Question 1

Which of the following best describes the seller's problem in microeconomics?

Accepted Answer

How to make the product, what it costs to make, and how much it can be sold for.

Question 2

In a perfectly competitive market, which condition must be true?

Accepted Answer

No buyer or seller is large enough to influence the market price.

Question 3

What does the supply curve represent for producers?

Accepted Answer

The willingness of producers to sell at various price levels.

Question 4

Producer surplus is defined as:

Accepted Answer

The difference between the market price and the marginal cost curve.

Question 5

Why can't an individual seller in a perfectly competitive market influence the market price?

Accepted Answer

Because there are so many buyers and sellers that no one can affect the price.

Question 6

Which of the following is NOT a part of the seller's problem?

Accepted Answer

How to maximize consumer utility.

Question 7

If a firm is a price taker, what does this imply about its ability to set prices?

Accepted Answer

It must accept the market price and can only choose the quantity to produce.

Question 8

Which of the following is a reason why many corn and soybean farmers invest in grain storage?

Accepted Answer

To sell their grain when market prices are higher.

Question 9

What is the main goal of a seller in microeconomics?

Accepted Answer

To maximize profit.

Question 10

Which of the following best explains why sellers enter and exit markets?

Accepted Answer

Based on profit opportunities.

Question 11

If the market price is above a firm's marginal cost, what should the firm do to maximize profit?

Accepted Answer

Increase production.

Question 12

Which of the following is NOT a condition of a perfectly competitive market?

Accepted Answer

Sellers can set prices above the market level.

Question 13

In a perfectly competitive market, why were futures markets created?

Accepted Answer

To help producers manage price risk and plan for future sales.

Question 14

Which of the following statements is true about the supply curve in a perfectly competitive market?

Accepted Answer

It reflects the marginal cost of production at each output level.

Question 15

If a seller is making decisions at the margin, what does this mean?

Accepted Answer

They consider the additional cost and additional benefit of producing one more unit.

Question 16

Which of the following is most likely to happen if sellers in a market are earning high profits?

Accepted Answer

New sellers will enter the market.

Question 17

In the context of producer surplus, which area on a graph represents producer surplus?

Accepted Answer

The area below the price but above the supply (MC) curve.

Question 18

Which of the following is NOT a reason for free entry and exit in a perfectly competitive market?

Accepted Answer

Barriers to entry prevent new firms from entering.

Question 19

If a firm faces a market price below its average variable cost, what should it do in the short run?

Accepted Answer

Shut down production.

Question 20

Which of the following is a fixed factor of production in the short run?

Accepted Answer

Factory building.

Lecture 6: Producers, Supply, and Producer Surplus: Foundations of Firm Behavior in Microeconomics

Study Guide - Practice Questions