QUESTION 1
• If a representative firm with total cost given by TC = 20 + 20 q + 5 q 2 operates in a competitive industry where the short-run market demand and supply curves are given by QD = 1,400 – 40 P and QS = –400 + 20 P, its short-run profit-maximizing level of output is:

``````    0 units.
1 unit.
2 units.
4 units.
6 units.``````

QUESTION 2
• In the model of perfect competition, there:

``````    are many firms producing differentiated products.
are a few firms producing undifferentiated products.
are a few firms producing differentiated products.
are many firms producing undifferentiated products.
is one firm producing a highly differentiated product.``````

QUESTION 3
• In the model of perfect competition, firms maximize profits by producing where:

``````    the difference between marginal revenue and marginal cost is maximized.
marginal revenue equals price.
the difference between price and marginal cost is maximized.
price equals marginal cost.
the difference between price and marginal revenue is maximized.``````

QUESTION 4
• If price is less than the average variable cost of a representative firm in a competitive industry in short-run:

``````    there will be exit from the industry immediately.
the firms in the industry should shut down and produce no output.
the firms in the industry are just earning a normal rate of return.
the firms should produce a level of output in which marginal cost is equal to price.
the industry is in long-run equilibrium.``````

QUESTION 5
• Camel Records produces records according to Q = 4 L – 0.15 L 2. If labor costs \$5 and records sell for \$2, the optimal quantity of labor is:

``````    0
2
10
5
17``````

QUESTION 6
• If a representative firm with total cost given by TC = 20 + 20 q + 5 q 2 operates in a competitive industry where the short-run market demand and supply curves are given by QD = 1,400 – 40 P and QS = –400 + 20 P, the number of firms operating in the short run will be:

``````    100
140
200
280
240``````

QUESTION 7
• If the perfectly competitive market demand for tanning beds shifts from Q D,91 = 1,230 – 5 P to Q D,92 = 740 – 5 P and the market supply is given by QS = –100 + 2 P, then the change in equilibrium quantity will be:

``````    140 units.
280 units.
–98 units.
–140 units.
–150 units.``````

QUESTION 8
• The following diagram represents the market for paperback books. In the market for paperback books, producer surplus is:

``````    \$15.00.
\$30.00.
\$112.50.
\$225.00.
None of the above.``````

QUESTION 9
• If the demand increases for the product of an increasing-cost industry:

``````    short-run price goes up, but long-run price falls.
long-run output goes up, but long-run price may go up or down.
short-run output goes up, but long-run output may go up or down.
long-run output goes up, but short-run price remains constant.
short-run price goes up, and long-run price goes up.``````

QUESTION 10
• A constant-cost industry is one in which:

``````    input prices do not change over time.
technology does not change over time.
input prices and technology do not change as firms enter or exit the industry.
input prices and technology do not change over time.
firms have reached the maturity phase of the industry’s life cycle.``````

QUESTION 11
• A representative firm with long-run total cost given by TC = 2,000 + 20 q + 5 q 2 operates in a competitive industry where the market demand is given by QD = 10,000 – 40 P. The long-run equilibrium output of the industry will be:

``````    1,200 units.
1,800 units.
2,200 units.
2,600 units.
3,200 units.``````

QUESTION 12
• A representative firm with short-run total cost given by TC = 50 + 2 q + 2 q 2 operates in a competitive industry where the short-run market demand and supply curves are given by QD = 1,410 – 40 P and QS = –390 + 20 P. Its short-run profit-maximizing level of output is:

``````    0 units.
1 unit.
2 units.
5 units.
7 units.``````

QUESTION 13
• If a representative firm with long-run total cost given by TC = 2,000 + 20 q + 5 q 2 operates in a competitive industry where the market demand is given by QD = 10,000 – 40 P, in the long-run equilibrium there will be:

``````    60 firms.
98 firms.
106 firms.
110 firms.
120 firms.``````

Sample Solution