04 Jun Question Perfect Competition 1. A firm operating in a perfect market ma
Question
Perfect Competition
1. A firm operating in a perfect market maximizes its profit by adjusting a. its output price until it exceeds average total cost as much as possible. b. its output price until it exceeds marginal cost as much as possible. c. its output until its marginal cost equals output price. d. its output until its average total cost is minimized.
When answering the next 3 questions (2-4), refer to the graph below:
2. Assuming this firm maximizes profit, it will 4a. produce 0A at a price of P . 1b. produce 0D at a price of P . c. incur a total cost of GC times 0C at point I. d. do all the above.
3. Assuming this firm maximizes profit, it will a. procure 0A regardless of price. 4b. produce 0A only at price of P . 2c. make a zero profit at price P (output 0C). 1d. make a profit of KL times 0D at price P .
4. Assuming this firm maximizes profit, it will 1a. incur total fixed cost of KL at a price of P . 2b. incur total variable cost of HC at a price of P . c. supply varying quantities in the short run, depending on the price–quantities that one can read off on line EI. 3d. make a loss of FM times 0B at price P .
5. In the short run, no firm operates with a loss, unless a. variable cost equals fixed cost. b. variable cost falls short of fixed cost. c. total revenue covers variable costs. d. total revenue covers fixed cost.
6. For a firm operating in a perfect market, its short-run supply is identical with the rising arm of a. its marginal-cost curve. b. its average-fixed-cost curve. c. its average-total-cost curve. d. none of the above.
7. A good’s short-run supply curve is shifted to the right by a. a fall in the good’s price. b. a rise in the prices of inputs used to make the good. c. an improvement in the technology of making the good. d. none of the above.
8. Being a price taker in a market means that the seller a. charges each consumer the maximum that she will be3 able to pay for the product. b. has no choice but to charge the equilibrium price that results from the market supply and demand curves. c. takes her price from her average total cost curve. d. sells her products at different prices to different customers.
9. The statement that marginal cost = marginal revenue leads to profit maximization of loss minimization is true a. all the time. b. only in the long run. c. only if marginal cost is rising at the point of equality. d. only if average total cost is falling at the point of equality.
10. In perfect competition, when economic profits exist in the short run, they are very tenuous because a. costs will inevitably increase and eliminate profit. b. price will fall because market supply will increase. c. firms are driven to increase output in the short run to the point where average total cost will equal price. d. firms are driven in the short run to reduce output until average total cost equals price.
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