ECON EXAM 3 QUESTIONS
A perfectly competitive firm maximizes profit by producing the quantity at which:
MR = MC.
Consider a perfectly competitive firm in the short run. Assume the firm produces the profit-maximizing output and that it earns economic profits. At the profit-maximizing output, all of the following are correct except:
price is equal to average total cost.
People in the eastern part of Beirut are prevented by border guards from traveling to the western part of Beirut to shop for (or sell) food. This situation violates the perfect competition assumption of:
ease of entry and exit.
Suppose that some firms in a perfectly competitive industry earn negative economic profits. In the long run:
the industry supply curve will shift to the left
The shut-down price is:
the minimum of the AVC curve
Suppose the market for widgets is perfectly competitive. Furthermore, suppose the total cost curve for a typical firm in this market is TC = 175 + 4q2 where q represents the quantity of widgets sold by a single supplier. Suppose that there are 79 sellers in this market, sharing a market demand given by P = 1127 – 3Q, where P represents price per widget and Q represents the market quantity of widgets sold. What is the short-run equilibrium quantity in this market?
Maximizing profits also means that a firm is attempting to:
produce at the output level where the difference between total revenue and total cost is the greatest.
If the price is greater than average total cost at the profit-maximizing quantity of output in the short run, a perfectly competitive firm will:
produce at a profit
The market for breakfast cereal contains hundreds of similar products, such as Froot Loops, corn flakes, and Rice Krispies, that are considered to be different products by different buyers. This situation violates the perfect competition assumption of:
a standardized product.
The perfectly competitive model assumes all of the following except:
that firms attempt to maximize their total revenue.
Suppose that the market for haircuts in a community is perfectly competitive and that the market is initially in long-run equilibrium. Subsequently, an increase in population increases the demand for haircuts. In the short run, we expect that the typical firm is likely to begin:
earning an economic profit.
Zoe's Bakery operates in a perfectly competitive industry. The variable costs at Zoe's Bakery increase, so all of the cost curves (with the exception of fixed cost) shift leftward. The demand for Zoe's pastries does not change, nor does the firm shut down. To maximize profits after the variable cost increase, Zoe's Bakery will ________ its price and ________ its level of production. C. do nothing to; decrease
If the price is greater than the average variable cost and less than the average total cost at the profit-maximizing quantity of output in the short run, a perfectly competitive firm will: C. continue to produce at an economic loss
A perfectly competitive industry with constant costs initially operates in long-run equilibrium. When demand increases, one will observe that in the long and short runs: output will increase.
Lilly is the price-taking owner of an apple orchard. The price of apples is high enough that Lilly is earning positive economic profits. In the long run, Lilly should expect: lower apple prices due to the entry of new firms.
All except one of the following are characteristics of perfect competition. Which is the exception? There are many producers; one firm has a 25% market share, and all of the remaining firms have a market share of less than 2% each
A perfectly competitive firm's short-run supply curve is its: marginal cost curve above the average variable cost curve.
If a competitive firm shuts down for a holiday, it must still pay its: FC
Which of the following is not an assumption that economists make when...
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