Question 1

Exhibit 23-8
  
-Refer to Exhibit 23-8.What is the total revenue of Firm A at the point where it produces in the short run?

Accepted Answer

A)  $300 
B)  $700 
C)  $1,000 
D)  $400 
A)  $300 
B)  $700 
C)  $1,000 
D)  $400

Question 2

Exhibit 23-2
  
-Refer to Exhibit 23-2.If the firm produces the quantity of output at which marginal revenue (MR)equals marginal cost (MC),is it guaranteed maximum profit or minimized loss?

Accepted Answer

A)  Yes, when MR = MC, it follows that MR - MC = 0, and thus the firm maximizes profit and minimizes losses. 
B)  No, at the quantity of output at which MR = MC, it could be the case that average variable cost is greater than price and the firm would do better to shut down. 
C)  Yes, when the firm produces the quantity at which MR = MC, it has maximized both revenue and profit. 
D)  Yes, because if the MC curve is rising, the average total cost curve always lies below it and thus profit is earned. 
A)  Yes, when MR = MC, it follows that MR - MC = 0, and thus the firm maximizes profit and minimizes losses. 
B)  No, at the quantity of output at which MR = MC, it could be the case that average variable cost is greater than price and the firm would do better to shut down. 
C)  Yes, when the firm produces the quantity at which MR = MC, it has maximized both revenue and profit. 
D)  Yes, because if the MC curve is rising, the average total cost curve always lies below it and thus profit is earned.

Question 3

Which of the following conditions does not characterize long-run competitive equilibrium?

Accepted Answer

A)  Economic profit is zero. 
B)  Price is greater than marginal cost. 
C)  No firm has an incentive to change its plant size. 
D)  No firm has an incentive to produce more or less output. 
A)  Economic profit is zero. 
B)  Price is greater than marginal cost. 
C)  No firm has an incentive to change its plant size. 
D)  No firm has an incentive to produce more or less output.

Question 4

For a perfectly competitive firm,the demand curve is horizontal at the price determined in the market.

Accepted Answer

A) True 
 B)False

Question 5

Firm X is producing the quantity of output at which marginal revenue equals marginal cost.It is

Accepted Answer

A)  receiving a positive economic profit. 
B)  taking a loss. 
C)  earning a normal profit. 
D)  There is not enough information to answer the question. 
A)  receiving a positive economic profit. 
B)  taking a loss. 
C)  earning a normal profit. 
D)  There is not enough information to answer the question.

Question 6

A price-taker firm can sell

Accepted Answer

A)  any quantity of product it wants at any price. 
B)  less of its product at a higher price than at a lower price. 
C)  any quantity of product it wants at the market equilibrium price. 
D)  more of its product at a higher price than at a lower price. 
E)  none of the above 
A)  any quantity of product it wants at any price. 
B)  less of its product at a higher price than at a lower price. 
C)  any quantity of product it wants at the market equilibrium price. 
D)  more of its product at a higher price than at a lower price. 
E)  none of the above

Question 7

The price at which a perfectly competitive firm sells its product is determined by

Accepted Answer

A)  the individual seller based on his costs of production and his profit margin. 
B)  all sellers and buyers of the product. 
C)  the buyers of the product, because there are so many sellers that they cannot agree on a price. 
D)  the government, because there are so many buyers and sellers of the product that together they cannot agree on the price. 
A)  the individual seller based on his costs of production and his profit margin. 
B)  all sellers and buyers of the product. 
C)  the buyers of the product, because there are so many sellers that they cannot agree on a price. 
D)  the government, because there are so many buyers and sellers of the product that together they cannot agree on the price.

Question 8

Exhibit 23-8
  
-Refer to Exhibit 23-8.What is the total fixed cost of Firm B at the point where it produces in the short run?

Accepted Answer

A)  $5 
B)  $750 
C)  $90 
D)  $400 
E)  There is not enough information provided to answer this question. 
A)  $5 
B)  $750 
C)  $90 
D)  $400 
E)  There is not enough information provided to answer this question.

Question 9

Resource allocative efficiency exists for a perfectly competitive firm because

Accepted Answer

A)  price equals marginal revenue and the firm equates marginal revenue and marginal cost to maximize profits. 
B)  price equals average total cost and the firm equates marginal revenue and average total cost to maximize profits. 
C)  price is greater than marginal revenue and the firm equates marginal revenue with average total cost to maximize profits. 
D)  price is less than marginal revenue and the firm equates marginal cost and marginal revenue to maximize profits. 
E)  none of the above 
A)  price equals marginal revenue and the firm equates marginal revenue and marginal cost to maximize profits. 
B)  price equals average total cost and the firm equates marginal revenue and average total cost to maximize profits. 
C)  price is greater than marginal revenue and the firm equates marginal revenue with average total cost to maximize profits. 
D)  price is less than marginal revenue and the firm equates marginal cost and marginal revenue to maximize profits. 
E)  none of the above

Question 10

The short-run industry supply curve is the

Accepted Answer

A)  horizontal summation of the short-run supply curves for all firms in the industry. 
B)  vertical summation of the short-run supply curves for all firms in the industry. 
C)  average of the short-run supply curves for all firms in the industry. 
D)  same as that of the typical firm in the industry. 
A)  horizontal summation of the short-run supply curves for all firms in the industry. 
B)  vertical summation of the short-run supply curves for all firms in the industry. 
C)  average of the short-run supply curves for all firms in the industry. 
D)  same as that of the typical firm in the industry.

Question 11

Which of the following is not a condition of long-run competitive equilibrium?

Accepted Answer

A)  There is no incentive for firms to enter the industry. 
B)  There is no incentive for firms to exit the industry. 
C)  There is no incentive for firms to produce more or less output. 
D)  There is no incentive for firms to change plant size. 
E)  None of the above; that is, all are conditions of long-run competitive equilibrium. 
A)  There is no incentive for firms to enter the industry. 
B)  There is no incentive for firms to exit the industry. 
C)  There is no incentive for firms to produce more or less output. 
D)  There is no incentive for firms to change plant size. 
E)  None of the above; that is, all are conditions of long-run competitive equilibrium.

Question 12

Profit helps to indicate where resources are best allocated.

Accepted Answer

A) True 
 B)False

Question 13

A perfectly competitive firm faces a __________ demand curve.

Accepted Answer

A)  nonlinear 
B)  downward-sloping 
C)  perfectly elastic 
D)  perfectly inelastic 
E)  unit-elastic 
A)  nonlinear 
B)  downward-sloping 
C)  perfectly elastic 
D)  perfectly inelastic 
E)  unit-elastic

Question 14

Equilibrium price is $8 in a perfectly competitive market.For a perfectly competitive firm,MR = MC at 150 units of output.At 150 units,ATC is $11,and AVC is $10.The best policy for this firm is to __________ in the short run.Also,total fixed cost equals __________ and total variable cost equals __________ for this firm.

Accepted Answer

A)  continue to produce; $125; $1,375 
B)  shut down; $150; $1,500 
C)  shut down; $1,375; $1,250 
D)  continue to produce; $150; $1,500 
E)  There is not enough information to answer all parts of the question. 
A)  continue to produce; $125; $1,375 
B)  shut down; $150; $1,500 
C)  shut down; $1,375; $1,250 
D)  continue to produce; $150; $1,500 
E)  There is not enough information to answer all parts of the question.

Question 15

Which of the following is false?

Accepted Answer

A)  The market demand curve in a perfectly competitive market is downward sloping. 
B)  The firm's demand curve in a perfectly competitive market is horizontal. 
C)  The firm's demand curve in a perfectly competitive market is perfectly elastic. 
D)  Marginal revenue is equal to the change in total revenue divided by the change in quantity of output. 
E)  none of the above 
A)  The market demand curve in a perfectly competitive market is downward sloping. 
B)  The firm's demand curve in a perfectly competitive market is horizontal. 
C)  The firm's demand curve in a perfectly competitive market is perfectly elastic. 
D)  Marginal revenue is equal to the change in total revenue divided by the change in quantity of output. 
E)  none of the above

Question 16

Which of the assumptions in the theory of perfect competition assures us that economic profit will be zero in the long run?

Accepted Answer

A)  buyers and sellers having all relevant information 
B)  firms producing homogeneous goods 
C)  too few buyers 
D)  easy entry and exit 
E)  smallness of firms with respect to the market 
A)  buyers and sellers having all relevant information 
B)  firms producing homogeneous goods 
C)  too few buyers 
D)  easy entry and exit 
E)  smallness of firms with respect to the market

Question 17

Why must profits be zero in long-run competitive equilibrium?

Accepted Answer

A)  If profits are not zero, firms will enter or exit the industry. 
B)  If profits are not zero, firms will produce higher-quality goods. 
C)  If profits are not zero, marginal revenue will rise. 
D)  If profits are not zero, marginal cost will rise. 
A)  If profits are not zero, firms will enter or exit the industry. 
B)  If profits are not zero, firms will produce higher-quality goods. 
C)  If profits are not zero, marginal revenue will rise. 
D)  If profits are not zero, marginal cost will rise.

Question 18

In perfect competition,the firm's marginal revenue curve is

Accepted Answer

A)  perfectly elastic. 
B)  the same as the firm's demand curve. 
C)  the same as the firm's total revenue curve. 
D)  a and b 
E)  a and c 
A)  perfectly elastic. 
B)  the same as the firm's demand curve. 
C)  the same as the firm's total revenue curve. 
D)  a and b 
E)  a and c

Question 19

For a perfectly competitive firm,

Accepted Answer

A)  marginal revenue is equal to price. 
B)  price is equal to marginal cost at the output level that maximizes profit. 
C)  selling an additional unit of the good it produces increases total revenue by the price of the good. 
D)  a and b 
E)  a, b, and c 
A)  marginal revenue is equal to price. 
B)  price is equal to marginal cost at the output level that maximizes profit. 
C)  selling an additional unit of the good it produces increases total revenue by the price of the good. 
D)  a and b 
E)  a, b, and c

Question 20

There are 200 firms in a perfectly competitive industry.Half of the firms supply 100 units at $3 per unit and the other half of the firms supply 130 units at $3 per unit.One point on the market supply curve is

Accepted Answer

A)  23,000 units at $3. 
B)  10,000 units at $3. 
C)  13,000 units at $3. 
D)  23,000 units at $6. 
E)  none of the above 
A)  23,000 units at $3. 
B)  10,000 units at $3. 
C)  13,000 units at $3. 
D)  23,000 units at $6. 
E)  none of the above

Exam 23: Perfect Competition

Exhibit 23-8 -Refer to Exhibit 23-8.What is the total revenue of Firm A at the point where it produces in the short run?

Exhibit 23-2 -Refer to Exhibit 23-2.If the firm produces the quantity of output at which marginal revenue (MR)equals marginal cost (MC),is it guaranteed maximum profit or minimized loss?

Which of the following conditions does not characterize long-run competitive equilibrium?

For a perfectly competitive firm,the demand curve is horizontal at the price determined in the market.

Firm X is producing the quantity of output at which marginal revenue equals marginal cost.It is

A price-taker firm can sell

The price at which a perfectly competitive firm sells its product is determined by

Exhibit 23-8 -Refer to Exhibit 23-8.What is the total fixed cost of Firm B at the point where it produces in the short run?

Resource allocative efficiency exists for a perfectly competitive firm because

The short-run industry supply curve is the

Which of the following is not a condition of long-run competitive equilibrium?

Profit helps to indicate where resources are best allocated.

A perfectly competitive firm faces a __________ demand curve.

Which of the following is false?

Which of the assumptions in the theory of perfect competition assures us that economic profit will be zero in the long run?

Why must profits be zero in long-run competitive equilibrium?

In perfect competition,the firm's marginal revenue curve is

For a perfectly competitive firm,

There are 200 firms in a perfectly competitive industry.Half of the firms supply 100 units at $3 per unit and the other half of the firms supply 130 units at $3 per unit.One point on the market supply curve is

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