Question 1

Which of the following is true for a perfectly competitive firm in the long run?

Accepted Answer

A) MR = MC = ATC 
B) MR = MC = AFC 
C) MC = ATC = AFC 
D) MR = MC > ATC 
E) MR = MC > AVC 
A) MR = MC = ATC 
B) MR = MC = AFC 
C) MC = ATC = AFC 
D) MR = MC > ATC 
E) MR = MC > AVC

Question 2

Exhibit 8-1   The perfectly competitive firewood market is composed of 1, 000 identical consumers and 1, 000 identical firms.Exhibit 8-1 shows cost data for one firm and demand data for one consumer.What is the profit-maximizing quantity for each firm?

Accepted Answer

A) zero cords of wood 
B) one cord of wood 
C) two cords of wood 
D) three cords of wood 
E) four cords of wood 
A) zero cords of wood 
B) one cord of wood 
C) two cords of wood 
D) three cords of wood 
E) four cords of wood

Question 3

The significance of the minimum point on the average variable cost curve is that

Accepted Answer

A) it is the profit-maximizing level 
B) it is the selling price 
C) it is the point of indifference between producing at a loss or shutting down 
D) if the firm produces one more unit, its AVC will be less than MC 
E) it shows the amount of total cost 
A) it is the profit-maximizing level 
B) it is the selling price 
C) it is the point of indifference between producing at a loss or shutting down 
D) if the firm produces one more unit, its AVC will be less than MC 
E) it shows the amount of total cost

Question 4

If Harry's Blueberries, a perfectly competitive firm, shuts down in the short run, Harry must pay

Accepted Answer

A) variable cost but not fixed cost 
B) no costs at all 
C) variable cost and fixed cost 
D) only variable cost 
E) only fixed cost 
A) variable cost but not fixed cost 
B) no costs at all 
C) variable cost and fixed cost 
D) only variable cost 
E) only fixed cost

Question 5

A perfectly competitive firm is currently producing where price is $8 and both marginal cost and average variable cost are $9.To maximize profit or minimize loss in the short run, this firm should

Accepted Answer

A) raise its price 
B) increase its output 
C) reduce its output 
D) lower its price 
E) shut down 
A) raise its price 
B) increase its output 
C) reduce its output 
D) lower its price 
E) shut down

Question 6

Exhibit 8-6   Consider Exhibit 8-6.At which price will this firm earn zero profit?

Accepted Answer

A) P1 
B) P2 
C) P3 
D) P2 and P3 
E) will never earn zero profit 
A) P1 
B) P2 
C) P3 
D) P2 and P3 
E) will never earn zero profit

Question 7

If MC's Hammers, a perfectly competitive firm, finds that its total revenue is $45, 000, its fixed cost is $20, 000, and its total cost is $50, 000, its producer surplus is

Accepted Answer

A) zero because TC > TR 
B) -$5, 000 
C) $25, 000 
D) $15, 000 
E) -$25, 000 
A) zero because TC > TR 
B) -$5, 000 
C) $25, 000 
D) $15, 000 
E) -$25, 000

Question 8

In perfect competition, each firm's output is a large fraction of total market supply.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following is likely to be present in a perfectly competitive market?

Accepted Answer

A) patents 
B) government licenses 
C) nonprice competition such as advertising 
D) high capital costs 
E) firms producing identical products 
A) patents 
B) government licenses 
C) nonprice competition such as advertising 
D) high capital costs 
E) firms producing identical products

Question 10

Long-run equilibrium for a perfectly competitive firm occurs when

Accepted Answer

A) P = MC = MR = ATC 
B) MC = MR = AFC = ATC 
C) MC = MR = P > ATC 
D) P > MC > MR > ATC 
E) TR > TC 
A) P = MC = MR = ATC 
B) MC = MR = AFC = ATC 
C) MC = MR = P > ATC 
D) P > MC > MR > ATC 
E) TR > TC

Question 11

Adam's Apples, a small firm supplying apples in a perfectly competitive market, decides to cut its production in half this year.As a result, the

Accepted Answer

A) market price will rise 
B) market price will fall 
C) market quantity will rise 
D) market price will not be affected 
E) total expenditures on apples will rise 
A) market price will rise 
B) market price will fall 
C) market quantity will rise 
D) market price will not be affected 
E) total expenditures on apples will rise

Question 12

Suppose the market for hot pretzels in New York City is perfectly competitive.What is true of demand in this market?

Accepted Answer

A) The demand curve facing each seller is perfectly elastic. 
B) The demand curve facing each seller is perfectly inelastic. 
C) The market demand curve is perfectly elastic. 
D) The market demand curve is perfectly inelastic. 
E) The market demand curve is elastic. 
A) The demand curve facing each seller is perfectly elastic. 
B) The demand curve facing each seller is perfectly inelastic. 
C) The market demand curve is perfectly elastic. 
D) The market demand curve is perfectly inelastic. 
E) The market demand curve is elastic.

Question 13

Exhibit 8-1   The perfectly competitive firewood market is composed of 1, 000 identical consumers and 1, 000 identical firms.Exhibit 8-1 shows cost data for one firm and demand data for one consumer.What is the equilibrium price?

Accepted Answer

A) $60 
B) $80 
C) $100 
D) $120 
E) It is impossible to determine the equilibrium price because there is no information on market demand or supply. 
A) $60 
B) $80 
C) $100 
D) $120 
E) It is impossible to determine the equilibrium price because there is no information on market demand or supply.

Question 14

Exhibit 8-3   The shape of the total revenue curve in Exhibit 8-3 reflects

Accepted Answer

A) profitability 
B) falling marginal revenue 
C) increasing marginal revenue 
D) the fact that perfectly competitive firms are price takers 
E) the fact that consumers will purchase more from this firm at higher prices 
A) profitability 
B) falling marginal revenue 
C) increasing marginal revenue 
D) the fact that perfectly competitive firms are price takers 
E) the fact that consumers will purchase more from this firm at higher prices

Question 15

In the short run, a firm will produce a positive amount of output as long as

Accepted Answer

A) P > AVC at some output level 
B) P > MC at some output level 
C) P  TR at some output level 
A) P > AVC at some output level 
B) P > MC at some output level 
C) P  TR at some output level

Question 16

Suppose that a long-run adjustment in a perfectly competitive industry results in decreased industry output but leaves price unchanged.Which of the following must be true?

Accepted Answer

A) The market demand curve did not shift 
B) The market demand curve shifted left; the market supply curve shifted right 
C) The market supply curve shifted left; the market demand curve shifted right 
D) Both market supply and demand increased, but supply increased more than demand 
E) The industry is a constant-cost industry 
A) The market demand curve did not shift 
B) The market demand curve shifted left; the market supply curve shifted right 
C) The market supply curve shifted left; the market demand curve shifted right 
D) Both market supply and demand increased, but supply increased more than demand 
E) The industry is a constant-cost industry

Question 17

In the short run, a perfectly competitive firm suffering a loss

Accepted Answer

A) will close if P < AVC 
B) will shut down operations if P < MC 
C) cannot leave the industry even if P < AVC 
D) can sell off all its resources to competitors 
E) can raise the price to increase revenues 
A) will close if P < AVC 
B) will shut down operations if P < MC 
C) cannot leave the industry even if P < AVC 
D) can sell off all its resources to competitors 
E) can raise the price to increase revenues

Question 18

All of the following are true of a perfectly competitive firm in long-run equilibrium except one.Which is the exception?

Accepted Answer

A) Its economic profit will be zero. 
B) Its accounting profit may be positive. 
C) It will be minimizing average total cost. 
D) It will be charging a price equal to marginal cost. 
E) Marginal cost is minimized. 
A) Its economic profit will be zero. 
B) Its accounting profit may be positive. 
C) It will be minimizing average total cost. 
D) It will be charging a price equal to marginal cost. 
E) Marginal cost is minimized.

Question 19

In the long run, a perfectly competitive industry is allocatively efficient because

Accepted Answer

A) the opportunity cost of resources needed to produce the last unit of output just equals the marginal value to consumers of the last unit 
B) it maximizes producer surplus 
C) consumer surplus could be larger if the price were lower 
D) production occurs at the lowest average total cost 
E) marginal costs are low 
A) the opportunity cost of resources needed to produce the last unit of output just equals the marginal value to consumers of the last unit 
B) it maximizes producer surplus 
C) consumer surplus could be larger if the price were lower 
D) production occurs at the lowest average total cost 
E) marginal costs are low

Question 20

The golden rule of profit maximization states that any firm maximizes profit by producing where

Accepted Answer

A) demand is unit elastic, and total revenue is greatest 
B) price equals average revenue 
C) price equals marginal revenue 
D) price equals marginal cost 
E) marginal revenue equals marginal cost 
A) demand is unit elastic, and total revenue is greatest 
B) price equals average revenue 
C) price equals marginal revenue 
D) price equals marginal cost 
E) marginal revenue equals marginal cost

Exam 8: A--Perfect Competition

Which of the following is true for a perfectly competitive firm in the long run?

Exhibit 8-1 The perfectly competitive firewood market is composed of 1, 000 identical consumers and 1, 000 identical firms.Exhibit 8-1 shows cost data for one firm and demand data for one consumer.What is the profit-maximizing quantity for each firm?

The significance of the minimum point on the average variable cost curve is that

If Harry's Blueberries, a perfectly competitive firm, shuts down in the short run, Harry must pay

A perfectly competitive firm is currently producing where price is $8 and both marginal cost and average variable cost are $9.To maximize profit or minimize loss in the short run, this firm should

Exhibit 8-6 Consider Exhibit 8-6.At which price will this firm earn zero profit?

If MC's Hammers, a perfectly competitive firm, finds that its total revenue is $45, 000, its fixed cost is $20, 000, and its total cost is $50, 000, its producer surplus is

In perfect competition, each firm's output is a large fraction of total market supply.

Which of the following is likely to be present in a perfectly competitive market?

Long-run equilibrium for a perfectly competitive firm occurs when

Adam's Apples, a small firm supplying apples in a perfectly competitive market, decides to cut its production in half this year.As a result, the

Suppose the market for hot pretzels in New York City is perfectly competitive.What is true of demand in this market?

Exhibit 8-1 The perfectly competitive firewood market is composed of 1, 000 identical consumers and 1, 000 identical firms.Exhibit 8-1 shows cost data for one firm and demand data for one consumer.What is the equilibrium price?

Exhibit 8-3 The shape of the total revenue curve in Exhibit 8-3 reflects

In the short run, a firm will produce a positive amount of output as long as

Suppose that a long-run adjustment in a perfectly competitive industry results in decreased industry output but leaves price unchanged.Which of the following must be true?

In the short run, a perfectly competitive firm suffering a loss

All of the following are true of a perfectly competitive firm in long-run equilibrium except one.Which is the exception?

In the long run, a perfectly competitive industry is allocatively efficient because

The golden rule of profit maximization states that any firm maximizes profit by producing where

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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