graph above. Assuming that the industry operates under conditions of perfect competition A) it is currently in equilibrium. B) new firms will soon enter the industry. C) existing firms will leave the industry. D) firms in the industry are earning zero economic profit. 33. Refer to the graph above. Assuming that the industry operates under conditions of perfect competition, in the short-run, total revenue is A) $40,000. B) $60,000. C) $72,000. D) $84,000.

7 34. Refer to the graph above. Assuming that the industry operates under conditions of perfect competition, in the long-run, total revenue is A) $40,000. B) $60,000. C) $72,000. D) $84, Refer to the graph above. Assuming that the industry operates under conditions of perfect competition and that the firms seek to maximize profits each firm in the industry will A) produce 800 square metres of construction per month in the short-run. B) produce 1,000 square metres of construction per month in the short-run. C) produce 1,200 square metres of construction in the short-run. D) incur economic losses in the short-run. 36. Refer to the graph above. Assuming that the industry continues to operate under conditions of perfect competition and that the cost curves do not shift, in the long run each firm will produce A) 800 units of output. B) 1,000 units of output. C) 1,200 units of output. D) 1,400 units of output. 37. Refer to the graph above. Assuming that the industry operates under conditions of perfect competition and that the cost curves do not shift, the price of construction in a long-run competitive equilibrium will be A) $60 per square metre. B) $55 per square metre. C) $50 per square metre. D) In long-run no construction will be supplied at any price. 38. Long-run competitive equilibrium in an industry implies that no firm A) is earning a normal profit. B) is producing at the output level where price equals long-run average total cost. C) has an incentive to enter or exit the industry. D) is earning accounting profits. 39. Assume that the home construction industry is perfectly competitive and in long-run competitive equilibrium. It follows that A) marginal cost equals long-run average total cost. B) there will be incentive for new firms to enter the industry. C) marginal cost exceeds long-run average total cost. D) firms in the industry enjoy economic profits. 40. If a perfectly competitive industry is in long-run equilibrium, the price of the product equals minimum A) short-run average total cost. C) average variable cost. B) long-run average total cost. D) marginal cost.

c. Given your answer in part (b), what do you anticipate will happen in this market in the long-run?

c. Given your answer in part (b), what do you anticipate will happen in this market in the long-run? Perfect Competition Questions Question 1 Suppose there is a perfectly competitive industry where all the firms are identical with identical cost curves. Furthermore, suppose that a representative firm