Question 1

Which of the following is characteristic of a perfectly competitive market?

Accepted Answer

A) A small number of firms. 
B) Exit of small firms when profits are high for large firms. 
C) Zero economic profit in the long run. 
D) Marginal revenue lower than price for each firm. 
A) A small number of firms. 
B) Exit of small firms when profits are high for large firms. 
C) Zero economic profit in the long run. 
D) Marginal revenue lower than price for each firm.

Question 2

Entry and exit are long-run investment decisions.

Accepted Answer

A) True 
 B)False

Question 3

In order to attain the optimal mix of output,we must know the opportunity cost of producing different goods.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following is not a characteristic of a perfectly competitive market?

Accepted Answer

A) Zero economic profit in the long run. 
B) Perfect information. 
C) Homogeneous products. 
D) High barriers to entry. 
A) Zero economic profit in the long run. 
B) Perfect information. 
C) Homogeneous products. 
D) High barriers to entry.

Question 5

A profit-maximizing producer seeks to

Accepted Answer

A) Maximize profit per unit. 
B) Minimize marginal cost. 
C) Minimize average total costs. 
D) Maximize total profit. 
A) Maximize profit per unit. 
B) Minimize marginal cost. 
C) Minimize average total costs. 
D) Maximize total profit.

Question 6

Sellers in a perfectly competitive market are powerless to affect the market price of their product.

Accepted Answer

A) True 
 B)False

Question 7

When economic losses exist in the cereal market,for example,this is an indication that

Accepted Answer

A) The goods and services that society is giving up (the opportunity cost)are more valuable than the cereal being produced. 
B) Society's scarce resources are being used in the best way. 
C) Not enough firms are producing cereal (assuming that the market is perfectly competitive). 
D) The WHAT to produce question is being answered efficiently. 
A) The goods and services that society is giving up (the opportunity cost)are more valuable than the cereal being produced. 
B) Society's scarce resources are being used in the best way. 
C) Not enough firms are producing cereal (assuming that the market is perfectly competitive). 
D) The WHAT to produce question is being answered efficiently.

Question 8

The equilibrium price of a good or service in a competitive market is

Accepted Answer

A) Higher than it should be because profits are included in the price. 
B) A reflection of the opportunity cost of producing the product. 
C) Lower than it should be because bankruptcies are common in competitive markets. 
D) Higher than the opportunity cost of producing the product. 
A) Higher than it should be because profits are included in the price. 
B) A reflection of the opportunity cost of producing the product. 
C) Lower than it should be because bankruptcies are common in competitive markets. 
D) Higher than the opportunity cost of producing the product.

Question 9

In a perfectly competitive market where firms are currently experiencing economic profits in the short-run,which of the following is least likely to occur during the long-run?

Accepted Answer

A) A rightward shift in the market supply curve. 
B) An increase in the market quantity demanded. 
C) An increase in marginal revenue. 
D) A decline in the ATC and MC curves. 
A) A rightward shift in the market supply curve. 
B) An increase in the market quantity demanded. 
C) An increase in marginal revenue. 
D) A decline in the ATC and MC curves.

Question 10

Maximizing profits per unit always leads to the maximization of total profit.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following is an investment decision in a competitive market?

Accepted Answer

A) The shutdown decision. 
B) The rate of output to produce. 
C) Entry or exit. 
D) The price to charge. 
A) The shutdown decision. 
B) The rate of output to produce. 
C) Entry or exit. 
D) The price to charge.

Question 12

If a firm decides to make the investment decision to expand its capacity,then it must have discovered that

Accepted Answer

A) P = ATC. 
B) P > AVC. 
C) P > ATC. 
D) P = AVC. 
A) P = ATC. 
B) P > AVC. 
C) P > ATC. 
D) P = AVC.

Question 13

Refer to Figure 23.4 for a perfectly competitive market and firm.Which of the following is most likely to occur,ceteris paribus?

Accepted Answer

A) The firm will exit in the long run. 
B) The firm will increase output. 
C) The firm will shut down in the short run. 
D) The firm will raise its price. 
A) The firm will exit in the long run. 
B) The firm will increase output. 
C) The firm will shut down in the short run. 
D) The firm will raise its price.

Question 14

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 the long run,at prices below p3 in Figure 23.3,

Accepted Answer

A) There is economic profit. 
B) The firm will produce the quantity where MC = MR. 
C) Firms will enter the market. 
D) Firms will exit the market. 
A) There is economic profit. 
B) The firm will produce the quantity where MC = MR. 
C) Firms will enter the market. 
D) Firms will exit the market.

Question 15

A perfectly competitive market results in efficiency because

Accepted Answer

A) Price is driven down to minimum ATC. 
B) Price rises high enough to equal marginal cost. 
C) Zero economic profit is achieved. 
D) MC < P. 
A) Price is driven down to minimum ATC. 
B) Price rises high enough to equal marginal cost. 
C) Zero economic profit is achieved. 
D) MC < P.

Question 16

If the price of ricotta cheese,an ingredient in lasagna,increases,then

Accepted Answer

A) The market supply curve for lasagna will shift to the right. 
B) The market supply curve for lasagna will shift to the left. 
C) There will be a movement up along the market supply curve for lasagna. 
D) There will be a movement down along the market supply curve for lasagna. 
A) The market supply curve for lasagna will shift to the right. 
B) The market supply curve for lasagna will shift to the left. 
C) There will be a movement up along the market supply curve for lasagna. 
D) There will be a movement down along the market supply curve for lasagna.

Question 17

In long-run perfectly competitive equilibrium,marginal cost

Accepted Answer

A) Is greater than ATC. 
B) Is less than ATC. 
C) Equals the minimum of the ATC. 
D) Equals the minimum of the AVC. 
A) Is greater than ATC. 
B) Is less than ATC. 
C) Equals the minimum of the ATC. 
D) Equals the minimum of the AVC.

Question 18

Explain how the market supply curve is derived in a perfectly competitive market.Identify five factors that would cause the market supply curve to shift.

Accepted Answer

The market supply curve is the sum of th

Question 19

Investment decisions are made on the basis of the relationship of price to

Accepted Answer

A) Short-run average total cost. 
B) Short-run marginal cost. 
C) Long-run fixed cost. 
D) Long-run average total cost. 
A) Short-run average total cost. 
B) Short-run marginal cost. 
C) Long-run fixed cost. 
D) Long-run average total cost.

Question 20

When resources are earning zero economic profits for a firm,the resources could earn more in their next best alternative use.

Accepted Answer

A) True 
 B)False

Exam 23: Competitive Markets

Which of the following is characteristic of a perfectly competitive market?

Entry and exit are long-run investment decisions.

In order to attain the optimal mix of output,we must know the opportunity cost of producing different goods.

Which of the following is not a characteristic of a perfectly competitive market?

A profit-maximizing producer seeks to

Sellers in a perfectly competitive market are powerless to affect the market price of their product.

When economic losses exist in the cereal market,for example,this is an indication that

The equilibrium price of a good or service in a competitive market is

In a perfectly competitive market where firms are currently experiencing economic profits in the short-run,which of the following is least likely to occur during the long-run?

Maximizing profits per unit always leads to the maximization of total profit.

Which of the following is an investment decision in a competitive market?

If a firm decides to make the investment decision to expand its capacity,then it must have discovered that

Refer to Figure 23.4 for a perfectly competitive market and firm.Which of the following is most likely to occur,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 the long run,at prices below p3 in Figure 23.3,

A perfectly competitive market results in efficiency because

If the price of ricotta cheese,an ingredient in lasagna,increases,then

In long-run perfectly competitive equilibrium,marginal cost

Explain how the market supply curve is derived in a perfectly competitive market.Identify five factors that would cause the market supply curve to shift.

Investment decisions are made on the basis of the relationship of price to

When resources are earning zero economic profits for a firm,the resources could earn more in their next best alternative use.

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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