Student name:__________

1) A rational seller will sell another unit of output

zero.
A) whenever the seller is earning a profit. D) if the seller can
B) if the cost of making another unit is less than the charge more than the
revenue gained from selling another unit. equilibrium price.
C) as long as the quantity demanded is greater than

2) Your neighbors have offered to pay you to look after

their dog while they are on vacation. It will take you one hour
per day to feed, walk, and care for the dog, which you can do
either before or after you go to work. Your regular job pays
$10 per hour, and you can work up to eight hours per day.
The smallest amount of money you would accept to look after
your neighbor's dog each day is equal to

more than eight hours per

A) $10, because that is your opportunity cost of one day.
hour of work. D) the value you
B) $15, because overtime wages are generally 1.5 place on one hour of
times your regular wage when you work more than eight leisure.
hours a day.
C) zero, because your regular job is not available for

3) Which of the
following best explains
why you are more likely to

Version 1 1
see a poor person than a wealthy person picking up aluminum cans to sell?

D) Wealthy people
A) Wealthy people do not care about the environment. are more aware of diseases
transmitted through litter
B) The opportunity cost of picking up cans is higher than are poor people.
for wealthy people than for poor people.
C) Wealthy people are more concerned about their
public image than are poor people.

4) John is trying to decide how to divide his time

between his job as a stocker in the local grocery store, which
pays $7 per hour for as many hours as he chooses to work,
and cleaning windows for the businesses downtown. He
makes $2 for every window he cleans. John is indifferent
between the two tasks, and the number of windows he can
clean depends on how many hours he spends cleaning in a
day, as shown in the accompanying table.

Time cleaning windows Total number of windows 4 16

(hours/day) cleaned 5 17
0 0
1 7 What is John's opportunity
2 11 cost of cleaning windows
3 14 for an hour?

C) $7
A) $14 D) $2
B) $8

5) John is trying to decide how to divide his time and cleaning windows for
between his job as a stocker in the local grocery store, which the businesses downtown.
pays $7 per hour for as many hours as he chooses to work, He makes $2 for every

Version 1 2
window he cleans. John is indifferent between the two tasks, accompanying table.
and the number of windows he can clean depends on how
many hours he spends cleaning in a day, as shown in the

Time cleaning windows Total number of windows 4 16

(hours/day) cleaned 5 17
0 0
1 7 The benefit John receives
2 11 from his first hour cleaning
3 14 windows is

C) $7.
A) $14. D) $2.
B) $18.

6) John is trying to decide how to divide his time

between his job as a stocker in the local grocery store, which
pays $7 per hour for as many hours as he chooses to work,
and cleaning windows for the businesses downtown. He
makes $2 for every window he cleans. John is indifferent
between the two tasks, and the number of windows he can
clean depends on how many hours he spends cleaning in a
day, as shown in the accompanying table.

Time cleaning windows Total number of windows 5 17

(hours/day) cleaned
0 0 The first hour John spends
1 7 cleaning windows costs
2 11 him ______ that he could
3 14 have earned in the grocery
4 16 store.

C) $14
A) $2 D) $18
B) $7

Version 1 3
7) John is trying to decide how to divide his time
between his job as a stocker in the local grocery store, which
pays $7 per hour for as many hours as he chooses to work,
and cleaning windows for the businesses downtown. He
makes $2 for every window he cleans. John is indifferent
between the two tasks, and the number of windows he can
clean depends on how many hours he spends cleaning in a
day, as shown in the accompanying table.

Time cleaning windows Total number of windows 5 17

(hours/day) cleaned
0 0 A second hour cleaning
1 7 windows will yield
2 11 additional earnings of
3 14 ______.
4 16

C) $8
A) $2 D) $7
B) $14

8) John is trying to decide how to divide his time

between his job as a stocker in the local grocery store, which
pays $7 per hour for as many hours as he chooses to work,
and cleaning windows for the businesses downtown. He
makes $2 for every window he cleans. John is indifferent
between the two tasks, and the number of windows he can
clean depends on how many hours he spends cleaning in a
day, as shown in the accompanying table.

Time cleaning windows Total number of windows 0 0

(hours/day) cleaned 1 7

Version 1 4
 2 11
3 14 Should John spend a third
4 16 hour cleaning windows?
5 17

D) Yes, because the

A) Yes, because he would earn $28. additional amount he
B) Yes, because the additional amount he would earn would earn is $6, which is
is $14, which is greater than his opportunity cost of $7. better than earning
C) No, because the additional amount he would earn is nothing.
$6, which is less than his opportunity cost of $7.

9) John is trying to decide how to divide his time

between his job as a stocker in the local grocery store, which
pays $7 per hour for as many hours as he chooses to work,
and cleaning windows for the businesses downtown. He
makes $2 for every window he cleans. John is indifferent
between the two tasks, and the number of windows he can
clean depends on how many hours he spends cleaning in a
day, as shown in the accompanying table.

Time cleaning windows Total number of windows 4 16

(hours/day) cleaned 5 17
0 0
1 7 How many hours a day
2 11 should John spend
3 14 cleaning windows?

C) 3
A) 1 D) 4
B) 2

Version 1 5
10) John is trying to decide how to divide his time
between his job as a stocker in the local grocery store, which
pays $7 per hour for as many hours as he chooses to work,
and cleaning windows for the businesses downtown. He
makes $2 for every window he cleans. John is indifferent
between the two tasks, and the number of windows he can
clean depends on how many hours he spends cleaning in a
day, as shown in the accompanying table.

Time cleaning windows Total number of windows

(hours/day) cleaned What is the lowest price
0 0 per window that would
1 7 induce John to spend at
2 11 least one hour per day
cleaning windows?
3 14
4 16
5 17

Version 1 6
 C) $3
A) $7 D) $2
B) $1

11) John is trying to decide how to divide his time

between his job as a stocker in the local grocery store, which
pays $7 per hour for as many hours as he chooses to work,
and cleaning windows for the businesses downtown. He
makes $2 for every window he cleans. John is indifferent
between the two tasks, and the number of windows he can
clean depends on how many hours he spends cleaning in a
day, as shown in the accompanying table.

Time cleaning windows Total number of windows

(hours/day) cleaned What is the lowest price
0 0 per window that John
1 7 would be willing to accept
2 11 to spend 4 hours per day
cleaning windows?
3 14
4 16
5 17

Version 1 7
 C) $3.50
A) $7 D) $11
B) $2

12) John is trying to decide how to divide his time

between his job as a stocker in the local grocery store, which
pays $7 per hour for as many hours as he chooses to work,
and cleaning windows for the businesses downtown. He
makes $2 for every window he cleans. John is indifferent
between the two tasks, and the number of windows he can
clean depends on how many hours he spends cleaning in a
day, as shown in the accompanying table.

Time cleaning windows Total number of windows

(hours/day) cleaned If we plot John's
0 0 opportunity cost per
1 7 window on the vertical
2 11 axis and the number of
windows cleaned each day
3 14
on the horizontal axis, we
4 16
will have John's ______
5 17 curve for window-cleaning
services.

C) benefit
A) production possibilities D) demand
B) supply

Version 1 8
13) For a given seller, the accompanying figure shows the
relationship between the number of units produced and the
opportunity cost of producing an additional unit of output.
What is this seller's reservation price for the 250th unit?

Version 1 9
 C) $8
A) $2 D) $14
B) $4

14) For a given seller, the accompanying figure shows the

relationship between the number of units produced and the
opportunity cost of producing an additional unit of output. If
the market price of this good is $6, how many units would
this seller produce?

C) 250
A) 50 D) 300
B) 150

15) For a given seller,

the accompanying figure
shows the relationship
between the number of
units produced and the
opportunity cost of
producing an additional
unit of output. As the
market price of this good

Version 1 10
increases, the quantity produced by this seller will ______.

unit, and then it will

A) increase increase
B) decrease
C) stay the same
D) stay the same until the price rises above $6 per

16) For a given seller, the accompanying figure shows the

relationship between the number of units produced and the
opportunity cost of producing an additional unit of output. If
the market consists of 50 identical sellers, each with the same
opportunity cost as the seller depicted in the figure, then how
many units would be supplied in the market at a price of $14
per unit?

Version 1 11
 C) 17,500
A) 350 D) 175,000
B) 1,750

17) A seller’s supply curve shows the seller’s

output at each quantity.

A) willingness to pay for an additional unit of output D) profit from
at each quantity. producing an additional
B) opportunity cost of producing an additional unit of unit of output at each
output at each quantity. quantity.
C) hourly wage for producing an additional unit of

18) Individual supply curves generally slope ______

because ______.

high volume
A) downward; sellers become more efficient with D) upward; of
practice increasing opportunity
B) upward; profits increase with quantity costs
C) downward; inputs are cheaper when purchased in

19) As the market price of a service increases, more

potential sellers will decide to perform that service because

services.
A) higher prices result in higher revenue. D) higher prices
B) more potential sellers will find that the market lead to lower opportunity
price exceeds their reservation price. costs.
C) it’s more prestigious to produce high-priced

Version 1 12
20) The primary objective of most private firms is to

D) maximize
A) maximize revenue. output.
B) maximize profit.
C) minimize cost.

21) The most important challenge facing a firm in a

perfectly competitive market is deciding

D) whether to
A) whether to maximize its profits. advertise.
B) how much to produce.
C) what price to charge.

22) Total revenue minus both explicit and implicit costs

defines a firm’s

D) net worth.
A) gross earnings.
B) profit.
C) marginal earnings.

23) A firm's total profit equals

C) P ×Q.
A) P − MC. D) (P −ATC) ÷Q.
B) (P −ATC) ×Q.

Version 1 13
24) Which of the following statements is true for both Microsoft and a locally
owned restaurant?
A) Both are perfect competitors.
B) Both confront perfectly elastic demand for their
products.
C) Neither firm is able to influence the price of their
products.
D) Both seek to maximize profits.

Version 1 14
25) Which of the following is a defining characteristic of
all perfectly competitive markets?

D) Consumers
A) Each firm in the market faces a perfectly inelastic display strong brand
demand curve. loyalty.
B) The market demand curve is perfectly elastic.
C) All firms sell the same standardized product.

26) Which of the following is NOT true of a perfectly

competitive firm?

D) It sells only a
A) It faces a perfectly elastic demand curve. small fraction of the total
B) It is unable to influence the price of the good it quantity exchanged in the
sells. market.
C) It seeks to maximize revenue.

27) Which of the following is NOT a characteristic of a

perfectly competitive market?

D) Sellers can
A) Each firm in the market sells a somewhat different easily buy and sell the
variant of the good. productive resources
B) There are many sellers, each of which sells only a needed to enter the market.
small fraction of the total quantity exchanged.
C) Buyers and sellers are well-informed.

28) If the market for

butter is perfectly

Version 1 15
competitive, then the demand curve facing a firm that produces butter will be:

C) perfectly elastic.
A) unit elastic. D) upward sloping.
B) perfectly inelastic.

29) In which of the following markets do firms sell the

same standardized product?

D) Sandwiches
A) Four-door cars
B) 2% milk
C) Desktop computers

30) Last year, Amada grew fresh vegetables, which she

sold at her local farmers market, but this year, Amada did not
plant any vegetables and went to work at a bank instead. If
Amada’s decision to change careers did not affect the price of
vegetables at the farmers market, then this suggests that

D) the market
A) the demand for vegetables did not change. demand for vegetables is
B) the market for vegetables is perfectly competitive. perfectly inelastic.
C) the demand for vegetables increased this year.

31) Last year, Amada grew fresh vegetables, which she

sold at her local farmers market, but this year, Amada did not
plant any vegetables and went to work at a bank instead.
Which of the following best explains Amada’s career change?

Amada's benefits from

A) Amada's opportunity costs of gardening exceeded working at the bank.

Version 1 16
 B) Amada's opportunity costs of working at the bank Amada's opportunity costs
exceeded Amada's benefits from gardening. of working at the bank.
C) Amada's opportunity costs of working at the bank
exceeded Amada's opportunity costs of gardening.
D) Amada's opportunity costs of gardening exceeded

32) A price-taker faces a demand curve that is

D) horizontal at the
A) vertical at the market price. market price.
B) upward sloping.
C) downward sloping.

33) One implication of the shape of the demand curve

facing a perfectly competitive firm is that

D) the market
A) if the firm increases its price above the market would be unable to reach a
price, it will earn higher revenue. new equilibrium if demand
B) if the firm decreases its price below the market changed.
price, it will earn higher revenue.
C) if the firm increases its price above the market
price, it will earn zero revenue.

34) An imperfectly competitive firm is one that

D) faces a perfectly
A) has at least some influence over the market price. inelastic demand curve.

B) charges any price it wants.

C) seeks to maximize revenue.

Version 1 17
35) A profit-maximizing perfectly competitive firm must
decide

D) only which
A) only what price to charge, taking output as fixed. industry to join, taking
B) both what price to charge and how much to price and output as fixed.
produce.
C) only how much to produce, taking price as fixed.

36) Denise sells lemonade in front of her house in the

summer. Several other kids in Denise’s neighborhood also run
lemonade stands in the summer. The lemonade market in
Denise’s neighborhood is more likely to be perfectly
competitive if

booths for their kids’

A) all of the kids advertise heavily. stands while some kids sell
B) each stand tries to get more customers by offering from makeshift tables.
different varieties of lemonade and snacks.
C) each lemonade stand sells the same kind of
lemonade.
D) some of the neighborhood parents build elaborate

37) Denise sells lemonade in front of her house in the

summer. Several other kids in Denise’s neighborhood also run
lemonade stands in the summer. If the lemonade market is
perfectly competitive, and Denise is charging the equilibrium
price, then Denise can increase her revenue if she

her output.
A) decreases the price of her lemonade and doesn’t C) increases the
change her output. price of her lemonade and
B) increases the price of her lemonade and decreases doesn’t change her output.

Version 1 18
 D) keeps the price of her lemonade the same and increases the output.

38) Denise sells lemonade in front of her house in the

summer. Several other kids in Denise's neighborhood also run
lemonade stands in the summer. Suppose that the first week
of summer, Denise charged 25 cents for an 8-ounce cup of
lemonade, her next-door neighbor Jason charged 50 cents for
an 8-ounce cup of lemonade, and Gina across the street
charged 15 cents for an 8-ounce cup of lemonade. Assuming
the market for lemonade is perfectly competitive, what is
most likely to happen?

amount.
A) Everyone will start to charge 50 cents to maximize D) Eventually
revenue. prices will equalize across
B) A price war will break out, and all of the kids will all three lemonade stands.
lower their prices.
C) Each kid will keep his or her price at the original

39) Which of the following would be considered a factor

of production in the provision of bus service?

C) Bus drivers
A) The revenue from the sale of bus tickets D) The hourly
B) The amount it costs to provide bus service between wage paid to bus drivers
two locations

40) The short run is best defined as

B) a period of time
A) one year or less. sufficiently short that all

Version 1 19
factors of production are variable. factor of production is
C) the period of time between quarterly accounting fixed.
reports.
D) a period of time sufficiently short that at least one

41) A fixed factor of production

D) is common in
A) is fixed in the long run but variable in the short run. large firms but rare in
small firms.
B) is fixed only in the short run.
C) is fixed in both the short run and the long run.

42) A variable factor of production

D) is variable only
A) is fixed in the long run but variable in the short run. in the short run.

B) plays no role in the law of diminishing marginal

returns.
C) is variable in both the short run and the long run.

43) The long run is best defined as

D) a period of time
A) one year or more. sufficiently long that at
B) a period of time sufficiently long that all factors of least one factor of
production are variable. production is fixed.
C) the period of time between annual accounting
reports.

Version 1 20
44) According to the law of diminishing returns, when add successively
some factors of production are fixed, in order to increase
production by a given amount, a firm will eventually need to

of production.
A) smaller and smaller quantities of the variable D) larger and larger
factors of production. quantities of the fixed
B) constant quantities of the variable factors of factor of production.
production.
C) larger and larger quantities of the variable factors

45) Which of the following is the most likely to be a fixed

factor of production at a farm?

D) The amount of
A) The land on which the farm is located water used each day
B) The number of workers hired to harvest the crops
C) The amount of fertilizer used each week

46) Which of the following is the most likely to be a fixed

factor of production at a pizza restaurant?

D) The amount of
A) The number of waiters electricity
B) The size of the seating area
C) The amount of pizza dough

47) Which of the following is the most likely to be a

variable factor of production at a university?

C) The size of the

A) The number of librarians
B) The size of the football stadium

Version 1 21
student union
D) The location of the university

Version 1 22
48) One reason that variable factors of production tend to
show diminishing returns in the short run is that

D) the cost of
A) capital equipment is often idle in the short run. employing additional
B) there is only so much that can be produced using resources increases as
additional variable inputs when some factors of production firms employ more of
are fixed. those resources.
C) large firms cannot effectively manage their
resources.

49) To produce 150 units of output per day, a firm must

use 3 employees. To produce 300 units of output per day, the
firm must use 8 employees. Apparently, the firm is

D) experiencing
A) producing in the long run. negative returns.
B) experiencing diminishing returns.
C) not using any fixed factors of production.

50) Suppose 30 employees can produce 50 units of output

per day. Assuming the presence of diminishing marginal
returns, producing 100 units of output per day would require

D) fewer than 30
A) an additional 30 employees. additional employees.
B) more than 30 additional employees.
C) a total of 60 or fewer employees.

51) Suppose 30 employees can produce 50 units of output per day. Assuming the

Version 1 23
presence of diminishing marginal returns, producing 100 units of output per day would
require

D) a total of more
A) fewer than 30 additional employees. than 60 employees.
B) a total of 60 employees.
C) an additional 30 employees.

52) Refer to the accompanying table. As the firm increases

the number of employees each day from 1 to 2, output
increases by

Output Per Day Number of Employees 9 4

0 0 1 7
33 1 1 1

66 2

C) 99 units.
A) 33 units. D) 132 units.
B) 66 units.

53) Refer to the accompanying table. To increase output

from 33 to 66 units per day requires ______ extra
employee(s); to increase output from 66 to 99 units per day
requires ______ extra employee(s).

Output Per Day Number of Employees 9 4

0 0 1 7
33 1 1 1

66 2

A) 1; 1

Version 1 24
 B) 1; 2 D) 2; 4
C) 2; 1

54) Refer to the accompanying table. To increase output

from 99 to 132 units per day requires ______ extra
employees; to increase output from 132 to 165 units per day
requires ______ extra employees.

Output Per Day Number of Employees 9 4

0 0 1 7
33 1 1 1

66 2

C) 4; 3
A) 11; 18 D) 3; 4
B) 7; 11

55) Refer to the accompanying table. The law of

diminishing marginal returns becomes evident after ______
units of output are produced.

Output Per Day Number of Employees 9 4

0 0 1 7
33 1 1 1

66 2

C) 99
A) 33 D) 132
B) 66

Version 1 25
56) The accompanying table describes the relationship made), and each worker is
between the number of workers hired by a call center each paid $10 per hour.
hour and the number of calls the call center can make each
hour. The call center has only 1 telephone. The telephone
costs the firm $5/hour (regardless of how many calls are

Calls Per Number of Number of Workers 2 1 1

Hour Telephones Per Hour 2 1 1
1 1 2
2 1 4 What is the total cost of
6 1 6 making 6 calls an hour?
16 1 8

C) $60
A) $30 D) $65
B) $40

57) The accompanying table describes the relationship

between the number of workers hired by a call center each
hour and the number of calls the call center can make each
hour. The call center has only 1 telephone. The telephone
costs the firm $5/hour (regardless of how many calls are
made), and each worker is paid $10 per hour.

Calls Per Number of Number of Workers 2 1 1

Hour Telephones Per Hour 2 1 1
1 1 2
2 1 4 What is the fixed cost of
6 1 6 making 16 calls an hour?
16 1 8

C) $160
A) $5 D) $80
B) $85

Version 1 26
58) The accompanying table describes the relationship made), and each worker is
between the number of workers hired by a call center each paid $10 per hour.
hour and the number of calls the call center can make each
hour. The call center has only 1 telephone. The telephone
costs the firm $5/hour (regardless of how many calls are

Calls Per Number of Number of Workers 2 1 1

Hour Telephones Per Hour 2 1 1
1 1 2
2 1 4 Average variable cost is
6 1 6 minimized when output is
16 1 8 approximately

C) 22 units.
A) 6 units. D) 24 units.
B) 16 units.

59) The accompanying table describes the relationship

between the number of workers hired by a call center each
hour and the number of calls the call center can make each
hour. The call center has only 1 telephone. The telephone
costs the firm $5/hour (regardless of how many calls are
made), and each worker is paid $10 per hour.

Calls Per Number of Number of Workers 2 1 1

Hour Telephones Per Hour
1 1 2 If the price of a telephone
2 1 4 increases from $5 to $10
6 1 6 an hour and nothing else
16 1 8 changes, then
22 1 10

C) marginal cost
A) total cost would not change. would not change.
B) marginal cost would increase by $5 at every level D) average total
of output. cost would increase by $5

Version 1 27
at every level of output.

Version 1 28
60) The accompanying table describes the relationship
between the number of workers hired by a call center each
hour and the number of calls the call center can make each
hour. The call center has only 1 telephone. The telephone
costs the firm $5/hour (regardless of how many calls are
made), and each worker is paid $10 per hour.

Calls Per Number of Number of Workers

Hour Telephones Per Hour
1 1 2 Given the information in
2 1 4 the table above, what is the
6 1 6 call center’s marginal cost
16 1 8 when it goes from making
6 calls an hour to making
22 1 10
16 calls an hour?
24 1 12

C) $10
A) $0.50 D) $20
B) $2

61) The accompanying table describes the relationship

between the number of workers hired by a call center each
hour and the number of calls the call center can make each
hour. The call center has only 1 telephone. The telephone
costs the firm $5/hour (regardless of how many calls are
made), and each worker is paid $10 per hour.

Calls Per Number of Number of Workers

Hour Telephones Per Hour
1 1 2
2 1 4

Version 1 29
 6 1 6
16 1 8 Given the information in
22 1 10 the table above, what is the
call center’s additional
24 1 12
fixed cost when it goes
from making 2 calls an
hour to making 6 calls an
hour?

C) $0
A) $5 D) $10
B) $20

62) If a firm spends $400 to produce 20 units of output

and spends $880 to produce 40 units, then between 20 and 40
units of output, the marginal cost of production is:

C) $22.
A) $20. D) $480.
B) $24.

63) If a firm spends $150 to produce 25 units of output

and spends $330 to produce 50 units, then between 25 and 50
units of output, the marginal cost of production is:

C) $7.20.
A) $6.60. D) $180.
B) $6.

64) Marginal cost is calculated as

A) total revenue

Version 1 30
minus total costs. D) the change in
B) the change in output divided by the change in total total cost divided by the
costs. change in output.
C) the percentage change in total costs divided by the
percentage change in output.

65) If a production process exhibits diminishing returns,

then as output rises

D) total revenue
A) average total cost will eventually decrease. will eventually decrease.
B) marginal cost will eventually increase.
C) total fixed cost will eventually increase.

66) Assume that each day a firm uses 13 employee-hours

per day and an office to produce 100 units of output. The
price of each unit output is $5, the hourly wage rate is $10,
and rent on the office is $200 per day. Each day the firm earns
a ______ of ______.

C) profit; $170
A) profit; $370 D) loss; $170
B) loss; $370

67) Assume that each day a firm uses 10 employee-hours

per day and an office to produce 100 units of output. The
price of each unit output is $4, the hourly wage rate is $10,
and rent on the office is $320 per day. Each day the firm earns
a ______ of ______.

B) profit; $420
A) loss; $20

Version 1 31
 C) loss; $420
D) profit; $20

Version 1 32
68) In general, when the price of a variable factor of
production increases

D) marginal cost
A) total cost falls. rises.
B) the profit maximizing level of output rises.
C) the profit-maximizing price falls.

69) In general, when the price of a fixed factor of

production increases

D) the profit-
A) the profit-maximizing price falls. maximizing level of output
B) marginal cost is unchanged. increases.
C) marginal cost increases.

70) Suppose a profit-maximizing firm in a perfectly

competitive market is earning an economic profit of $1,345. If
the firm’s fixed cost increases from $200 to $300, the firm
will

D) earn a smaller
A) reduce its output. profit.
B) raise its price.
C) earn a greater profit.

71) Suppose a profit-

maximizing firm in a
perfectly competitive
market is collecting $1,999

Version 1 33
in total revenues. If the total cost of its fixed factors of production falls from $500
to $400, the firm will

D) earn smaller
A) expand its output. profits or larger losses.
B) lower its price.
C) earn greater profits or smaller losses.

72) Suppose a firm uses workers and office space to

produce output. The firm is locked into a year-long lease on
its office space, but it can easily vary the number of
employee-hours it uses each day. The accompanying table
describes the relationship between the number of employee-
hours the firm uses each day and the firm’s daily output. Each
unit of output sells for $2, the hourly wage rate is $14, and the
rent on the office space is $50 per day.

Employee-Hours Per Day Output Per Day 1 1

0 0 2 2
1 40
4 80 This firm’s fixed cost each
day is
9 120

C) $50.
A) $66. D) $14.
B) $64.

73) Suppose a firm uses workers and office space to unit of output sells for $2,
produce output. The firm is locked into a year-long lease on the hourly wage rate is
its office space, but it can easily vary the number of $14, and the rent on the
employee-hours it uses each day. The accompanying table office space is $50 per day.
describes the relationship between the number of employee-
hours the firm uses each day and the firm’s daily output. Each

Version 1 34
 Employee-Hours Per Day Output Per Day
0 0 When the firm uses 9
1 40 employee-hours per day,
its total variable cost each
4 80
day is
9 120
15 160
23 200

Version 1 35
 C) $84.
A) $30. D) $126.
B) $56.

74) Suppose a firm uses workers and office space to

produce output. The firm is locked into a year-long lease on
its office space, but it can easily vary the number of
employee-hours it uses each day. The accompanying table
describes the relationship between the number of employee-
hours the firm uses each day and the firm’s daily output. Each
unit of output sells for $2, the hourly wage rate is $14, and the
rent on the office space is $50 per day.

Employee-Hours Per Day Output Per Day

0 0 2 2
1 40
4 80 When the firm uses 9
employee-hours per day,
9 120
its total cost each day is
15 160

C) $56.
A) $126. D) $176.
B) $64.

Version 1 36
 Employee-Hours Per Day Output Per Day
0 0 When the firm uses 9
1 40 employee-hours per day,
its total revenue each day
4 80
is
9 120
15 160
23 200

Version 1 37
 C) $120.
A) $240. D) $18.
B) $160.

76) Suppose a firm uses workers and office space to

produce output. The firm is locked into a year-long lease on
its office space, but it can easily vary the number of
employee-hours it uses each day. The accompanying table
describes the relationship between the number of employee-
hours the firm uses each day and the firm’s daily output. Each
unit of output sells for $2, the hourly wage rate is $14, and the
rent on the office space is $50 per day.

Employee-Hours Per Day Output Per Day 2 2

0 0
1 40 When the firm uses 9
4 80 employee-hours per day, it
earns a daily ______ of
9 120
______.
15 160

C) loss; $114
A) loss; $64 D) profit; $114
B) profit; $64

Version 1 38
 Employee-Hours Per Day Output Per Day
0 0 When the firm uses 23
1 40 employee-hours per day, it
earns a daily ______ of
4 80
______.
9 120
15 160
23 200

Version 1 39
 C) profit; $78
A) profit; $28 D) loss; $78
B) loss; $28

78) Suppose a firm uses workers and office space to

produce output. The firm is locked into a year-long lease on
its office space, but it can easily vary the number of
employee-hours it uses each day. The accompanying table
describes the relationship between the number of employee-
hours the firm uses each day and the firm’s daily output. Each
unit of output sells for $2, the hourly wage rate is $14, and the
rent on the office space is $50 per day.

Employee-Hours Per Day Output Per Day 2 2

0 0
1 40 What is the marginal cost
4 80 of production between 80
and 120 units of output
9 120
each day?
15 160

C) $14
A) $1.40 D) $70
B) $1.75

79) Refer to the accompanying table. It is clear that

diminishing returns sets in after ______ workers per day.

Number of Workers Per Day Output Per Day 4 2

0 0 5 3
1 3 6 3
2 8
3 15

Version 1 40
 C) 5
A) 3 D) 6
B) 4

80) Refer to the accompanying table. It is clear that

diminishing returns sets in after ______ workers per day.

Number of Workers Per Day Output Per Day 3 2

0 0 4 3
1 3 5 3
2 13 6 3

C) 4
A) 2 D) 1
B) 3

81) The accompanying table shows a pizzeria’s fixed cost

and variable cost at different levels of output. Pizzas sell for
$20 each.

Number of Fixed Cost Variable Cost

Pizzas Per Day ($/Day) ($/Day)
0 500 0 When the pizzeria makes
25 500 150 100 pizzas a day, its fixed
50 500 250 cost is ______ and its total
75 500 450 cost is ______.
100 500 850
125 500 1,650

A) $350; $850

Version 1 41
 B) $500; $850 D) $850; $1,650
C) $500; $1,350

82) The accompanying table shows a pizzeria’s fixed cost

and variable cost at different levels of output. Pizzas sell for
$20 each.

Number of Fixed Cost Variable Cost

Pizzas ($/Day) ($/Day)
0 500 0 When the pizzeria makes
25 500 150 50 pizzas, its average total
50 500 250 cost is ______.
75 500 450
100 500 850
125 500 1,650

C) $15
A) $5 D) $20
B) $10

83) The accompanying table shows a pizzeria’s fixed cost

and variable cost at different levels of output. Pizzas sell for
$20 each.

Number of Fixed Cost Variable Cost

Pizzas ($/Day) ($/Day)
0 500 0
25 500 150
50 500 250
75 500 450
100 500 850

Version 1 42
 125 500 1,650
When the pizzeria makes
50 pizzas, its average total
cost is ______.

C) $10
A) $5 D) $20
B) $15

84) The accompanying table shows a pizzeria’s fixed cost

and variable cost at different levels of output. Pizzas sell for
$20 each.

Number of Fixed Cost Variable Cost

Pizzas ($/Day) ($/Day)
0 500 0 When the pizzeria makes
25 500 150 50 pizzas, its average
50 500 250 variable cost is ______.
75 500 450
100 500 850
125 500 1,650

C) $15
A) $5 D) $20
B) $10

85) The accompanying table shows a pizzeria’s fixed cost

and variable cost at different levels of output. Pizzas sell for
$20 each.

Version 1 43
 Number of Fixed Cost Variable Cost
Pizzas ($/Day) ($/Day) When the pizzeria makes
0 500 0 25 pizzas, its average fixed
25 500 150 cost is ______.
50 500 250
75 500 450
100 500 850
125 500 1,650

Version 1 44
 C) $10
A) $5 D) $20
B) $6

86) The accompanying table shows a pizzeria’s fixed cost

and variable cost at different levels of output. Pizzas sell for
$20 each.

Number of Fixed Cost Variable Cost

Pizzas ($/Day) ($/Day)
0 500 0 Between 25 and 50 pizzas,
25 500 150 the pizzeria’s marginal
50 500 250 cost is ______.
75 500 450
100 500 850
125 500 1,650

C) $8
A) $4 D) $16
B) $6

87) The accompanying table shows a pizzeria’s fixed cost

and variable cost at different levels of output. Pizzas sell for
$20 each.

Number of Fixed Cost Variable Cost 1 500 1

Pizzas ($/Day) ($/Day) ,
0 500 0 6
5
25 500 150
0
50 500 250
75 500 450
100 500 850

Version 1 45
 _____.
When the pizzeria makes 125 pizzas, its total revenue is

C) $125
A) $2,500 D) $20
B) $1,250

88) The accompanying table shows a pizzeria’s fixed cost

and variable cost at different levels of output. Pizzas sell for
$20 each.

Number of Fixed Cost Variable Cost

Pizzas ($/Day) ($/Day)
0 500 0 When the pizzeria makes
25 500 150 100 pizzas, it earns an
50 500 250 economic ______ of
75 500 450 ______.
100 500 850
125 500 1,650

C) loss; $500
A) loss; $650 D) profit; $1,150
B) profit; $650

Version 1 46
89) Refer to the accompanying figure. At quantities less
than 50 doughnuts per day

D) average cost is
A) marginal cost is declining. declining because marginal
B) the return to the firm’s variable factors of cost is less than average
production must be increasing. cost.
C) average cost is declining because marginal cost is
increasing.

90) Refer to the accompanying figure. If the market for

doughnuts is perfectly competitive, then assuming this firm
can earn enough revenue to cover its variable cost, it should
produce

equals the market price.

A) 50 doughnuts per day.
B) the quantity of doughnuts at which average total
cost equals the market price.
C) the quantity of doughnuts at which marginal cost

Version 1 47
 D) the quantity of doughnuts at which average total
cost is minimized.

Version 1 48
91) Refer to the accompanying figure. If the market for
doughnuts is perfectly competitive, and the price of a
doughnut is 10 cents, then this firm

D) will earn an
A) should shut down. economic loss.
B) should produce 50 doughnuts.
C) should shut down in the long run.

92) Refer to the accompanying figure. If the market for

doughnuts is perfectly competitive, and the price of a
doughnut is 25 cents, then this firm should

Version 1 49
 D) produce 50
A) shut down. doughnuts.
B) produce 90 doughnuts.
C) produce 80 doughnuts.

93) Refer to the accompanying figure. If the market for

doughnuts is perfectly competitive, and the price of a
doughnut is 25 cents, then at this firm’s profit maximizing
level of output, the firm will earn an economic ______ of
______ per day.

C) loss; $10
A) profit; $80 D) loss; $80
B) profit; $8

94) The price equals marginal cost rule for profit

maximization is a specific example of which core principle?

D) The Efficiency
A) The Scarcity Principle Principle
B) The Cost-Benefit Principle
C) The Principle of Comparative Advantage

Version 1 50
95) Suppose a firm produces the level of output at which
the marginal cost of the last unit produced equals the price of
the good. Which of the following statements is always true?

D) The firm should

A) The firm should shut down if its total revenue is produce more if its
less than its variable cost. economic profit is positive.
B) The firm will earn a positive economic profit.
C) The firm is maximizing its profit.

96) Even when a firm produces the level of output at

which price equals marginal cost, it should shut down if its
total revenue is less than its

C) variable cost.
A) marginal cost. D) total cost.
B) fixed cost.

97) Suppose that when a firm produces the level of output

at which price equals marginal cost, the firm’s total revenue is
less than its variable cost. In this case, the firm should

D) purchase more
A) not change its level of output even if it’s earning an fixed factors of production.
economic loss in the short run.
B) shut down.
C) produce more so that its total revenue increases.

98) Suppose that when a perfectly competitive firm run, it is clear that this firm
produces 500 units of output a day, it earns an economic loss.
If the price of each unit of output is $1.50, then, in the short

Version 1 51
 D) should produce
A) should shut down. more than 500 units a day.
B) should not shut down if its total variable cost is less
than $750.
C) is not maximizing its profit.

99) Suppose that at a firm's profit-maximizing level of

output, its total revenue is $1,250, the total cost of its variable
factors of production is $1,000, and its total fixed cost is
$500. This firm will ______ in the short run, and it will
______ in the long run.

D) not shut down;

A) shut down; reopen for business exit the industry
B) earn a profit; earn a loss
C) earn a loss; earn a profit

100) If a firm shuts down in the short run, then its

D) economic loss
A) total revenue and total cost will fall to zero. will equal its variable
B) profit will equal zero. costs.
C) economic loss will equal its fixed costs.

101) Suppose that when a perfectly competitive firm

produces 1,000 units of output, its total variable cost is
$1,900. If the marginal cost of producing the 1,000th unit is
$1.70, and if the market price of each unit of output is $1.70,
then the firm should

B) raise its price.

A) shut down.

Version 1 52
 C) increase output.
D) continue to produce 1000 units.

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102) Abdul runs a fishing lodge and has a very profitable
business during the summer. In the fall, the number of guests
at the lodge starts to decline. Abdul should keep the lodge
open

D) only during
A) all year because his summer profits offset any those months in which his
losses he might have in the winter. total revenue exceeds his
B) only during those months in which his total variable cost.
revenue exceeds his total cost.
C) only during those months in which his total
revenue exceeds his fixed cost.

103) Average variable cost is defined as

D) variable cost
A) total cost divided by total output. divided by price.
B) total cost divided by number of workers.
C) variable cost divided by total output.

104) Average total cost is defined as

D) variable cost
A) total cost divided by total output. divided by price.
B) total cost divided by price.
C) variable cost divided by total output.

105) Suppose Aiko is a potter who makes mugs. Her total

costs depend on the number of mugs she makes each day, as
shown in the accompanying table.

Version 1 54
Number of Mugs Per Day Total Cost Per Day
0 $ 10 Aiko’s fixed cost is
1 $ 14 ______ per day.
2 $ 19
3 $ 25
4 $ 32
5 $ 40
6 $ 49

Version 1 55
 C) $39
A) $0 D) $49
B) $10

106) Suppose Aiko is a potter who makes mugs. Her total

costs depend on the number of mugs she makes each day, as
shown in the accompanying table.

Number of Mugs Per Day Total Cost Per Day 5 $ 40

0 $ 10 6 $ 49
1 $ 14
2 $ 19 When Aiko produces 5
3 $ 25 mugs per day, her average
4 $ 32 variable cost is ______.

C) $30
A) $6 D) $40
B) $8

107) Suppose Aiko is a potter who makes mugs. Her total

costs depend on the number of mugs she makes each day, as
shown in the accompanying table.

Number of Mugs Per Day Total Cost Per Day 5 $ 40

0 $ 10 6 $ 49
1 $ 14
2 $ 19 The marginal cost if the 4th
3 $ 25 mug per day is ______.
4 $ 32

B) $7
A) $5 C) $8

Version 1 56
 D) $32

Version 1 57
108) Suppose Aiko is a potter who makes mugs. Her total
costs depend on the number of mugs she makes each day, as
shown in the accompanying table.

Number of Mugs Per Day Total Cost Per Day 6 $ 49

0 $ 10
1 $ 14
2 $ 19
3 $ 25
4 $ 32
5 $ 40
If the market for mugs is
perfectly competitive, and
mugs sell for $7.50 each,
then Aiko should make
______ mugs per day.

C) 5
A) 0 D) 6
B) 4

109) Suppose Aiko is a potter who makes mugs. Her total

costs depend on the number of mugs she makes each day, as
shown in the accompanying table.

Number of Mugs Per Day Total Cost Per Day

0 $ 10
1 $ 14
2 $ 19
3 $ 25
4 $ 32
5 $ 40
6 $ 49
If the market for mugs is
perfectly competitive, and
mugs sell for $7.50 each,
then at her profit-
maximizing level of
output, Aiko will earn a
______ of ______ per day.

B) loss; $10
A) loss; $2 C) profit; $2

Version 1 58
 D) profit; $30

Version 1 59
110) Suppose Aiko is a potter who makes mugs. Her total
costs depend on the number of mugs she makes each day, as
shown in the accompanying table.

Number of Mugs Per Day Total Cost Per Day 6 $ 49

0 $ 10
1 $ 14 If Aiko’s fixed costs
2 $ 19 decrease, then in the short
3 $ 25 run, her profit-maximizing
level of output will:
4 $ 32
5 $ 40

D) only increase if
A) not change. she can earn a positive
B) increase. profit.
C) decrease.

111) Suppose Vivek owns a small company that makes

kites. The market for kites is perfectly competitive, and kites
sell for $25 each. Vivek’s total production costs vary
depending on the number of kites he makes each day, as
shown in the accompanying table.

Number of kites Per Total Cost Per Day ($) 6 235

Day
0 100
1 110
2 126
3 148
4 172
5 200

Version 1 60
 variable cost?
When Vivek makes 2 kites per day, what is his average

C) $50
A) $13 D) $63
B) $26

112) Suppose Vivek owns a small company that makes

kites. The market for kites is perfectly competitive, and kites
sell for $25 each. Vivek’s total production costs vary
depending on the number of kites he makes each day, as
shown in the accompanying table.

Number of kites Per Total Cost Per Day ($) 5 200

Day 6 235
0 100
1 110 What is the profit-
2 126 maximizing number of
3 148 kites for Vivek to make
4 172 each day?

C) 5
A) 3 D) 0
B) 4

113) Suppose Vivek owns a small company that makes

kites. The market for kites is perfectly competitive, and kites
sell for $25 each. Vivek’s total production costs vary
depending on the number of kites he makes each day, as
shown in the accompanying table.

Number of kites Per Total Cost Per Day ($)

Version 1 61
 Day 6 235
0 100
1 110 What is Vivek’s economic
2 126 profit at his profit-
3 148 maximizing level of
output?
4 172
5 200

C) −$75
A) −$72 D) −$100
B) −$73

114) Suppose Vivek owns a small company that makes

kites. The market for kites is perfectly competitive, and kites
sell for $25 each. Vivek’s total production costs vary
depending on the number of kites he makes each day, as
shown in the accompanying table.

Number of kites Per Total Cost Per Day ($) 4 172

Day 5 200
0 100 6 235
1 110
2 126 Should Vivek shut down?
3 148

D) No, because he
A) Yes, because his economic profit is negative. can earn enough revenue to
B) Yes, because he cannot earn enough revenue to cover his variable cost.
cover his variable cost.
C) No, because his economic profit is positive.

115) Suppose Vivek owns a small company that makes sell for $25 each. Vivek’s
kites. The market for kites is perfectly competitive, and kites total production costs vary

Version 1 62
depending on the number of kites he makes each day, as
shown in the accompanying table.

Number of kites Per Total Cost Per Day ($) 4 172

Day 5 200
0 100 6 235
1 110
2 126 If Vivek’s fixed cost rises,
3 148 then in the short run, his

D) economic profit
A) profit-maximizing level of output will rise. will not change.
B) profit-maximizing level of output will fall.
C) profit-maximizing level of output will not change.

116) Suppose Sarah owns a small company that makes

wedding cakes. The accompanying table shows how Sarah’s
total cost varies depending on the number of wedding cakes
she makes each day.

Number of Cakes Per Total Cost Per Day 4 $ 400

Day 5 $ 520
0 $ 100 6 $ 660
1 $ 180
2 $ 220 Sarah’s fixed cost is
3 $ 300 ______ per day.

C) $100
A) $10 D) $200
B) $20

117) Suppose Sarah owns a small company that makes total cost varies depending
wedding cakes. The accompanying table shows how Sarah’s on the number of wedding

Version 1 63
cakes she makes each day.

Number of Cakes Per Total Cost Per Day 5 $ 520

Day 6 $ 660
0 $ 100
1 $ 180 When Sarah produces 2
2 $ 220 cakes per day, her average
3 $ 300 variable cost is ______.
4 $ 400

C) $110
A) $60 D) $120
B) $100

118) Suppose Sarah owns a small company that makes

wedding cakes. The accompanying table shows how Sarah’s
total cost varies depending on the number of wedding cakes
she makes each day.

Number of Cakes Per Total Cost Per Day 5 $ 520

Day 6 $ 660
0 $ 100
1 $ 180 The marginal cost of the
2 $ 220 4th wedding cake per day
3 $ 300 is ______.
4 $ 400

C) $300
A) $100 D) $400
B) $120

119) Suppose Sarah owns a small company that makes total cost varies depending
wedding cakes. The accompanying table shows how Sarah’s on the number of wedding

Version 1 64
cakes she makes each day.

Number of Cakes Per Total Cost Per Day 6 $ 660

Day
0 $ 100
1 $ 180
2 $ 220
3 $ 300
4 $ 400
5 $ 520
If the market for wedding
cakes is perfectly
competitive, and wedding
cakes sell for $95 each,
then Sarah should produce
______ cakes per day.

C) 5
A) 0 D) 6
B) 3

120) Suppose Sarah owns a small company that makes

wedding cakes. The accompanying table shows how Sarah’s
total cost varies depending on the number of wedding cakes
she makes each day.

Number of Cakes Per Total Cost Per Day

Day
0 $ 100
1 $ 180
2 $ 220
3 $ 300
4 $ 400
5 $ 520
6 $ 660
If the market for wedding
cakes is perfectly
competitive, and wedding
cakes sell for $95 each,
then at her profit-
maximizing level of
output, Sarah will earn a
______ of ______ per day.

C) profit; $15
A) loss; $100 D) profit; $285
B) loss; $15

Version 1 65
121) Suppose Sarah owns a small company that makes
wedding cakes. The accompanying table shows how Sarah’s
total cost varies depending on the number of wedding cakes
she makes each day.

Number of Cakes Per Total Cost Per Day 6 $ 660

Day
0 $ 100
1 $ 180
2 $ 220
3 $ 300
4 $ 400
5 $ 520
If the market for wedding
cakes is perfectly
competitive, and wedding
cakes sell for $125 each,
then Sarah should produce
______ cakes per day.

C) 5
A) 0 D) 6
B) 3

122) Suppose Sarah owns a small company that makes

wedding cakes. The accompanying table shows how Sarah’s
total cost varies depending on the number of wedding cakes
she makes each day.

Number of Cakes Per Total Cost Per Day

Day If the market for wedding
0 $ 100 cakes is perfectly
1 $ 180 competitive, and wedding
2 $ 220 cakes sell for $125 each,
then at her profit-
3 $ 300
maximizing level of
4 $ 400
output, Sarah’s profit will
5 $ 520 be ______ per day.
6 $ 660

Version 1 66
 C) $105
A) $90 D) $625
B) $100

123) Suppose Sarah owns a small company that makes

wedding cakes. The accompanying table shows how Sarah’s
total cost varies depending on the number of wedding cakes
she makes each day.

Number of Cakes Per Total Cost Per Day 5 $ 520

Day 6 $ 660
0 $ 100
1 $ 180 If Sarah’s fixed costs
2 $ 220 double, then in the short
3 $ 300 run, her profit-maximizing
4 $ 400 level of output

C) will decrease.
A) will shrink to zero if she starts earning a loss. D) will not change.
B) will increase.

124) When Acme Dynamite produces 250 units of output,

its variable cost is $2,000, and its fixed cost is $500. It sells
each unit of output for $25.When Acme Dynamite produces
250 units of output, its average variable cost is ______ and its
average total cost is ______.

C) $10; $2
A) $8; $2 D) $8; $10
B) $10; $10

Version 1 67
125) When Acme Dynamite produces 250 units of output, 250 units of output, its
its variable cost is $2,000, and its fixed cost is $500. It sells profit is
each unit of output for $25. When Acme Dynamite produces

C) $4,250.
A) $6,250. D) $3,750.
B) $5,750.

126) When Acme Dynamite produces 225 units of output,

its variable cost is $2,500, and its fixed cost is $600. It sells
each unit of output for $25. When Acme Dynamite produces
225 units of output, its profit is

C) $5,625.
A) $3,125. D) $2,525.
B) $5,025.

127) When Acme Dynamite produces 250 units of output,

its variable cost is $2,000, and its fixed cost is $500. It sells
each unit of output for $25. If the price of dynamite drops to
$10, should Acme Dynamite continue to operate in the short
run?

cost.
A) No, because price is less than average total cost. D) Yes, because
B) Yes, because price is less than average variable price is greater than
cost. average variable cost.
C) No, because price is not greater than average total

128) In general, perfectly competitive firms maximize their

profit by producing the level of output at which

Version 1 68
 D) marginal cost
A) average cost is minimized. equals price.
B) total cost is minimized.
C) average cost equals price.

129) If a perfectly competitive firm produces an output

level at which price is greater than marginal cost, then the
firm should

D) leave its output

A) employ more fixed factors of production. decision unchanged
B) reduce output to earn greater profits or smaller because it is earning a
losses. profit.
C) expand output to earn greater profits or smaller
losses.

130) If a perfectly competitive firm produces an output

level at which price is less than marginal costs, then the firm
should

D) leave its output

A) raise its price. level unchanged provided
B) reduce output to earn greater profits or smaller it is covering its variable
losses. cost.
C) expand output to earn greater profits or smaller
losses.

131) An increase in the price a firm receives for its output

will lead the firm to

B) leave output
A) expand output. unchanged and earn

Version 1 69
greater profits. D) reduce output.
C) leave output unchanged and earn smaller losses.

132) A decrease in the price a firm receives for its output

will lead the firm to

D) reduce output.
A) expand output.
B) cut its payments to its factors of production.
C) leave output unchanged.

133) Suppose a perfectly competitive firm is producing 37

units output, and the marginal cost of the 37th unit is $3. If the
firm can sell each unit of output for $5 and the firm’s revenue
is sufficient to cover its variable cost, the firm should

D) raise its price.

A) lower its price.
B) decrease production.
C) increase production.

134) Suppose a perfectly competitive firm is producing 77

units of output, and the marginal cost of the 77th unit is 11. If
the firm can sell each unit of output for $8 and the firm’s
revenue is sufficient to cover its variable cost, the firm should

D) raise its price.

A) lower its price.
B) decrease production.
C) increase production.

Version 1 70
135) Suppose a perfectly competitive firm is producing firm’s revenue is sufficient
1,000 units of output and the marginal cost of the 1,000th unit to cover its variable cost,
is $7. If the firm can sell each unit of output for $7 and the the firm should

D) decrease
A) leave production unchanged. production to lower losses.
B) increase price to increase profits.
C) increase production to increase profits.

136) The accompanying graph shows the cost curves for

Mei's mushroom gathering business, which is perfectly In the graph above, the
competitive. average variable cost curve
is labeled _____, the
average total cost curve is
labeled _____, and the
marginal cost curve is
labeled ______.

C) B; C; A
A) A; B; C D) C; A; B
B) C; B; A

Version 1 71
137) The accompanying graph shows the cost curves for
Mei's mushroom gathering business, which is perfectly
competitive.

the supply of mushrooms.

A) of high fixed costs. D) variable costs
B) of diminishing returns to Mei’s variable factors of increase as output
production. increases.
C) an increase in the demand for mushrooms increases

138) The accompanying graph shows the cost curves for

Mei's mushroom gathering business, which is perfectly If mushrooms sell for $10
competitive. per bushel, and Mei
chooses the profit-
maximizing quantity, she
will gather

C) 30 bushels.
A) 50 bushels. D) zero bushels.
B) 20 bushels.

Version 1 72
139) The accompanying graph shows the cost curves for
Mei's mushroom gathering business, which is perfectly
competitive.

If mushrooms sell for $40 per bushel, and Mei chooses the
profit-maximizing quantity, she will

D) shut down.
A) earn zero profit.
B) earn negative profit (a loss).
C) earn positive profit.

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140) The accompanying graph shows the cost curves for
Mei's mushroom gathering business, which is perfectly
competitive.

D) curve A above
A) curve C to the right of curve A. curve C.
B) curve B to the right of curve A.
C) curve A above curve B.

141) A profit-maximizing firm will only produce a positive

amount of output if

D) its total revenue

A) its total revenue is greater than its total cost. is greater than or equal to
B) its total revenue is greater than its fixed cost. its variable cost.
C) its total revenue equals its total cost.

142) When plotting marginal and average cost curves, the

______ cost curve always crosses the ______ cost curve at its
______.

D) average
A) average fixed; marginal; minimum variable; marginal;
B) marginal; average total; minimum maximum
C) marginal; average variable; maximum

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143) Refer to the accompanying graph. If this firm is a
price taker, then when the price of each unit of output is $30,
this firm’s profit-maximizing level of output is ______.

C) 80
A) 30 D) 100
B) 60

144) Refer to the

accompanying graph. If
this firm is a price taker,
then when the price of
each unit of output is $30,
this firm’s total revenue at
its profit-maximizing level
of output is ______.

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 C) $1,800
A) $3,000 D) $900
B) $2,400

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145) Refer to the accompanying graph. If this firm is a
price taker, then when the price of each unit of output is $30,
this firm’s total cost at its profit-maximizing level of output is
______.

C) $1,600
A) $900 D) $2,700
B) $1,200

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146) Refer to the accompanying graph. If this firm is a
price taker, then when the price of each unit of output is $30,
how much profit does this firm earn at its profit-maximizing
level of output?

C) $1,200
A) $500 D) $1,600
B) $800

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147) Refer to the accompanying graph. If this firm is a
price taker, then when the price of each unit if output is $15,
what is this firm’s profit-maximizing level of output?

C) 60
A) 0 D) 80
B) 45

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148) Refer to the accompanying graph. If this firm is a
price taker and the price of each unit of output is $15, then at
this firm’s profit-maximizing level of output, it will earn a
______ of ______.

C) loss, $300
A) loss, $60 D) loss, $900
B) profit, $180

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149) Refer to the accompanying graph. If this firm is a
price taker and the price of each unit of output is $15, then
this firm should

D) lower its output

A) produce 60 units of output. to decrease its marginal
B) shut down in the short run. cost.
C) raise its price to increase its revenue.

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150) Refer to the accompanying graph. If this firm is a
price taker and the price of each unit of output is $9, then this
firm should

D) lower its output

A) produce 45 units of output. to decrease its marginal
B) shut down in the short run. cost.
C) raise its price to increase its revenue.

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151) Refer to the accompanying graph. If this firm is a
price taker and the price of each unit of output is $9, then at
its profit-maximizing level of output, this firm will earn a
______ of ______.

C) profit; $495
A) loss; $60 D) profit; $900
B) loss; $300

152) When the price of a perfectly competitive firm’s

output rises

D) the firm’s
A) the firm will produce more. marginal cost curve will
B) the firm’s marginal cost curve will shift to the shift to the left.
right.
C) the firm will produce less.

153) A perfectly competitive firm's supply curve is the

portion of its ______ cost curve that lies above its ______
cost curve.

A) average total;

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marginal D) marginal;
B) average variable; marginal average variable
C) marginal; average total

154) A technological innovation that reduces a firm’s cost

of producing additional units of output will lead to

no change in the firm’s

A) an increase in the quantity supplied by the firm, but supply.
no change in the firm’s supply. D) a decrease in the
B) an increase in the firm’s supply. firm’s supply.
C) a decrease in the quantity supplied by the firm, but

155) If crude oil is a variable factor of production for a

firm, then an increase in the price of crude oil will lead to

no change in the firm's

A) a decrease in the quantity supplied by the firm, but supply.
no change in the firm's supply. D) an increase in
B) a decrease in the firm's supply. the firm's supply.
C) an increase in the quantity supplied by the firm, but

156) When more firms enter an industry

firms.
A) the amount produced by each of the new firms will D) the industry
be greater than the amount produced by each of the original supply curve will shift
firms. right.
B) the industry supply curve will shift left.
C) the amount produced by each of the new firms will
be less than the amount produced by each of the original

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157) Assume that the production technology required to
produce goods X and Y is very similar. If a firm that is
producing good X notices that the market price of good Y is
rising, it will

D) charge a higher
A) intensify its production of good X. price for good X.
B) shift into producing good Y.
C) anticipate a price increase for good X.

158) Which of the following will cause an increase in

market supply?

D) An increase in
A) A decrease in the number of firms in the market. the price of the good.
B) An increase in demand for the good.
C) A technological innovation that lowers the
marginal cost of producing the good.

159) Which of the following will cause a decrease in the

supply of jeans?

D) A decrease in
A) An increase in the wages paid to workers who the expected future price of
make jeans. jeans.
B) A decrease in the demand for jeans.
C) A decrease in the price of jeans.

160) An increase in
consumers' demand for
espresso will lead to an

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increase in ______, while an increase in the number of firms producing espresso will
lead to a(n) ______.

D) supply; decrease
A) quantity supplied; decrease in supply in supply
B) supply; increase in quantity supplied
C) quantity supplied; increase in supply

161) As price increases, firms in a perfectly competitive

market find that it is

D) easier to sell
A) beneficial to produce more units of output. their product.
B) more difficult to sell their product.
C) beneficial to produce fewer units of output.

162) If a perfectly competitive firm can sell each unit of

output for $9, and the marginal cost of the last unit produced
is $8.50, then the

D) extra benefit of
A) extra benefit of the last unit produced is less than the last unit produced is
the extra cost. greater than the extra cost.
B) firm should lower its output level in order to
increase profits.
C) firm is earning an average profit of $0.50.

163) The difference between the price a seller actually

receives for a good and the seller's reservation price is

C) variable cost.
A) producer surplus.
B) profit.

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 D) consumer surplus.

164) Refer to the

accompanying figure. The
equilibrium price in this
market is ______ and the
equilibrium quantity is
______.

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 C) $30; 25
A) $25; 25 D) $30; 30
B) $25; 30

165) Refer to the accompanying figure. When this market is

in equilibrium, total producer surplus in the market is ______
per day.

C) $250
A) $500 D) $0
B) $375

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166) Refer to the accompanying figure. Suppose a law is
passed requiring restaurants to charge no more than $25 per
meal. This law would:

D) have an
A) decrease producer surplus. ambiguous effect on
B) increase producer surplus. producer surplus.
C) have no effect on producer surplus.

167) Refer to the accompanying figure. In this market,

equilibrium price is ______ and equilibrium quantity is
______.

C) $50, 20
A) $10, 25 D) $20, 50
B) $25, 10

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168) Refer to the accompanying figure. Total producer
surplus in this market is:

C) $250
A) $10 D) $500
B) $125

169) Suppose the current market price for wheat is $10 per
bushel and there are 200,000 bushels sold each day. If the
supply curve is a straight line that intersects the price axis at
$2 per bushel, what is the total amount of producer surplus in
this market?

C) $25,000
A) $800,000 D) $100,000
B) $1,600,000

170) Suppose the current market price for wheat is $10 per
bushel and there are 200,000 bushels sold each day. If the
supply curve is a straight line that intersects the price axis at
$2 per bushel, what is the total amount of producer surplus in
this market?

B) $25,000
A) $100,000

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 C) $800,000
D) $1,600,000

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Version 1 92
Answer Key

Test name: Chap 06_8e_Frank

1) B
2) D
3) B
4) C
5) A
6) B
7) C
8) C
9) B
10) B
11) C
12) B
13) B
14) D
15) A
16) C
17) B
18) D
19) B

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20) B
21) B
22) B
23) B
24) D
25) C
26) C
27) A
28) C
29) B
30) B
31) D
32) D
33) C
34) A
35) C
36) C
37) D
38) D
39) C
40) D

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41) B
42) C
43) B
44) C
45) A
46) B
47) A
48) B
49) B
50) B
51) D
52) A
53) B
54) D
55) B
56) D
57) A
58) C
59) C
60) B
61) C

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62) B
63) C
64) D
65) B
66) C
67) A
68) D
69) B
70) D
71) C
72) C
73) D
74) D
75) A
76) B
77) A
78) B
79) B
80) A
81) C
82) C

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83) B
84) A
85) D
86) A
87) A
88) B
89) D
90) C
91) B
92) C
93) B
94) B
95) A
96) C
97) B
98) B
99) D
100) C
101) A
102) D
103) C

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104) A
105) B
106) A
107) B
108) B
109) A
110) A
111) A
112) B
113) A
114) D
115) C
116) C
117) A
118) A
119) B
120) B
121) C
122) C
123) D
124) D

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125) D
126) D
127) D
128) D
129) C
130) B
131) A
132) D
133) C
134) B
135) A
136) B
137) B
138) D
139) C
140) D
141) D
142) B
143) C
144) B
145) C

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146) B
147) C
148) A
149) A
150) B
151) B
152) A
153) D
154) B
155) B
156) D
157) B
158) C
159) A
160) C
161) A
162) D
163) A
164) C
165) C
166) A

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167) B
168) B
169) A
170) C

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