Question 1

A perfectly competitive firm maximizes profit by producing at the output level where which of the following conditions holds true?

Accepted Answer

$P = MC$

Question 2

If a firm’s total revenue is less than its total variable cost, what is the best short-run decision for the firm?

Accepted Answer

Shut down and bear losses equal to fixed costs

Question 3

Which formula correctly calculates total cost ($TC$) from average total cost ($ATC$) and output ($q$)?

Accepted Answer

$TC = ATC 	imes q$

Question 4

What is the shutdown point for a firm in the short run?

Accepted Answer

The lowest point on the average variable cost ($AVC$) curve

Question 5

Suppose a car wash has $TR = \$4,000$ and $TC = \$3,600$. What is its profit?

Accepted Answer

$\$400$

Question 6

Which of the following best describes economies of scale?

Accepted Answer

Average cost per unit decreases as output increases

Question 7

A firm is breaking even when:

Accepted Answer

$TR = TC$

Question 8

What is the minimum efficient scale (MES)?

Accepted Answer

The smallest size at which the long-run average cost curve ($LRAC$) is at its minimum

Question 9

If a firm faces constant returns to scale, what does its long-run average cost curve look like?

Accepted Answer

Flat

Question 10

Which of the following is true in long-run competitive equilibrium?

Accepted Answer

$P = SRMC = SRAC = LRAC$

Question 11

What happens to the long-run industry supply curve in a decreasing-cost industry?

Accepted Answer

It has a negative slope

Question 12

Which of the following best explains why Google benefits from economies of scale in the search business?

Accepted Answer

More users improve search algorithms, reducing average cost per search

Question 13

If a firm is operating at a loss but $TR > TVC$, what should it do in the short run?

Accepted Answer

Continue operating to offset fixed costs

Question 14

Which equation represents average total cost ($ATC$)?

Accepted Answer

$ATC = TC \div q$

Question 15

What is the short-run industry supply curve?

Accepted Answer

The sum of the marginal cost curves above AVC for all firms in the industry

Question 16

Which of the following is a cause of diseconomies of scale in education?

Accepted Answer

Increased bureaucracy and higher costs

Question 17

If a firm expands its scale of production and its average cost per unit increases, it is experiencing:

Accepted Answer

Diseconomies of scale

Question 18

In the long run, what is the expected response when an industry is earning economic profits?

Accepted Answer

New firms will enter, increasing supply and driving profits to zero

Question 19

Which of the following best describes the optimal scale of plant?

Accepted Answer

The scale that minimizes long-run average cost

Question 20

A constant-cost industry is characterized by which type of long-run supply curve?

Accepted Answer

Horizontal

Chapter 9: Long-Run Costs and Output Decisions – Principles of Microeconomics

Study Guide - Practice Questions