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AP Unit III Micro Review

Total questions: 40

Worksheet time: 42mins

Name
Class
Date
1.

The shutdown point for a firm in perfect competition is when

a)

p = mc

b)

p = minimum ATC

c)

p = minimum AVC

d)

p = mr

2.

If a firm in perfect competition tried to raise prices its revenue would

a)

decrease

b)

increase

c)

decrease to $0

d)

decrease by an indeterminate amount

3.
If Mark wants to sell his corn at a local farmer's market, he must be aware that the product is standardized and that he will have no control over the price. The market structure he is MOST likely participating in is
a)
monopolistic competition
b)
oligopoly
c)
perfect competition
d)
monopoly
4.

The demand curve for a firm in perfect competition is

a)

relatively elastic and has a coefficient greater than 1

b)

relatively inelastic and has a coefficient less than 1

c)

perfectly inelastic and has a coefficient of 0

d)

perfectly elastic and has a coefficient of infinity

5.
Under perfect competition,
a)
products are similar but not identical.
b)
numerous restrictions prevent firms from entering the market.
c)
no seller can sell a product above the prevailing market price.
d)
a single seller can affect price.
6.

In the short run firms in perfect competition are taking a loss. Now assume that the market now adjust to its long run equilibrium. Which of following will occur?

a)

Market Price Increases Firm Price Decreases

b)

Market Quantity Decreases Firm Quantity Increases

c)

Market Quantity Decreases Firm Price Decreases

d)

Market Quantity Increases Firm Quantity Decreases

7.

Profits will be maximized when a firm produces the quantity at which

a)

MR = minimum ATC

b)

MR = MC

c)

MC = minimum ATC

d)

P = minimum AVC

8.

If the price of a product is $30 and its marginal cost is $15:

a)

resources are being underallocated to the product

b)

resources are being over allocated to the product

c)

the firm is producing an optimal amount

d)

the firm is allocatively efficient

9.

A firm in perfect competition is _______ in the short run and ________ in the long run.

a)

productively efficient, allocatively efficient

b)

allocatively efficient, productively efficient

c)

allocatively efficient, allocatively efficient & productively efficient

d)

productively efficient, productively efficient & allocatively efficient

10.
This is the easiest market structure to enter because of low barriers to entry and the number of producers. 
a)
Monopoly
b)
Monopolistic Competition
c)
Perfect Competition
d)
Oligopoly 
11.

Firms earn zero economic profit or normal profit only in the

a)

short run and price is = to minimum ATC

b)

long run and price is = to minimum AVC

c)

short run and price is = to minimum AVC

d)

long run and price is = to minimum ATC

12.

Economies of scale are associated with

a)

high start up costs, that when spread over a larger volume provides a lower average cost per unit.

b)

high start up costs, that when spread over a larger volume provides a higher average cost per unit.

c)

low start up costs and high revenues.

d)

low start up costs and low revenues.

13.

A profit maximizing firm will sell at the point where

a)

MC is falling

b)

MR is rising

c)

MR = MC

d)

MR > MC

14.

When graphing the cost curves, marginal costs will intersect average total costs and average variable costs

a)

at their lowest points

b)

at their highest points

c)

never

d)

when average fixed costs are zero

15.

Marginal costs

a)

are the production costs of making one more product

b)

are the additional costs of making one more product

c)

are the supplemental costs of making one more product

d)

all of these

16.
In the short run, the firm will realize an economic loss but will continue to produce if the price is:
a)
below P2
b)
between P1 and P2 
c)
between P2 and P3 
d)
between P3 and P4 
17.
Assume that a profit-maximizing, perfectly competitive firm has economic losses in the short run. If the firm continues to produce and sell its goods, then which of the following must be true? 
a)
The firm is covering all of its fixed and variable costs of production. 
b)
The firm is covering all of its fixed costs but not all of its variable costs of production. 
c)
The firm must have raised the price of its goods in order to minimize its losses. 
d)
The firm is covering all of its variable costs but not all of its fixed costs of production. 
18.
Based on the cost and output data in the table shown, a perfectly competitive firm will shut down if price falls below:
a)
$15 
b)
$16
c)
$18
d)
$20
19.
For a perfectly competitive firm producing the profit-maximizing quantity, the average total cost is $10 and the average variable cost is $8. If the market price for its product is $10, which of the following is true for the firm? 
a)
It is sustaining a loss and should shut down. 
b)
It is earning zero economic profit and will remain in business.
c)
It will temporarily shut down until price rises. 
d)
The firm is earning positive economic profit. 
20.
A profit-maximizing firm will shut down in the short run any time the firm’s total revenue is less than its:
a)
total cost
b)
fixed cost
c)
total variable cost 
d)
explicit cost
21.
All of the following are essential characteristics of a perfectly competitive industry EXCEPT: 
a)
All products produced by the firms in the industry are homogeneous. 
b)
All firms in the industry are price takers. 
c)
Price is equal to marginal revenue for every firm in the industry. 
d)
There are barriers to entry into and exit from the industry.
22.
Short run marginal costs eventually increase because of the effects of:
a)
increasing marginal product
b)
diminishing marginal product
c)
increasing fixed costs
d)
diseconomies of scale
23.
At 100 units of output, a firm's total cost is $10,000. If the firm's total fixed cost is $4,000, its average variable cost is equal to:
a)
$140
b)
$100
c)
$60
d)
$40
24.
An entrepreneur has earned enough total revenue to cover her accounting costs, but economic losses are being incurred. What must be true? 
a)
Her accounting costs are larger than her economic costs 
b)
Her implicit costs are less than her accounting costs
c)
Her accounting profits are greater than her economic costs
d)
Her accounting profits are less than her implicit costs 
25.
When total physical product is at its maximum, marginal physical product must be:
a)
greater than one
b)
equal to one
c)
equal to zero
d)
less than one
26.
As output of a firm increases, the difference between the firm’s average total cost and its average variable cost gets smaller because the firm’s
a)
total cost is increasing
b)
marginal cost is increasing
c)
average fixed cost is decreasing
d)
marginal product of labor is decreasing 
27.

The graph above shows the marginal product (MP) and the average product (AP) of labor for a firm that uses labor as the only variable input. At which quantity of labor does marginal cost change from decreasing to increasing?

a)

L1

b)

L2

c)

L3

d)

L5

28.
A firm produces 400 books and sells each book for $15. If the explicit cost of producing the books is $4,500 and the implicit cost is $1,000, the firm’s economic profit is:
a)
$0
b)
$500
c)
$1,000
d)
$1,500
29.
Assume that the fixed cost is $50. Based on the cost and output data in the table, what is the marginal cost when the firm increases its output from three to four units AND the average total cost of producing 4 units (respectively)? 
a)
MC=$35; ATC=$40
b)
MC=$35; ATC=$35
c)
MC=$25; ATC=$35
d)
MC=$25; ATC=$25
30.
Suppose that a firm begins to hire workers for a newly completed plant with a fixed amount of machinery. As the firm hires additional workers, one would expect the marginal product to: 
a)
fall initially, but eventually rise
b)
rise initially, but eventually fall
c)
rise consistently due to diminishing returns
d)
rise consistently due to the advantages of specialization
31.

Assume a firm is in perfect competition and the market is in long-run equilibrium. The government gives a lump-sum subsidy to each firm producing in the industry. What will happen to the firm's quantity in the short run?

a)

It would increase due to the due to a decrease in marginal costs.

b)

It would increase due to the decrease in ATC.

c)

It would decrease as more firms enter in the short run.

d)

It would stay the same because a lump sum subsidy does not change a firm's marginal costs.

32.

Assume a firm is in perfect competition and the market is in long-run equilibrium. The government gives a lump-sum subsidy to each firm producing in the industry. What will happen to the market price and quantity in the long run?

a)

In the long run the market price and quantity will stay the same as its original price quantity

b)

In the long run the market price will decrease and market quantity will increase as more firms enter due to the subsidy.

c)

In the long run the market price will increase and market quantity will decrease as more firms enter due to the subsidy.

d)

In the long run market price will remain constant and market quantity will increase as more firms enter due to the subsidy.

33.

The above figure shows a perfectly competitive firm. If the market price is $15, the firm

a)

is incurring an economic loss.

b)

is making an economic profit.

c)

is making zero economic profit.

d)

will immediately shut down.

e)

might shut down but more information is needed about the AVC.

34.

A perfectly competitive firm is earning an economic profit when total fixed costs increase. Assuming the firm does not shut down, in the short run the firm will

a)

charge a higher price.

b)

produce more output so the extra revenue will cover the increased costs.

c)

produce less output to decrease total costs.

d)

continue producing the same quantity as before but will make less economic profit.

e)

continue producing the same quantity as before and continue making the same economic profit as before.

35.

What is the goal of a firm?

a)

to make profits

b)

to maximize profits

c)

to maximize revenue

d)

none of the above

36.
This perfect competitor will shut down below which price/output relationship?
a)
K
b)
M
c)
L
d)
R
37.
At price G, the area of which rectangle represents total revenue for the profit-maximizing perfect competitor?
a)
0GKC
b)
0FJC
c)
FGKJ
d)
EFJH
38.
At price G, profits for the perfect competitor are represented by the area of which rectangle?
a)
0GKC
b)
0FJC
c)
FGKJ
d)
0EHC
39.

This perfect competitor operate in the long run will produce at which point?

a)
K
b)
M
c)
L
d)
R
40.

If the product price is $85, how many units of output must the firm produce in order to maximize profits?

a)

0

b)

3

c)

4

d)

5

e)

6

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