6. In the basic competitive model, economic profits are driven to zero. This means that a. revenues are just enough to cover all fixed costs; b. revenues are just enough to cover all costs, including the opportunity cost of the owner's capital; c. price equals the minimum of the average cost curve; d. accounting profits are equal to zero; e. b and c.
7. A profit-maximizing firm operating in a competitive market will set output such that a. price equals marginal cost; b. price equals marginal cost; c. average cost exceeds marginal cost; d. marginal revenue equals marginal cost; e. b and d.
8. When some of a profit-maximizing firm's costs are sunk costs, a firm that is operating in a competitive market where price lies between the minimum average variable cost and the minimum average cost will a. be making a profit; b. be making a loss and will shut down; c. be making zero profit; d. be making a loss but will continue to produce; e. not be covering its variable costs.
9. When wages decrease, the substitution effect a. increases the supply of labor because leisure is more expensive; b. decreases the supply of labor because leisure is less expensive; c. increases the supply of labor because the individual is worse off and will buy less leisure; d. decreases the supply of labor because the individual is worse off and will buy more leisure; e. has no effect on the supply of labor.
