Purdue
University North Central
Economics
251
Review Questions – Chapter 22 ( 7) - The
Competitive Firm
(1) George is the owner operator of Boy
George’s Flower Shop. Last year George
earned $100,000 in total revenue. His
explicit (accounting) costs were $60,000 paid to his employees and
suppliers. During the course of the year
he received three offers to work for other flower shops with the highest offer
being $40,000 per year. Calculate
George’s accounting and economic profit.
(a) Accounting profit = $40,000; economic
profit = $0.
(b) Accounting profit = $60,000; economic
profit = $40,000.
(c) Accounting profit = $40,000; economic
profit = negative $20,000.
(d) Accounting profit = $0; economic profit
= negative $40,000.
(2) An essential characteristic of a
perfectly competitive firm is that:
(a) it is a price
maker.
(b) it is a price
taker.
(c) successfully
raise its price above market price and potentially increase total revenue if
the demand curve is inelastic.
(d) each firm’s
demand curve is perfectly inelastic.
(3) In making a production (short term)
decision, an entrepreneur:
(a) decides whether
to enter or exit the market.
(b) determines what
level of output will maximize profits.
(c) determines the
level of investment in plant and equipment.
(d) can change both
fixed and variable inputs.
(4) Which of the following is generally a
fixed cost?
(a) Lease payments for plant and equipment.
(b) Payroll taxes.
(c) Profit taxes.
(d) All the above.
(5) If the firm is producing at a rate of
output for which Marginal Cost exceeds price:
(a) the firm must
have an economic loss.
(b) the firm can
increase its profit by increasing output.
(c) the firm can
increase its profit by decreasing output.
(d) the firm is
maximizing profit.
Consider Figure 1 in answering Questions (6) and (7).
Figure
1
a%20ec251_files/image001.gif)
a%20ec251_files/image002.gif)
(6) In Figure 1, the total fixed costs for
the firm are:
(a) approximately
$250.
(b) approximately
$100.
(c) approximately
$600.
(d) approximately
$450.
(7) In Figure 1, the profit maximizing level
of output for the firm is:
(a) 50
(b) 90
(c) 160
(d) 220
Consider Figure 2 in answering Questions (8) and (9).
Figure
2
a%20ec251_files/image003.gif)
(8) In Figure 2, for this perfectly
competitive firm, if the market price is $15:
(a) the firm should
produce 31 units.
(b) the firm will
have normal profits.
(c) economic
profits will be zero.
(d) All of the above.
(9) In Figure 2, for this perfectly
competitive firm, it should shut down at any price below:
(a) $4.
(b) $10
(c) $15
(d) $23
Consider Figure 3 in answering Questions (10), (11), and (12).
Figure
3
a%20ec251_files/image004.gif)
(10) In Figure 3, for a perfectly competitive
firm, at the profit-maximizing output, total revenues would be equal to:
(a) OAHE.
(b) OBGE.
(c) BAHG.
(c) CAHF.
(11) In Figure 3, for a perfectly competitive
firm, at the profit-maximizing output, total profits would be equal to:
(a) OAHE.
(b) OBGE.
(c) BAHG.
(d) CAHF.
(12) In Figure 3, for a perfectly competitive
firm, at the profit-maximizing output, total costs would be equal to:
(a) OAHE.
(b) OBGE.
(c) BAHG.
(d) CAHF.