CH 14 Practice?s - MS. LOPICCOLO'S WEBSITE



AP Microeconomics Name:__________________________________________

CH 14 Practice Problems Hour:_____

Chapter 14: Perfect Competition

Practice Problems

1. If the marginal revenue of the next widget the firm produces is $50 and its marginal cost is $35, a firm should: 

A. reconsider past production decisions.

B. decrease production.

C. increase production.

D. hold production constant.

2. As long as marginal cost is below marginal revenue, a perfectly competitive firm should: 

A. increase production.

B. hold production constant.

C. decrease production.

D. reconsider past production decisions.

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

A. MR = P.

B. MR = AVC.

C. P = MC.

D. P = AVC.

4. To maximize profits, a perfectly competitive firm should produce where marginal: 

A. cost equals total revenue.

B. cost exceeds marginal revenue.

C. cost equals marginal revenue.

D. revenue exceeds marginal cost.

5. A perfectly competitive firm facing a price of $10 decides to produce 100 widgets. If its marginal cost of producing the last widget is $12 and it is seeking to maximize profit, the firm should: 

A. produce more widgets.

B. produce fewer widgets.

C. continue producing 100 widgets.

D. shut down.

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

A. marginal revenue equals its marginal cost.

B. price exceeds its marginal cost.

C. price exceeds its marginal revenue.

D. marginal cost exceeds its marginal revenue.

7. Suppose a perfectly competitive firm can increase its profits by increasing its output. Then it must 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.

[pic]

 

8. Refer to the graph above. Currently, if this perfectly competitive firm is maximizing profit, the market price is: 

A. $6.50 and marginal revenue for the firm is $5.00

B. $5.00 and marginal revenue for the firm is $3.00

C. $5.00 and marginal revenue for the firm is $5.00

D. $6.50 and marginal revenue for the firm is $6.50

9. Refer to the graph above. The marginal cost of producing the 60th unit is: 

A. $6.50.

B. $5.00.

C. $3.00.

D. $3.50.

10. Refer to the graph above. If the firm increases output from 40 to 50, total revenue will increase: 

A. more than total cost, so profit will increase

B. more than total cost, so profit will decrease

C. less than total cost, so profit will increase

D. less than total cost, so profit will decrease

11. Refer to the graph above. If the firm increases output from 50 to 60, total revenue will increase: 

A. more than total cost, so profit will increase.

B. more than total cost, so profit will decrease.

C. less than total cost, so profit will increase.

D. less than total cost, so profit will decrease.

[pic]

12. Refer to the graph above. The supply curve for the perfectly competitive firm is best represented by the segment: 

A. AB

B. BD

C. CE

D. DE

 

13. Refer to the graph above. A perfectly competitive firm would never operate if the price drops to which segment of the marginal cost curve? 

A. AC

B. CD

C. DE

D. CE

 

[pic]

14. Refer to the graph above. If market price is currently $7.00 per unit, this perfectly competitive firm will maximize profit by producing: 

A. 450 units of output.

B. 650 units of output.

C. 850 units of output.

D. between 550 and 650 units of output.

 

15. Refer to the graph above. If market price increases from $5.00 per unit to $6.00 per unit, a profit-maximizing perfectly competitive firm will: 

A. increase output from 650 to 750.

B. decrease output from 750 to 650.

C. continue to produce 650 units.

D. produce 850 units of output.

16. Refer to the graph above depicting a perfectly competitive firm. If average variable cost is $3 at quantity 450, the points A through E represent the: 

A. firm's total cost curve.

B. firm's total revenue curve.

C. demand for the firm's product.

D. firm's supply curve.

 

17. A perfectly competitive firm will be profitable if price at the profit-maximizing quantity is above: 

A. MC.

B. AVC.

C. ATC.

D. AFC.

 

[pic]

18. Refer to the table above. If the market price is $8, a perfectly competitive profit-maximizing firm would produce: 

A. 1 unit of output.

B. 2 units of output.

C. 3 units of output.

D. 4 units of output.

19. 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.

 

[pic]

20. Refer to the graph above. What price represents the shut-down price? 

A. P1.

B. P2.

C. P3.

D. P4.

 

21. Refer to the graph above. If the market price is P2 the firm will produce: 

A. Q2 and incur a loss.

B. Q3 and earn a profit.

C. Q3 and break even.

D. Q4 and incur a loss.

 

[pic]

22. Refer to the graph above depicting a perfectly competitive firm. In order to maximize profit, the firm represented will produce: 

A. 40 units of output.

B. 90 units of output.

C. 110 units of output.

D. 130 units of output.

23. Total profit is maximized at the output level at which the: 

A. vertical distance between the total revenue curve and the total cost curve is maximized.

B. total cost and total revenue curves intersect.

C. area between the total revenue and total cost curves is greatest.

D. vertical distance between the total revenue and total cost curves is minimized.

 

[pic]

24. Refer to the graph above. Suppose that the market price is $3. Given 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.

25. Refer to the graph above. If the market price is $4, a perfectly competitive firm: 

A. breaks even.

B. earns a profit.

C. incurs a loss but can still cover its variable costs and some of its fixed costs.

D. incurs a loss and cannot cover its variable costs.

 

[pic]

26. Refer to the graph above. If the firm is producing 250 units of output, profit is equal to: 

A. $38.

B. -$38.

C. $0.

D. $30.

 

27. Refer to the graph above. If the firm is producing 450 units of output, profit is equal to: 

A. $38.

B. -$30.

C. $0.

D. $30.

28. Suppose there are 1,000 firms in a perfectly competitive market and each maximizes profit at 25 units of output when market price is $1.00 per unit. One of the points on the market supply curve must be at: 

A. price = $25 and quantity supplied = 125.

B. price = $25 and quantity supplied = 24,000.

C. price = $1 and quantity supplied = 125.

D. price = $1 and quantity supplied = 25,000.

29. Suppose that the firms in the perfectly competitive oat industry are currently receiving a price of $2 per bushel for their product. The minimum possible average total cost of producing oats in the long run is $1 per bushel. It follows that: 

A. the oat industry is in equilibrium.

B. new firms will enter the oat industry.

C. the price of oats will remain $2 per bushel in the long run.

D. firms in the oat industry will earn economic profits in both the long run and in the short run.

 

[pic]

30. Refer to the graph above. Assuming that the industry continues to operate under conditions of perfect competition and that the cost curves do not shift, in the long run this firm will produce: 

A. 800 units of output.

B. 1,000 units of output.

C. 1,200 units of output.

D. 1,400 units of output.

 

31. In 2009 Circuit City closed its stores. If we assume this was a short run decision, then the most likely explanation for it is that the price of a typical product sold at Circuit City stores was: 

A. greater than the average total cost of producing the toy.

B. equal to the average total cost of producing the toy.

C. less than the average total cost of producing the toy, but greater than the average variable cost.

D. less than the average variable cost of producing the toy.

32. Refer to the graph below.

 [pic] 

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, so the firm should shut down.

 

33. Refer to the graphs below.

 [pic] 

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

34. If a perfectly competitive industry is in long run equilibrium, the price of the product equals minimum: 

A. marginal cost.

B. average total cost.

C. average variable cost.

D. fixed cost.

 

35. Assume that the T-shirt industry is perfectly competitive. If the industry is in long run equilibrium when the market price of T-shirts is $10, then: 

A. minimum long run average total cost is less than $10.

B. marginal cost exceeds $10.

C. minimum long run average total cost is $10.

D. minimum average variable cost equals marginal cost.

 

[pic]

36. Refer to the graph above depicting a perfectly competitive firm. When the industry is in long run competitive equilibrium: 

A. the price of the product will be $6.

B. the firm will produce 100 units of output.

C. the firm will earn economic profits of $300 per day.

D. the marginal cost of production will be $3.

 

37. The existence of positive economic profits induces firms to: 

A. enter an industry, which shifts the market supply curve to the left and decreases market price.

B. enter an industry, which shifts the market supply curve to the right and increases market price.

C. exit an industry, which shifts the market supply curve to the right and decreases market price.

D. enter an industry, which shifts the market supply curve to the right and decreases market price.

38. The existence of economic losses induces firms to: 

A. exit an industry, which shifts the market supply curve to the left and increases market price.

B. enter an industry, which shifts the market supply curve to the right and decreases market price.

C. enter an industry, which shifts the market supply curve to the left and decreases market price.

D. exit an industry, which shifts the market supply curve to the right and decreases market price.

 

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