Question 1

A competitive market creates strong pressure for technological innovation that

Accepted Answer

A) Allows the firm to raise the price of its product. 
B) Provides the firm with more market power. 
C) Shifts the firm's demand curve to the right. 
D) Shifts the supply curve to the right. 
A) Allows the firm to raise the price of its product. 
B) Provides the firm with more market power. 
C) Shifts the firm's demand curve to the right. 
D) Shifts the supply curve to the right. D

Question 2

One World View article is titled "Competition Shrinks India's Phone Bills." Competitive forces typically force companies to

Accepted Answer

A) Cut prices and reduce product quality. 
B) Improve product quality and reduce service. 
C) Improve service and raise prices. 
D) Cut prices,improve product quality,and improve service. 
A) Cut prices and reduce product quality. 
B) Improve product quality and reduce service. 
C) Improve service and raise prices. 
D) Cut prices,improve product quality,and improve service. D

Question 3

The exit of firms from a market,ceteris paribus,

Accepted Answer

A) Shifts the market supply curve to the right. 
B) Has no effect on the economic losses of remaining firms in the market. 
C) Increases the equilibrium price in the market. 
D) Shifts the market demand curve to the left. 
A) Shifts the market supply curve to the right. 
B) Has no effect on the economic losses of remaining firms in the market. 
C) Increases the equilibrium price in the market. 
D) Shifts the market demand curve to the left. C

Question 4

In Figure 23.3,diagram "a" presents the cost curves that are relevant to a firm's production decision,and diagram "b" shows the market demand and supply curves for the market.Use both diagrams to answer the following question: In Figure 23.3,if market demand is at D1,the firm should

Accepted Answer

A) Leave the market. 
B) Produce q1. 
C) Shut down. 
D) Do any of the above depending on the position of the AVC and the length of the time period. 
A) Leave the market. 
B) Produce q1. 
C) Shut down. 
D) Do any of the above depending on the position of the AVC and the length of the time period.

Question 5

Minimizing average total cost always leads to the maximization of total profit.

Accepted Answer

A) True 
 B)False

Question 6

In Figure 23.3,diagram "a" presents the cost curves that are relevant to a firm's production decision,and diagram "b" shows the market demand and supply curves for the market.Use both diagrams to answer the following question: In Figure 23.3,at a price of p1 in the long run

Accepted Answer

A) Firms will enter the market. 
B) Economic profits equal zero. 
C) Firms will exit the market. 
D) P = ATC. 
A) Firms will enter the market. 
B) Economic profits equal zero. 
C) Firms will exit the market. 
D) P = ATC.

Question 7

A necessary condition for the operation of a perfectly competitive market is free entry and exit from the market.

Accepted Answer

A) True 
 B)False

Question 8

Diagram a model of a perfectly competitive market and a separate model of a firm experiencing economic profits.Explain and illustrate on your models the changes that take place in the long run.Be sure to explain why any changes take place.

Accepted Answer

Additional firms,in pursuit of higher pr

Question 9

Refer to Figure 23.1 for a perfectly competitive firm.In the long run,this firm would stay in this market only if the market price was equal to or higher than

Accepted Answer

A) $5. 
B) $10. 
C) $15. 
D) $20. 
A) $5. 
B) $10. 
C) $15. 
D) $20.

Question 10

Exit and shutdown mean the same thing.

Accepted Answer

A) True 
 B)False

Question 11

Refer to Figure 23.6 for a perfectly competitive firm.Assuming that points A,B,C and D are all above AVC,this firm will maximize profits by producing the level of output that corresponds to point

Accepted Answer

A) A. 
B) B. 
C) C. 
D) D. 
A) A. 
B) B. 
C) C. 
D) D.

Question 12

Which of the following is true about a competitive market supply curve?

Accepted Answer

A) It is horizontal. 
B) It is downward-sloping to the right. 
C) It is the sum of the marginal cost curves of all firms. 
D) It is vertical. 
A) It is horizontal. 
B) It is downward-sloping to the right. 
C) It is the sum of the marginal cost curves of all firms. 
D) It is vertical.

Question 13

To maximize profits,a competitive firm will seek to expand output until

Accepted Answer

A) Total revenue equals total cost. 
B) The elasticity of demand equals 1. 
C) Price equals marginal cost. 
D) Price equals $0. 
A) Total revenue equals total cost. 
B) The elasticity of demand equals 1. 
C) Price equals marginal cost. 
D) Price equals $0.

Question 14

Market supply is the horizontal sum of the individual MC curves above the AVC in a perfectly competitive market.

Accepted Answer

A) True 
 B)False

Question 15

Refer to Figure 23.2 for a perfectly competitive firm.Given the current market price of $100,we expect to see

Accepted Answer

A) Entry into this industry. 
B) Exit from this industry. 
C) No change in the number of firms in this industry. 
D) Costs rise to absorb the profits earned by the firms in the industry. 
A) Entry into this industry. 
B) Exit from this industry. 
C) No change in the number of firms in this industry. 
D) Costs rise to absorb the profits earned by the firms in the industry.

Question 16

In a perfectly competitive industry,economic profit

Accepted Answer

A) Can persist in the long run because of barriers to entry. 
B) Can persist in the long run because of homogeneous products. 
C) Will always be negative in the long run because of ease of entry. 
D) Will approach zero in the long run as more firms enter the market. 
A) Can persist in the long run because of barriers to entry. 
B) Can persist in the long run because of homogeneous products. 
C) Will always be negative in the long run because of ease of entry. 
D) Will approach zero in the long run as more firms enter the market.

Question 17

When P < ATC in the long run,a perfectly competitive firm experiences economic profit and new firms will enter the market.

Accepted Answer

A) True 
 B)False

Question 18

Which characteristic of competitive markets permits society to answer the WHAT to produce question efficiently?

Accepted Answer

A) Marginal cost pricing. 
B) Average cost pricing. 
C) Minimum cost pricing. 
D) Total cost pricing. 
A) Marginal cost pricing. 
B) Average cost pricing. 
C) Minimum cost pricing. 
D) Total cost pricing.

Question 19

Explain why economic profits in all perfectly competitive markets will tend toward zero in the long run.

Accepted Answer

In markets experiencing economic profits

Question 20

As in other industries,the market structure of the computer industry has evolved over time.It began as a monopoly and then became perfectly competitive.

Accepted Answer

A) True 
 B)False

Exam 23: Competitive Markets

A competitive market creates strong pressure for technological innovation that

One World View article is titled "Competition Shrinks India's Phone Bills." Competitive forces typically force companies to

The exit of firms from a market,ceteris paribus,

In Figure 23.3,diagram "a" presents the cost curves that are relevant to a firm's production decision,and diagram "b" shows the market demand and supply curves for the market.Use both diagrams to answer the following question: In Figure 23.3,if market demand is at D1,the firm should

Minimizing average total cost always leads to the maximization of total profit.

In Figure 23.3,diagram "a" presents the cost curves that are relevant to a firm's production decision,and diagram "b" shows the market demand and supply curves for the market.Use both diagrams to answer the following question: In Figure 23.3,at a price of p1 in the long run

A necessary condition for the operation of a perfectly competitive market is free entry and exit from the market.

Diagram a model of a perfectly competitive market and a separate model of a firm experiencing economic profits.Explain and illustrate on your models the changes that take place in the long run.Be sure to explain why any changes take place.

Refer to Figure 23.1 for a perfectly competitive firm.In the long run,this firm would stay in this market only if the market price was equal to or higher than

Exit and shutdown mean the same thing.

Refer to Figure 23.6 for a perfectly competitive firm.Assuming that points A,B,C and D are all above AVC,this firm will maximize profits by producing the level of output that corresponds to point

Which of the following is true about a competitive market supply curve?

To maximize profits,a competitive firm will seek to expand output until

Market supply is the horizontal sum of the individual MC curves above the AVC in a perfectly competitive market.

Refer to Figure 23.2 for a perfectly competitive firm.Given the current market price of $100,we expect to see

In a perfectly competitive industry,economic profit

When P < ATC in the long run,a perfectly competitive firm experiences economic profit and new firms will enter the market.

Which characteristic of competitive markets permits society to answer the WHAT to produce question efficiently?

Explain why economic profits in all perfectly competitive markets will tend toward zero in the long run.

As in other industries,the market structure of the computer industry has evolved over time.It began as a monopoly and then became perfectly competitive.

Economics: the Core Issues

The Useconomy: a Global View

Supply and Demand

The Role of Government

National Income Accounting

Unemployment

Inflation

The Business Cycle

Aggregate Demand

Self-Adjustment or Instability

Fiscal Policy

Deficits and Debt

Money and Banks

The Federal Reserve System

Monetary Policy

Supply-Side Policy: Short-Run Options

Growth and Productivity: Long-Run Possibilities

Theory Versus Reality

Consumer Choice

Elasticity

The Costs of Production

The Competitive Firm

Monopoly

Oligopoly

Monopolistic Competition

Natural Monopolies: Deregulation

Environmental Protection

The Farm Problem

The Labor Market

Labor Unions

Financial Markets

Taxes: Equity Versus Efficiency

Transfer Payments: Welfare and Social Security

International Trade

International Finance

Global Poverty

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