ECON 1900 Review Quiz for Chapter 7

1) The four market structure models differ in their assumptions concerning:

a) the number of firms in the industry

b) the ease or difficulty for new firms in entering the industry

c) whether the product is standardized or differentiated

d) all of the above

2) In which of the following market models is the seller of a product a "price taker"?

a) perfect competition

b) monopoly

c) monopolistic competition

d) oligopoly

3) The market model in which there is considerable interdependence among firms is:

a) perfect competition

b) monopoly

c) monopolistic competition

d) oligopoly

4) The demand schedule or curve confronted by the individual perfectly competitive firm is:

a) perfectly inelastic

b) inelastic but not perfectly inelastic

c) perfectly elastic

d) unit elastic

5) Using the total-revenue and total-cost approach the competitive firm should produce, given

total variable costs are covered, the level of output where:

a) total revenue is a maximum

b) total revenue equals total cost

c) a normal profit is realized

d) the positive difference between total revenue and total cost is maximized

6) A firm would be earning an economic profit in the short run if it is producing the quantity

where marginal cost equals price and:

a) average fixed cost is less than price

b) average variable cost is greater than price

c) average total cost is greater than price

d) average total cost is less than price

7) Which of the following is an incorrect formula for calculating economic profit?

a) TR – TC

b) TR – ATC

c) (P – ATC) x Q

d) both a and c

8) This question is based on the following cost data for a firm that sells in a perfectly competitive

market.

Output AFC AVC ATC MC

1 $300 $100 $400 $100

2 150 75 225 50

3 100 70 170 60

4 75 73 148 80

5 60 80 140 110

6 50 90 140 140

7 43 103 146 180

8 38 119 157 230

The total fixed costs for this firm are:

a) $100

b) $200

c) $300

d) $400

9) This question is based on the following cost data for a firm that sells in a perfectly competitive

market.

Output AFC AVC ATC MC

1 $300 $100 $400 $100

2 150 75 225 50

3 100 70 170 60

4 75 73 148 80

5 60 80 140 110

6 50 90 140 140

7 43 103 146 180

8 38 119 157 230

If the market price for the firm's product is $180, the firm's maximum profit in the short run will

be:

a) an economic profit of $238

b) an economic profit of $592

c) an economic profit of $1,071

d) an economic profit of $0

10) This question is based on the following cost data for a firm that sells in a perfectly

competitive market.

Output AFC AVC ATC MC

1 $300 $100 $400 $100

2 150 75 225 50

3 100 70 170 60

4 75 73 148 80

5 60 80 140 110

6 50 90 140 140

7 43 103 146 180

8 38 119 157 230

If the market price is $110, this competitive firm will:

a) close down

b) produce 5 units at a loss of $150

c) produce 5 units at a profit of $150

d) produce 7 units and break even

11) This question is based on the following cost data for a firm that sells in a perfectly

competitive market.

Output AFC AVC ATC MC

1 $300 $100 $400 $100

2 150 75 225 50

3 100 70 170 60

4 75 73 148 80

5 60 80 140 110

6 50 90 140 140

7 43 103 146 180

8 38 119 157 230

This firm's break-even price is:

a) $38

b) $40

c) $70

d) $140

12) An increase in the wage rate that a firm must pay its variable factor (labour) would:

a) lower the firm's shutdown price in the short run

b) raise the firm's shutdown price in the short run

c) have no effect on the firm's shutdown price

d) force the firm to immediately cease production

13) This diagram shows the short-run costs of a perfectly competitive firm.

The marginal cost at the profit-maximizing rate of output is:

a) an dollars

b) nb dollars

c) 0f dollars

d) 0e dollars

14) This diagram shows the short-run costs of a perfectly competitive firm.

Total cost at the profit-maximizing rate of output is given by the area:

a) ecn0

b) 0gan

c) fbag

d) 0fbn

15) Allocative efficiency is achieved in the long run in a competitive industry because

competition forces each firm to produce where:

a) marginal cost equals price

b) fixed cost is zero

c) economic profits are positive

d) long-run average total cost is minimized

16) An economy is producing the goods most wanted by society when for each and every good:

a) price and average cost are equal

b) price and marginal cost are equal

c) economic profit is positive

d) the amount sold equals the amount produced

KEY

1d

2a

3d

4c

5d

6d

7b

8c

9a

10b

11d

12b

13d

14d

15a

16b