Question 1

Economists assume the principal motivation of producers is

Accepted Answer

A)  Psychological gratification.
B)  Social status.
C)  Profit.
D)  Their preference for being "their own person."

Question 2

Suppose a firm has an annual budget of $200,000 in wages and salaries, $75,000 in materials, $30,000 in new equipment, $20,000 in rented property, and $35,000 in interest costs on capital.The owner/manager does not choose to pay himself, but he could receive income of $90,000 by working elsewhere.The firm earns revenues of $360,000 per year.To receive a normal profit, the firm described above would have to

Accepted Answer

A)  Experience $10,000 less in cost.
B)  Receive $90,000 more in revenue.
C)  Receive $10,000 more in revenue.
D)  Do nothing since it already earns a normal profit.

Question 3

Refer to Figure 22.3 for a perfectly competitive firm.If the market price is $15,

Accepted Answer

A)  The firm should produce 39 units.
B)  The firm should shut down.
C)  The firm will have above-normal profits.
D)  Economic profits will be zero.

Question 4

When payroll taxes are raised, the firm's marginal cost curve shifts

Accepted Answer

A)  Upward, and supply increases.
B)  Downward, and supply increases.
C)  Upward, and supply decreases.
D)  Downward, and supply decreases.

Question 5

Suppose a firm has an annual budget of $200,000 in wages and salaries, $75,000 in materials, $30,000 in new equipment, $20,000 in rented property, and $35,000 in interest costs on capital.The owner/manager does not choose to pay himself, but he could receive income of $90,000 by working elsewhere.The firm earns revenues of $360,000 per year.What are the annual implicit costs for the firm described above?

Accepted Answer

A)  $450,000.
B)  $160,000.
C)  $90,000.
D)  $360,000.

Question 6

The demand curve for each perfectly competitive firm is

Accepted Answer

A)  Downward-sloping.
B)  Horizontal.
C)  Vertical.
D)  Upward-sloping.

Question 7

In making an investment decision, an entrepreneur

Accepted Answer

A)  Treats all costs as variable.
B)  Makes a shutdown decision if price is below average variable cost.
C)  Must take account of diminishing returns to fixed factors.
D)  Decides the level of output to produce.

Question 8

Which of the following should not be included when calculating accounting profit?

Accepted Answer

A)  The cost of taxes.
B)  The return on the next best alternative investment opportunity.
C)  The cost of rent.
D)  The cost of utilities.

Question 9

The investment decision is made in the short run.

Accepted Answer

A) True 
 B)False

Question 10

When a firm sets its price on the basis of the price being charged by other firms in the market, there is evidence that the firm has market power.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following represents the change in total cost that results from a one-unit increase in production?

Accepted Answer

A)  Marginal profit.
B)  Total revenue.
C)  Marginal cost.
D)  Marginal revenue.

Question 12

A perfectly competitive firm has no market power.

Accepted Answer

A) True 
 B)False

Question 13

In making a production decision, an entrepreneur

Accepted Answer

A)  Decides whether to enter or exit the market.
B)  Decides what level of output will maximize profits.
C)  Determines plants and equipment.
D)  Can change both fixed and variable inputs.

Question 14

If price is less than marginal cost, a perfectly competitive firm should decrease output because

Accepted Answer

A)  Marginal costs are increasing.
B)  Total revenues are decreasing.
C)  The firm is producing units that cost more to produce than the firm receives in revenue, thus reducing profits (or increasing losses) .
D)  Marginal revenue is decreasing.

Question 15

For perfectly competitive firms, price

Accepted Answer

A)  Is greater than marginal revenue.
B)  Is equal to marginal revenue.
C)  Is less than marginal revenue.
D)  And marginal revenue are not related.

Question 16

In defining economic costs, economists emphasize

Accepted Answer

A)  Explicit and implicit costs while accountants recognize only implicit costs.
B)  Explicit and implicit costs while accountants recognize only explicit costs.
C)  Only explicit costs while accountants recognize only implicit costs.
D)  Only explicit costs while accountants recognize explicit and implicit costs.

Question 17

The production decision is another term for the investment decision.

Accepted Answer

A) True 
 B)False

Question 18

An In the News article, "Too Many Sellers: The Woes of T-Shirt Shops," states that if T-shirt shops are perfectly competitive firms, then each shop

Accepted Answer

A)  Is a price setter.
B)  Has market power.
C)  Confronts a downward-sloping demand curve for its own output.
D)  Is a price taker.

Question 19

The primary objective of the producer is to find the rate of output that maximizes profit.

Accepted Answer

A) True 
 B)False

Question 20

Adam Weed is the owner/operator of a flower shop.Last year he earned $250,000 in total revenue.His explicit costs were $175,000 paid to his employees and suppliers (assume that this amount represents the total opportunity cost of these resources) .During the year he received three offers to work for other flower shops with the highest offer being $75,000 per year.Which of the following is true about Adam's accounting and economic profit?

Accepted Answer

A)  Accounting profit = $75,000; economic profit = $0.
B)  Accounting profit = $175,000; economic profit = $75,000.
C)  Accounting profit = $75,000; economic profit = negative $100,000.
D)  Accounting profit = $0; economic profit = negative $75,000.

Exam 8: The Competitive Firm

In defining economic costs, economists emphasize

Correct Answer
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Correct Answer
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When a firm sets its price on the basis of the price being charged by other firms in the market, there is evidence that the firm has market power.

Correct Answer
verified

In making an investment decision, an entrepreneur

Correct Answer
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The production decision is another term for the investment decision.

Correct Answer
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A perfectly competitive firm has no market power.

Correct Answer
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Correct Answer
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The primary objective of the producer is to find the rate of output that maximizes profit.

Correct Answer
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In making a production decision, an entrepreneur

Correct Answer
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Refer to Figure 22.3 for a perfectly competitive firm.If the market price is $15,

Correct Answer
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The investment decision is made in the short run.

Correct Answer
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When payroll taxes are raised, the firm's marginal cost curve shifts

Correct Answer
verified

Correct Answer
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Which of the following represents the change in total cost that results from a one-unit increase in production?

Correct Answer
verified

For perfectly competitive firms, price

Correct Answer
verified

Economists assume the principal motivation of producers is

Correct Answer
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The demand curve for each perfectly competitive firm is

Correct Answer
verified

An In the News article, "Too Many Sellers: The Woes of T-Shirt Shops," states that if T-shirt shops are perfectly competitive firms, then each shop

Correct Answer
verified

Which of the following should not be included when calculating accounting profit?

Correct Answer
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If price is less than marginal cost, a perfectly competitive firm should decrease output because

Correct Answer
verified

Exam 8: The Competitive Firm

In defining economic costs, economists emphasize

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

When a firm sets its price on the basis of the price being charged by other firms in the market, there is evidence that the firm has market power.

Correct AnswerverifiedShow Answer

In making an investment decision, an entrepreneur

Correct AnswerverifiedShow Answer

The production decision is another term for the investment decision.

Correct AnswerverifiedShow Answer

A perfectly competitive firm has no market power.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The primary objective of the producer is to find the rate of output that maximizes profit.

Correct AnswerverifiedShow Answer

In making a production decision, an entrepreneur

Correct AnswerverifiedShow Answer

Refer to Figure 22.3 for a perfectly competitive firm.If the market price is $15,

Correct AnswerverifiedShow Answer

The investment decision is made in the short run.

Correct AnswerverifiedShow Answer

When payroll taxes are raised, the firm's marginal cost curve shifts

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following represents the change in total cost that results from a one-unit increase in production?

Correct AnswerverifiedShow Answer

For perfectly competitive firms, price

Correct AnswerverifiedShow Answer

Economists assume the principal motivation of producers is

Correct AnswerverifiedShow Answer

The demand curve for each perfectly competitive firm is

Correct AnswerverifiedShow Answer

An In the News article, "Too Many Sellers: The Woes of T-Shirt Shops," states that if T-shirt shops are perfectly competitive firms, then each shop

Correct AnswerverifiedShow Answer

Which of the following should not be included when calculating accounting profit?

Correct AnswerverifiedShow Answer

If price is less than marginal cost, a perfectly competitive firm should decrease output because

Correct AnswerverifiedShow Answer

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