Page 1 Name: __________________________ Date: _____________ Use the following to answer question 1: Figure: Long-Run Average Cost 1. (Figure: Long-Run Average Cost) Output per period in the region A to B indicates that a firm is experiencing: A) diseconomies of scale. B) constant total cost as output increases. C) economies of scale. D) constant returns to scale. 2. The long-run average total cost of producing 100 units of output is $4, while the long-run average cost of producing 110 units of output is $4. These numbers suggest that the firm producing this output is experiencing: A) economies of scale. B) constant returns to scale. C) diseconomies of scale. D) diminishing returns. 3. In the long run, all costs are: A) variable. B) constant. C) fixed. D) marginal.Page 2 4. Sunk costs: A) can dramatically increase marginal costs. B) help to determine the optimal quantity of an activity. C) are not considered in marginal analysis. D) are the same as variable costs. 5. Sara spends $25 for an all-day ticket to an amusement park. After one ride, it begins to rain and she wishes she had never come. Since she has already paid for her ticket, she should stay at the amusement park until it closes or she has wasted her $25. A) True B) False 6. Market structures are categorized by the following two criteria: A) the number of firms and the size of the firms B) the number of firms and whether or not products are differentiated C) whether or not products are differentiated and the extent of advertising D) the size of the firms and the extent of advertising 7. If a Florida strawberry wholesaler is in a perfectly competitive market, that wholesaler will have a ________ share of the market, and consumers will consider her strawberries to be ________. Therefore, ________ advertising will take place in this market. A) small; differentiated; no B) large; differentiated; extensive C) small; standardized; little, if any D) large; standardized; no 8. If a local California avocado stand operates in a perfectly competitive market, that stand owner will be a: A) price-discriminator. B) price-maximizer. C) price-taker. D) price-maker. 9. The perfectly competitive model assumes all of the following except: A) a great number of buyers. B) easy entry into and easy exit from the market. C) that firms attempt to maximize their total revenue. D) complete information on the part of buyers and sellers.Page 3 10. In the short run, a perfectly competitive firm produces output and earns an economic profit if: A) P = ATC. B) P < AVC. C) AVC > P > ATC. D) P > ATC. Use the following to answer question 11: 11. (Table: Total Cost for a Perfectly Competitive Firm) If the market price is $4.50, the profit-maximizing quantity of output is ________ units. A) five B) seven C) nine D) eight 12. If a perfectly competitive firm is producing a quantity that generates P > MC, then profit: A) can be increased by decreasing the price. B) can be increased by increasing production. C) can be decreased by increasing the price. D) is maximized.Page 4 Use the following to answer question 13: 13. (Table: Variable Costs for Lots) During the winter, Alexa runs a snow-clearing service, and snow-clearing is a perfectly competitive industry. Her only fixed cost is $1,000 for a tractor. Her variable costs per cleared lot, shown in the table, include fuel and hot coffee. What is Alexa's shut-down price in the short run? A) $15 B) $0 C) $50 D) $42 Use the following to answer questions 14-15: Figure: A Perfectly Competitive Firm in the Short RunPage 5 14. (Figure: A Perfectly Competitive Firm in the Short Run) If market price is G, the firm's total cost of producing its most profitable level of output is: A) BS. B) DK. C) 0ESB. D) 0FKD. 15. (Figure: A Perfectly Competitive Firm in the Short Run) The firm will shut down in the short run if the price falls below: A) G. B) P. C) E. D) F. Use the following to answer question 16: Figure: Short-Run Costs 16. (Figure: Short-Run Costs) This firm's short-run supply curve begins at quantity: A) R. B) T. C) Q. D) S.Page 6 17. Suppose that the market for candy canes operates under conditions of perfect competition, that it is initially in long-run equilibrium, and that the price of each candy cane is $0.10. Now suppose that the price of sugar rises, increasing the marginal and average total costs of producing candy canes by $0.05. Based on the information given, we can conclude that in the short run a typical producer of candy canes will be making: A) an economic profit. B) negative economic profits. C) zero economic profit. D) The answer is impossible to determine based on the information given. 18. If some firms in a perfectly competitive industry are earning positive economic profits, then in the long run, the: A) number of firms in the industry will decrease. B) industry is in long-run equilibrium. C) industry supply curve will shift to the right. D) number of firms in the industry will not change. 19. In long-run equilibrium in a perfectly competitive market, all firms will be operating at their lowest possible average total cost. A) True B) False 20. A monopoly responds to an increase in demand by ________ price and ________ output. A) increasing; increasing B) increasing; decreasing C) decreasing; increasing D) decreasing; decreasingPage 7 Use the following to answer questions 21-22: Figure: Monopoly Model 21. (Figure: Monopoly Model) When the firm is in equilibrium (that is, maximizing its economic profit), its total revenue is the area of rectangle: A) 0SBJ. B) IPDH. C) SPDB. D) 0PDJ. 22. (Figure: Monopoly Model) When the firm is in equilibrium (that is, maximizing its economic profit), its total cost is the area of rectangle: A) 0PDJ. B) IPDH. C) 0IHJ. D) 0SBJ. 23. In perfect competition, the firm produces the output such that ________, and in monopoly, the firm produces the output such that ________. A) P > MR = MC; P = MR = MC B) P = MR = MC; P < MR = MC C) P = MR = MC; P = MR = MC D) P = MR = MC; P > MR = MCPage 8 Use the following to answer question 24: Figure: Monopolist 24. (Figure: Monopolist) The deadweight loss associated with this monopoly can be measured as the area: A) 1/2(P1 – P3)Q2. B) 1/2(P1 – P3)Q3. C) 1/2(P1 – P2)(Q2 – Q1). D) 1/2(P2 – P4)(Q4 – Q2). 25. Compared to a firm in perfect competition, a monopoly