31 May Question MULTIPLE CHOICE
Question
93) One of the requirements for a monopoly is that
A) products are high priced.
B) there is a unique product with no close substitutes.
C) there are several close substitutes for the product.
D) there is no barrier to entry.
E) the product cannot be produced by small firms.
93)
94) A monopoly is a market with
A) no barriers to entry.
B) many substitutes.
C) one supplier.
D) many suppliers each producing an identical product.
E) many suppliers each producing a slightly different product.
94)
95) Technology reduces the average cost of production, so in the long run
i. perfectly competitive firms produce at a lower average cost.
ii. the market price of the good falls.
iii. firms with older plants either exit the market or adopt the new technology.
A) i and ii.
B) i only.
C) iii only.
D) i and iii.
E) i, ii, and iii.
95)
96) When a firm adopts new technology, generally its
A) cost curves are unaffected.
B) cost curves shift downward.
C) production permanently decreases.
D) supply curve shifts leftward.
E) cost curves shift upward.
96)
97) Suppose a perfectly competitive market is in long-run equilibrium with a price of $12. Then
there is a permanent increase in demand. As a result, in the short run the market price ________
and in the long run the number of firms ________ and the price is ________ the price was in the
short run.
A) falls; decreases; is equal to
B) rises; does not change; lower than
C) rises; increases; higher than
D) rises; increases; lower than
E) rises; does not change; is equal to
97)
98) Keith is a perfectly competitive carnation grower. The market price is $2 per dozen carnations.
Keith’s average total cost to grow carnations is $2.50 per dozen. In the long run, Keith will
A) continue to earn an economic profit.
B) raise his price to more than $2.50 per dozen carnations.
C) raise his price to $2.50 per dozen carnations.
D) exit the industry if the price and his costs do not change.
E) incur an economic loss.
98)
21
99) In the long run, existing firms exit a perfectly competitive market
A) only if economic profits are zero.
B) only if they incur an economic loss.
C) if they earn a positive economic profit.
D) if they either earn only a normal profit or if they incur an economic loss.
E) if normal profits are greater than zero.
99)
100) Suppose a perfectly competitive market is in short-run equilibrium. Firms that are incurring a
________ economic loss ________.
A) persistent; exit the industry and shift the market supply curve rightward
B) temporary; decrease their production but definitely stay open
C) persistent; exit the industry and shift the market supply curve leftward
D) temporary; exit the industry
E) persistent; increase their output to increase their profit
100)
101) Suppose a perfectly competitive market is in long-run equilibrium and then there is a
permanent increase in the demand for that product. The new long-run equilibrium will have
A) a permanent decrease in supply.
B) fewer firms in the market.
C) the same number of firms in the market.
D) probably a different number of firms, but it is not possible to determine if there will be
more or fewer firms.
E) more firms in the market.
101)
102) The cranberry market is perfectly competitive. Reports that consuming cranberries can lead to
improved health result in a permanent increase in the demand for cranberries and an immediate
upward jump in the price of cranberries. As time passes, the price of cranberries ________ and
the initial firms’ economic ________.
A) rises still higher; loss will be eliminated
B) rises still higher; profit will not change
C) falls; profit will not change
D) falls; loss will be increased
E) falls; profit will be eliminated
102)
103) In the long run, a perfectly competitive firm
A) makes zero economic profit.
B) makes an economic profit.
C) can make an economic profit, zero economic profit, or incur an economic loss.
D) incurs an economic loss.
E) can make either an economic profit or a normal profit.
103)
104) Juan’s Software Service Company is in a perfectly competitive market. Juan has total fixed cost of
$25,000, average variable cost for 1,000 service calls is $45, and marginal revenue is $75. Juan’s
makes 1,000 service calls a month. What is his economic profit?
A) $25,000 B) $45,000 C) $75,000 D) $5,000 E) $50,000
104)
105) A perfectly competitive firm definitely earns an economic profit in the short run if price is
A) equal to average total cost.
B) greater than average total cost.
C) greater than average variable cost.
D) equal to marginal cost.
E) greater than marginal cost.
105)
106) In the short run, a perfectly competitive firm
A) must make zero economic profit.
B) must make an economic profit.
C) None of the above answers is correct.
D) must incur an economic loss.
E) might make an economic profit, an economic loss, or a normal profit.
106)
107) The above figure shows a perfectly competitive firm. If the market price is $20 per unit, the firm
A) will stay open to produce and will earn a normal profit.
B) will definitely shut down to minimize its losses.
C) will stay open to produce and will incur an economic loss.
D) might shut down but more information is needed about the fixed cost.
E) will stay open to produce and will earn an economic profit.
107)
23
108) The above figure shows a perfectly competitive firm. If the market price is $15, the firm
A) is earning an economic profit.
B) is incurring an economic loss.
C) is earning a normal profit.
D) might shut down but more information is needed about theAVC.
E) will immediately shut down.
108)
109) A perfectly competitive firm is producing 50 units of output and selling at the market price of
$23. The firm’s average total cost is $20. What is the firm’s total cost?
A) $20 B) $150 C) $23 D) $1,000 E) $1,150
109)
110) Suppose that marginal revenue for a perfectly competitive firm is $20 . When the firm produces
10 units, its marginal cost is $20, its average total cost is $22, and its average variable cost is $17.
Then to maximize its profit in the short run, the firm
A) must decrease its output to increase its profit.
B) should shut down.
C) must increase its output to increase its profit.
D) should not change its production because it is already maximizing its profit and is earning
a normal profit.
E) should stay open and incur an economic loss of $20.
110)
111) Peter’s Pencils is a perfectly competitive company producing pencils. Suppose Peter is
producing 1,000 pencils an hour. If the total cost of 1,000 pencils is $500, the market price per
pencil is $2, and the marginal cost is $2, then Peter
A) has an economic profit because marginal revenue is equal to marginal cost at this output
level.
B) should decrease his output to increase his profit.
C) is not maximizing his profit but is earning a normal profit anyway.
D) should increase his output to increase his profit.
E) is maximizing his profit and is earning an economic profit.
111)
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