Question 1

The market demand curve for a product produced in a perfectly competitive industry is normally:

Accepted Answer

A)  a vertical line. 
B)  upward sloping. 
C)  a horizontal line. 
D)  downward sloping. 
A)  a vertical line. 
B)  upward sloping. 
C)  a horizontal line. 
D)  downward sloping.

Question 2

Refer to the graph shown. What distance represents average profits?

Accepted Answer

A)  AB 
B)  BF 
C)  AF 
D)  FW 
A)  AB 
B)  BF 
C)  AF 
D)  FW

Question 3

Refer to the table shown. If the market price is $6, a perfectly competitive profit-maximizing firm will produce: $$\begin{array} { | c | c | } 
\hline \text { Quantity } & \text { Marginal Cast } \
\hline 1 & \$ 3 \
\hline 2 & 5 \
\hline 3 & 7 \
\hline 4 & 9 \
\hline
\end{array}$$

Accepted Answer

A)  1 unit of output. 
B)  2 units of output. 
C)  3 units of output. 
D)  4 units of output. 
A)  1 unit of output. 
B)  2 units of output. 
C)  3 units of output. 
D)  4 units of output.

Question 4

Refer to the table shown. If the market price is $8, a perfectly competitive profit-maximizing firm will produce: $$\begin{array} { | c | c | } 
\hline \text { Quantity } & \text { Marginal Cast } \
\hline 1 & \$ 3 \
\hline 2 & 5 \
\hline 3 & 7 \
\hline 4 & 9 \
\hline
\end{array}$$

Accepted Answer

A)  1 unit of output. 
B)  2 units of output. 
C)  3 units of output. 
D)  4 units of output. 
A)  1 unit of output. 
B)  2 units of output. 
C)  3 units of output. 
D)  4 units of output.

Question 5

Refer to the graph shown. What price represents the shutdown price?

Accepted Answer

A)  P1 
B)  P2 
C)  P3 
D)  P4 
A)  P1 
B)  P2 
C)  P3 
D)  P4

Question 6

Perfectly competitive firms:

Accepted Answer

A)  are price takers, since they are not large enough to influence the market price. 
B)  are individually able to influence the market price. 
C)  will succeed by charging a price higher than that charged by the rest of the market. 
D)  can influence the prices of other firms in the same industry by altering their own prices. 
A)  are price takers, since they are not large enough to influence the market price. 
B)  are individually able to influence the market price. 
C)  will succeed by charging a price higher than that charged by the rest of the market. 
D)  can influence the prices of other firms in the same industry by altering their own prices.

Question 7

To maximize profits, a perfectly competitive firm should do all the following except:

Accepted Answer

A)  produce until economic profits are maximized. 
B)  produce until marginal cost equals price. 
C)  produce until marginal revenue equals marginal cost. 
D)  produce until per-unit profits are maximized. 
A)  produce until economic profits are maximized. 
B)  produce until marginal cost equals price. 
C)  produce until marginal revenue equals marginal cost. 
D)  produce until per-unit profits are maximized.

Question 8

A perfectly competitive firm facing a price of $50 decides to produce 500 widgets. Its marginal cost of producing the last widget is $50. If the firm's goal is maximize profit, it should:

Accepted Answer

A)  produce more widgets. 
B)  produce fewer widgets. 
C)  continue producing 500 widgets. 
D)  shut down. 
A)  produce more widgets. 
B)  produce fewer widgets. 
C)  continue producing 500 widgets. 
D)  shut down.

Question 9

Suppose the dry cleaning industry is initially in long-run equilibrium but then experiences a sharp increase in the price of its inputs. Assuming that the industry is perfectly competitive, the increase in costs should:

Accepted Answer

A)  decrease the number of firms in the industry in the long run and raise the market price. 
B)  increase the number of firms in the industry in the industry and raise the market price. 
C)  decrease the number of firms in the industry in the long run and reduce the market price. 
D)  increase the number of firms in the industry in the industry and reduce the market price. 
A)  decrease the number of firms in the industry in the long run and raise the market price. 
B)  increase the number of firms in the industry in the industry and raise the market price. 
C)  decrease the number of firms in the industry in the long run and reduce the market price. 
D)  increase the number of firms in the industry in the industry and reduce the market price.

Question 10

In a perfectly competitive market, many firms produce many different varieties of the same product.

Accepted Answer

A) True 
 B)False

Question 11

Suppose that the current equilibrium price of silver is $20 per ounce. If silver is produced under conditions of perfect competition and the industry is in long-run equilibrium, the average total cost of producing silver:

Accepted Answer

A)  is less than $20 per ounce. 
B)  is $20 per ounce. 
C)  exceeds $20 per ounce. 
D)  is indeterminate. 
A)  is less than $20 per ounce. 
B)  is $20 per ounce. 
C)  exceeds $20 per ounce. 
D)  is indeterminate.

Question 12

The existence of positive economic profits in an industry attracts new entrants into the industry.

Accepted Answer

A) True 
 B)False

Question 13

In the short run when the number of firms in the market is fixed, the market supply curve is just the horizontal sum of all the firms' marginal cost curves.

Accepted Answer

A) True 
 B)False

Question 14

Assume that the home construction industry is perfectly competitive and is in long-run competitive equilibrium. It follows that:

Accepted Answer

A)  marginal cost equals long-run average total cost. 
B)  there will be incentive for new firms to enter the industry. 
C)  marginal cost exceeds long-run average total cost. 
D)  firms in the industry enjoy economic profits. 
A)  marginal cost equals long-run average total cost. 
B)  there will be incentive for new firms to enter the industry. 
C)  marginal cost exceeds long-run average total cost. 
D)  firms in the industry enjoy economic profits.

Question 15

Assume that the t-shirt industry is perfectly competitive. If the industry is in long-run equilibrium when the market price of t-shirts is $10:

Accepted Answer

A)  minimum long-run average total cost is less than $10. 
B)  marginal cost exceeds $10. 
C)  minimum long-run average total cost is $10. 
D)  minimum average variable cost equals marginal cost. 
A)  minimum long-run average total cost is less than $10. 
B)  marginal cost exceeds $10. 
C)  minimum long-run average total cost is $10. 
D)  minimum average variable cost equals marginal cost.

Question 16

In a perfectly competitive market, market prices are determined by:

Accepted Answer

A)  individual producers. 
B)  market supply and market demand. 
C)  the entrepreneur. 
D)  individual consumers. 
A)  individual producers. 
B)  market supply and market demand. 
C)  the entrepreneur. 
D)  individual consumers.

Question 17

Refer to the graph shown. Currently, if this perfectly competitive firm is maximizing profit, the market price is:

Accepted Answer

A)  $6.50 and marginal revenue for the firm is $5.00 
B)  $5.00 and marginal revenue for the firm is $3.00 
C)  $5.00 and marginal revenue for the firm is $5.00 
D)  $6.50 and marginal revenue for the firm is $6.50 
A)  $6.50 and marginal revenue for the firm is $5.00 
B)  $5.00 and marginal revenue for the firm is $3.00 
C)  $5.00 and marginal revenue for the firm is $5.00 
D)  $6.50 and marginal revenue for the firm is $6.50

Question 18

If the long-run market supply curve is perfectly elastic, a fall in demand will cause the final equilibrium to be at:

Accepted Answer

A)  the same price but a lower output. 
B)  a lower price and a lower output. 
C)  a lower price but the same output. 
D)  the same price and the same output. 
A)  the same price but a lower output. 
B)  a lower price and a lower output. 
C)  a lower price but the same output. 
D)  the same price and the same output.

Question 19

Refer to the graph shown. Assuming that the industry operates under conditions of perfect competition:

Accepted Answer

A)  it is currently in equilibrium. 
B)  new firms will soon enter the industry. 
C)  existing firms will leave the industry. 
D)  firms in the industry are earning zero economic profit. 
A)  it is currently in equilibrium. 
B)  new firms will soon enter the industry. 
C)  existing firms will leave the industry. 
D)  firms in the industry are earning zero economic profit.

Question 20

An assumption of a competitive market is that both buyers and sellers are price takers. When we go to the mall to shop for clothing or to the grocery to buy food, what do we usually observe?

Accepted Answer

A)  Both buyers and sellers are usually price takers. 
B)  Buyers are often price takers, but sellers are usually price makers. 
C)  Buyers are often price makers, but sellers are usually price takers. 
D)  Both buyers and sellers are usually price makers. 
A)  Both buyers and sellers are usually price takers. 
B)  Buyers are often price takers, but sellers are usually price makers. 
C)  Buyers are often price makers, but sellers are usually price takers. 
D)  Both buyers and sellers are usually price makers.

Exam 13: Perfect Competition

The market demand curve for a product produced in a perfectly competitive industry is normally:

Refer to the graph shown. What distance represents average profits?

Refer to the table shown. If the market price is $6, a perfectly competitive profit-maximizing firm will produce: Quantity Marginal Cast 1 \ 3 2 5 3 7 4 9

Refer to the table shown. If the market price is $8, a perfectly competitive profit-maximizing firm will produce: Quantity Marginal Cast 1 \ 3 2 5 3 7 4 9

Refer to the graph shown. What price represents the shutdown price?

Perfectly competitive firms:

To maximize profits, a perfectly competitive firm should do all the following except:

A perfectly competitive firm facing a price of $50 decides to produce 500 widgets. Its marginal cost of producing the last widget is $50. If the firm's goal is maximize profit, it should:

Suppose the dry cleaning industry is initially in long-run equilibrium but then experiences a sharp increase in the price of its inputs. Assuming that the industry is perfectly competitive, the increase in costs should:

In a perfectly competitive market, many firms produce many different varieties of the same product.

Suppose that the current equilibrium price of silver is $20 per ounce. If silver is produced under conditions of perfect competition and the industry is in long-run equilibrium, the average total cost of producing silver:

The existence of positive economic profits in an industry attracts new entrants into the industry.

In the short run when the number of firms in the market is fixed, the market supply curve is just the horizontal sum of all the firms' marginal cost curves.

Assume that the home construction industry is perfectly competitive and is in long-run competitive equilibrium. It follows that:

Assume that the t-shirt industry is perfectly competitive. If the industry is in long-run equilibrium when the market price of t-shirts is $10:

In a perfectly competitive market, market prices are determined by:

Refer to the graph shown. Currently, if this perfectly competitive firm is maximizing profit, the market price is:

If the long-run market supply curve is perfectly elastic, a fall in demand will cause the final equilibrium to be at:

Refer to the graph shown. Assuming that the industry operates under conditions of perfect competition:

An assumption of a competitive market is that both buyers and sellers are price takers. When we go to the mall to shop for clothing or to the grocery to buy food, what do we usually observe?

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