Perfect comp

1. In a perfectly competitive market that is in a long-run equilibrium, price will be equal to (MARK ALL THAT APPLY): a) Marginal Revenue | b) Marginal Cost | c) Average Variable Cost | d) Fixed Cost | e) None of the above

a, b - Marginal Revenue and Marginal Cost

2. Jon's bike shop operates in a perfectly competitive market where P=$300, MC=0.5q, and fixed costs are $100,000. Profit is ___ and the firm ___ in the short run: a) Positive, continue | b) Positive, shut down | c) Zero, shut down | d) Negative, continue | e) Negative, shut down

d - Negative profit, continue to operate

3. Jon's E-bike shop operates in a perfectly competitive market where P=$900, MC=0.5q, and fixed costs are $100,000. What happens to price in the long run? (MARK ALL THAT APPLY): a) Increase | b) Decrease | c) Equal MC | d) Be less than current MC | e) Be less than ATC

b, c, d - Price decreases, equals the new marginal cost, and is below the current marginal cost

4. A perfectly competitive firm is making positive economic profit. What is the relationship between MC and AC? a) MC>AC | b) MC<AC | c) MC=AC | d) Need more information | e) Joke option

a - MC>AC

5. The opportunity cost of a business owner's time is included in: a) Accounting profit | b) Economic profit | c) Both | d) Neither

b - Economic profit

6. There are 10 identical firms, each with C(q)=300+q^2, and market demand is Q=60-P. What is the equilibrium price? A) 1250 | B) 250 | C) 200 | D) 10 | E) None

D - $10

7. Using the cost graph, which price gives the firm the lowest profit? a) $35 | b) $26 | c) $25 | d) $13 | e) $1

e - $1

8. There are 10 identical firms, each with C(q)=300+q^2, and market demand is Q=60-P. What is deadweight loss at equilibrium? a) 1250 | b) 250 | c) 200 | d) 10 | e) None

e - None of the above, because DWL=$0

9. A perfectly competitive firm has P=$0.50 and AC=$0.75 at its optimal quantity. In the long run market supply will ___ and price will ___: a) Increase, increase | b) Increase, decrease | c) Decrease, increase | d) Decrease, decrease | e) Need more information

c - Supply decreases and price increases

10. A perfectly competitive firm has P=$20, MC=2q, and fixed costs of $2,000. In the short run it will (MARK ALL THAT APPLY): a) Continue | b) Make negative profit | c) Produce 10 | d) Produce 0 | e) Have positive variable profit

a, b, c, e - Continue, make negative total profit, produce 10 units, and have positive variable profit

11. If $100,000 is invested in a business and the forgone rate of return is 5%, the opportunity cost of capital is (MARK ALL THAT APPLY): a) $100,000 | b) $95,000 | c) $5,000 | d) Included in economic profit | e) Included in accounting profit

c, d - $5,000 and included when calculating economic profit

12. A perfectly competitive firm has P=$6 and AC=$9 at its optimal quantity. In the long run market supply will ___ and price will ___: a) Increase, increase | b) Increase, decrease | c) Decrease, increase | d) Decrease, decrease | e) Need AVC

c - Supply decreases and price increases

13. From the graph, at P=$10 firms make total profit of: a) 15 | b) 25 | c) 10 | d) 5 | e) Negative profit

a - $15

14. From the graph, in the long run price will be driven to: a) More than $10 | b) $10 | c) $7 | d) Less than $7 | e) None

d - Less than $7

15. Jimmy's fruit stand has P=$3 and MC=0.1q. For which fixed-cost levels should it operate? (MARK ALL THAT APPLY): a) FC=0 | b) FC=10 | c) FC=50 | d) FC=100 | e) FC=1000

a, b, c, d, e in the short run - All listed fixed-cost levels

16. There are 80 identical firms, each with q=0.5P. If P=$8, what is total producer surplus? A) 640 | B) 1,280 | C) 2,560 | D) 5,120 | E) None

B - $1,280

17. From the graph, market price is $5. Which statements are true? (MARK ALL THAT APPLY): a) Long-run equilibrium | b) Firm shuts down | c) Price rises in long run | d) Negative variable profit | e) None

c - In the long run, price will rise

18. If C(q)=400+5q, fixed cost is ___ and marginal cost is ___: a) 400, 5 | b) 400, 5q | c) 5, 400 | d) 0, 5q^2 | e) None

a - 400 and 5

19. From the MC and AC graph, which statements about long-run equilibrium are true? (MARK ALL THAT APPLY): a) Price below $15 | b) Firm exits | c) Price above $6 | d) Price where MC crosses AC | e) Firm earns zero profit

a, c, d, e - Price is below $15 and above $6, occurs where MC=AC, and yields zero economic profit

20. There are 10 identical firms, each with C(q)=100+q^2, and market demand is Q=60-P. What is consumer surplus? a) 1250 | b) 250 | c) 200 | d) 10 | e) None

a - $1,250

21. From the graph, at what prices does the firm earn negative profit? (MARK ALL THAT APPLY): a) Less than P1 | b) Between P1 and P2 | c) Greater than P2 | d) None because shutdown produces zero profit

a, b - Below P1 and between P1 and P2

22. There are 60 perfectly competitive firms with C(q)=10+3q^2 and market demand QD=1200-40P. What is total producer surplus? a) 48 | b) 2880 | c) 24 | d) 240 | e) 32

b - $2,880

23. A perfectly competitive firm has P=$20, MC=5q, and fixed costs of $100. In the short run it will (MARK ALL THAT APPLY): a) Continue | b) Make negative profit | c) Produce 4 | d) Produce 0 | e) Have positive variable profit

a, b, c, e - Continue, make negative total profit, produce 4 units, and have positive variable profit

24. From the cost-curve graph, if market price is $12, how much does the firm produce? a) 18 | b) 12 | c) 10 | d) 5 | e) 0

b - 12 units

25. From the cost-curve graph, what will the long-run market price be? a) 18 | b) 12 | c) 9 | d) 4 | e) 0

c - $9

26. There are 10 identical firms, each with C(q)=100+q^2, and market demand is Q=60-P. What is total surplus? a) 1500 | b) 1250 | c) 250 | d) 150 | e) 10

a - $1,500

27. Setup for Questions 28-29: Four identical firms have C(q)=25+q^2 and market demand Q=30-P. Find the competitive equilibrium used in the next questions.

P=$10, market Q=20, and each firm produces q=5

28. With four identical firms having C(q)=25+q^2 and market demand Q=30-P, what is total surplus at competitive equilibrium? a) 300 | b) 200 | c) 150 | d) 100 | e) 75

a - $300

29. In Question 28, what happens to the number of firms in the long run? a) More than 4 | b) Less than 4 | c) 4 | d) Depends on unspecified fixed cost

c - There will be four firms

30. A firm has variable profit of $10 and fixed costs of $50. Should it shut down? a) Yes | b) No | c) Not enough information | d) Impossible

b - No

31. From the graph, market price is $5. Which statements are true? (MARK ALL THAT APPLY): a) Long-run equilibrium | b) Firm shuts down | c) Price rises in long run | d) Negative variable profit | e) None

c - In the long run, price will rise

32. There are 10 identical firms, each with C(q)=300+q^2, and market demand is Q=60-P. What is consumer surplus? a) 1250 | b) 250 | c) 200 | d) 10 | e) None

a - $1,250

33. A perfectly competitive firm has P=$1 and AC=$1 at its optimal quantity. In the long run market supply will ___ and price will ___: a) Increase, increase | b) Increase, decrease | c) Decrease, increase | d) Decrease, decrease | e) None

e - None of the above, because supply and price remain unchanged

34. There are 8 identical firms, each with C(q)=200+2q^2, and market demand Q=100-P. What is equilibrium price? A) $20 | B) $40 | C) $60 | D) $80 | E) None

E - None of the above, because P=100/3 or about $33.33

35. If $50,000 is invested in a business and the forgone rate of return is 10%, the opportunity cost of capital is (MARK ALL THAT APPLY): a) $50,000 | b) $10,000 | c) $5,000 | d) Included in economic profit | e) Included in accounting profit

c, d - $5,000 and included when calculating economic profit