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Marginal revenue is equal to


A) total revenue divided by price.
B) the change in total revenue divided by total output.
C) the change in total revenue divided by the change in quantity sold.
D) price divided by quantity sold.

E) A) and B)
F) None of the above

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-The figure above shows depicts the marginal revenue and costs of a perfectly competitive firm. When 170 units are produced, the firm A) would definitely shut down. B) would incur an economic loss. C) would increase its price. D) has total costs less than $2,720. -The figure above shows depicts the marginal revenue and costs of a perfectly competitive firm. When 170 units are produced, the firm


A) would definitely shut down.
B) would incur an economic loss.
C) would increase its price.
D) has total costs less than $2,720.

E) B) and C)
F) None of the above

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A perfectly competitive firm's economic profit is maximized by producing the amount of output such that


A) total revenue equals total variable cost.
B) marginal revenue equals marginal cost.
C) total revenue equals total cost.
D) marginal revenue is equal to total revenue.

E) A) and B)
F) A) and C)

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-The table above shows output and costs of Evan's Subs, a typical perfectly competitive firm in a local market for sandwiches. Evan's fixed cost is $9 per hour. The current market price of a sandwich is $6. If the market price does not change, Evan's will A) continue to operate in the short run, but will exit the industry in the long run. B) continue to operate in the short run and in the long run. C) shut down. D) increase its production in the long run. -The table above shows output and costs of Evan's Subs, a typical perfectly competitive firm in a local market for sandwiches. Evan's fixed cost is $9 per hour. The current market price of a sandwich is $6. If the market price does not change, Evan's will


A) continue to operate in the short run, but will exit the industry in the long run.
B) continue to operate in the short run and in the long run.
C) shut down.
D) increase its production in the long run.

E) B) and D)
F) A) and C)

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-In the above figure, when the firm produces output corresponding to point c, the firm's marginal cost A) is less than its marginal revenue. B) equals its marginal revenue. C) exceeds its marginal revenue. D) equals its average revenue. -In the above figure, when the firm produces output corresponding to point c, the firm's marginal cost


A) is less than its marginal revenue.
B) equals its marginal revenue.
C) exceeds its marginal revenue.
D) equals its average revenue.

E) None of the above
F) A) and D)

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In the long run, perfectly competitive firms make zero economic profit, that is, their owners make a normal profit.

A) True
B) False

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A perfectly competitive market is characterized by


A) high barriers to entry.
B) firms that are price setters.
C) firms facing a downward sloping demand curve.
D) no restrictions on entry into the market.

E) B) and C)
F) None of the above

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What is a perfectly competitive firm's short-run supply curve?

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A perfectly competitive firm's...

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Homer's Holesome Donuts has determined that its profit-maximizing quantity is 10,000 donuts per year. Homer's earns $12,000 in revenue from the sale of those donuts. Homer's has two costs. First he pays $16,000 in annual rental payments for its five-year lease on its store. Second Homer incurs an additional cost of $5,000 for ingredients. Should Homer's exit the market in the long run?


A) yes, because he is incurring an economic loss
B) yes, because all costs are fixed in the long run
C) no, because he is making an economic profit
D) no, because all costs are variable in the long run

E) B) and C)
F) A) and D)

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In a perfectly competitive market in the short run, as the market demand increases, the firms ________ their output and their economic profit ________.


A) increase; increases
B) increase; decreases
C) decrease; decreases
D) decrease; increases

E) All of the above
F) A) and D)

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-In the above figure, if the price is $12 per unit, how many units will a profit maximizing perfectly competitive firm produce? A) 0 B) 20 C) 30 D) 35 -In the above figure, if the price is $12 per unit, how many units will a profit maximizing perfectly competitive firm produce?


A) 0
B) 20
C) 30
D) 35

E) None of the above
F) A) and B)

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-Jimmy grows corn. His total revenue and total cost are in the above table. What quantity of corn maximizes his profit and what is his profit? What is the marginal revenue and marginal cost at this quantity? -Jimmy grows corn. His total revenue and total cost are in the above table. What quantity of corn maximizes his profit and what is his profit? What is the marginal revenue and marginal cost at this quantity?

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Jimmy's profit is greatest if he grows e...

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For prices above the minimum average variable cost, a perfectly competitive firm's supply curve is


A) horizontal at the market price.
B) vertical at zero output.
C) the same as its marginal cost curve.
D) the same as its average variable cost curve.

E) A) and B)
F) B) and D)

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-In the long run, perfectly competitive firms make zero economic profit. This result is due mainly to which of the following assumptions? A) few buyers and sellers B) unrestricted entry and exit C) firms must act as price takers D) demand for the firm's output is perfectly elastic -In the long run, perfectly competitive firms make zero economic profit. This result is due mainly to which of the following assumptions?


A) few buyers and sellers
B) unrestricted entry and exit
C) firms must act as price takers
D) demand for the firm's output is perfectly elastic

E) A) and C)
F) A) and D)

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-In the long run, the economic profit of a firm in a perfectly competitive market A) will be above zero. B) will be below zero. C) will equal zero. D) can be above, below, or equal to zero. -In the long run, the economic profit of a firm in a perfectly competitive market


A) will be above zero.
B) will be below zero.
C) will equal zero.
D) can be above, below, or equal to zero.

E) A) and D)
F) B) and C)

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-In the long run, fixed costs are A) zero and variable costs are zero. B) zero and variable costs are positive. C) positive and variable costs are zero. D) positive and variable costs are positive. -In the long run, fixed costs are


A) zero and variable costs are zero.
B) zero and variable costs are positive.
C) positive and variable costs are zero.
D) positive and variable costs are positive.

E) None of the above
F) All of the above

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In the long run, perfectly competitive firms make zero economic profit (their owners earn a normal profit) because


A) any economic profit would attract newcomers to the industry.
B) the firms are incompetent.
C) any economic loss would increase the demand for the good, thereby raising its price.
D) there are many buyers and sellers.

E) A) and D)
F) All of the above

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-The figure above shows the costs for a grower in the perfectly competitive turnip market. If the price is $1,000 for a ton of turnips, the firm is A) making an economic profit. B) making zero economic profit. C) incurring an economic loss. D) More information is needed to determine if the firm is making a positive economic profit, zero economic profit, or incurring an economic loss. -The figure above shows the costs for a grower in the perfectly competitive turnip market. If the price is $1,000 for a ton of turnips, the firm is


A) making an economic profit.
B) making zero economic profit.
C) incurring an economic loss.
D) More information is needed to determine if the firm is making a positive economic profit, zero economic profit, or incurring an economic loss.

E) A) and D)
F) A) and C)

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Entry by competitive firms decreases the market price, while exit by competitive firms increases the market price. Explain why firms enter or exit an industry and why these price changes occur.

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Competitive firms will enter an industry...

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All along the beach in San Diego, California are shops which rent boogie boards for $3 per hour. Tourists perceive that all rental boogie boards are identical and there are no restrictions on entry and exit in the boogie board market. Suppose Surf's Up is a boogie board rental shop. To maximize profits, Surf's Up would produce a quantity where


A) Marginal revenue is greater than marginal cost.
B) Marginal revenue is equal to marginal cost.
C) Marginal revenue is less than marginal cost.
D) Price is maximized.

E) None of the above
F) All of the above

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