Question

A fixed cost is a cost that:
   a.   does not change in the long run
   b.   decreases as the firm increases output
   c.   does not change with the level of the firm’s output
   d.   captures the wear and tear of using capital in the production process

Which of the following characteristics relate to perfect competition?
   I.    An industry dominated by several large firms
   II.   Consumers cannot distinguish one firm’s product from another
   III.   New firms can easily enter the industry
   a.   I and II
   b.   II and III
   c.   II only
   d.   III only

The perfectly competitive firm’s short-run supply curve is:
   a.   the portion of its marginal cost curve that lies above its average variable cost curve
   b.   the portion of its marginal cost curve that lies above its average total cost curve
   c.   its average variable cost curve that lies above marginal revenue
   d.   its average total cost curve that lies above its marginal revenue

In a short run equilibrium in perfect competition
   a.   each firm maximizes output  
   b.   each firm produces on its average total cost curve
   c.    firm makes zero economic profit
    d.   the number of firms is fixed

Stu owns an ice cream parlor that is usually closed during the winter months. This winter, however, Stu is considering opening his business in February instead of March. If Stu opens his store in February, he will earn total revenue of $4000 for the month, while incurring variable costs of $3500 and fixed costs of $1500. What should Stu do?
   a.   Stu should stay closed in February because he would lose $1000 if he opens.
   b.   Stu should stay closed in February because the $500 of operating profit is not sufficient to cover his $1500 in fixed costs.
   c.   Stu should open in February because the $4000 in total revenue exceeds the $1500 in fixed costs.
   d.   Stu should open in February because the $4000 in total revenue exceeds the $3500 in variable costs.

Answer 1

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