Dr.

Sonia
ECO 101
Spring 2024

Take Home Quiz 3

DUE SATURDAY 25th of May in class.

THIS IS AN INDIVIDUAL QUIZ.

Indicate the answer choice that best completes the statement or answers the question.

Exhibit 8-8 A firm's cost and marginal revenue curves

1. In Exhibit 8-8, product price in this market is fixed at $35. This firm is currently operating where MR
= MC. What do you advise this firm to do?
A) This firm should decrease price.
B) This firm should continue to operate at its current output.
C) This firm could increase profits by increasing output.
D) This firm could increase profits by decreasing output.
E) This firm should shut down.

Exhibit 8-11 A firm's cost and marginal revenue curves

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2. In Exhibit 8-11, when the price is $2, the profit-maximizing (or loss-minimizing) firm:
A) is making an economic profit of $8.
B) should produce output equal to 4.
C) should shut down and produce zero.
D) has total revenue equal to $20.
E) should try to produce more output.

3. Profit is maximized when which of the following conditions occurs?

A) Total revenue equals total cost.
B) Marginal revenue equals marginal cost.
C) Both A) and B) above are correct.
D) Average revenue equals average total cost.

4. A firm is currently operating where the MC of the last unit produced = $84, and the MR of this unit =
$70. What would you advise this firm to do?
A) Decrease price.
B) Shut down.
C) Decrease output.
D) Increase output.
E) Stay at its current
output.

5. Suppose product price is fixed at $24; MR = MC at Q = 200; AFC = $6; AVC = $25. What do you
advise this firm to do?

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 A) Shut down operations.
B) Decrease output.
C) Increase output.
D) Stay at the current output; the firm is earning a profit of $1,400.
E) Stay at the current output; the firm is losing $1,400.

6. Which of the following is true of a perfectly competitive market?

A) If economic profits are earned in the short-run, then new firms will enter the industry and the
price will fall over time.
B) In long-run equilibrium P = MR = LRMC = LRACmin.
C) In the long run economics profit will be equal to zero.
D) All of these.

Exhibit 8-7 A firm's cost and MR curves

7. In Exhibit 8-7, if this firm is currently producing 20 units of output, this firm:
A) is losing $20.
B) is making a loss.
C) is earning a total profit of $60.
D) is earning a total profit of $3.
E) should shut down.

8. Suppose product price is fixed at $24; MR = MC at Q = 200; AFC = $6; AVC = $16. What do you
advise this firm to do?
A) Stay at the current output; the firm is losing $200.

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 B) Decrease output.
C) Shut down operations.
D) Increase output.
E) Stay at the current output; the firm is earning a profit of
$400.

9. A perfectly competitive firm sells its output for $100 per unit and marginal cost is $100 per unit. To
maximize short-run profit, the firm should:
A) decrease output.
B) increase output.
C) shut down.
D) maintain its current
output.

10. In the short run, a firm will stay in business as long as:
A) price equals average revenue.
B) marginal revenue is greater than or equal to marginal cost.
C) price exceeds average variable cost.
D) price is less than average variable cost.

11. Which of the following is not a characteristic of the structure of perfectly competitive
markets?
A) Few sellers.
B) Each individual firm is small in size relative to the overall market.
C) Easy, low cost entry and exit.
D) Homogeneous product.

12. Assume that you are working for a perfectly competitive firm. In the short run this firm
is operating at a quantity where marginal cost = marginal revenue. At this quantity, this
firm's total revenue = 1500, the total variable cost = 1000 and total fixed costs = 1600,
then this firm should:

A) Shut down because the firm is making a loss.

B) Shut down because total revenue is less than total fixed costs
C) Keep on producing the quantity it is producing even though it is making a loss
because, total revenue is greater than total variable cost.
D Change output because the firm is not at the profit maximizing output level.
E) Cannot tell from the given information.

ASSUME PERFECT COMPETITION AND THAT THE MARKET PRICE IS $20.

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 Output MC
------------------------
1 20
2 16
3 12
4 16
5 20
6 22
--------------------------

13. The profit maximizing level of output is:

A) 1.
B) 3.
C) 4.
D) 5.
E) (A) & (D) both are correct.

Exhibit 8-6 A firm's cost and MC curves

14. In Exhibit 8-6, if this firm is currently producing 20 units of output, this firm:

A) is earning a profit of $10.

B) is earning a profit of $.50.
C) is losing $10.
D) should shut down.
E) is losing $.50

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15. As shown in Exhibit 8-17, the short-run supply curve for the firm corresponds to which segment
of its marginal cost curve?
A) all points of MC above C.
B) all points of MC above B.
C) A and all points above.
D) A to C only.
E) None of the options.