1. Why does a firm in a competitive industry charge the market price?
a. If a firm charges less than the market price, it loses potential revenue.
b. If a firm charges more than the market price, it loses all its customers to other firms.
c. The firm can sell as many units of output as it want to at the market price.
d. All of the above are correct.
2. If a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue, then
a. average revenue exceeds marginal cost.
b. the firm is earning a positive profit.
c. decreasing output would increase the firm’s profit.
d. All of the above are correct.
3. A firm will shut down in the short run if, for all positive levels of output
a. its loss exceeds its fixed costs.
b. its total revenue is less than its variable costs.
c. the price of its product is less than its average variable cost.
d. All of the above are correct.
4. A firm that exits its market has to pay
a. its variable costs but not its fixed costs.
b. its fixed costs but not its variable costs.
c. both its variable costs and its fixed costs.
d. neither its variable costs nor its fixed costs.
5. Which of the following statements is not correct?
a. In a long-run equilibrium, marginal firms make zero economic profit.
b. To maximize profit, firms should produce at a level of output where price equals average variable cost.
c. The amount of gold in the world is limited. Therefore, the gold jewelry market probably has a long-run supply curve that is upward sloping.
d. Long-run supply curves are typically more elastic than short-run supply curves.