Question 1

Suppose that, in the short run, a perfectly competitive firm earns a normal profit.Which of the following is incorrect?

Accepted Answer

A) MR = price 
B) MR = ATC 
C) AR ´ Q = TR 
D) TR = TC 
E) P = AVC 
A) MR = price 
B) MR = ATC 
C) AR ´ Q = TR 
D) TR = TC 
E) P = AVC

Question 2

Firms in perfect competition will leave the industry if they

Accepted Answer

A) suffer short-run losses 
B) suffer losses, even if they are covering variable costs in the short run 
C) suffer long-run losses 
D) earn a normal profit 
E) earn a zero economic profit 
A) suffer short-run losses 
B) suffer losses, even if they are covering variable costs in the short run 
C) suffer long-run losses 
D) earn a normal profit 
E) earn a zero economic profit

Question 3

When marginal revenue equals marginal cost, the firm just "breaks even."

Accepted Answer

A) True 
 B)False

Question 4

Exhibit 8-19 A Single Firm in a Perfectly Competitive Market   Consider Exhibit 8-19.When the market price is P1, which of the following most acurately reflects the firms short-run situation?

Accepted Answer

A) The firm will choose to produce quantity Q5 and earn exactly 0 profit 
B) The firm will choose to produce quantity Q5 and earn a profit 
C) The firm will choose to produce quantity Q5 and suffer a loss 
D) The firm will choose to produce quantity Q1 and earn a profit > 0 
E) The firm will choose to produce quantity Q1 and earn exactly 0 profit 
A) The firm will choose to produce quantity Q5 and earn exactly 0 profit 
B) The firm will choose to produce quantity Q5 and earn a profit 
C) The firm will choose to produce quantity Q5 and suffer a loss 
D) The firm will choose to produce quantity Q1 and earn a profit > 0 
E) The firm will choose to produce quantity Q1 and earn exactly 0 profit

Question 5

If new firms enter a perfectly competitive industry seeking economic profit and begin producing goods, which of the following will occur?

Accepted Answer

A) The market supply curve will shift leftward with movement along an unchanged demand curve. 
B) The market supply curve will shift rightward with movement along an unchanged demand curve. 
C) The market supply and demand curves will both shift to the left. 
D) The market supply and demand curves will both shift to the right. 
E) There will be movement down and to the right along a fixed supply curve. 
A) The market supply curve will shift leftward with movement along an unchanged demand curve. 
B) The market supply curve will shift rightward with movement along an unchanged demand curve. 
C) The market supply and demand curves will both shift to the left. 
D) The market supply and demand curves will both shift to the right. 
E) There will be movement down and to the right along a fixed supply curve.

Question 6

If a market is productively efficient,

Accepted Answer

A) the output is being produced at the lowest possible resource cost 
B) the output is selling for the lowest possible price 
C) economic profit in the market is positive 
D) the output being produced is what consumers want 
E) no firm can earn a normal profit 
A) the output is being produced at the lowest possible resource cost 
B) the output is selling for the lowest possible price 
C) economic profit in the market is positive 
D) the output being produced is what consumers want 
E) no firm can earn a normal profit

Question 7

Exhibit 8-19 A Single Firm in a Perfectly Competitive Market   Consider Exhibit 8-19.When the market price is P5, which of the following most acurately reflects the firms short-run situation?

Accepted Answer

A) the firm will choose to produce no output and shut-down 
B) The firm will choose to produce quantity Q3 and earn a profit 
C) The firm will choose to produce quantity Q3 and suffer a loss 
D) The firm will choose to produce quantity Q5 and earn a profit > 0 
E) The firm will choose to produce quantity Q5 and earn exactly 0 profit 
A) the firm will choose to produce no output and shut-down 
B) The firm will choose to produce quantity Q3 and earn a profit 
C) The firm will choose to produce quantity Q3 and suffer a loss 
D) The firm will choose to produce quantity Q5 and earn a profit > 0 
E) The firm will choose to produce quantity Q5 and earn exactly 0 profit

Question 8

In the long run, a perfectly competitive market will exhibit

Accepted Answer

A) zero producer surplus 
B) zero consumer surplus 
C) positive economic profit 
D) allocative and productive efficiency 
E) allocative but not productive efficiency 
A) zero producer surplus 
B) zero consumer surplus 
C) positive economic profit 
D) allocative and productive efficiency 
E) allocative but not productive efficiency

Question 9

Suppose the equilibrium price in a perfectly competitive industry is $10 and a firm in the industry charges $9.Which of the following will happen?

Accepted Answer

A) The firm will not sell any output. 
B) The firm will sell less output than its competitors. 
C) The firm will make more profit than it could at the $10 price. 
D) The firm will make less profit than it could at the $10 price. 
E) The firm's revenue will increase and its costs may decrease. 
A) The firm will not sell any output. 
B) The firm will sell less output than its competitors. 
C) The firm will make more profit than it could at the $10 price. 
D) The firm will make less profit than it could at the $10 price. 
E) The firm's revenue will increase and its costs may decrease.

Question 10

If the total revenue curve lies completely below the total cost curve, economic profit is zero.

Accepted Answer

A) True 
 B)False

Question 11

In long-run equilibrium,

Accepted Answer

A) perfectly competitive firms in a decreasing-cost industry can earn economic profits 
B) perfectly competitive firms in an increasing-cost industry can earn economic profits 
C) perfectly competitive firms in a constant-cost industry can earn economic profits 
D) perfectly competitive firms can earn only normal profits 
E) no entry occurs in an increasing-cost perfectly competitive industry 
A) perfectly competitive firms in a decreasing-cost industry can earn economic profits 
B) perfectly competitive firms in an increasing-cost industry can earn economic profits 
C) perfectly competitive firms in a constant-cost industry can earn economic profits 
D) perfectly competitive firms can earn only normal profits 
E) no entry occurs in an increasing-cost perfectly competitive industry

Question 12

Assume that a perfectly competitive increasing-cost industry is in long-run equilibrium when market demand suddenly increases.Which of the following statements is not correct?

Accepted Answer

A) Existing firms will earn economic profits in the new long-run equilibrium 
B) Existing firms will increase output in the short run 
C) New firms will enter the industry in the long run 
D) Some resource suppliers to the industry will earn higher income 
E) The new long-run equilibrium price will exceed the original equilibrium price 
A) Existing firms will earn economic profits in the new long-run equilibrium 
B) Existing firms will increase output in the short run 
C) New firms will enter the industry in the long run 
D) Some resource suppliers to the industry will earn higher income 
E) The new long-run equilibrium price will exceed the original equilibrium price

Question 13

A perfectly competitive firm will produce at an economic loss in the short run rather than discontinue production if there is a rate of output at which

Accepted Answer

A) marginal revenue equals marginal cost 
B) total revenue equals total cost 
C) total revenue exceeds total cost 
D) total revenue exceeds total fixed cost 
E) total revenue exceeds total variable cost 
A) marginal revenue equals marginal cost 
B) total revenue equals total cost 
C) total revenue exceeds total cost 
D) total revenue exceeds total fixed cost 
E) total revenue exceeds total variable cost

Question 14

Suppose Thelma and Louise both sell fried green tomatoes in a perfectly competitive market.If Louise increases her output,

Accepted Answer

A) Thelma must reduce output 
B) the price Thelma can charge falls 
C) the price Thelma can charge rises 
D) the price Thelma can charge is unaffected 
E) Thelma's profits must fall 
A) Thelma must reduce output 
B) the price Thelma can charge falls 
C) the price Thelma can charge rises 
D) the price Thelma can charge is unaffected 
E) Thelma's profits must fall

Question 15

For a perfectly competitive firm, price is identical to marginal revenue at every quantity.

Accepted Answer

A) True 
 B)False

Question 16

Which real-world market most closely approximates perfect competition?

Accepted Answer

A) the stock market 
B) automobiles 
C) higher education 
D) cable television services 
E) retail clothing stores 
A) the stock market 
B) automobiles 
C) higher education 
D) cable television services 
E) retail clothing stores

Question 17

The total revenue curve for a perfectly competitive firm

Accepted Answer

A) is a vertical line intersecting the horizontal axis 
B) is a horizontal line intersecting the vertical axis 
C) starts part way up the vertical axis, then slopes upward in a backwards-S curve 
D) is a straight line starting from the origin and sloping upward 
E) starts at the origin, sloping upward at first and then sloping downward 
A) is a vertical line intersecting the horizontal axis 
B) is a horizontal line intersecting the vertical axis 
C) starts part way up the vertical axis, then slopes upward in a backwards-S curve 
D) is a straight line starting from the origin and sloping upward 
E) starts at the origin, sloping upward at first and then sloping downward

Question 18

Exhibit 8-2   Given the information in Exhibit 8-2, what is the profit-maximizing (or loss-minimizing)quantity?

Accepted Answer

A) zero blankets 
B) one blanket 
C) two blankets 
D) three blankets 
E) five blankets 
A) zero blankets 
B) one blanket 
C) two blankets 
D) three blankets 
E) five blankets

Question 19

After an increase in demand in a constant-cost industry, firms will find themselves with higher average cost curves.

Accepted Answer

A) True 
 B)False

Question 20

Allocative efficiency occurs in markets when

Accepted Answer

A) marginal benefit and marginal cost for the last unit sold are equal 
B) resources can be reallocated to increase the value of total output 
C) goods are produced at the minimum of average total cost 
D) goods are distributed evenly among consumers 
E) government establishes price ceilings below the market price 
A) marginal benefit and marginal cost for the last unit sold are equal 
B) resources can be reallocated to increase the value of total output 
C) goods are produced at the minimum of average total cost 
D) goods are distributed evenly among consumers 
E) government establishes price ceilings below the market price

Exam 8: A--Perfect Competition

Suppose that, in the short run, a perfectly competitive firm earns a normal profit.Which of the following is incorrect?

Firms in perfect competition will leave the industry if they

When marginal revenue equals marginal cost, the firm just "breaks even."

Exhibit 8-19 A Single Firm in a Perfectly Competitive Market Consider Exhibit 8-19.When the market price is P1, which of the following most acurately reflects the firms short-run situation?

If new firms enter a perfectly competitive industry seeking economic profit and begin producing goods, which of the following will occur?

If a market is productively efficient,

Exhibit 8-19 A Single Firm in a Perfectly Competitive Market Consider Exhibit 8-19.When the market price is P5, which of the following most acurately reflects the firms short-run situation?

In the long run, a perfectly competitive market will exhibit

Suppose the equilibrium price in a perfectly competitive industry is $10 and a firm in the industry charges $9.Which of the following will happen?

If the total revenue curve lies completely below the total cost curve, economic profit is zero.

In long-run equilibrium,

Assume that a perfectly competitive increasing-cost industry is in long-run equilibrium when market demand suddenly increases.Which of the following statements is not correct?

A perfectly competitive firm will produce at an economic loss in the short run rather than discontinue production if there is a rate of output at which

Suppose Thelma and Louise both sell fried green tomatoes in a perfectly competitive market.If Louise increases her output,

For a perfectly competitive firm, price is identical to marginal revenue at every quantity.

Which real-world market most closely approximates perfect competition?

The total revenue curve for a perfectly competitive firm

Exhibit 8-2 Given the information in Exhibit 8-2, what is the profit-maximizing (or loss-minimizing)quantity?

After an increase in demand in a constant-cost industry, firms will find themselves with higher average cost curves.

Allocative efficiency occurs in markets when

The Art and Science of Economic Analysis

Appendix--Understanding Graphs

Economic Tools and Economics Systems

Economic Decision Makers

Demand, Supply, and Markets

Elasticity of Demand and Supply

Appendix--Price Elasticity and Tax Incidence

Consumer Choice and Demand

Appendix--Indifference Curves and Utility Maximization

Production and Cost in the Firm

B--Perfect Competition

A--Monopoly

B--Monopoly

Monopolistic Competition and Oligopoly

Resource Markets

Labor Markets and Labor Unions

Capital, Interest, and Corporate Finance

Transaction Costs, Imperfect Information, and Behavioral Economics

Economic Regulation and Antitrust Policy

Public Goods and Public Choice

Externalities and the Environment

Income Distribution and Poverty

International Trade

International Finance

Economic Development

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Exhibit 8-19 A Single Firm in a Perfectly Competitive Market Consider Exhibit 8-19.When the market price is P₁, which of the following most acurately reflects the firms short-run situation?

Exhibit 8-19 A Single Firm in a Perfectly Competitive Market Consider Exhibit 8-19.When the market price is P₅, which of the following most acurately reflects the firms short-run situation?