AAEC 2305 EXAM 2 UPDATED ACTUAL QUESTIONS AND
CORRECT ANSWERS
Question:
1. A perfectly competitive industry exists under which of the following conditions? I. The product sold is
similar across firms. II. There are many sellers, each small relative to the total market. III. There are many
sellers, each with total assets less than $2 million. IV. The threat of competition exists from potential
sellers that have not yet entered the market
A) I and II only
B) I, II, and III only
C) I, III, and IV only
D) I, II, and IV only
Answer:
D) I, II, and IV only
Question:
2. To maximize profits, a firm in a highly competitive industry should set its price:
A)higher than the market price.
B)lower than the market price.
C) at the market price.
D) it depends: sometimes at the market price but sometimes higher or lower.
Answer:
C) at the market price.
Question:
3. In competitive markets, the demand curve faced by the individual firm is:
A) equal to the market demand curve.
B) perfectly elastic.
C) perfectly inelastic.
D) downward sloping.
Answer:
B) perfectly elastic.
Question:
4. (Table: Barrels of Oil 2) Refer to the table. What is the marginal revenue of producing the fifth barrel of
oil?
A) 61
B) 50
C) 200
D) 250
Answer:
B) 50
, Question:
5. (Table: Barrels of Oil 2) Refer to the table. What is the marginal cost of producing the seventh barrel of
oil?
A) 36
B) 50
C) 90
D) 126
Answer:
A) 36
Question:
6. (Table: Barrels of Oil 2) Refer to the table. How many barrels of oil should the company produce to
maximize profit?
A) 6
B) 7
C) 8
D) 9
Answer:
C) 8
Question:
7. (Table: Barrels of Oil 2) Refer to the table. The maximum profit available to the company is:
A) $184
B) $210
C) $224
D) $266
Answer:
C) $224
Question:
8. Economic profit differs from accounting profits because of its inclusion of:
A) explicit costs.
B) incidental costs.
C) potential costs.
D) implicit costs.
Answer:
D) implicit costs.
Question:
9. (Figure: Costs) Use the figure. At a price of $20, the firm earns profit of:
A) $75
B) $300
C) $225
D) $0, because P = MC at P = $20.
Answer:
A) $75
CORRECT ANSWERS
Question:
1. A perfectly competitive industry exists under which of the following conditions? I. The product sold is
similar across firms. II. There are many sellers, each small relative to the total market. III. There are many
sellers, each with total assets less than $2 million. IV. The threat of competition exists from potential
sellers that have not yet entered the market
A) I and II only
B) I, II, and III only
C) I, III, and IV only
D) I, II, and IV only
Answer:
D) I, II, and IV only
Question:
2. To maximize profits, a firm in a highly competitive industry should set its price:
A)higher than the market price.
B)lower than the market price.
C) at the market price.
D) it depends: sometimes at the market price but sometimes higher or lower.
Answer:
C) at the market price.
Question:
3. In competitive markets, the demand curve faced by the individual firm is:
A) equal to the market demand curve.
B) perfectly elastic.
C) perfectly inelastic.
D) downward sloping.
Answer:
B) perfectly elastic.
Question:
4. (Table: Barrels of Oil 2) Refer to the table. What is the marginal revenue of producing the fifth barrel of
oil?
A) 61
B) 50
C) 200
D) 250
Answer:
B) 50
, Question:
5. (Table: Barrels of Oil 2) Refer to the table. What is the marginal cost of producing the seventh barrel of
oil?
A) 36
B) 50
C) 90
D) 126
Answer:
A) 36
Question:
6. (Table: Barrels of Oil 2) Refer to the table. How many barrels of oil should the company produce to
maximize profit?
A) 6
B) 7
C) 8
D) 9
Answer:
C) 8
Question:
7. (Table: Barrels of Oil 2) Refer to the table. The maximum profit available to the company is:
A) $184
B) $210
C) $224
D) $266
Answer:
C) $224
Question:
8. Economic profit differs from accounting profits because of its inclusion of:
A) explicit costs.
B) incidental costs.
C) potential costs.
D) implicit costs.
Answer:
D) implicit costs.
Question:
9. (Figure: Costs) Use the figure. At a price of $20, the firm earns profit of:
A) $75
B) $300
C) $225
D) $0, because P = MC at P = $20.
Answer:
A) $75
