Unit 3: Production, Cost & Perfect Competition
Micro · Unit 3 · Paper 2

Production, Cost & Perfect Competition unit test

A test on this unit alone, marked as a percentage and a letter grade — for the test your class is actually sitting, rather than for May. Answer everything, then submit once: seeing the answer to question 3 before attempting question 4 makes the final percentage meaningless.

Paper 1Paper 2Paper 3
Each paper is built from this unit’s 38 terms and is the same for everyone, so a teacher can assign “Unit 3, Paper 2” and every student sits the identical test. Multiple choice is marked objectively; the written sections you mark yourself against the model answer and rubric.
Suggested time 34 min 31 points0/17 attempted
1

Profit-maximizing rule

2

Average fixed cost

3

Short run vs long run in production

4

Fixed cost

5

Why the cost curves are U-shaped

6

Average variable cost

7

Productive vs allocative efficiency in perfect competition

8

Marginal product

9

Break-even point

10

Sunk cost

11

Why a firm produces at a loss in the short run

12

Marginal cost

Short answer 1. Define or explain: Increasing-cost industry

3 pts

Short answer 2. Define or explain: Long-run adjustment with economic loss

3 pts

Short answer 3. Define or explain: Market vs firm graph in perfect competition

3 pts

Short answer 4. Define or explain: Calculating profit on a graph

3 pts

Free response

7 pts

A profit-maximizing firm operates in a perfectly competitive market for wheat. The market is currently in long-run equilibrium.

Draw a correctly labeled side-by-side graph for the wheat market and the individual firm, showing price, output, and average total cost (ATC).

A new medical study is published revealing immense health benefits of consuming wheat. On your graphs, show the short-run effect of this study on market price, market quantity, firm price, and firm quantity. Shade the area of the firm's short-run economic profit.

Explain what will happen to the number of firms in this market in the long run, and how that will affect the market price and the individual firm's economic profit.