Question 1

Refer to the graph shown. If the firm is producing 120 units of output, profit is equal to:

Accepted Answer

A) $38. 
B) −$38. 
C) $0. 
D) $30. 
A) $38. 
B) −$38. 
C) $0. 
D) $30.

Question 2

Why will perfectly competitive firms make zero profits in the long run? How are normal profits related to economic profits?

Accepted Answer

(a)In the short run,the number of firms

Question 3

In perfect competition, price is equal to marginal revenue.

Accepted Answer

A) True 
 B)False

Question 4

A perfectly competitive firm's marginal revenue is:

Accepted Answer

A) less than the selling price. 
B) greater than the selling price. 
C) equal to the selling price. 
D) sometimes below and sometimes above the selling price. 
A) less than the selling price. 
B) greater than the selling price. 
C) equal to the selling price. 
D) sometimes below and sometimes above the selling price.

Question 5

Refer to the graph shown. If market price is currently $7.00 per unit, this perfectly competitive firm will maximize profit by producing:

Accepted Answer

A) 450 units of output. 
B) 650 units of output. 
C) 850 units of output. 
D) between 550 and 650 units of output. 
A) 450 units of output. 
B) 650 units of output. 
C) 850 units of output. 
D) between 550 and 650 units of output.

Question 6

In a perfectly competitive market, the demand curve faced by an individual firm is:

Accepted Answer

A) perfectly inelastic. 
B) relatively inelastic. 
C) perfectly elastic. 
D) relatively elastic. 
A) perfectly inelastic. 
B) relatively inelastic. 
C) perfectly elastic. 
D) relatively elastic.

Question 7

If long-run average total cost exceeds marginal revenue, a perfectly competitive firm will incur losses.

Accepted Answer

A) True 
 B)False

Question 8

Consider the following table of numbers,which represents demand and cost conditions for a competitive firm.
(a)Fill in the missing values.
(b)What level of output should the firm produce? Explain. $$\begin{array} { c c c c c c c c c c c } 
& & & & & & & & && \text { Total } \
\text { P=MR } & \text { Q } & \text { TFC } & \text { AFC } & \text { TVC } & \text { AVC } & \text { TC } & \text { ATC } & \text { MC } & \text { TR } & \text { Profit } \
600 & 0 & & - & 0 & - & 570 & - & & & \
600 & 1 & & 570 & 240 & & & & & & \
600 & 2 & & & 430 & & & & & & \
600 & 3 & & & 670 & & & & & & \
600 & 4 & & & 960 & & & & & & \
600 & 5 & & & 1,350 & & & & & & \
600 & 6 & & & 1,840 & & & & & & \
600 & 7 & & & 2,430 & & & & & & \
600 & 8 & & & 3,120 & & & & & & \
600 & 9 & & & 3,910 & & & & & & \
600 & 10 & & & 4,800 & & & & & &
\end{array}$$

Accepted Answer

(a)The completed table:   (b)B

Question 9

Suppose that the firms in the perfectly competitive oat industry are currently receiving a price of $2 per bushel for their product and there are constant returns to scale. The minimum possible average total cost of producing oats in the long run is $1 per bushel. Other things being equal, it follows that:

Accepted Answer

A) the price of oats will be $2 in the long run. 
B) the price of oats will be somewhere between $1 and $2 in the long run. 
C) the price of oats will be $1 in the long run. 
D) it is not possible to determine the price of oats in the long run from the information given. 
A) the price of oats will be $2 in the long run. 
B) the price of oats will be somewhere between $1 and $2 in the long run. 
C) the price of oats will be $1 in the long run. 
D) it is not possible to determine the price of oats in the long run from the information given.

Question 10

Suppose a perfectly competitive firm's marginal revenue is $10 and its marginal cost is $11. Under these circumstances the firm:

Accepted Answer

A) is maximizing profit and should not change output. 
B) is not maximizing profit and should increase output. 
C) is not maximizing profit and should reduce output. 
D) needs to know the market price before it can determine whether it is maximizing profit. 
A) is maximizing profit and should not change output. 
B) is not maximizing profit and should increase output. 
C) is not maximizing profit and should reduce output. 
D) needs to know the market price before it can determine whether it is maximizing profit.

Question 11

Consider the following table of numbers,which represents demand and cost conditions for a competitive firm.What output level should the firm produce? Explain. $$\begin{array} { c c c } 
&\text { Quantity }\
\text { Price } = \text { MR } & \text { Produced } & \text { MC } \
600 & 0 & \
600 & 1 & 240 \
600 & 2 & 190 \
600 & 3 & 240 \
600 & 4 & 290 \
600 & 5 & 390 \
600 & 6 & 490 \
600 & 7 & 590 \
600 & 8 & 690 \
600 & 9 & 790 \
600 & 10 & 890

\end{array}$$ NOTE: Marginal values represent values between levels of output.For example,the marginal cost between 0 units and 1 unit is $240.

Accepted Answer

The firm should produce 7 units of outpu

Question 12

Long-run competitive equilibrium in an industry implies that no firm:

Accepted Answer

A) is earning a normal profit. 
B) is producing at the output level where price equals long-run average total cost. 
C) has an incentive to enter or exit the industry. 
D) is earning accounting profits. 
A) is earning a normal profit. 
B) is producing at the output level where price equals long-run average total cost. 
C) has an incentive to enter or exit the industry. 
D) is earning accounting profits.

Question 13

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 14

How are normal profits related to economic profits?

Accepted Answer

Normal profit is earned in the zero econ

Question 15

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

Accepted Answer

A) the original price but at a smaller output. 
B) a higher price with a higher output. 
C) the original price but with a higher output. 
D) a higher price but with the same output. 
A) the original price but at a smaller output. 
B) a higher price with a higher output. 
C) the original price but with a higher output. 
D) a higher price but with the same output.

Question 16

To maximize profits, a perfectly competitive firm should produce where marginal:

Accepted Answer

A) cost equals total revenue. 
B) cost exceeds marginal revenue. 
C) cost equals marginal revenue. 
D) revenue exceeds marginal cost. 
A) cost equals total revenue. 
B) cost exceeds marginal revenue. 
C) cost equals marginal revenue. 
D) revenue exceeds marginal cost.

Question 17

Refer to the graph shown. If the market price is P2, the firm will produce:

Accepted Answer

A) Q2 and incur a loss. 
B) Q3 and earn a profit. 
C) Q3 and break even. 
D) Q4 and incur a loss. 
A) Q2 and incur a loss. 
B) Q3 and earn a profit. 
C) Q3 and break even. 
D) Q4 and incur a loss.

Question 18

Refer to the graph shown. If the market price is $3, a perfectly competitive firm:

Accepted Answer

A) breaks even. 
B) earns a profit. 
C) incurs a loss but can still cover its variable costs and some of its fixed costs. 
D) incurs a loss and cannot cover its variable costs. 
A) breaks even. 
B) earns a profit. 
C) incurs a loss but can still cover its variable costs and some of its fixed costs. 
D) incurs a loss and cannot cover its variable costs.

Question 19

Based on the information shown, a perfectly competitive profit-maximizing firm would produce: $$\begin{array} { | c | c | c | } 
\hline \text { Quantity } & \text { Total Cost } & \text { Tatal Revenue } \
\hline 10 & \$ 25 & 50 \
\hline 20 & 60 & 100 \
\hline 30 & 105 & 150 \
\hline 40 & 160 & 200 \
\hline
\end{array}$$

Accepted Answer

A) 10 units of output. 
B) 20 units of output. 
C) 30 units of output. 
D) 40 units of output. 
A) 10 units of output. 
B) 20 units of output. 
C) 30 units of output. 
D) 40 units of output.

Question 20

Consider the following diagram:   Would a perfectly competitive firm facing these conditions stay in business in the short run? Demonstrate your answer by comparing the loss if it stayed open to the loss if it closed.

Accepted Answer

Yes this firm would stay in business.It

Exam 13: Perfect Competition

Refer to the graph shown. If the firm is producing 120 units of output, profit is equal to:

Why will perfectly competitive firms make zero profits in the long run? How are normal profits related to economic profits?

In perfect competition, price is equal to marginal revenue.

A perfectly competitive firm's marginal revenue is:

Refer to the graph shown. If market price is currently $7.00 per unit, this perfectly competitive firm will maximize profit by producing:

In a perfectly competitive market, the demand curve faced by an individual firm is:

If long-run average total cost exceeds marginal revenue, a perfectly competitive firm will incur losses.

Suppose a perfectly competitive firm's marginal revenue is $10 and its marginal cost is $11. Under these circumstances the firm:

Long-run competitive equilibrium in an industry implies that no firm:

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

How are normal profits related to economic profits?

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

To maximize profits, a perfectly competitive firm should produce where marginal:

Refer to the graph shown. If the market price is P2, the firm will produce:

Refer to the graph shown. If the market price is $3, a perfectly competitive firm:

Based on the information shown, a perfectly competitive profit-maximizing firm would produce: Quantity Total Cost Tatal Revenue 10 \ 25 50 20 60 100 30 105 150 40 160 200

Consider the following diagram: Would a perfectly competitive firm facing these conditions stay in business in the short run? Demonstrate your answer by comparing the loss if it stayed open to the loss if it closed.

Economics and Economic Reasoning

The Production Possibility Model, Trade, and Globalization

Economic Institutions

Supply and Demand

Using Supply and Demand

Describing Supply and Demand: Elasticities

Taxation and Government Intervention

Market Failure Versus Government Failure

Comparative Advantage, Exchange Rates, and Globalization

International Trade Policy

Production and Cost Analysis I

Production and Cost Analysis II

Monopoly and Monopolistic Competition

Oligopoly and Antitrust Policy

Real-World Competition and Technology

Work and the Labor Market

Who Gets What the Distribution of Income

The Logic of Individual Choice: the Foundation of Supply and Demand

Game Theory, Strategic Decision Making, and Behavioral Economics

Thinking Like a Modern Economist

Behavioral Economics and Modern Economic Policy

Microeconomic Policy, Economic Reasoning, and Beyond

Economic Growth, Business Cycles, and Unemployment

Measuring and Describing the Aggregate Economy

The Keynesian Short-Run Policy Model: Demand-Side Policies

The Classical Long-Run Policy Model: Growth and Supply-Side Policies

The Financial Sector and the Economy

Monetary Policy

Financial Crises, Panics, and Unconventional Monetary Policy

Deficits and Debt: the Austerity Debate

The Fiscal Policy Dilemma

Jobs and Unemployment

Inflation, Deflation, and Macro Policy

International Financial Policy

Macro Policy in a Global Setting

Structural Stagnation and Globalization

Macro Policy in Developing Countries

Filters

Refer to the graph shown. If the market price is P₂, the firm will produce: