24. In a competitive marketplace, equilibrium occurs where _______ is maximized

    1. total surplus

    2. consumer surplus

    3. producer surplus

    4. all the above

    5. No true answer

The correct answer is (a). The market equilibrium is efficient (under our assumptions of competition), meaning that it delivers the greatest total surplus.

24. For perfectly competitive firms, the long-rum equilibrium occurs when

    1. P=MR

    2. P=SATC

    3. Profits are positive

    4. P=LAC=LMC

    5. P=LMC>LAC

The correct answer is (d). Equilibrium is where P=LMC, and the economic profit is zero, so P=LAC.

24. Economic profit is typically

    1. Less than accounting profit.

    2. More than accounting profit.

    3. Equal to accounting profit.

    4. Any of the above, depending on the specific situation.

    5. No true answer

The correct answer is (a), because economic profit includes opportunity costs, and those are >0.

24. Which of the following lines never takes an U-shaped form?

    1. LAVC.

    2. SAVC.

    3. SAFC.

    4. LMC.

    5. SMC.

The correct answer is (c). Fixed cost divided by output always declines.

24. If a firm is earning only normal profit, then the firm must be producing such that

    1. marginal cost is greater than marginal revenue

    2. marginal revenue is greater than marginal cost

    3. marginal revenue is zero

    4. price equals marginal revenue

    5. price equals average total cost

The correct answer is (e), since normal economic profit is zero.

24. Assume that a firm is a price taker in its input markets. If the firm's technology is characterized by diminishing marginal physical product of its variable input in the short run, the firm's short run:

    1. marginal cost curve rises as output rises

    2. average cost curve rises as output rises

    3. marginal cost curve falls as output rises

    4. both (a) and (b) are correct

The correct answer is (d). The short-run MC rises, because in order to increase output by one more unit the firm will have to employ more units of input (since each extra unit of input is less productive than the last). More extra units of input means a higher extra (i.e. marginal) cost. Higher MC means increases in AC as well.

1 Durable переводится как прочный. Typical examples of durables good are cars and furniture.

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