Question 1

Under perfect competition, no matter how much output is produced, the total revenue curve is:

Accepted Answer

A)  a positively-sloped line. 
B)  a negatively-sloped line. 
C)  a horizontal straight line. 
D)  a U-shaped curve. 
E)  a hill-shaped curve. 
A)  a positively-sloped line. 
B)  a negatively-sloped line. 
C)  a horizontal straight line. 
D)  a U-shaped curve. 
E)  a hill-shaped curve.

Question 2

In the short run, why would a firm in a perfectly competitive market shut down production if the prevailing market price falls below the lowest possible average variable cost?

Accepted Answer

A)  At that point (economic) profit is zero. 
B)  Below that point average revenue becomes less than marginal revenue. 
C)  Below that point marginal revenue becomes insufficient to pay for avoidable average variable cost. 
D)  Below that point other firms with similar cost will find it profitable to enter the market and take away demand from the existing firms. 
A)  At that point (economic) profit is zero. 
B)  Below that point average revenue becomes less than marginal revenue. 
C)  Below that point marginal revenue becomes insufficient to pay for avoidable average variable cost. 
D)  Below that point other firms with similar cost will find it profitable to enter the market and take away demand from the existing firms.

Question 3

In long-run equilibrium, the perfectly competitive firm sets its price equal to which of the following?

Accepted Answer

A)  Short-run average total cost. 
B)  Short-run marginal cost. 
C)  Long-run average cost. 
D)  All of these. 
A)  Short-run average total cost. 
B)  Short-run marginal cost. 
C)  Long-run average cost. 
D)  All of these.

Question 4

Exhibit 8-12 Marginal revenue and cost per unit curves  
-As shown in Exhibit 8-12, suppose the firm's price is OB. The firm's total economic profit at this price is equal to the area of:

Accepted Answer

A)  CJID. 
B)  BFHD. 
C)  AEXD. 
D)  CGHD. 
E)  zero. 
A)  CJID. 
B)  BFHD. 
C)  AEXD. 
D)  CGHD. 
E)  zero.

Question 5

A perfectly competitive industry always has a perfectly elastic (flat) long-run supply curve.

Accepted Answer

A) True 
 B)False

Question 6

If at some output level for a firm price exceeds average total cost, then the firm is earning an economic profit.

Accepted Answer

A) True 
 B)False

Question 7

If a competitive firm is losing money then it should:

Accepted Answer

A)  always shut down. 
B)  shut down if its losses are greater than total fixed costs. 
C)  shut down if its total fixed costs are greater than losses. 
D)  raise its price. 
A)  always shut down. 
B)  shut down if its losses are greater than total fixed costs. 
C)  shut down if its total fixed costs are greater than losses. 
D)  raise its price.

Question 8

If a fishing boat owner brings 10,000 fish to market and the market price is $7 per fish, she will have $70,000 in total revenue. If the average variable cost of 10,000 fish is $4 and the fixed cost of the boat is $20,000, what is her profit?

Accepted Answer

A)  $1. 
B)  $3. 
C)  $1,000. 
D)  $3,000. 
E)  $10,000. 
A)  $1. 
B)  $3. 
C)  $1,000. 
D)  $3,000. 
E)  $10,000.

Question 9

Exhibit 8-7 A firm's cost and MR curves  
-In Exhibit 8-7, if this firm is currently producing 20 units of output, this firm:

Accepted Answer

A)  is at its profit-maximizing point. 
B)  could increase profits by increasing output. 
C)  could increase profits by decreasing output. 
D)  should shut down. 
E)  should decrease price. 
A)  is at its profit-maximizing point. 
B)  could increase profits by increasing output. 
C)  could increase profits by decreasing output. 
D)  should shut down. 
E)  should decrease price.

Question 10

Exhibit 8-3 Cost per unit curves  
-If the price of the firm's product in Exhibit 8-3 is $1.50 per unit, which intersects AVC at point B, the firm should:

Accepted Answer

A)  continue to operate because it is earning a positive economic profit. 
B)  stay in operation for the time being even though it is making a pure economic loss. 
C)  shut down temporarily. 
D)  shut down permanently. 
A)  continue to operate because it is earning a positive economic profit. 
B)  stay in operation for the time being even though it is making a pure economic loss. 
C)  shut down temporarily. 
D)  shut down permanently.

Question 11

In long-run equilibrium, a perfectly competitive firm will produce an output level at which its long-run average cost curve is upward sloping.

Accepted Answer

A) True 
 B)False

Question 12

A perfectly competitive firm shuts down in the short-run when the market price is less than the average variable cost.

Accepted Answer

A) True 
 B)False

Question 13

Exhibit 8-19 Long-run perfectly competitive industry  
-As shown in Exhibit 8-19, assume that a perfectly competitive industry is in long-run equilibrium at point A and the demand curve shifts from D1 to D2. Which of the following is a part of the industry adjustment process?

Accepted Answer

A)  The price will temporarily rise at point B. 
B)  New firms will enter the industry. 
C)  Firms will temporarily make positive economic profits. 
D)  All of these. 
A)  The price will temporarily rise at point B. 
B)  New firms will enter the industry. 
C)  Firms will temporarily make positive economic profits. 
D)  All of these.

Question 14

Which of the following is true of a perfectly competitive market?

Accepted Answer

A)  If economic profits are earned then the price will fall over time. 
B)  In long-run equilibrium P = MR = SRMC = SRATC = LRAC. 
C)  A constant-cost industry exists when the entry of new firms has no effect on their cost curves. 
D)  All of these. 
A)  If economic profits are earned then the price will fall over time. 
B)  In long-run equilibrium P = MR = SRMC = SRATC = LRAC. 
C)  A constant-cost industry exists when the entry of new firms has no effect on their cost curves. 
D)  All of these.

Question 15

Exhibit 8-17 Marginal revenue and cost per unit curves  
-As shown in Exhibit 8-17, the price at which the firm earns zero economic profit in the short-run is:

Accepted Answer

A)  $10 per unit. 
B)  $15 per unit. 
C)  $40 per unit. 
D)  more than $20 per unit. 
E)  $20 per unit. 
A)  $10 per unit. 
B)  $15 per unit. 
C)  $40 per unit. 
D)  more than $20 per unit. 
E)  $20 per unit.

Question 16

The supply curve of a price-taker firm in the short run is the:

Accepted Answer

A)  firm's average variable cost curve. 
B)  portion of the firm's average total cost curve that lies above average variable cost curve. 
C)  portion of the firm's marginal cost curve that lies above average variable cost curve. 
D)  firm's marginal revenue curve. 
A)  firm's average variable cost curve. 
B)  portion of the firm's average total cost curve that lies above average variable cost curve. 
C)  portion of the firm's marginal cost curve that lies above average variable cost curve. 
D)  firm's marginal revenue curve.

Question 17

If a firm equates MR and MC, then:

Accepted Answer

A)  TR is at a maximum, and TC is at a minimum. 
B)  output is at a maximum. 
C)  losses are at a maximum. 
D)  profits are at a maximum or losses are at a minimum. 
E)  both TR and TC are at a maximum. 
A)  TR is at a maximum, and TC is at a minimum. 
B)  output is at a maximum. 
C)  losses are at a maximum. 
D)  profits are at a maximum or losses are at a minimum. 
E)  both TR and TC are at a maximum.

Under perfect competition, no matter how much output is produced, the total revenue curve is:

In the short run, why would a firm in a perfectly competitive market shut down production if the prevailing market price falls below the lowest possible average variable cost?

In long-run equilibrium, the perfectly competitive firm sets its price equal to which of the following?

Exhibit 8-12 Marginal revenue and cost per unit curves -As shown in Exhibit 8-12, suppose the firm's price is OB. The firm's total economic profit at this price is equal to the area of:

A perfectly competitive industry always has a perfectly elastic (flat) long-run supply curve.

If at some output level for a firm price exceeds average total cost, then the firm is earning an economic profit.

If a competitive firm is losing money then it should:

If a fishing boat owner brings 10,000 fish to market and the market price is $7 per fish, she will have $70,000 in total revenue. If the average variable cost of 10,000 fish is $4 and the fixed cost of the boat is $20,000, what is her profit?

Exhibit 8-7 A firm's cost and MR curves -In Exhibit 8-7, if this firm is currently producing 20 units of output, this firm:

Exhibit 8-3 Cost per unit curves -If the price of the firm's product in Exhibit 8-3 is $1.50 per unit, which intersects AVC at point B, the firm should:

In long-run equilibrium, a perfectly competitive firm will produce an output level at which its long-run average cost curve is upward sloping.

A perfectly competitive firm shuts down in the short-run when the market price is less than the average variable cost.

Exhibit 8-19 Long-run perfectly competitive industry -As shown in Exhibit 8-19, assume that a perfectly competitive industry is in long-run equilibrium at point A and the demand curve shifts from D₁ to D₂. Which of the following is a part of the industry adjustment process?

Which of the following is true of a perfectly competitive market?

Exhibit 8-17 Marginal revenue and cost per unit curves -As shown in Exhibit 8-17, the price at which the firm earns zero economic profit in the short-run is:

The supply curve of a price-taker firm in the short run is the:

If a firm equates MR and MC, then:

Introducing the Economic Way of Thinking

Production Possibilities, Opportunity Cost, and Economic Growth

Market Demand and Supply

Markets in Action

Price Elasticity of Demand and Supply

Consumer Choice Theory

Production Costs

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets

Income Distribution, Poverty, and Discrimination

Antitrust and Regulation

Environmental Economics

International Trade and Finance

Economies in Transition

Growth and the

Filters

Exam 8: Perfect Competition

Under perfect competition, no matter how much output is produced, the total revenue curve is:

In the short run, why would a firm in a perfectly competitive market shut down production if the prevailing market price falls below the lowest possible average variable cost?

In long-run equilibrium, the perfectly competitive firm sets its price equal to which of the following?

Exhibit 8-12 Marginal revenue and cost per unit curves -As shown in Exhibit 8-12, suppose the firm's price is OB. The firm's total economic profit at this price is equal to the area of:

A perfectly competitive industry always has a perfectly elastic (flat) long-run supply curve.

If at some output level for a firm price exceeds average total cost, then the firm is earning an economic profit.

If a competitive firm is losing money then it should:

If a fishing boat owner brings 10,000 fish to market and the market price is $7 per fish, she will have $70,000 in total revenue. If the average variable cost of 10,000 fish is $4 and the fixed cost of the boat is $20,000, what is her profit?

Exhibit 8-7 A firm's cost and MR curves -In Exhibit 8-7, if this firm is currently producing 20 units of output, this firm:

Exhibit 8-3 Cost per unit curves -If the price of the firm's product in Exhibit 8-3 is $1.50 per unit, which intersects AVC at point B, the firm should:

In long-run equilibrium, a perfectly competitive firm will produce an output level at which its long-run average cost curve is upward sloping.

A perfectly competitive firm shuts down in the short-run when the market price is less than the average variable cost.

Exhibit 8-19 Long-run perfectly competitive industry -As shown in Exhibit 8-19, assume that a perfectly competitive industry is in long-run equilibrium at point A and the demand curve shifts from D1 to D2. Which of the following is a part of the industry adjustment process?

Which of the following is true of a perfectly competitive market?

Exhibit 8-17 Marginal revenue and cost per unit curves -As shown in Exhibit 8-17, the price at which the firm earns zero economic profit in the short-run is:

The supply curve of a price-taker firm in the short run is the:

If a firm equates MR and MC, then:

Introducing the Economic Way of Thinking

Production Possibilities, Opportunity Cost, and Economic Growth

Market Demand and Supply

Markets in Action

Price Elasticity of Demand and Supply

Consumer Choice Theory

Production Costs

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets

Income Distribution, Poverty, and Discrimination

Antitrust and Regulation

Environmental Economics

International Trade and Finance

Economies in Transition

Growth and the

Filters

Exhibit 8-19 Long-run perfectly competitive industry -As shown in Exhibit 8-19, assume that a perfectly competitive industry is in long-run equilibrium at point A and the demand curve shifts from D₁ to D₂. Which of the following is a part of the industry adjustment process?