Chapter 6.1 questions Flashcards
Which of the following is NOT true of a perfectly competitive firm?
a. It faces a perfectly elastic demand curve.
b.It is unable to influence the price of the good it sells.
c. It seeks to maximize revenue.
d. It sells only a small fraction of the total quantity exchanged in the market.
c. It seeks to maximize revenue.
One implication of the shape of the demand curve facing a perfectly competitive firm is that:
a. if the firm increases its price above the market price, it will earn higher revenue.
b. if the firm decreases its price below the market price, it will earn higher revenue.
c. if the firm increases its price above the market price, it will earn zero revenue.
d. the market would be unable to reach a new equilibrium if demand changed.
c. if the firm increases its price above the market price, it will earn zero revenue.
Which of the following is NOT a characteristic of a perfectly competitive market?
a. Each firm in the market sells a somewhat different variant of the good.
b. There are many sellers, each of which sells only a small fraction of the total quantity exchanged.
c. Buyers and sellers are well-informed.
d. Sellers can easily buy and sell the productive resources needed to enter the market.
a. Each firm in the market sells a somewhat different variant of the good.
Suppose a perfectly competitive firm is producing 1,000 units of output and the marginal cost of the 1,000th unit is $7. If the firm can sell each unit of output for $7 and the firm’s revenue is sufficient to cover its variable cost, the firm should:
a. leave production unchanged.
b. increase price to increase profits.
c. increase production to increase profits.
d. decrease production to lower losses.
a. leave production unchanged.
firms should expand output until price is equal to marginal cost. In this case, price equals marginal cost, so the firm is maximizing its profits (provided its revenue is sufficient to cover its variable cost).
If a perfectly competitive firm produces an output level at which price is greater than marginal cost, then the firm should:
a. employ more fixed factors of production.
b. reduce output to earn greater profits or smaller losses.
c. expand output to earn greater profits or smaller losses.
d. leave its output decision unchanged because it is earning a profit.
c. expand output to earn greater profits or smaller losses.
Individual supply curves generally slope ______ because ______.
a. downward; sellers become more efficient with practice.
b. upward; profits increase with quantity.
c. downward; inputs are cheaper when purchased in high volume.
d. upward; of increasing marginal costs.
d. upward; of increasing marginal costs.
As the market price of a service increases, more potential sellers will decide to perform that service because:
a. higher prices result in higher revenue.
b. more potential sellers will find that the market price exceeds their reservation price.
c. it’s more prestigious to produce high-priced services.
d. higher prices lead to lower opportunity costs.
b. more potential sellers will find that the market price exceeds their reservation price.
A fixed factor of production:
a. is fixed in the long run but variable in the short run.
b. is fixed only in the short run.
c. is fixed in both the short run and the long run.
d. is common in large firms but rare in small firms.
b. is fixed only in the short run.
One reason that variable factors of production tend to show diminishing returns in the short run is that:
a. capital equipment is often idle in the short run.
b. there is only so much that can be produced using additional variable inputs when some factors of production are fixed.
c. large firms cannot effectively manage their resources.
d. the cost of employing additional resources increases as firms employ more of those resources.
b. there is only so much that can be produced using additional variable inputs when some factors of production are fixed.
If a production process exhibits diminishing returns, then as output rises:
a. average total cost will eventually decrease.
b. marginal cost will eventually increase.
c. total fixed cost will eventually increase.
d. total revenue will eventually decrease.
b. marginal cost will eventually increase.
In general, if the price of a fixed factor of production increases:
a. price rises.
b. marginal costs are unchanged.
c. marginal costs increase.
d. the profit maximizing level of output falls.
b. marginal costs are unchanged.
When plotting marginal and average cost curves, the ______ cost curve always crosses the ______ cost curve at its ______.
a. average fixed; marginal; minimum
b. marginal; average total; minimum
c. marginal; average variable; maximum
d. average variable; marginal; maximum
b. marginal; average total; minimum
