Question 1

Signals:
A) have no importance in economics.
B) convey information about the profitability of various markets.
C) are only a characteristic of competitive markets.
D) lead to less competition in markets.
E) result in less information in a market.

Accepted Answer

Signals are important in economics as they convey information about the profitability of various markets. They can help investors and businesses make decisions about where to invest their resources. While signals are more prevalent in competitive markets, they can also exist in monopolistic or oligopolistic markets. Signals can result in more competition as businesses strive to take advantage of profitable markets.

Question 2

According to the accompanying figure,if the price is $5,the firm is making:

A) a loss and will exit the market.
B) a profit and will exit the market.
C) a loss and more firms will enter the market.
D) a profit and more firms will enter the market.
E) zero profits and the market is at long-run equilibrium.

Accepted Answer

The answer of According to the accompanying figure,if the price...

Question 3

Chuck Diesel Burger is a food truck in Houston,Texas.Imagine that Chuck Diesel Burger's minimum average total cost (ATC)is $3.75 and that its minimum marginal cost (MC)is $2.50.Assume there are no barriers to entry into or exit from the food-truck market.Chuck Diesel Burger will break even if the price is equal to:
A) $4.00.
B) $3.75.
C) $3.00.
D) $2.50.
E) $2.00.

Accepted Answer

To break even, the price must be equal to the minimum average total cost (ATC) of $3.75. This means that Chuck Diesel Burger will earn enough revenue to cover all of its costs but will not make any profit. If the price is lower than the ATC, Chuck Diesel Burger will incur losses, and if it is higher than the ATC, the firm will earn profits. Therefore, the best choice is option B) $3.75.

Question 4

If Nicole's Knick-Knacks is a perfectly competitive firm and is making zero economic profits:
A) firms will enter the market.
B) firms will exit the market.
C) Nicole's Knick-Knacks will stay in the market.
D) the market supply curve will shift to the left.
E) the market supply curve will shift to the right.

Accepted Answer

In a perfectly competitive market, zero economic profit means that firms are covering all their costs, including opportunity costs, so there is no incentive to enter or exit the market. Nicole's Knick-Knacks will stay in the market.

Question 5

If the price is $3,the firm is making:
A) a loss and will exit the market.
B) a profit and will exit the market.
C) a loss and more firms will enter the market.
D) a profit and more firms will enter the market.
E) zero profits and the market is at long-run equilibrium.

Accepted Answer

If the price is $3 and the firm is making a loss, it will eventually exit the market in the long run. This is because it is not covering its costs and cannot sustain its operations. Thus, there will be a decrease in the number of firms in the market.

Question 6

You can tell a firm is operating in a market that is in long-run competitive equilibrium if:
A) economic profits are positive.
B) economic profits are negative.
C) your accountant tells you profits are negative.
D) your accountant tells you profits are zero.
E) economic profits are zero.

Accepted Answer

In long-run competitive equilibrium, firms are earning only normal profits (zero economic profits). This is because in a perfectly competitive market, there are no barriers to entry or exit, meaning that firms cannot earn sustained economic profits in the long run. Therefore, option E, economic profits are zero, is the correct choice.

Question 7

Refer to the accompanying figure.A firm would produce in the long run only if the market price is:

A) above $20.
B) above $15.
C) between $15 and $20.
D) above $8.
E) between $8 and $15.

Accepted Answer

The answer of Refer to the accompanying figure.A firm would...

Question 8

Kimberly owns a cupcake shop in Newport Beach,California.The market for cupcakes is very competitive.At Kimberly's current production level,her marginal cost is $25 and her marginal revenue is $29.To maximize profits,Kimberly should:
A) decrease production.
B) keep production the same.
C) increase the price.
D) decease the price.
E) increase production.

Accepted Answer

Kimberly's marginal revenue is greater than her marginal cost, which means that she is earning a profit with each additional unit of production. Therefore, to maximize profits, she should increase production.

Question 9

In the long run,if a firm is making a loss,it will:
A) continue to operate no matter what.
B) continue to operate if it covers its fixed costs.
C) increase production in order to increase profits.
D) decrease production in order to increase profits.
E) stop producing and exit the market.

Accepted Answer

If a firm is consistently making a loss, it is not covering its costs and is not generating enough revenue to stay afloat. In the long run, the firm will have to exit the market in order to cut its losses and avoid additional financial harm. Therefore, option E is the best choice.

Question 10

If firms in a competitive market are incurring economic losses,you would expect firms to:
A) leave the market, causing the demand curve to shift to the right.
B) enter the market, causing the demand curve to shift to the left.
C) leave the market, causing the supply curve to shift to the right.
D) enter the market, causing the supply curve to shift to the left.
E) leave the market, causing the supply curve to shift to the left.

Accepted Answer

When firms incur economic losses, some will exit the market, reducing the overall supply and causing the supply curve to shift to the left.

Question 11

Refer to the accompanying set of graphs to answer the questions that follow.

-Which graph would result in firms entering a perfectly competitive market in the long run?
A) A
B) B
C) C
D) D
E) E

Accepted Answer

The answer of Refer to the accompanying set of graphs...

Question 12

Firms in every market structure:
A) make long-run economic profits.
B) are in competition with many other firms.
C) leave the market as soon as they experience loss of profits.
D) will attempt to maximize profits.
E) face a horizontal demand curve.

Accepted Answer

Regardless of the market structure, firms will always strive to maximize profits. Option A is incorrect since firms in perfect competition only earn normal profits in the long run, while firms in monopolistic competition, oligopoly or monopoly may earn economic profits in the long run. Option B is incorrect since firms in monopolistic competition, oligopoly or monopoly face limited competition. Option C is incorrect since firms may choose to stay in the market even if they experience a loss of profit in the short run, if the long-run economic profits are high. Option E is incorrect since only firms in perfect competition face a horizontal demand curve.

Question 13

Holding all else constant,a decrease in the market demand for a product in a competitive market would cause:
A) the average total cost (ATC) curve of the firms to decrease.
B) an increase in the price a firm could charge for the product.
C) the marginal cost (MC) curve of the firms to decrease.
D) the marginal revenue (MR) curve of the firms to shift downward/leftward.
E) an increase in profits for the firm.

Accepted Answer

A decrease in market demand would cause a shift in the market demand curve to the left. This would result in a lower price for the product, as firms would need to lower their prices to sell the same quantity. As a result, the marginal revenue (MR) curve of the firms would shift downward/leftward.

Question 14

If firms in a competitive market are making positive economic profits,you would expect firms to:
A) enter the market, causing the demand curve to shift to the right.
B) enter the market, causing the demand curve to shift to the left.
C) enter the market, causing the market supply curve to shift to the right.
D) enter the market, causing the market supply curve to shift to the left.
E) leave the market, causing the market supply curve to shift to the left.

Accepted Answer

When firms in a competitive market are making positive economic profits, new firms are attracted to the market, leading to an increase in market supply, which shifts the supply curve to the right.

Question 15

Refer to the accompanying set of graphs to answer the questions that follow.

-Which graph would result in firms exiting a perfectly competitive market in the long run?
A) A
B) B
C) C
D) D
E) E

Accepted Answer

The answer of Refer to the accompanying set of graphs...

Question 16

Holding all else constant,an increase in the market demand for a product in a competitive market would cause:
A) the average total cost (ATC) curve of the firms to increase.
B) a decrease in the price a firm could charge for the product.
C) the marginal revenue (MR) curve of the firms to shift upward/rightward.
D) the marginal cost (MC) curve of the firms to increase.
E) a decrease in profits for the firm.

Accepted Answer

An increase in market demand would cause the demand curve for the firm to shift rightward, leading to a higher equilibrium price and quantity. This, in turn, would cause the marginal revenue (MR) curve to shift rightward as well, as MR is directly affected by the change in quantity sold. The average total cost (ATC) curve, marginal cost (MC) curve, and profits would not be directly affected by the increase in market demand, holding all else constant. However, the price a firm could charge for the product may either increase or decrease, depending on the magnitude of the shift in demand relative to the elasticity of supply. So, option B is incorrect.

Question 17

Refer to the accompanying set of graphs to answer the questions that follow.

-Which graph would result in no firms entering or exiting the perfectly competitive market?
A) A
B) B
C) C
D) D
E) E

Accepted Answer

In a perfectly competitive market, no firms will enter or exit when they are earning normal profit, which occurs when the price is equal to the average total cost (ATC). Graph C shows the price intersecting the ATC curve at its minimum point, indicating that firms are earning just enough to cover their costs, including a normal profit, but not enough to attract new firms or cause existing firms to exit.

Question 18

All firms,no matter the type of firm structure in which they are producing,make their production decisions based on the point where their:
A) total revenue equals total cost.
B) marginal revenue equals marginal costs.
C) profits are equal to zero.
D) marginal revenue equals price.
E) average total cost is minimized.

Accepted Answer

Firms make production decisions based on where their marginal revenue (MR) equals marginal cost (MC) because this is the point where they can maximize profits. At this point, each unit produced adds more to revenue than it does to cost, so the firm is producing efficiently. Therefore, choice B, where marginal revenue equals marginal costs, is the best choice for this question.

Question 19

A firm will shut down in the long run if the:
A) price is above the minimum average total cost (ATC).
B) price is equal to the minimum average total cost (ATC).
C) price is anywhere above the minimum average variable cost (AVC).
D) price is anywhere below the minimum average total cost (ATC).
E) firm is making zero economic profits.

Accepted Answer

The firm will shut down in the long run if the price is anywhere below the minimum average total cost (ATC). This is because in the long run, all inputs are variable and the firm can adjust its production level to minimize losses or maximize profits. However, if the price is below the minimum ATC, the firm cannot cover its total costs, including both variable and fixed costs, and would ultimately go bankrupt if it continues to operate. Therefore, in the long run, the firm will shut down if it cannot cover its minimum ATC.

Question 20

Jim and Lisa own a dog-grooming business in Champlain,New York,called JL Groomers.There are many buyers and many sellers in the dog-grooming service market.JL Groomers experiences normal cost curves,with the marginal cost (MC)curve minimized at $14 and crosses the average total cost (ATC)curve at $22.JL Groomers will make zero economic profits if the market price is:
A) $14.
B) between $14 and $22.
C) below $14.
D) $22.
E) above $14.

Accepted Answer

JL Groomers will make zero economic profits when the market price equals the average total cost (ATC), which is $22.

Quiz 6: Market Structures

Signals:

According to the accompanying figure,if the price is $5,the firm is making:

If Nicole's Knick-Knacks is a perfectly competitive firm and is making zero economic profits:

If the price is $3,the firm is making:

You can tell a firm is operating in a market that is in long-run competitive equilibrium if:

Refer to the accompanying figure.A firm would produce in the long run only if the market price is:

Kimberly owns a cupcake shop in Newport Beach,California.The market for cupcakes is very competitive.At Kimberly's current production level,her marginal cost is $25 and her marginal revenue is $29.To maximize profits,Kimberly should:

In the long run,if a firm is making a loss,it will:

If firms in a competitive market are incurring economic losses,you would expect firms to:

Refer to the accompanying set of graphs to answer the questions that follow. -Which graph would result in firms entering a perfectly competitive market in the long run?

Firms in every market structure:

Holding all else constant,a decrease in the market demand for a product in a competitive market would cause:

If firms in a competitive market are making positive economic profits,you would expect firms to:

Refer to the accompanying set of graphs to answer the questions that follow. -Which graph would result in firms exiting a perfectly competitive market in the long run?

Holding all else constant,an increase in the market demand for a product in a competitive market would cause:

Refer to the accompanying set of graphs to answer the questions that follow. -Which graph would result in no firms entering or exiting the perfectly competitive market?

All firms,no matter the type of firm structure in which they are producing,make their production decisions based on the point where their:

A firm will shut down in the long run if the: