Question 1

For a perfectly competitive firm,MR = MC at 250 units of output.At 250 units,ATC is greater than AVC.It necessarily follows that

Accepted Answer

A)  the firm should shut down its operation. 
B)  the marginal cost curve must have an upward-sloping portion and a downward-sloping portion. 
C)  the firm should continue to produce. 
D)  b and c 
E)  none of the above 
A)  the firm should shut down its operation. 
B)  the marginal cost curve must have an upward-sloping portion and a downward-sloping portion. 
C)  the firm should continue to produce. 
D)  b and c 
E)  none of the above E

Question 2

Assume that a constant-cost industry experiences an increase in demand.In the long run,this will

Accepted Answer

A)  exceed its original equilibrium level. 
B)  equal its original level. 
C)  be lower than its original level. 
D)  any of the above, depending on the elasticity of demand 
A)  exceed its original equilibrium level. 
B)  equal its original level. 
C)  be lower than its original level. 
D)  any of the above, depending on the elasticity of demand B

Question 3

A perfectly competitive firm should increase its level of production as long as

Accepted Answer

A)  total revenue is less than total cost. 
B)  the total revenue curve is rising. 
C)  marginal revenue is greater than marginal cost. 
D)  the marginal revenue curve is rising. 
A)  total revenue is less than total cost. 
B)  the total revenue curve is rising. 
C)  marginal revenue is greater than marginal cost. 
D)  the marginal revenue curve is rising. C

Question 4

Consider the following data: equilibrium price = $10,quantity of output produced = 100 units,average total cost = $13,and average variable cost = $7.What will the firm do and why?

Accepted Answer

A)  Shut down in the short run, because it is taking a loss of $200. 
B)  Continue to produce in the short run, because price is greater than average variable cost. 
C)  Shut down in the short run, because average variable cost is less than average total cost. 
D)  Continue to produce in the short run, because firms are always stuck with having to produce in the short run. 
A)  Shut down in the short run, because it is taking a loss of $200. 
B)  Continue to produce in the short run, because price is greater than average variable cost. 
C)  Shut down in the short run, because average variable cost is less than average total cost. 
D)  Continue to produce in the short run, because firms are always stuck with having to produce in the short run.

Question 5

The perfectly competitive firm's short-run supply curve is that portion of its MC curve that lies above its AFC curve.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following statements about a perfectly competitive firm is necessarily false?

Accepted Answer

A)  There are few substitutes for the firm's product. 
B)  There are few complements to the firm's product. 
C)  The firm produces the quantity at which marginal revenue equals marginal cost. 
D)  The firm sells a product that is identical in the eyes of buyers to any other product sold in the industry. 
A)  There are few substitutes for the firm's product. 
B)  There are few complements to the firm's product. 
C)  The firm produces the quantity at which marginal revenue equals marginal cost. 
D)  The firm sells a product that is identical in the eyes of buyers to any other product sold in the industry.

Question 7

Assume that a decreasing-cost industry experiences an increase in demand.In the long run,this will

Accepted Answer

A)  lead to a price increase. 
B)  lead to a price decrease. 
C)  have no influence on price. 
D)  a or b, depending on the marginal cost curve 
A)  lead to a price increase. 
B)  lead to a price decrease. 
C)  have no influence on price. 
D)  a or b, depending on the marginal cost curve

Question 8

One of the economic reasons for the U.S.postal service issuing and selling collector's stamps is that

Accepted Answer

A)  the fixed costs associated with these stamps are less than for other stamps. 
B)  the variable costs associated with these stamps are less than for other stamps. 
C)  the postal service charges customers a higher price for these stamps. 
D)  a and b 
E)  none of the above 
A)  the fixed costs associated with these stamps are less than for other stamps. 
B)  the variable costs associated with these stamps are less than for other stamps. 
C)  the postal service charges customers a higher price for these stamps. 
D)  a and b 
E)  none of the above

Question 9

When an industry is described as a decreasing-cost,increasing-cost,or constant-cost industry,the "cost" that is being referred to is

Accepted Answer

A)  marginal cost. 
B)  average total cost. 
C)  average variable cost. 
D)  sunk cost. 
E)  fixed cost. 
A)  marginal cost. 
B)  average total cost. 
C)  average variable cost. 
D)  sunk cost. 
E)  fixed cost.

Question 10

For a perfectly competitive firm,

Accepted Answer

A)  price equals marginal revenue only for the first unit of the good produced and sold. 
B)  only at a lower price can more units of a good be sold. 
C)  demand is perfectly inelastic. 
D)  a and b 
E)  none of the above 
A)  price equals marginal revenue only for the first unit of the good produced and sold. 
B)  only at a lower price can more units of a good be sold. 
C)  demand is perfectly inelastic. 
D)  a and b 
E)  none of the above

Question 11

In the theory of perfect competition,

Accepted Answer

A)  the market demand curve is horizontal. 
B)  the single firm's demand curve is horizontal. 
C)  the single firm's demand curve is downward sloping. 
D)  the market demand curve is downward sloping. 
E)  b and d 
A)  the market demand curve is horizontal. 
B)  the single firm's demand curve is horizontal. 
C)  the single firm's demand curve is downward sloping. 
D)  the market demand curve is downward sloping. 
E)  b and d

Question 12

In the theory of perfect competition,the market demand curve is __________ and the firm's demand curve is __________.

Accepted Answer

A)  perfectly elastic; perfectly elastic 
B)  downward sloping; downward sloping 
C)  perfectly elastic; downward sloping 
D)  downward sloping; perfectly elastic 
E)  perfectly inelastic; downward sloping 
A)  perfectly elastic; perfectly elastic 
B)  downward sloping; downward sloping 
C)  perfectly elastic; downward sloping 
D)  downward sloping; perfectly elastic 
E)  perfectly inelastic; downward sloping

Question 13

Equilibrium price is $10 in a perfectly competitive market.For a perfectly competitive firm,MR = MC at 233 units of output.At 233 units,ATC is $12,and AVC is $9.The best policy for this firm is to __________ in the short run.Also,total fixed cost equals __________ for this firm.

Accepted Answer

A)  continue to produce; $3 
B)  shut down; $699 
C)  continue to produce; $699 
D)  shut down; $2,796 
E)  continue to produce; $2,796 
A)  continue to produce; $3 
B)  shut down; $699 
C)  continue to produce; $699 
D)  shut down; $2,796 
E)  continue to produce; $2,796

Question 14

Exhibit 23-6
  
-Refer to Exhibit 23-6.A perfectly competitive firm operating in the market depicted in graph (1)is producing 311 units of output at the profit-maximizing level.What is the marginal revenue of the 312th unit?

Accepted Answer

A)  $0.312 
B)  $1 
C)  $10 
D)  $312 
E)  This cannot be determined based on the information provided. 
A)  $0.312 
B)  $1 
C)  $10 
D)  $312 
E)  This cannot be determined based on the information provided.

Question 15

A firm operating in a perfectly competitive market finds itself producing at an output level for which marginal revenue is lower than marginal cost.In order to maximize profits (or minimize losses),the firm should

Accepted Answer

A)  increase the level of output. 
B)  decrease the level of output. 
C)  shut down operations. 
D)  lower its prices. 
E)  raise its prices. 
A)  increase the level of output. 
B)  decrease the level of output. 
C)  shut down operations. 
D)  lower its prices. 
E)  raise its prices.

Question 16

Equilibrium price is $19 in a perfectly competitive market.For a perfectly competitive firm,MR = MC at 120 units of output.At 120 units,ATC is $11,and AVC is $8.The best policy for this firm is to __________ in the short run.Also,this firm earns __________ of __________ if it produces and sells 120 units.Finally,the difference between total revenue and total fixed cost for this firm is __________.

Accepted Answer

A)  continue to produce; profits; $960; $1,920 
B)  continue to produce; losses; $960; $1,000 
C)  shut down; losses; $1,200; $2,300 
D)  continue to produce; profits; $1,920; $1,960 
E)  none of the above 
A)  continue to produce; profits; $960; $1,920 
B)  continue to produce; losses; $960; $1,000 
C)  shut down; losses; $1,200; $2,300 
D)  continue to produce; profits; $1,920; $1,960 
E)  none of the above

Question 17

When a firm produces the quantity of output where price equals marginal cost,it has achieved resource allocative efficiency.

Accepted Answer

A) True 
 B)False

Question 18

In long-run competitive equilibrium,firms

Accepted Answer

A)  earn positive economic profits. 
B)  have no incentive to make any changes. 
C)  earn losses on some units of the good they produce and sell. 
D)  do not produce the quantity of output at which MR = MC. 
E)  b and c 
A)  earn positive economic profits. 
B)  have no incentive to make any changes. 
C)  earn losses on some units of the good they produce and sell. 
D)  do not produce the quantity of output at which MR = MC. 
E)  b and c

Question 19

List and describe the four assumptions that underlie the theory of perfect competition.

Accepted Answer

1)There are many sellers and buyers,each

Question 20

When the perfectly competitive firm produces the quantity of output at which marginal revenue equals marginal cost,it naturally

Accepted Answer

A)  produces the quantity of output at which marginal cost equals price, since for the perfectly competitive firm price equals marginal revenue. 
B)  produces the quantity of output at which short-run average total cost equals price, since for the perfectly competitive firm short-run average total cost equals marginal revenue. 
C)  earns a profit, since equating marginal revenue and marginal cost guarantees profit. 
D)  takes a loss. 
A)  produces the quantity of output at which marginal cost equals price, since for the perfectly competitive firm price equals marginal revenue. 
B)  produces the quantity of output at which short-run average total cost equals price, since for the perfectly competitive firm short-run average total cost equals marginal revenue. 
C)  earns a profit, since equating marginal revenue and marginal cost guarantees profit. 
D)  takes a loss.

Exam 23: Perfect Competition

For a perfectly competitive firm,MR = MC at 250 units of output.At 250 units,ATC is greater than AVC.It necessarily follows that

Assume that a constant-cost industry experiences an increase in demand.In the long run,this will

A perfectly competitive firm should increase its level of production as long as

Consider the following data: equilibrium price = $10,quantity of output produced = 100 units,average total cost = $13,and average variable cost = $7.What will the firm do and why?

The perfectly competitive firm's short-run supply curve is that portion of its MC curve that lies above its AFC curve.

Which of the following statements about a perfectly competitive firm is necessarily false?

Assume that a decreasing-cost industry experiences an increase in demand.In the long run,this will

One of the economic reasons for the U.S.postal service issuing and selling collector's stamps is that

When an industry is described as a decreasing-cost,increasing-cost,or constant-cost industry,the "cost" that is being referred to is

For a perfectly competitive firm,

In the theory of perfect competition,

In the theory of perfect competition,the market demand curve is __________ and the firm's demand curve is __________.

Equilibrium price is $10 in a perfectly competitive market.For a perfectly competitive firm,MR = MC at 233 units of output.At 233 units,ATC is $12,and AVC is $9.The best policy for this firm is to __________ in the short run.Also,total fixed cost equals __________ for this firm.

Exhibit 23-6 -Refer to Exhibit 23-6.A perfectly competitive firm operating in the market depicted in graph (1)is producing 311 units of output at the profit-maximizing level.What is the marginal revenue of the 312th unit?

A firm operating in a perfectly competitive market finds itself producing at an output level for which marginal revenue is lower than marginal cost.In order to maximize profits (or minimize losses),the firm should

When a firm produces the quantity of output where price equals marginal cost,it has achieved resource allocative efficiency.

In long-run competitive equilibrium,firms

List and describe the four assumptions that underlie the theory of perfect competition.

When the perfectly competitive firm produces the quantity of output at which marginal revenue equals marginal cost,it naturally

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In the theory of perfect competition,the market demand curve is and the firm's demand curve is .

Equilibrium price is $10 in a perfectly competitive market.For a perfectly competitive firm,MR = MC at 233 units of output.At 233 units,ATC is $12,and AVC is $9.The best policy for this firm is to in the short run.Also,total fixed cost equals for this firm.