Question 1

The motivating force behind an increase in supply in a long-run adjustment to equilibrium is

Accepted Answer

A) lower prices 
B) economic profits that are present in the short run 
C) higher profit expectations among owners of firms in the industry, triggered by increased prices 
D) normal profits witnessed by individuals outside the industry that trigger entry 
E) the decreases in average cost that can be obtained through economies of scale 
A) lower prices 
B) economic profits that are present in the short run 
C) higher profit expectations among owners of firms in the industry, triggered by increased prices 
D) normal profits witnessed by individuals outside the industry that trigger entry 
E) the decreases in average cost that can be obtained through economies of scale

Question 2

Which characteristic of perfect competition ensures that economic profit will be zero in the long run?

Accepted Answer

A) each firm's output is small in relation to total market supply 
B) buyers and sellers are fully informed about the price and availability of all resources and products 
C) the product is homogeneous 
D) there is freedom of entry and exit in the market 
E) firms are price takers 
A) each firm's output is small in relation to total market supply 
B) buyers and sellers are fully informed about the price and availability of all resources and products 
C) the product is homogeneous 
D) there is freedom of entry and exit in the market 
E) firms are price takers

Question 3

Exhibit 8-14   In Exhibit 8-14, what area represents variable cost at the loss-minimizing output?

Accepted Answer

A) 0cda 
B) 0jka 
C) 0efa 
D) cefd 
E) cjkd 
A) 0cda 
B) 0jka 
C) 0efa 
D) cefd 
E) cjkd

Question 4

In the short run, a perfectly competitive firm will always shut down if, at all positive output levels, total revenue is

Accepted Answer

A) less than total cost 
B) less than total cost but greater than variable cost 
C) less than total cost but greater than fixed cost 
D) greater than fixed cost 
E) less than variable cost 
A) less than total cost 
B) less than total cost but greater than variable cost 
C) less than total cost but greater than fixed cost 
D) greater than fixed cost 
E) less than variable cost

Question 5

For a perfectly competitive firm,

Accepted Answer

A) P = MR at all output levels B) P = MR at the profit-maximizing quantity only C) P > MR at all output levels D) P < MR at the profit-maximizing quantity only E) P < MR at all output levels A) P = MR at all output levels B) P = MR at the profit-maximizing quantity only C) P > MR at all output levels D) P < MR at the profit-maximizing quantity only E) P < MR at all output levels

Question 6

The short-run supply curve of a perfectly competitive firm is the

Accepted Answer

A) upward-sloping portion of its average total cost curve 
B) upward-sloping portion of its average variable cost curve 
C) average fixed cost curve at all levels of output 
D) marginal cost curve, which lies above the average variable cost curve 
E) downward-sloping portion of its marginal cost curve 
A) upward-sloping portion of its average total cost curve 
B) upward-sloping portion of its average variable cost curve 
C) average fixed cost curve at all levels of output 
D) marginal cost curve, which lies above the average variable cost curve 
E) downward-sloping portion of its marginal cost curve

Question 7

Marginal revenue is the change in total revenue from selling one more unit of output.

Accepted Answer

A) True 
 B)False

Question 8

A perfectly competitive firm has a horizontal supply curve in the short run.

Accepted Answer

A) True 
 B)False

Question 9

Exhibit 8-18   The increase in demand shown in Exhibit 8-18 increases each firm's total revenue

Accepted Answer

A) from $8 to $12 
B) from $16, 000 to $30, 000 
C) from $40 to $50 
D) from $320 to $600 
E) by an unspecified amount 
A) from $8 to $12 
B) from $16, 000 to $30, 000 
C) from $40 to $50 
D) from $320 to $600 
E) by an unspecified amount

Question 10

The short-run supply curve of a perfectly competitive firm is

Accepted Answer

A) its average fixed cost curve 
B) the part of its marginal cost curve rising above the average variable cost curve 
C) the part of its marginal cost curve below the average variable cost curve 
D) marginal product curve 
E) its average total cost curve 
A) its average fixed cost curve 
B) the part of its marginal cost curve rising above the average variable cost curve 
C) the part of its marginal cost curve below the average variable cost curve 
D) marginal product curve 
E) its average total cost curve

Question 11

A firm in a perfectly competitive market

Accepted Answer

A) can raise the price of its product and sell more output 
B) can lower the price of its product and sell more output 
C) can increase its supply to lower the price 
D) can decrease its supply to raise the price 
E) accepts the market price for its product 
A) can raise the price of its product and sell more output 
B) can lower the price of its product and sell more output 
C) can increase its supply to lower the price 
D) can decrease its supply to raise the price 
E) accepts the market price for its product

Question 12

If a perfectly competitive firm is incurring a short-run loss, it

Accepted Answer

A) then will incur a long-run loss 
B) will shut down 
C) will continue to operate in the short run if its fixed cost is covered 
D) will continue to operate in the short run if its variable cost is covered 
E) will raise its price in the short run 
A) then will incur a long-run loss 
B) will shut down 
C) will continue to operate in the short run if its fixed cost is covered 
D) will continue to operate in the short run if its variable cost is covered 
E) will raise its price in the short run

Question 13

Exhibit 8-3   Which point in Exhibit 8-3 indicates the quantity at which marginal revenue and marginal cost are equal?

Accepted Answer

A) point a 
B) point b 
C) point c 
D) point d 
E) either point b or point d 
A) point a 
B) point b 
C) point c 
D) point d 
E) either point b or point d

Question 14

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 does the demand curve facing a single firm look like?

Accepted Answer

A) horizontal at a price of $120 
B) horizontal at a price of $100 
C) horizontal at a price of $80 
D) horizontal at a price of $60 
E) same as the demand for a single consumer 
A) horizontal at a price of $120 
B) horizontal at a price of $100 
C) horizontal at a price of $80 
D) horizontal at a price of $60 
E) same as the demand for a single consumer

Question 15

A decline in demand in a competitive industry will result in

Accepted Answer

A) a decrease in equilibrium price 
B) a decline in the number of firms in the industry 
C) economic losses for some firms in the industry 
D) a decline in the equilibrium quantity 
E) all of the above 
A) a decrease in equilibrium price 
B) a decline in the number of firms in the industry 
C) economic losses for some firms in the industry 
D) a decline in the equilibrium quantity 
E) all of the above

Question 16

]The demand curve faced by a perfectly competitive firm

Accepted Answer

A) is the market demand curve 
B) slopes downward 
C) is perfectly elastic 
D) is vertical 
E) rises when market supply rises 
A) is the market demand curve 
B) slopes downward 
C) is perfectly elastic 
D) is vertical 
E) rises when market supply rises

Question 17

Economists assume that firms seek to

Accepted Answer

A) maximize accounting profit 
B) maximize economic profit 
C) maximize total revenue 
D) maximize normal profit 
E) minimize cost 
A) maximize accounting profit 
B) maximize economic profit 
C) maximize total revenue 
D) maximize normal profit 
E) minimize cost

Question 18

Allocative efficiency means that

Accepted Answer

A) firms have maximized production 
B) all mutually beneficial trades have taken place 
C) the next unit sold will increase total surplus 
D) producer surplus is maximized 
E) no mutually beneficial trades have occurred 
A) firms have maximized production 
B) all mutually beneficial trades have taken place 
C) the next unit sold will increase total surplus 
D) producer surplus is maximized 
E) no mutually beneficial trades have occurred

Question 19

A perfectly competitive firm is allocatively efficient because price is identical to marginal cost at every quantity

Accepted Answer

A) True 
 B)False

Question 20

In the short run, a perfectly competitive firm will always shut down if, at all output levels above zero,

Accepted Answer

A) price is less than average total cost 
B) total revenue is less than total cost 
C) they cannot pay variable costs with total revenue 
D) variable cost is greater than fixed cost 
E) price is less than fixed cost 
A) price is less than average total cost 
B) total revenue is less than total cost 
C) they cannot pay variable costs with total revenue 
D) variable cost is greater than fixed cost 
E) price is less than fixed cost

Exam 8: A--Perfect Competition

The motivating force behind an increase in supply in a long-run adjustment to equilibrium is

Which characteristic of perfect competition ensures that economic profit will be zero in the long run?

Exhibit 8-14 In Exhibit 8-14, what area represents variable cost at the loss-minimizing output?

In the short run, a perfectly competitive firm will always shut down if, at all positive output levels, total revenue is

For a perfectly competitive firm,

The short-run supply curve of a perfectly competitive firm is the

Marginal revenue is the change in total revenue from selling one more unit of output.

A perfectly competitive firm has a horizontal supply curve in the short run.

Exhibit 8-18 The increase in demand shown in Exhibit 8-18 increases each firm's total revenue

The short-run supply curve of a perfectly competitive firm is

A firm in a perfectly competitive market

If a perfectly competitive firm is incurring a short-run loss, it

Exhibit 8-3 Which point in Exhibit 8-3 indicates the quantity at which marginal revenue and marginal cost are equal?

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 does the demand curve facing a single firm look like?

A decline in demand in a competitive industry will result in

]The demand curve faced by a perfectly competitive firm

Economists assume that firms seek to

Allocative efficiency means that

A perfectly competitive firm is allocatively efficient because price is identical to marginal cost at every quantity

In the short run, a perfectly competitive firm will always shut down if, at all output levels above zero,

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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