Question 1

Productive efficiency occurs in markets when

Accepted Answer

A) goods are produced at the lowest possible average total cost 
B) goods are produced at the lowest average variable cost 
C) goods are produced at the lowest marginal cost 
D) goods are produced at the lowest average fixed cost 
E) the economy is producing the maximum quantity of goods and services it can 
A) goods are produced at the lowest possible average total cost 
B) goods are produced at the lowest average variable cost 
C) goods are produced at the lowest marginal cost 
D) goods are produced at the lowest average fixed cost 
E) the economy is producing the maximum quantity of goods and services it can

Question 2

A perfectly competitive firm that should not shut down in the short run will maximize profit where

Accepted Answer

A) VC = 0 
B) FC = 0 
C) AFC = MC 
D) P = MC 
E) ATC = 0 
A) VC = 0 
B) FC = 0 
C) AFC = MC 
D) P = MC 
E) ATC = 0

Question 3

Suppose a firm finds it is better off operating than shutting down in the short run.What is true at the quantity at which marginal cost equals marginal revenue?

Accepted Answer

A) total cost equals total revenue 
B) average cost equals average revenue 
C) profit is maximized 
D) revenue is maximized 
E) cost is minimized 
A) total cost equals total revenue 
B) average cost equals average revenue 
C) profit is maximized 
D) revenue is maximized 
E) cost is minimized

Question 4

Exhibit 8-6   At output level a in Exhibit 8-6

Accepted Answer

A) a loss would be incurred 
B) positive economic profit would be earned 
C) economic profit would be zero 
D) economic profit would be smaller than at point e 
E) the firm cannot cover its fixed cost 
A) a loss would be incurred 
B) positive economic profit would be earned 
C) economic profit would be zero 
D) economic profit would be smaller than at point e 
E) the firm cannot cover its fixed cost

Question 5

Exhibit 8-8   If the price-taking firm in Exhibit 8-8 is currently producing 6 units, then to maximize profit in the short run, it should

Accepted Answer

A) keep producing 6 units 
B) increase production to 12 units 
C) increase production to 14 units 
D) increase production to 8 units 
E) shut down 
A) keep producing 6 units 
B) increase production to 12 units 
C) increase production to 14 units 
D) increase production to 8 units 
E) shut down

Question 6

Exhibit 8-14   In Exhibit 8-14, what area represents fixed 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 7

Exhibit 8-5   Consider Exhibit 8-5.Assume the firm is perfectly competitive and the market price is $21.To maximize profit or minimize loss, the firm will

Accepted Answer

A) shut down 
B) produce 7 units 
C) produce 3 units 
D) produce 4 units 
E) produce 5 units 
A) shut down 
B) produce 7 units 
C) produce 3 units 
D) produce 4 units 
E) produce 5 units

Question 8

Because market price remains constant as a perfectly competitive firm expands output, each firm faces

Accepted Answer

A) a downward-sloping demand curve 
B) a horizontal demand curve 
C) constant returns to scale 
D) constant costs 
E) diminishing marginal revenue 
A) a downward-sloping demand curve 
B) a horizontal demand curve 
C) constant returns to scale 
D) constant costs 
E) diminishing marginal revenue

Question 9

The demand curve facing a perfectly competitive firm is

Accepted Answer

A) almost vertical at the market quantity 
B) perfectly inelastic 
C) perfectly elastic 
D) horizontal at the price the firm wishes to charge 
E) downward sloping 
A) almost vertical at the market quantity 
B) perfectly inelastic 
C) perfectly elastic 
D) horizontal at the price the firm wishes to charge 
E) downward sloping

Question 10

A horizontal long-run industry supply curve occurs under conditions of

Accepted Answer

A) economies of scale 
B) diseconomies of scale 
C) monopoly 
D) increasing costs 
E) constant costs 
A) economies of scale 
B) diseconomies of scale 
C) monopoly 
D) increasing costs 
E) constant costs

Question 11

Exhibit 8-11   In Exhibit 8-11, the profit-maximizing output is

Accepted Answer

A) 0 
B) w 
C) x 
D) y 
E) z 
A) 0 
B) w 
C) x 
D) y 
E) z

Question 12

Exhibit 8-4   Consider Exhibit 8-4.If the market price is $8.50, what are the profit-maximizing output and profit?

Accepted Answer

A) output = 40; profit = $35 
B) output = 40; profit = $0 
C) output = 0; profit = -$50 
D) output and profit cannot be determined because marginal revenue cannot be calculated 
E) output and profit cannot be determined because average variable cost cannot be calculated 
A) output = 40; profit = $35 
B) output = 40; profit = $0 
C) output = 0; profit = -$50 
D) output and profit cannot be determined because marginal revenue cannot be calculated 
E) output and profit cannot be determined because average variable cost cannot be calculated

Question 13

The long-run supply curve for a constant-cost perfectly competitive industry is

Accepted Answer

A) a ray from the origin at a 45-degree angle 
B) perfectly inelastic 
C) somewhat inelastic 
D) perfectly elastic 
E) declining 
A) a ray from the origin at a 45-degree angle 
B) perfectly inelastic 
C) somewhat inelastic 
D) perfectly elastic 
E) declining

Question 14

Exhibit 8-15   The purely competitive firm in Exhibit 8-15 should

Accepted Answer

A) shut down 
B) produce 5 units of output 
C) produce 10 units of output 
D) produce 12 units of output 
E) produce 20 units of output 
A) shut down 
B) produce 5 units of output 
C) produce 10 units of output 
D) produce 12 units of output 
E) produce 20 units of output

Question 15

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.How many cords of firewood wil be bought and sold in equilibrium?

Accepted Answer

A) 5, 000 
B) 4, 000 
C) 3, 000 
D) 2, 000 
E) 1, 000 
A) 5, 000 
B) 4, 000 
C) 3, 000 
D) 2, 000 
E) 1, 000

Question 16

A Midwestern wheat farmer faces a horizontal demand curve because

Accepted Answer

A) it is so large relative to the market as a whole that it has no impact on market price 
B) it is so small relative to the market as a whole that it has no impact on market price 
C) it produces a good for which there are no substitutes 
D) it produces a good for which there are no complements 
E) it produces a good that no other firm in the industry produces 
A) it is so large relative to the market as a whole that it has no impact on market price 
B) it is so small relative to the market as a whole that it has no impact on market price 
C) it produces a good for which there are no substitutes 
D) it produces a good for which there are no complements 
E) it produces a good that no other firm in the industry produces

Question 17

Commodity products are

Accepted Answer

A) pasteurized 
B) bland 
C) perceived by consumers to be identical 
D) made by one manufacturer 
E) made by hand 
A) pasteurized 
B) bland 
C) perceived by consumers to be identical 
D) made by one manufacturer 
E) made by hand

Question 18

Exhibit 8-18   Assuming all of the firms are identical, how many firms are in the industry before and after the demand shift depicted in Exhibit 8-18?

Accepted Answer

A) Fifty firms are in the industry before and after the demand shift. 
B) Forty firms are in the industry before the demand shift; after the shift, the amount can't be determined. 
C) Fifty firms are in the industry after the demand shift; before the shift, the amount can't be determined. 
D) The number of individual firms cannot be determined from the information given. 
E) The exact number of individual firms can't be determined, but more are in the industry after the demand shift than before it. 
A) Fifty firms are in the industry before and after the demand shift. 
B) Forty firms are in the industry before the demand shift; after the shift, the amount can't be determined. 
C) Fifty firms are in the industry after the demand shift; before the shift, the amount can't be determined. 
D) The number of individual firms cannot be determined from the information given. 
E) The exact number of individual firms can't be determined, but more are in the industry after the demand shift than before it.

Question 19

Exhibit 8-5   Consider Exhibit 8-5.If the market price is $21, this perfectly competitive firm will

Accepted Answer

A) earn a profit of $3.00 
B) earn a profit of $2 
C) earn a profit of $1 
D) suffer a loss of $10 
E) break even 
A) earn a profit of $3.00 
B) earn a profit of $2 
C) earn a profit of $1 
D) suffer a loss of $10 
E) break even

Question 20

Suppose, as a result of a long-run adjustment in a perfectly competitive industry to a change in demand, price and output both rose.Therefore, demand must have __________ in this __________ industry

Accepted Answer

A) fallen; increasing cost 
B) fallen; decreasing cost 
C) increased; increasing cost 
D) increased; decreasing cost 
E) decreased; constant cost 
A) fallen; increasing cost 
B) fallen; decreasing cost 
C) increased; increasing cost 
D) increased; decreasing cost 
E) decreased; constant cost

Exam 8: A--Perfect Competition

Productive efficiency occurs in markets when

A perfectly competitive firm that should not shut down in the short run will maximize profit where

Suppose a firm finds it is better off operating than shutting down in the short run.What is true at the quantity at which marginal cost equals marginal revenue?

Exhibit 8-6 At output level a in Exhibit 8-6

Exhibit 8-8 If the price-taking firm in Exhibit 8-8 is currently producing 6 units, then to maximize profit in the short run, it should

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

Exhibit 8-5 Consider Exhibit 8-5.Assume the firm is perfectly competitive and the market price is $21.To maximize profit or minimize loss, the firm will

Because market price remains constant as a perfectly competitive firm expands output, each firm faces

The demand curve facing a perfectly competitive firm is

A horizontal long-run industry supply curve occurs under conditions of

Exhibit 8-11 In Exhibit 8-11, the profit-maximizing output is

Exhibit 8-4 Consider Exhibit 8-4.If the market price is $8.50, what are the profit-maximizing output and profit?

The long-run supply curve for a constant-cost perfectly competitive industry is

Exhibit 8-15 The purely competitive firm in Exhibit 8-15 should

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.How many cords of firewood wil be bought and sold in equilibrium?

A Midwestern wheat farmer faces a horizontal demand curve because

Commodity products are

Exhibit 8-18 Assuming all of the firms are identical, how many firms are in the industry before and after the demand shift depicted in Exhibit 8-18?

Exhibit 8-5 Consider Exhibit 8-5.If the market price is $21, this perfectly competitive firm will

Suppose, as a result of a long-run adjustment in a perfectly competitive industry to a change in demand, price and output both rose.Therefore, demand must have __________ in this __________ industry

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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Suppose, as a result of a long-run adjustment in a perfectly competitive industry to a change in demand, price and output both rose.Therefore, demand must have in this industry