1			Which of the following is a condition of perfect competition?
			A)	products produced by rival firms are perfect substitutes
			B)	individual firms can affect market supply
			C)	industry sales are small
			D)	restricted entry and exit
			E)	firms do not have complete knowledge about production and prices
2			In order to minimize losses in the short run, a perfectly competitive firm should shut down if…
			A)	total revenue is less than total cost.
			B)	total revenue is less than total fixed cost.
			C)	total revenue is less than the difference between total fixed cost and total variable cost.
			D)	total revenue is less than total variable cost.
3			When a perfectly-competitive industry is in long-run equilibrium,
			A)	firms have incentives to enter or exit the industry.
			B)	market price is equal to minimum long-run average cost.
			C)	each firm earns a normal return.
			D)	both b and c
			E)	all of the above

The next 4 questions refer to the following figure:

<a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=jpg::::/sites/dl/free/0073402818/459498/Ch_11.jpg','popWin', 'width=546,height=373,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (36.0K)</a>

These are the cost curves for a perfectly competitive firm.

4			If market price is $50, how much output will the firm produce?
			A)	0 units
			B)	100 units
			C)	300 units
			D)	400 units
5			If market price is $50, how much profit will the firm earn?
			A)	$12,000
			B)	$15,000
			C)	$3,000
			D)	$6,000
6			If market price is $20, how much profit will the firm earn?
			A)	zero
			B)	-$3,000
			C)	$3,000
			D)	$300
7			At what level of output will the firm break even?
			A)	100
			B)	200
			C)	250
			D)	350

The next 3 questions refer to the following figure:

<a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=jpg::::/sites/dl/free/0073402818/459498/ch_11_1.JPG','popWin', 'width=591,height=396,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (16.0K)</a>

The graph on the left shows long-run average and marginal cost for a typical firm in a perfectly competitive industry. The graph on the right shows demand and long-run supply for an increasing-cost industry.

8			What output will the firm produce?
			A)	100
			B)	150
			C)	200
			D)	250
9			How much profit will the firm earn?
			A)	zero
			B)	$200
			C)	$600
			D)	$800
			E)	$1,400
10			If this were instead a constant cost industry, what would be the price when the industry gets to long-run competitive equilibrium?
			A)	$4
			B)	below $4
			C)	between $7 and $4
			D)	$7
			E)	above $7
11			A competitive firm will maximize profit by hiring the amount of an input at which
			A)	the last unit of the input hired adds the same amount to total output as to total cost.
			B)	the last unit of the input hired adds the same amount to total revenue as to total cost.
			C)	the additional revenue from the last unit of the input hired exceeds the additional cost of the last unit by the largest amount.
			D)	the additional output from the last unit of the input hired exceeds the additional cost of the last unit by the largest amount.
12			A firm in a competitive industry faces a market price for output of $30 and a wage rate of $500. At the current level of employment (40 units of labor), the marginal product of labor is 10. In order to maximize profit, the firm should
			A)	hire more labor because hiring another unit of labor would increase profit by $300.
			B)	keep the level of employment the same because the firm is earning a profit of $300.
			C)	hire less labor because hiring the last unit of labor decreased profit by $200.
			D)	hire less labor because the firm is suffering a loss of $800.
13			Economic rent…
			A)	cannot be earned in long-run competitive equilibrium.
			B)	is competed away in the long run.
			C)	is the payment to a more productive resource above its opportunity cost.
			D)	both a and b
			E)	none of the above

The next 7 questions refer to the following:

Suppose that the manager of a firm operating in a perfectly competitive market has estimated the average variable cost function to be:

AVC = 4.0 - 0.0024Q + 0.000006Q²

Fixed costs are $500.

14			The marginal cost function is:
			A)	MC = 4.0 - 0.0048Q + 0.000018Q2
			B)	MC = 4.0 - 0.0012Q + 0.000002Q2
			C)	MC = 4.0Q - 0.0024Q2 + 0.000012Q3
			D)	MC = 4.0 - 0.0048Q + 0.000012Q2
			E)	none of the above
15			Average variable cost reaches its minimum value at _____ units of output.
			A)	20
			B)	200
			C)	400
			D)	600
16			The minimum value of average variable cost is $_____.
			A)	$3.95
			B)	$4.00
			C)	$3.76
			D)	$2.72
			E)	none of the above
17			If the forecasted price of the firm's output is $4.00, how much output will the firm produce in the short run?
			A)	zero
			B)	266.67
			C)	200
			D)	26.67
			E)	none of the above
18			If the forecasted price of the firm's output is $4.00, how much profit (loss) will the firm earn?
			A)	$57
			B)	-$943
			C)	$557
			D)	-$443
			E)	none of the above
19			If the forecasted price of the firm's output is $3.00, how much output will the firm produce in the short run?
			A)	zero
			B)	266.67
			C)	200
			D)	26.67
			E)	none of the above
20			If the firm shuts down, how much profit (loss) will the firm earn?
			A)	zero
			B)	-$500
			C)	$57
			D)	-$943
			E)	none of the above