Micro Unit 3 & 4 Review

For a perfectly competitive firm, if the market price is $8, then

• marginal revenue is greater than $8.

• marginal revenue is less than $8.

• marginal revenue is equal to $8.

• average revenue is less than $8.

• the firm is making a profit if ATC is $10.

A firm’s short-run marginal cost curve will eventually increase because of

• more efficient production.

• economies of scale.

• diseconomies of scale.

• diminishing marginal returns.

• increasing marginal returns.

Assume that in the short run at the profit maximizing output, the price is lower than average variable cost. The perfectly competitive firm should

• increase its price.

• decrease its price.

• increase its output.

• decrease its output.

• shut down.

If the average variable cost of producing five units of a product is $100 and the average variable cost of producing six units is $125, then the marginal cost of producing the sixth unit is

• $25.

• $125.

• $250.

• $500.

• $750.

The freedom of entry and exit for a perfectly competitive market guarantees

• each firm knows how each other is planning its production

• no cheating on a firm's part to produce an additional unit of output

• economic profits will be zero in the long run

• economic profits will be greater than accounting profits

• economic profits will exceed marginal revenue

The following revenue/cost information is for a business selling corn:

Wages $100

Forgone Wages $50

Revenue $500

Utilities $50

The ECONOMIC profit is:

• $400

• $350

• $300

• $-100

• $0

Which of the following shows the profit-maximizing point for all types of market structures?

• P < MC

• P = MC

• P = ATC

• P = MR

• MR = MC

Which of the following is a condition of perfect competition?

• unique products

• individual firms can affect market supply

• industry sales are small

• easy barriers to entry and exit

• all are characteristics of perfect competition

The demand curve for a perfectly competitive firm is:

• perfectly inelastic.

• perfectly elastic.

• downward sloping.

• relatively elastic.

• relatively inelastic.

If the long-run average total cost curve is decreasing as more output is produced, a firm is experiencing:

• diminishing marginal returns

• economies of scale

• diseconomies of scale

• constant returns to scale

• the limits of fixed resources