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Refer to the graph shown. Suppose that the market price is $5. At this price, a perfectly competitive firm should: Refer to the graph shown. Suppose that the market price is $5. At this price, a perfectly competitive firm should: A) continue to produce in the short run but shut down in the long run. B) continue to produce in both the short run and the long run. C) shut down in the short run but continue production in the long run. D) shut down immediately.


A) continue to produce in the short run but shut down in the long run.
B) continue to produce in both the short run and the long run.
C) shut down in the short run but continue production in the long run.
D) shut down immediately.

Correct Answer

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Refer to the graph shown. Other things equal, an increase in the market price of this product will cause: Refer to the graph shown. Other things equal, an increase in the market price of this product will cause: A) an increase in total revenue and a decrease in the firm's profit-maximizing level of output. B) an increase in total revenue and an increase in the firm's profit-maximizing level of output. C) a decrease in total revenue and a decrease in the firm's profit-maximizing level of output. D) a decrease in total revenue and an increase in the firm's profit-maximizing level of output.


A) an increase in total revenue and a decrease in the firm's profit-maximizing level of output.
B) an increase in total revenue and an increase in the firm's profit-maximizing level of output.
C) a decrease in total revenue and a decrease in the firm's profit-maximizing level of output.
D) a decrease in total revenue and an increase in the firm's profit-maximizing level of output.

Correct Answer

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Refer to the following graph. Refer to the following graph. The perfectly competitive firm depicted is currently: A) earning positive economic profit. B) earning zero economic profit. C) incurring a loss, but the loss is smaller than it would be if the firm shut down. D) incurring a loss that is larger than total fixed cost, and so the firm should shut down. The perfectly competitive firm depicted is currently:


A) earning positive economic profit.
B) earning zero economic profit.
C) incurring a loss, but the loss is smaller than it would be if the firm shut down.
D) incurring a loss that is larger than total fixed cost, and so the firm should shut down.

Correct Answer

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Refer to the following graph. Refer to the following graph. The perfectly competitive firm depicted is currently: A) earning positive economic profit. B) earning zero economic profit. C) incurring a loss, but the loss is smaller than the firm's total fixed cost. D) incurring a loss that is larger than total fixed cost, and so the firm should shut down. The perfectly competitive firm depicted is currently:


A) earning positive economic profit.
B) earning zero economic profit.
C) incurring a loss, but the loss is smaller than the firm's total fixed cost.
D) incurring a loss that is larger than total fixed cost, and so the firm should shut down.

Correct Answer

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Long-run competitive equilibrium requires:


A) average costs to be zero for all firms in the industry.
B) price to be zero for all firms in the industry.
C) economic profits to be zero for all firms in the industry.
D) accounting profits to be zero for all firms in the industry.

Correct Answer

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Refer to the graph shown. The supply curve for the perfectly competitive firm is best represented by the segment: Refer to the graph shown. The supply curve for the perfectly competitive firm is best represented by the segment: A) AB. B) BD. C) CE. D) DE.


A) AB.
B) BD.
C) CE.
D) DE.

Correct Answer

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


A) marginal revenue is less than its marginal cost.
B) price exceeds its marginal revenue.
C) price exceeds its marginal cost.
D) marginal cost exceeds its marginal revenue.

Correct Answer

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Suppose there are 200 firms in a perfectly competitive market and each maximizes profit at 120 units of output when market price is $5.00 per unit. One of the points on the market supply curve must be at:


A) Price = $5 and Quantity supplied = 320.
B) Price = $5 and Quantity supplied = 24,000.
C) Price = $1,000 and Quantity supplied = 320.
D) Price = $1,000 and Quantity supplied = 24,000.

Correct Answer

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Refer to the graph shown. To maximize profit, this perfectly competitive firm should produce: Refer to the graph shown. To maximize profit, this perfectly competitive firm should produce: A) 30 units of output. B) 40 units of output. C) 50 units of output. D) 60 units of output.


A) 30 units of output.
B) 40 units of output.
C) 50 units of output.
D) 60 units of output.

Correct Answer

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Refer to the following graphs. Refer to the following graphs. Which graph depicts a perfectly competitive firm that will minimize short-run losses by producing zero output? A) Graph I B) Graph II C) Graph III D) Graph IV Which graph depicts a perfectly competitive firm that will minimize short-run losses by producing zero output?


A) Graph I
B) Graph II
C) Graph III
D) Graph IV

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Refer to the graph shown, which depicts a perfectly competitive firm. When it is maximizing profit, the total profit earned by the firm represented is: Refer to the graph shown, which depicts a perfectly competitive firm. When it is maximizing profit, the total profit earned by the firm represented is: A) $220. B) $275. C) $330. D) $605.


A) $220.
B) $275.
C) $330.
D) $605.

Correct Answer

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The profit-maximizing condition for a perfectly competitive firm is:


A) MR = P.
B) MR = AVC.
C) P = MC.
D) P = AVC.

Correct Answer

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Refer to the graph shown. Suppose the market price is $3. At this price, a perfectly competitive firm should: Refer to the graph shown. Suppose the market price is $3. At this price, a perfectly competitive firm should: A) continue to produce in the short run but shut down in the long run. B) continue to produce in both the short run and the long run. C) shut down in the short run but continue production in the long run. D) shut down immediately.


A) continue to produce in the short run but shut down in the long run.
B) continue to produce in both the short run and the long run.
C) shut down in the short run but continue production in the long run.
D) shut down immediately.

Correct Answer

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The profit-maximizing output level minimizes average total cost.

Correct Answer

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When the electronics retailer Circuit City closed its stores following the 2008 recession, the market supply of electronic goods:


A) decreased, causing the market price to fall.
B) decreased, causing the market price to rise.
C) increased, causing the market price to fall.
D) increased, causing the market price to rise.

Correct Answer

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To maximize profits, a perfectly competitive firm should produce until:


A) price is greater than average total cost.
B) marginal cost is equal to price.
C) average total cost is minimized.
D) per unit profits are maximized.

Correct Answer

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Refer to the graphs shown, which depict a perfectly competitive market and firm. If market demand is D0: Refer to the graphs shown, which depict a perfectly competitive market and firm. If market demand is D<sub>0</sub>: A) this market is in long-run equilibrium because the firm is earning positive economic profit. B) this market is in long-run equilibrium because the firm is earning zero economic profit. C) this market is in short-run equilibrium but not long-run equilibrium. D) the firm will raise the price above P<sub>0</sub> to increase profit.


A) this market is in long-run equilibrium because the firm is earning positive economic profit.
B) this market is in long-run equilibrium because the firm is earning zero economic profit.
C) this market is in short-run equilibrium but not long-run equilibrium.
D) the firm will raise the price above P0 to increase profit.

Correct Answer

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