Question 1

Exhibit 23-10
  
-Refer to Exhibit 23-10. Is the firm depicted here a perfectly competitive firm?

Accepted Answer

A)  Yes, because marginal revenue is constant. 
B)  Yes, because total revenue increases as output increases. 
C)  No, because marginal cost is not constant. 
D)  No, because marginal cost falls for some levels of output and rises for other levels of output. 
A)  Yes, because marginal revenue is constant. 
B)  Yes, because total revenue increases as output increases. 
C)  No, because marginal cost is not constant. 
D)  No, because marginal cost falls for some levels of output and rises for other levels of output.

Question 2

A decreasing-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 3

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

Accepted Answer

A)  $60.00. 
B)  $4.50. 
C)  $5.00. 
D)  $6.00. 
E)  This cannot be determined based on the information provided. 
A)  $60.00. 
B)  $4.50. 
C)  $5.00. 
D)  $6.00. 
E)  This cannot be determined based on the information provided.

Question 4

The demand curve for a perfectly competitive firm

Accepted Answer

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

Question 5

Exhibit 23-7
  
-Refer to Exhibit 23-7.At the profit-maximizing output level,the firm's total revenue is

Accepted Answer

A)  $60.00. 
B)  $225.00. 
C)  $300.00. 
D)  $360.00. 
E)  $420.00. 
A)  $60.00. 
B)  $225.00. 
C)  $300.00. 
D)  $360.00. 
E)  $420.00.

Question 6

Explain the difference between resource allocative efficiency and productive efficiency.

Accepted Answer

A firm that produces the quantity of out

Question 7

The long-run industry supply curve is the graphic representation of the quantity of output that the industry is prepared to

Accepted Answer

A)  supply at different prices after the entry and exit of firms is completed. 
B)  supply at a single price after the entry and exit of firms is completed. 
C)  purchase at different prices after the entry and exit of firms is completed. 
D)  purchase at different prices after the entry of firms is completed. 
E)  supply at different prices after the exit of firms is completed. 
A)  supply at different prices after the entry and exit of firms is completed. 
B)  supply at a single price after the entry and exit of firms is completed. 
C)  purchase at different prices after the entry and exit of firms is completed. 
D)  purchase at different prices after the entry of firms is completed. 
E)  supply at different prices after the exit of firms is completed.

Question 8

Demand increases in an increasing-cost industry that is initially in long-run competitive equilibrium.After full adjustment,price will be

Accepted Answer

A)  equal to its original level. 
B)  below its original level. 
C)  above its original level. 
D)  There is not enough information to answer the question. 
A)  equal to its original level. 
B)  below its original level. 
C)  above its original level. 
D)  There is not enough information to answer the question.

Question 9

Exhibit 23-9
  
-Refer to Exhibit 23-9.Assume that demand increases from D1 to D2; in the new long run equilibrium,price settles at a level between P1 and P2 This means that the industry in question is a(n)__________-cost industry.

Accepted Answer

A)  decreasing 
B)  increasing 
C)  constant 
D)  marginal 
E)  low 
A)  decreasing 
B)  increasing 
C)  constant 
D)  marginal 
E)  low

Question 10

Exhibit 23-6
  
-Refer to Exhibit 23-6.A perfectly competitive firm operating in the market depicted in graph (1)faces the demand curve depicted in

Accepted Answer

A)  graph (1)-the same as the market demand curve. 
B)  graph (2). 
C)  graph (3). 
D)  graph (4). 
A)  graph (1)-the same as the market demand curve. 
B)  graph (2). 
C)  graph (3). 
D)  graph (4).

Question 11

In the theory of perfect competition,the assumption of easy entry into and exit from the market implies

Accepted Answer

A)  positive economic profits in the long run. 
B)  losses in the long-run equilibrium. 
C)  zero economic profits in the long run. 
D)  zero economic profits in both the short run and the long run. 
E)  positive economic profits in both the short run and the long run. 
A)  positive economic profits in the long run. 
B)  losses in the long-run equilibrium. 
C)  zero economic profits in the long run. 
D)  zero economic profits in both the short run and the long run. 
E)  positive economic profits in both the short run and the long run.

Question 12

Exhibit 23-9
  
-Refer to Exhibit 23-9.Following an increase in market demand from D1 to D2,the firm's profits in the short run will

Accepted Answer

A)  remain the same at P1 times q1. 
B)  remain the same at zero. 
C)  increase by less than (P2 - P1) times q2. 
D)  increase by (P2 - P1) times q3. 
A)  remain the same at P1 times q1. 
B)  remain the same at zero. 
C)  increase by less than (P2 - P1) times q2. 
D)  increase by (P2 - P1) times q3.

Question 13

Exhibit 23-4
  
-Refer to Exhibit 23-4.The firm sells its product at P1 and produces Q1.Given this situation,

Accepted Answer

A)  total variable cost is equal to areas 1 + 2. 
B)  total revenue is equal to area 1. 
C)  total cost is equal to areas 2 + 3. 
D)  a and b 
E)  a, b, and c 
A)  total variable cost is equal to areas 1 + 2. 
B)  total revenue is equal to area 1. 
C)  total cost is equal to areas 2 + 3. 
D)  a and b 
E)  a, b, and c

Question 14

A "price taker" is a firm that

Accepted Answer

A)  does not have the ability to control the price of the product it sells. 
B)  does have the ability, although limited, to control the price of the product it sells. 
C)  can raise the price of the product (above the market price) and still sell some units of its product. 
D)  sells a differentiated product. 
E)  none of the above 
A)  does not have the ability to control the price of the product it sells. 
B)  does have the ability, although limited, to control the price of the product it sells. 
C)  can raise the price of the product (above the market price) and still sell some units of its product. 
D)  sells a differentiated product. 
E)  none of the above

Question 15

The perfectly competitive firm will produce in the

Accepted Answer

A)  short run if price is below average variable cost. 
B)  long run if price is below average variable cost. 
C)  short run if price is below average total cost but above average variable cost. 
D)  long run if price is below average total cost but above average variable cost. 
A)  short run if price is below average variable cost. 
B)  long run if price is below average variable cost. 
C)  short run if price is below average total cost but above average variable cost. 
D)  long run if price is below average total cost but above average variable cost.

Question 16

The U.S.Postal Service earns a higher profit per unit on its collectors' commemorative stamps than it does on its standard stamps.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following is not an assumption of the theory of perfect competition?

Accepted Answer

A)  There are many sellers and many buyers, none of which is large in relation to total sales or purchases. 
B)  Each firm produces and sells a differentiated product. 
C)  Buyers and sellers have all relevant information with respect to prices, product quality, and sources of supply. 
D)  There is easy entry and exit. 
A)  There are many sellers and many buyers, none of which is large in relation to total sales or purchases. 
B)  Each firm produces and sells a differentiated product. 
C)  Buyers and sellers have all relevant information with respect to prices, product quality, and sources of supply. 
D)  There is easy entry and exit.

Question 18

A perfectly competitive firm is a price taker.

Accepted Answer

A) True 
 B)False

Question 19

Perfectly competitive firms are price takers for all of the following reasons except that

Accepted Answer

A)  each firm is quite small relative to the total market supply. 
B)  buyers and sellers have all the necessary information about prices, etc. 
C)  the product is homogeneous. 
D)  barriers to exit force firms to sell at the market price. 
A)  each firm is quite small relative to the total market supply. 
B)  buyers and sellers have all the necessary information about prices, etc. 
C)  the product is homogeneous. 
D)  barriers to exit force firms to sell at the market price.

Question 20

If,for a perfectly competitive firm,marginal cost is greater than marginal revenue for the 100th unit,then it follows that

Accepted Answer

A)  producing the 100th unit adds more to total revenue than it does to total cost. 
B)  producing the 100th unit adds more to total cost than it does to total revenue. 
C)  marginal cost equals marginal revenue for the 99th unit. 
D)  the firm is not maximizing profit, or minimizing losses, if it produces the 100th unit. 
E)  b and d 
A)  producing the 100th unit adds more to total revenue than it does to total cost. 
B)  producing the 100th unit adds more to total cost than it does to total revenue. 
C)  marginal cost equals marginal revenue for the 99th unit. 
D)  the firm is not maximizing profit, or minimizing losses, if it produces the 100th unit. 
E)  b and d

Exam 23: Perfect Competition

Exhibit 23-10 -Refer to Exhibit 23-10. Is the firm depicted here a perfectly competitive firm?

A decreasing-cost industry is characterized by

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

The demand curve for a perfectly competitive firm

Exhibit 23-7 -Refer to Exhibit 23-7.At the profit-maximizing output level,the firm's total revenue is

Explain the difference between resource allocative efficiency and productive efficiency.

The long-run industry supply curve is the graphic representation of the quantity of output that the industry is prepared to

Demand increases in an increasing-cost industry that is initially in long-run competitive equilibrium.After full adjustment,price will be

Exhibit 23-9 -Refer to Exhibit 23-9.Assume that demand increases from D1 to D2; in the new long run equilibrium,price settles at a level between P1 and P2 This means that the industry in question is a(n)__________-cost industry.

Exhibit 23-6 -Refer to Exhibit 23-6.A perfectly competitive firm operating in the market depicted in graph (1)faces the demand curve depicted in

In the theory of perfect competition,the assumption of easy entry into and exit from the market implies

Exhibit 23-9 -Refer to Exhibit 23-9.Following an increase in market demand from D1 to D2,the firm's profits in the short run will

Exhibit 23-4 -Refer to Exhibit 23-4.The firm sells its product at P1 and produces Q1.Given this situation,

A "price taker" is a firm that

The perfectly competitive firm will produce in the

The U.S.Postal Service earns a higher profit per unit on its collectors' commemorative stamps than it does on its standard stamps.

Which of the following is not an assumption of the theory of perfect competition?

A perfectly competitive firm is a price taker.

Perfectly competitive firms are price takers for all of the following reasons except that

If,for a perfectly competitive firm,marginal cost is greater than marginal revenue for the 100th unit,then it follows that

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Exhibit 23-9 -Refer to Exhibit 23-9.Assume that demand increases from D₁ to D₂; in the new long run equilibrium,price settles at a level between P₁ and P₂This means that the industry in question is a(n)__________-cost industry.

Exhibit 23-9 -Refer to Exhibit 23-9.Following an increase in market demand from D₁to D₂,the firm's profits in the short run will

Exhibit 23-4 -Refer to Exhibit 23-4.The firm sells its product at P₁ and produces Q₁.Given this situation,