MICROECONOMICS

Chapter 7 QUIZ
May 08, 2019
Name:

I. Write 2, if the statement is true and “zero”, if the statement is false.

1. Purely competitive firm can attempt to maximize its profit by raising or lowering the price it
charges.
2. If marginal revenue equal or exceed average variable cost, the firm will shut down rather than
produce the amount of output at which MR= MC
3. Quantity supplied would be zero at any price below the minimum average variable cost.
4. It is impossible for a purely competitive seller to earn a profit under an equilibrium price.
5. Productive efficiency requires goods to be produced at least costly way, but Allocative efficiency
requires goods to be divided among industries that yield most needed combination of products
by society.

II. Encircle the letter of the correct answer and STRICTLY NO ERASURE.

1. It is a method of determining the total output at which economic profit is at a maximum or

losses at a minimum.
a. Entry and Exit only
b. Productive Efficiency
c. MR=MC Rule
d. Allocative efficiency
2. What will be the result of producing an MR=MC output when P< ATC?
a. The firm will be indifferent between producing or to shutting down
b. The firm will minimize its loss
c. The firm will earn an economic profit
d. The firm will earn a normal profit
3. A curve that shows the prices at which a purely competitive industry will make various
quantities of the product available in the long-run.
a. Long-run supply curve
b. Constant Cost curve
c. Long-run demand curve
d. Short-run supply curve
4. An industry in which the entry of new firms has no effect on resource prices and thus no effect
on production costs.
a. Decreasing cost industry
b. Increasing-cost Industry
c. Constant Cost Industry
d. None of the above
5. The level of output where the price of a good or service is equal to the marginal cost of
production
a. Entry and Exit only
b. Productive Efficiency
MICROECONOMICS
Chapter 7 QUIZ
May 08, 2019
c. MR=MC Rule
d. Allocative efficiency
6. A selling strategy in which a firm does not try to distinguish its product on the basis of price but
instead on attributes like design and workmanship
a. Product differentiation
b. Product familiarization
c. Product development
d. Unique production
7. A market where there is only one seller or producer supplying unique goods and services.
a. Pure Competition
b. Monopolistic Competition
c. Oligopoly
d. Pure Monopoly
8. Curve MR is horizontal because:
a. Product price falls as output increases.
b. The law of diminishing marginal utility is at work.
c. The market demand for this product is perfectly elastic.
d. The firm is a price taker.
9. At a price of $131 and 7 units of output:
a. MR exceeds MC, and the firm should expand its output.
b. total revenue is less than total cost.
c. AVC exceeds ATC.
d. the firm would earn only a normal profit.
10. In maximizing profits at 9 units of output, this firm is adhering to which of the following decision
rules?
a. Produce where MR exceeds MC by the greatest amount.
b. Produce where P exceeds ATC by the greatest amount.
c. Produce where total revenue exceeds total cost by the greatest amount.
d. Produce where average fixed costs are zero.
11. Suppose price declined from $131 to $100. This firm’s:
a. marginal-cost curve would shift downward.
b. economic profit would fall to zero.
c. profit-maximizing output would decline.
d. total cost would fall by more than its total revenue
MICROECONOMICS
Chapter 7 QUIZ
May 08, 2019

12. Which of the following might increase product price from P3 to P5?
a. An improvement in production technology.
b. A decline in the price of a substitute good.
c. An increase in the price of a complementary good.
d. Rising incomes if the product is a normal good.
13. An increase in price from P3 to P5 would:
a. shift this firm’s MC curve to the right.
b. mean that MR5 exceeds MC at Q3 units, inducing the firm to expand output to Q5.
c. decrease this firm’s average variable costs.
d. enable this firm to obtain a normal, but not an economic profit.
14. At P4:
a. this firm has no economic profit.
b. this firm will earn only a normal profit and thus will shut down.
c. MR4 will be less than MC at the profit-maximizing output.
d. the profit-maximizing output will be Q5.
15. Suppose P4 is $10, P5 is $15, Q4 is 8 units, and Q5 is 10 units. This firm’s:
a. supply curve is elastic over the Q4–Q5 range of output.
b. supply curve is inelastic over the Q4–Q5 range of output.
c. total revenue will decline if price rises from P4 to P5.
d. marginal-cost curve will shift downward if price falls from P5 to P4