ECON 2302 Week 3 Quiz

ECON 2302 Week 3 Quiz  | Assignment Help | Central Texas College

Question 1

If firms are competitive and profit maximizing, the price of a good equals the                               

a. marginal cost of production.

b. total cost of production.

c. fixed cost of production.

d. average total cost of production.

Question 2

Suppose a firm in each of the two markets listed below were to increase its price by 15 percent. In which pair would the firm in the first market listed experience a dramatic decline in sales, but the firm in the second market listed would not?                          

a. #2 lead pencils and college textbooks

b. electricity and cable television

c. gasoline and corn

d. cotton and soybeans

Question 3

A competitive market is in long-run equilibrium. If demand increases, we can be certain that price will                                   

a. fall in the short run. All, some, or no firms will shut down, and some of them will exit the industry. Price will then rise to reach the new long-run equilibrium.

 b. rise in the short run. Some firms will enter the industry. Price will then fall to reach the new long-run equilibrium.

c. not rise in the short run because firms will enter to maintain the price.

d. rise in the short run. Some firms will enter the industry. Price will then rise to reach the new long-run equilibrium.

Question 4

A competitive firm would benefit from charging a price below the market price because the firm would achieve

(i)        higher average revenue.

(ii)       higher profits.

(iii)     lower total costs.

            a. (i) only

            b. (ii) and (iii) only

            c. (i), (ii), and (iii)

             d. None of the above is correct.

Question 5

Consider a firm that operates in a perfectly competitive market.   Currently the firm is producing 50 units of output and at that output level, marginal revenue is $6.   Suppose that the firm increases output by 50%.   Total revenue will be                              

a. $300.

b. $600.

c. the same since price will fall by 50%.

 d. $450.

Question 6

Suppose a firm in a competitive industry has the following cost curves:                              

Refer to Figure 14-13. If the price is $6 in the short run, what will happen in the long run?

a. Nothing. The price is consistent with zero economic profits, so there is no incentive for firms to enter or exit the industry.

b. Individual firms will earn negative economic profits in the short run, which will cause some firms to exit the industry.

 c. Individual firms will earn positive economic profits in the short run, which will entice other firms to enter the industry.

d. Because the price is below the firm’s average variable costs, the firms will shut down.

Question 7

Profit maximizing firms in competitive industries with free entry and exit face a price equal to the lowest possible                                

a. fixed cost of production.

 b. average total cost of production.

c. marginal cost of production.

d. total cost of production.

Question 8

A firm in a competitive market currently produces and sells 500 doorknobs for a price of $10 per doorknob. Which of the following events would decrease the firm's average revenue?                            

a. The market price of doorknobs rises above $10.

 b. The market price of doorknobs falls below $10.

c. The firm increases its output above 500 doorknobs.

d. The firm decreases its output below 500 doorknobs.

Question 9

Table 14-17

The table below shows the price and cost information for a firm that operates in a perfectly competitive market.

 Price  Quantity         Total Cost

 $8       0         $6

 $8       1         $10

 $8       2         $15

 $8       3         $21

 $8       4         $28

 $8       5         $36

 $8       6         $45

Refer to Table 14-17.   Using this information, determine the average variable cost (AVC) when Q = 5.                                   

a. $30.

 b. $6.

c. $36.

d. $5.

Question 10

Table 14-1

Quantity         Price

0          $5

1          $5

2          $5

3          $5

4          $5

5          $5

6          $5

7          $5

8          $5

9          $5

Refer to Table 14-1. If the firm doubles its output from 3 to 6 units, total revenue will                             

a. increase by less than $15.

 b. increase by exactly $15.

c. increase by more than $15.

d. Total revenue cannot be determined from the information provided.