Question 1

Exhibit 23-7
  
-Refer to Exhibit 23-7.At the profit-maximizing output level,average fixed cost is

Accepted Answer

A)  $2.00. 
B)  $4.00. 
C)  $5.00. 
D)  $6.00. 
E)  This cannot be determined based on the information provided. 
A)  $2.00. 
B)  $4.00. 
C)  $5.00. 
D)  $6.00. 
E)  This cannot be determined based on the information provided.

Question 2

Exhibit 23-2
  
-Refer to Exhibit 23-2.What quantity does the profit-maximizing or loss-minimizing firm produce?

Accepted Answer

A)  Q1, where "what is coming in" on the last unit is greater than "what is going out." 
B)  Q2, where the difference between "what is coming in" on the last unit and "what is going out" is zero. 
C)  Q3, where marginal cost is greater than marginal revenue. 
D)  Q4, which maximizes the excess of marginal cost over marginal revenue. 
A)  Q1, where "what is coming in" on the last unit is greater than "what is going out." 
B)  Q2, where the difference between "what is coming in" on the last unit and "what is going out" is zero. 
C)  Q3, where marginal cost is greater than marginal revenue. 
D)  Q4, which maximizes the excess of marginal cost over marginal revenue.

Question 3

Equilibrium price is $22 in a perfectly competitive market.For a perfectly competitive firm,MR = MC at 200 units of output.At 200 units,ATC is $23,and AVC is $18.The best policy for this firm is to __________ in the short run.Also,this firm earns __________ of __________ if it produces and sells 200 units.Finally,the difference between total variable cost and total fixed cost for this firm is __________.

Accepted Answer

A)  continue to produce, profits, $1800, $3,600 
B)  shut down, losses, $200, $3,600 
C)  continue to produce, losses, $200, $2,600 
D)  shut down, profits, $200, $1,800 
E)  none of the above 
A)  continue to produce, profits, $1800, $3,600 
B)  shut down, losses, $200, $3,600 
C)  continue to produce, losses, $200, $2,600 
D)  shut down, profits, $200, $1,800 
E)  none of the above

Question 4

Exhibit 23-3
  
-Refer to Exhibit 23-3.What is the increase in profit that would result from producing 43 units of the product rather than producing 40 units?

Accepted Answer

A)  $60 
B)  $48 
C)  $28 
D)  $16 
E)  $13 
A)  $60 
B)  $48 
C)  $28 
D)  $16 
E)  $13

Question 5

A price-taker firm will not sell any of its product for less than the equilibrium price because

Accepted Answer

A)  it is against the law to do this. 
B)  it can sell all it wants at the equilibrium price. 
C)  this would invite competition from outside the market and end up reducing the profits of the firm. 
D)  this would be breaking the cartel agreement that price-taker firms often enter into. 
E)  none of the above 
A)  it is against the law to do this. 
B)  it can sell all it wants at the equilibrium price. 
C)  this would invite competition from outside the market and end up reducing the profits of the firm. 
D)  this would be breaking the cartel agreement that price-taker firms often enter into. 
E)  none of the above

Question 6

In long-run competitive equilibrium,no firm has an incentive to change its plant size.

Accepted Answer

A) True 
 B)False

Question 7

Exhibit 23-3
  
-Refer to Exhibit 23-3.Is it possible for this firm to produce "too much" in the short-run?

Accepted Answer

A)  Any quantity above 42 units is too much. 
B)  Any quantity above 44 units is too much. 
C)  Any quantity above 40 units is too much. 
D)  none of the above 
A)  Any quantity above 42 units is too much. 
B)  Any quantity above 44 units is too much. 
C)  Any quantity above 40 units is too much. 
D)  none of the above

Question 8

All firms in an industry sell their product for the same price.This is a result of

Accepted Answer

A)  collusion. 
B)  perfect competition. 
C)  a government law that specifies all firms must charge the same price. 
D)  a or b 
E)  There is not enough information to answer the question. 
A)  collusion. 
B)  perfect competition. 
C)  a government law that specifies all firms must charge the same price. 
D)  a or b 
E)  There is not enough information to answer the question.

Question 9

If the long-run industry supply curve is downward-sloping,it follows that there are __________ costs in the industry.

Accepted Answer

A)  increasing 
B)  constant 
C)  decreasing 
D)  a or b 
E)  There is not enough information to answer the question. 
A)  increasing 
B)  constant 
C)  decreasing 
D)  a or b 
E)  There is not enough information to answer the question.

Question 10

Exhibit 23-7
  
-Refer to Exhibit 23-7.What is the profit at 60 units of output?

Accepted Answer

A)  $360 
B)  $90 
C)  $75 
D)  $60 
A)  $360 
B)  $90 
C)  $75 
D)  $60

Question 11

In order for a firm to earn economic profits,price must exceed average total cost.

Accepted Answer

A) True 
 B)False

Question 12

Exhibit 23-9
  
-Refer to Exhibit 23-9.Suppose that the market starts at its long-run competitive equilibrium (P1,Q1),and that demand increases from D1 to D2.As a consequence,the typical profit-maximizing firm will

Accepted Answer

A)  increase quantity produced by (q2 - q1). 
B)  decrease quantity produced by (q2 - q1). 
C)  decrease quantity produced by (q1 - q3). 
D)  not change its output level because the demand curve it is facing did not change. 
A)  increase quantity produced by (q2 - q1). 
B)  decrease quantity produced by (q2 - q1). 
C)  decrease quantity produced by (q1 - q3). 
D)  not change its output level because the demand curve it is facing did not change.

Question 13

The market demand curve in a perfectly competitive market is

Accepted Answer

A)  downward sloping. 
B)  upward sloping. 
C)  perfectly horizontal. 
D)  perfectly vertical. 
E)  downward or upward sloping depending upon the type of product offered for sale. 
A)  downward sloping. 
B)  upward sloping. 
C)  perfectly horizontal. 
D)  perfectly vertical. 
E)  downward or upward sloping depending upon the type of product offered for sale.

Question 14

For the perfectly competitive firm,the demand curve and the marginal revenue curve are one and the same.

Accepted Answer

A) True 
 B)False

Question 15

A firm produces the quantity of output at which P = MC and P = ATC.It follows that the firm is

Accepted Answer

A)  resource allocative efficient, but not necessarily productive efficient. 
B)  productive efficient, but not necessarily resource allocative efficient. 
C)  both resource allocative and productive efficient. 
D)  neither resource allocative nor productive efficient. 
A)  resource allocative efficient, but not necessarily productive efficient. 
B)  productive efficient, but not necessarily resource allocative efficient. 
C)  both resource allocative and productive efficient. 
D)  neither resource allocative nor productive efficient.

Question 16

Assume that a decreasing-cost industry experiences an increase in demand.In the short 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 17

Resources are allocated efficiently when

Accepted Answer

A)  the exchange value of the resources to demanders equals the opportunity cost of the resources. 
B)  the marginal benefit to demanders of the resources in the goods they purchase is equal to the marginal cost to suppliers of the resources they use in producing the goods. 
C)  firms produce the quantity of output at which price is equal to marginal cost. 
D)  a and b 
E)  a, b, and c 
A)  the exchange value of the resources to demanders equals the opportunity cost of the resources. 
B)  the marginal benefit to demanders of the resources in the goods they purchase is equal to the marginal cost to suppliers of the resources they use in producing the goods. 
C)  firms produce the quantity of output at which price is equal to marginal cost. 
D)  a and b 
E)  a, b, and c

Question 18

In a constant-cost industry,positive profits are eliminated through

Accepted Answer

A)  an increase in costs only. 
B)  a decrease in price only. 
C)  both an increase in costs and a decrease in price. 
D)  None of the above, because positive profits are persistent in a constant-cost industry. 
A)  an increase in costs only. 
B)  a decrease in price only. 
C)  both an increase in costs and a decrease in price. 
D)  None of the above, because positive profits are persistent in a constant-cost industry.

Question 19

A constant-cost industry is characterized by

Accepted Answer

A)  an upward-sloping long-run supply curve. 
B)  a downward-sloping long-run supply curve. 
C)  a perfectly elastic long-run supply curve. 
D)  perfectly elastic short-run and long-run supply curves. 
E)  a perfectly elastic short-run supply curve and an upward-sloping long-run supply curve. 
A)  an upward-sloping long-run supply curve. 
B)  a downward-sloping long-run supply curve. 
C)  a perfectly elastic long-run supply curve. 
D)  perfectly elastic short-run and long-run supply curves. 
E)  a perfectly elastic short-run supply curve and an upward-sloping long-run supply curve.

Question 20

Which of the following is inconsistent with long-run industry equilibrium?

Accepted Answer

A)  upward-sloping marginal cost curves for all of the firms in the industry 
B)  zero economic profits 
C)  P = minimum ATC 
D)  SRATC = LRATC 
E)  none of the above 
A)  upward-sloping marginal cost curves for all of the firms in the industry 
B)  zero economic profits 
C)  P = minimum ATC 
D)  SRATC = LRATC 
E)  none of the above

Exam 23: Perfect Competition

Exhibit 23-7 -Refer to Exhibit 23-7.At the profit-maximizing output level,average fixed cost is

Exhibit 23-2 -Refer to Exhibit 23-2.What quantity does the profit-maximizing or loss-minimizing firm produce?

Exhibit 23-3 -Refer to Exhibit 23-3.What is the increase in profit that would result from producing 43 units of the product rather than producing 40 units?

A price-taker firm will not sell any of its product for less than the equilibrium price because

In long-run competitive equilibrium,no firm has an incentive to change its plant size.

Exhibit 23-3 -Refer to Exhibit 23-3.Is it possible for this firm to produce "too much" in the short-run?

All firms in an industry sell their product for the same price.This is a result of

If the long-run industry supply curve is downward-sloping,it follows that there are __________ costs in the industry.

Exhibit 23-7 -Refer to Exhibit 23-7.What is the profit at 60 units of output?

In order for a firm to earn economic profits,price must exceed average total cost.

Exhibit 23-9 -Refer to Exhibit 23-9.Suppose that the market starts at its long-run competitive equilibrium (P1,Q1),and that demand increases from D1 to D2.As a consequence,the typical profit-maximizing firm will

The market demand curve in a perfectly competitive market is

For the perfectly competitive firm,the demand curve and the marginal revenue curve are one and the same.

A firm produces the quantity of output at which P = MC and P = ATC.It follows that the firm is

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

Resources are allocated efficiently when

In a constant-cost industry,positive profits are eliminated through

A constant-cost industry is characterized by

Which of the following is inconsistent with long-run industry equilibrium?

What Economics Is About

Production Possibilities Frontier Framework

Supply and Demand: Theory

Prices: Free, Controlled, and Relative

Supply, Demand, and Price: Applications

Macroeconomic Measurements: Prices and Unemployment

Macroeconomic Measurements: GDP and Real GDP

Aggregate Demand and Aggregate Supply

Classical Macroeconomics and the Self Regulating Economy

Keynesian Macroeconomics and Economic Instability: A Critique of the Self-Regulating Economy

Fiscal Policy and the Federal Budget

Money, Banking,and the Financial System

The Federal Reserve System

Money and the Economy

Monetary Policy

Expectations Theory and the Economy

Economic Growth: Resources, Technology, Ideas, and Institutions

The Financial Crisis of 2007-2009

Debates in Macroeconomics Over the Role and Effects of Government

Elasticity

Consumer Choice: Maximizing Utility and Behavioral Economics

Production and Costs

Monopoly

Monopolistic Competition, Oligopoly, and Game Theory

Government and Product Markets: Antitrust and Regulation

Factor Markets: With Emphasis on the Labor Market

Wages,Unions,and Labor

The Distribution of Income and Poverty

Interest, Rent, and Profit

Market Failure: Externalities, Public Goods, and Asymmetric Information

Public Choice and Special-Interest-Group Politics

Building Theories to Explain Everyday Life: From Observations to Questions to Theories to Predictions

International Trade

International Finance

Globalization and International Impacts on the Economy

The Economic Case For and Against Government: Five Topics Considered

Stocks, Bonds, Futures, and Options

Agriculture: Problems, Policies, and Unintended Effects

Filters

Exhibit 23-9 -Refer to Exhibit 23-9.Suppose that the market starts at its long-run competitive equilibrium (P₁,Q₁),and that demand increases from D₁ to D₂.As a consequence,the typical profit-maximizing firm will