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I NTRODUCTION TO M ICROECONOMICS E CON 185 S AMUEL M ENDEZ , P H .D. S PRING 2009 MIDTERM III Name_____________________________________ID#______________________ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1. (14-1) A market is competitive if (i)firms have the flexibility to price their own product. (ii) each buyer is small compared to the market. (iii) each seller is small compared to the market. a. (i) and (ii) only b. (i) and (iii) only c. (ii) and (iii) only d. All of the above are correct. 2. (14-3) In a competitive market, the actions of any single buyer or seller will a. have a negligible impact on the market price. b. have little effect on overall production but will ultimately change final product price. c. cause a noticeable change in overall production and a change in final product price. d. adversely affect the profitability of more than one firm in the market. 3. (14-19) Suppose a firm in a competitive market received $1,000 in total revenue and had a margin- al revenue of $10 for the last unit produced and sold. What is the average revenue per unit, and how many units were sold? 4. (14-21) Suppose a firm in a competitive market reduces its output by 20 percent. As a result, the price of its output is likely to 5. (14-24) As a general rule, when accountants calculate profit they account for explicit costs but usu- ally ignore 1
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Scenario 14-1 As part of an estate settlement Mary received $1 million. She decided to use the money to purchase a small business in Anywhere, USA. If Mary would have invested the $1 million in a risk-free bond fund she could have made $100,000 each year. She also quit her job with Lucky.Com Inc. to devote all of her time to her new business; her salary at Lucky.Com Inc. was $75,000 per year. 6. (14-26) Refer to Scenario 14-1 . At the end of the first year of operating her new business, Mary's accountant reported an accounting profit of $150,000. What was Mary's economic profit? a. $25,000 loss b. $50,000 loss c. $25,000 profit d. $150,000 profit 7. (14-27) Refer to Scenario 14-1 . What are Mary's opportunity costs of operating her new business? 8. (14-28) Refer to Scenario 14-1 . How large would Mary's accounting profits need to be to allow her to attain zero economic profit? Figure 14-5 The figure below depicts the cost structure of a firm in a competitive market.
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