Question 1

Refer to Figure 23.5 for a perfectly competitive firm.Which of the following is not true for this firm at a price of $200?

Accepted Answer

A) The firm is using the fewest resources possible to produce each unit of output. 
B) The firm is practicing marginal cost pricing. 
C) The price is a reflection of the highest-valued good that could have been produced with the resources the firm used for the last unit it produced. 
D) The firm should leave this market in an effort to earn economic profits. 
A) The firm is using the fewest resources possible to produce each unit of output. 
B) The firm is practicing marginal cost pricing. 
C) The price is a reflection of the highest-valued good that could have been produced with the resources the firm used for the last unit it produced. 
D) The firm should leave this market in an effort to earn economic profits.

Question 2

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

Accepted Answer

A) Firms exit from the industry,driving up the market price. 
B) Firms enter the industry,driving up the market price. 
C) No change in the number of firms in the industry and no change in the market price. 
D) Firms enter the industry,driving down the market price. 
A) Firms exit from the industry,driving up the market price. 
B) Firms enter the industry,driving up the market price. 
C) No change in the number of firms in the industry and no change in the market price. 
D) Firms enter the industry,driving down the market price.

Question 3

When firms in a competitive market are experiencing zero economic profits,this is an indication that

Accepted Answer

A) They should be producing a different product. 
B) There is currently no better way to use society's scarce resources. 
C) They will eventually go bankrupt. 
D) Accounting losses are being experienced by these firms. 
A) They should be producing a different product. 
B) There is currently no better way to use society's scarce resources. 
C) They will eventually go bankrupt. 
D) Accounting losses are being experienced by these firms.

Question 4

Other things being equal,as more firms enter a market,the market supply curve

Accepted Answer

A) Becomes more inelastic. 
B) Shifts to the left. 
C) Shifts to the right. 
D) Intersects the demand curve at a higher price. 
A) Becomes more inelastic. 
B) Shifts to the left. 
C) Shifts to the right. 
D) Intersects the demand curve at a higher price.

Question 5

Perfectly competitive firms always earn economic profits in the short run.

Accepted Answer

A) True 
 B)False

Question 6

Perfectly competitive markets are responsive to the demand of consumers.

Accepted Answer

A) True 
 B)False

Question 7

Refer to Figure 23.6 for a perfectly competitive firm.Given the current market price,we expect to see

Accepted Answer

A) Firms exit from the industry,driving up the market price. 
B) Firms exit from the industry,driving down the market price. 
C) No change in the number of firms in the industry and no change in the market price. 
D) Firms enter the industry,driving down the market price. 
A) Firms exit from the industry,driving up the market price. 
B) Firms exit from the industry,driving down the market price. 
C) No change in the number of firms in the industry and no change in the market price. 
D) Firms enter the industry,driving down the market price.

Question 8

In making an investment decision,an entrepreneur

Accepted Answer

A) Makes a decision to exit if price is above marginal cost. 
B) Makes a short-run decision. 
C) Only considers variable costs. 
D) Must take account of diminishing returns. 
A) Makes a decision to exit if price is above marginal cost. 
B) Makes a short-run decision. 
C) Only considers variable costs. 
D) Must take account of diminishing returns.

Question 9

In a competitive market,

Accepted Answer

A) Buyers don't have market power but sellers do. 
B) Sellers don't have market power but buyers do. 
C) Neither buyers nor sellers have market power. 
D) Buyers and sellers both have market power. 
A) Buyers don't have market power but sellers do. 
B) Sellers don't have market power but buyers do. 
C) Neither buyers nor sellers have market power. 
D) Buyers and sellers both have market power.

Question 10

In a competitive market where firms are earning economic profits,which of the following should be expected as the industry moves to long-run equilibrium,ceteris paribus?

Accepted Answer

A) A higher price and fewer firms. 
B) A higher price and more firms. 
C) A lower price and fewer firms. 
D) A lower price and more firms. 
A) A higher price and fewer firms. 
B) A higher price and more firms. 
C) A lower price and fewer firms. 
D) A lower price and more firms.

Question 11

Which of the following is a production decision?

Accepted Answer

A) Whether to enter or exit an industry. 
B) Whether to increase or decrease plant capacity. 
C) Whether to increase or decrease output. 
D) Whether to share information with a competitor. 
A) Whether to enter or exit an industry. 
B) Whether to increase or decrease plant capacity. 
C) Whether to increase or decrease output. 
D) Whether to share information with a competitor.

Question 12

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: If the market demand curve is D2 in Figure 23.3,then in the long run,

Accepted Answer

A) Economic profit is less than zero,and firms will exit. 
B) Economic profit is greater than zero,and firms will expand production. 
C) There are zero economic profits,so there will be no entry or exit. 
D) There are zero economic profits,so firms will exit. 
A) Economic profit is less than zero,and firms will exit. 
B) Economic profit is greater than zero,and firms will expand production. 
C) There are zero economic profits,so there will be no entry or exit. 
D) There are zero economic profits,so firms will exit.

Question 13

In the short run,a perfectly competitive firm's production decision aims to maximize profits at the production rate where P = MR = MC.

Accepted Answer

A) True 
 B)False

Question 14

In a perfectly competitive market economy,business failures can benefit society by causing

Accepted Answer

A) A reallocation of resources to better uses. 
B) An increase in market power for the remaining firms. 
C) A decline in market prices as remaining firms attempt to increase sales and stay in business. 
D) An increase in the number of jobs for bankruptcy lawyers and accountants. 
A) A reallocation of resources to better uses. 
B) An increase in market power for the remaining firms. 
C) A decline in market prices as remaining firms attempt to increase sales and stay in business. 
D) An increase in the number of jobs for bankruptcy lawyers and accountants.

Question 15

In which of the following cases would a firm exit from a market?

Accepted Answer

A) P > short-run ATC. B) P long-run ATC. D) P < long-run ATC. A) P > short-run ATC. B) P long-run ATC. D) P < long-run ATC.

Question 16

The marginal cost pricing characteristic of competitive markets permits society to efficiently answer the WHAT to produce question.

Accepted Answer

A) True 
 B)False

Question 17

Refer to Figure 23.5 for a perfectly competitive firm.If this firm produces the level of output corresponding to point B in the short run,it will earn

Accepted Answer

A) Zero economic profit. 
B) The maximum profit possible. 
C) A profit,although not the maximum profit possible. 
D) A loss. 
A) Zero economic profit. 
B) The maximum profit possible. 
C) A profit,although not the maximum profit possible. 
D) A loss.

Question 18

Refer to Figure 23.2 for a perfectly competitive firm.If this firm produces the level of output corresponding to point C in the short run,it will earn

Accepted Answer

A) Zero profit. 
B) The maximum profit possible. 
C) A profit,although not the maximum profit possible. 
D) A loss. 
A) Zero profit. 
B) The maximum profit possible. 
C) A profit,although not the maximum profit possible. 
D) A loss.

Question 19

Refer to Figure 23.5 for a perfectly competitive firm.Given the current market price of $200,we expect to see

Accepted Answer

A) Firms exit from the industry,driving up the market price. 
B) Firms exit from the industry,driving down the market price. 
C) No change in the number of firms in the industry and no change in the market price. 
D) Firms enter the industry,driving down the market price. 
A) Firms exit from the industry,driving up the market price. 
B) Firms exit from the industry,driving down the market price. 
C) No change in the number of firms in the industry and no change in the market price. 
D) Firms enter the industry,driving down the market price.

Question 20

Which of the following is not a barrier to entry?

Accepted Answer

A) Government regulation. 
B) Control of essential factors of production. 
C) Economies of scale. 
D) Homogeneous Products. 
A) Government regulation. 
B) Control of essential factors of production. 
C) Economies of scale. 
D) Homogeneous Products.

Exam 23: Competitive Markets

Refer to Figure 23.5 for a perfectly competitive firm.Which of the following is not true for this firm at a price of $200?

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

When firms in a competitive market are experiencing zero economic profits,this is an indication that

Other things being equal,as more firms enter a market,the market supply curve

Perfectly competitive firms always earn economic profits in the short run.

Perfectly competitive markets are responsive to the demand of consumers.

Refer to Figure 23.6 for a perfectly competitive firm.Given the current market price,we expect to see

In making an investment decision,an entrepreneur

In a competitive market,

In a competitive market where firms are earning economic profits,which of the following should be expected as the industry moves to long-run equilibrium,ceteris paribus?

Which of the following is a production decision?

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: If the market demand curve is D2 in Figure 23.3,then in the long run,

In the short run,a perfectly competitive firm's production decision aims to maximize profits at the production rate where P = MR = MC.

In a perfectly competitive market economy,business failures can benefit society by causing

In which of the following cases would a firm exit from a market?

The marginal cost pricing characteristic of competitive markets permits society to efficiently answer the WHAT to produce question.

Refer to Figure 23.5 for a perfectly competitive firm.If this firm produces the level of output corresponding to point B in the short run,it will earn

Refer to Figure 23.2 for a perfectly competitive firm.If this firm produces the level of output corresponding to point C in the short run,it will earn

Refer to Figure 23.5 for a perfectly competitive firm.Given the current market price of $200,we expect to see

Which of the following is not a barrier to entry?

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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