Micro Chapter 21 Practice Problems #2 Key: $ MC AVC ATC

Micro Chapter 21 Practice Problems #2 Key
$
M C AT C
AV C
P 4
P 3
P 2
P 1
0 O u tp u t
1. Refer to the above graph. It shows the short-run cost curves for a purely competitive firm together
with a number of different prices. At what price is the firm making only normal profit?
A) P1 B) P2 C) P3 D) P4
Answer: C
2. Refer to the above graph. It shows the short-run cost curves for a purely competitive firm together
with a number of different prices. At what price is the firm making an economic profit?
A) P1 B) P2 C) P3 D) P4
Answer: D
M C
J M R
N
ATC
H AV C
M
L
G
K
F
0 R S T V
3. 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.
Answer: B
4. The profit-maximizing behavior for a price-taking firm requires it to operate where:

A) P = TR = TC. B) P = MC  AVC. C) P = MC = AFC. D) P = MR = MC = AFC.
Answer: B
5. Resource costs increase in a purely competitive industry. This change will result in a(n):
A) increase in average fixed cost for a firm in the industry.
B) decrease in average variable cost for a firm in the industry.
C) decrease in the marginal cost curve for a firm in the industry.
D) decrease in the short-run supply curve for a firm in the industry.
Answer: D
6. Assume the market for ball bearings is purely competitive. Currently, each of the firms in this market
is making a positive level of economic profits. In the long run, we can expect the market:
A) supply curve to increase. C) supply curve to decrease.
B) demand curve to increase. D) demand curve to decrease.
Answer: A
7. Which of the following is characteristic of a perfectly competitive firm’s demand curve?

A. average revenue is less than price at all levels of output
B. marginal revenue is equal to marginal costs at all levels of output
C. price and marginal revenue are equal at all levels of output
D. it is the same as the market demand curve
E. demand is inelastic at all levels of output
Answer: C
8. The owner of a competitive firm making zero economic profit

A. should consider shutting down because she could make more elsewhere
B. is making less than normal profits
C. is making exactly what she would make in her next best alternative job
D. will most likely make more profits in the long run
E. is making serious resource allocation errors
Answer: C
9. Refer to the above graph. The level of output at which this firm will produce is:
A) 0A. B) 0B. C) 0C. D) 0K.
Answer: C
10. Refer to the above graph. The level of output at which this firm will shut down is:
A) 0A. B) 0B. C) 0C. D) 0K.
Answer: A
11. Refer to the above graph. The level of output at which this firm is maximizing an economic profit is:
A) 0A. B) 0B. C) 0C. D) 0K.
Answer: C
A v e ra g e A v e ra g e M a rg in a l
O u tp u t v a ria b le c o s t to ta l c o s t co st
10 5 .0 0 1 5 .0 0 3
12 4 .0 0 1 3 .0 0 4
14 4 .7 5 1 1 .5 0 6
16 5 .7 5 9 .0 0 9
20 9 .0 0 1 2 .0 0 14
12. Refer to the above cost chart. The lowest output level on this firm's short-run supply curve is:
A) 10. B) 12. C) 16. D) 20.
Answer: B
13. Refer to the above cost chart. If the marginal revenue is $6, what output level will the firm produce?
A) 10 B) 12 C) 14 D) 20
Answer: C
14. Refer to the above cost chart. Which output level will the firm NOT produce?
A) 10 B) 12 C) 16 D) 20
Answer: A
Refer to the table below. It shows cost data for a firm that is selling in a purely competitive market.
O u tp u t A FC AV C AT C M C
1 $300 $100 $400 $100
2 150 75 225 50
3 100 70 170 60
4 75 73 148 80
5 60 80 140 110
6 50 90 140 140
7 43 103 146 180
8 38 119 156 230
9 33 138 171 290
10 30 160 190 360
15. Refer to the above table. If the market price for the firm's product is $50, the competitive firm will:
A) produce 1 unit. B) produce 2 units. C) produce 3 units. D) shut down.
Answer: D
16. Refer to the above table. If the market price for the firm's product is $70, the competitive firm will:
A) produce 1 unit. B) produce 2 units. C) produce 3 units. D) shut down.
Answer: C
17. Refer to the above table. If the market price for the firm's product is $180, the competitive firm will produce:
A) 5 units at an economic profit of $100. C) 7 units at an economic profit of $238.
B) 6 units at an economic profit of $120. D) 8 units at an economic profit of $278.
Answer: C
18. Refer to the above table. If the product price is $290, the per-unit economic profit at the profit-maximizing
output is:
A) $33. B) $76. C) $119. D) $152.
Answer: C
19. Refer to the above graph. To maximize profits, this firm would produce:
A) 0D units, which will result in a loss equal to ABGH.
B) 0E units, which will result in a loss equal to ALFH.
C) 0D units, which will result in economic profits equal to BCFG.
D) 0E units, which will result in economic profits equal to ABGH.
Answer: D
20. A purely competitive firm is in short-run equilibrium and its MC exceeds its ATC. It can be concluded that:
A) firms will leave the industry in the long run. C) the firm is realizing a loss.
B) the firm is realizing an economic profit. D) this is an increasing-cost industry.
Answer: B
P X
M C ATC
D
AV C
0 A B C K Q
21. Refer to the above graph. The profit-maximizing level of output for the firm is:
A) 0A. B) 0B. C) 0C. D) 0K.
Answer: C
22. Refer to the above graph. At what level of output will the firm shut down?
A) 0A B) 0B C) 0C D) 0K
Answer: A
$
M C
ATC
AV C
P D = M R
Q
0 Q
23. Consider the purely competitive firm pictured above. The firm is earning:
A) normal profits, since its price is above AVC.
B) economic profits, since its price is above AVC.
C) normal profits, since its price just covers ATC.
D) losses, since it is operating at the shutdown point.
Answer: C
24. When a firm produces less output, it can reduce:

A) its fixed costs but not its variable costs. C) average fixed cost.
B) its variable costs but not its fixed costs. D) marginal revenue.
Answer: B
25. Refer to the above graph. It represents a profit-maximizing firm producing under conditions of pure
competition. When the firm is in equilibrium in the short run, its average fixed cost is:
A) EH. B) DE. C) DH. D) DB.
Answer: B
26. The purely competitive firm above will:
A) shut down. C) produce with long-run economic profits.
B) produce with short-run losses. D) produce with short-run economic profits.
Answer: B
27. A purely competitive firm will be willing to produce at a loss in the short run provided:
A) the loss is no greater than its total variable costs.
B) the loss is no greater than its marginal costs.
C) the loss is no greater than its total fixed costs.
D) price exceeds marginal costs.
Answer: C
28. In general, the supply curve of a purely competitive firm is:

A) identical to the marginal-cost curve.
B) a horizontal line equal to the market price.
C) the rising portion of the average-total-cost (ATC) curve.
D) the rising portion of the marginal-cost curve above the AVC curve.
Answer: D

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Micro Chapter 21 Practice Problems #2 Key

4. The profit-maximizing behavior for a price-taking firm requires it to operate where:

7. Which of the following is characteristic of a perfectly competitive firm’s demand curve?

8. The owner of a competitive firm making zero economic profit

24. When a firm produces less output, it can reduce:

28. In general, the supply curve of a purely competitive firm is:

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