Question 1

Which of the following is a characteristic of a competitive price-taker market?

Accepted Answer

A)  Profit maximizing firms in the market will expand output until price equals average variable cost. 
B)  The market demand curve for the product is a horizontal line. 
C)  There are many firms in the market, each producing a small share of total market output. 
D)  The product produced by each of the firms is differentiated. 
A)  Profit maximizing firms in the market will expand output until price equals average variable cost. 
B)  The market demand curve for the product is a horizontal line. 
C)  There are many firms in the market, each producing a small share of total market output. 
D)  The product produced by each of the firms is differentiated.

Question 2

Above the shutdown point, a competitive firm's supply curve coincides with its:

Accepted Answer

A)  marginal revenue curve. 
B)  marginal cost curve. 
C)  average variable cost curve. 
D)  average total cost curve. 
A)  marginal revenue curve. 
B)  marginal cost curve. 
C)  average variable cost curve. 
D)  average total cost curve.

Question 3

A perfectly competitive industry must have a perfectly elastic long-run supply curve.

Accepted Answer

A) True 
 B)False

Question 4

Exhibit 8-12 Marginal revenue and cost per unit curves  
-If price is equal to OD for the firm shown in Exhibit 8-12, total profit is maximized when:

Accepted Answer

A)  output is X. 
B)  output is Y. 
C)  output is Z. 
D)  output is greater than Z. 
A)  output is X. 
B)  output is Y. 
C)  output is Z. 
D)  output is greater than Z.

Question 5

If a perfectly competitive firm charges more than the market price, then it loses all of its customers.

Accepted Answer

A) True 
 B)False

Question 6

Perfect competition is defined as market structure in which:

Accepted Answer

A)  there are many small sellers. 
B)  the product is homogeneous. 
C)  it is very easy for firms to enter or exit the market. 
D)  all of these. 
A)  there are many small sellers. 
B)  the product is homogeneous. 
C)  it is very easy for firms to enter or exit the market. 
D)  all of these.

Question 7

Exhibit 8-3 Cost per unit curves  
-As shown in Exhibit 8-3, the firm will produce in the short run if the price is at least equal to:

Accepted Answer

A)  $1.00 per unit (point 
A) . 
B)  $1.50 per unit (point 
B) . 
C)  $2.00 per unit (point 
C) . 
D)  $4.00 per unit (point 
D) . 
A)  $1.00 per unit (point 
A) . 
B)  $1.50 per unit (point 
B) . 
C)  $2.00 per unit (point 
C) . 
D)  $4.00 per unit (point 
D) .

Question 8

If a firm shuts down in the short run, it will:

Accepted Answer

A)  incur losses equal to its fixed costs. 
B)  produce at the output level where MC = MR. 
C)  reduce its losses to zero. 
D)  do this because P > AVC. 
E)  have total revenue greater than total fixed costs. 
A)  incur losses equal to its fixed costs. 
B)  produce at the output level where MC = MR. 
C)  reduce its losses to zero. 
D)  do this because P > AVC. 
E)  have total revenue greater than total fixed costs.

Question 9

Because a competitive firm is a price taker, it faces a demand curve that is:

Accepted Answer

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

Question 10

The long-run supply curve for a competitive constant-cost industry is:

Accepted Answer

A)  horizontal. 
B)  vertical. 
C)  upward-sloping. 
D)  downward-sloping. 
A)  horizontal. 
B)  vertical. 
C)  upward-sloping. 
D)  downward-sloping.

Question 11

If a firm is producing an output level at which marginal revenue exceeds marginal cost, the firm will increase profits by reducing its output level.

Accepted Answer

A) True 
 B)False

Question 12

In the short run, if a perfectly competitive firm is producing at a price below average total cost, its economic profit is:

Accepted Answer

A)  positive. 
B)  zero. 
C)  negative. 
D)  normal. 
A)  positive. 
B)  zero. 
C)  negative. 
D)  normal.

Question 13

The long-run supply curve for a competitive industry always has a positive slope.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following best illustrates perfect competition?

Accepted Answer

A)  Wheat farming. 
B)  Orange growers setting quotas under the Sunkist cooperative. 
C)  General Motors advertising campaign for its cars. 
D)  All of these. 
A)  Wheat farming. 
B)  Orange growers setting quotas under the Sunkist cooperative. 
C)  General Motors advertising campaign for its cars. 
D)  All of these.

Question 15

Imagine you own a machine that produces perfectly authentic and legal $100 bills. You would use this machine until:

Accepted Answer

A)  the bills became worthless. 
B)  the total cost began to fall. 
C)  the marginal cost was $100. 
D)  the variable cost began to rise. 
E)  the marginal revenue began to fall. 
A)  the bills became worthless. 
B)  the total cost began to fall. 
C)  the marginal cost was $100. 
D)  the variable cost began to rise. 
E)  the marginal revenue began to fall.

Question 16

The marginal approach to profit maximization means that a firm should produce until:

Accepted Answer

A)  marginal revenue equals zero. 
B)  marginal revenue equals marginal cost. 
C)  marginal cost becomes negatively sloped. 
D)  marginal revenue equals price. 
E)  price equals average total cost. 
A)  marginal revenue equals zero. 
B)  marginal revenue equals marginal cost. 
C)  marginal cost becomes negatively sloped. 
D)  marginal revenue equals price. 
E)  price equals average total cost.

Question 17

Exhibit 8-5 A firm's MR and MC curves  
-In Exhibit 8-5, a firm is currently producing 40 units of output. What would you advise this firm to do?

Accepted Answer

A)  Shut down. 
B)  Increase output. 
C)  Stay at its current output. 
D)  Decrease output. 
E)  Decrease price. 
A)  Shut down. 
B)  Increase output. 
C)  Stay at its current output. 
D)  Decrease output. 
E)  Decrease price.

Question 18

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

Accepted Answer

A)  The firm is a price maker. 
B)  If the firm wishes to maximize profits it will produce an output level in which total revenue equals total cost. 
C)  The firm will not earn an economic profit in the long run. 
D)  The firm's short-run supply curve is its MC curve below its AVC curve. 
A)  The firm is a price maker. 
B)  If the firm wishes to maximize profits it will produce an output level in which total revenue equals total cost. 
C)  The firm will not earn an economic profit in the long run. 
D)  The firm's short-run supply curve is its MC curve below its AVC curve.

Question 19

As market price increases in the short run, a profit-maximizing firm in a perfectly competitive market will expand output along its:

Accepted Answer

A)  marginal cost curve. 
B)  average total cost curve. 
C)  average variable cost curve. 
D)  market demand curve. 
A)  marginal cost curve. 
B)  average total cost curve. 
C)  average variable cost curve. 
D)  market demand curve.

Question 20

Exhibit 8-17 Marginal revenue and cost per unit curves  
-As shown in Exhibit 8-17, the short-run supply curve for the firm corresponds to which segment of its marginal cost curve?

Accepted Answer

A)  C and all points above. 
B)  B and all points above. 
C)  A and all points above. 
D)  A to C only. 
E)  B to D only. 
A)  C and all points above. 
B)  B and all points above. 
C)  A and all points above. 
D)  A to C only. 
E)  B to D only.

Which of the following is a characteristic of a competitive price-taker market?

Above the shutdown point, a competitive firm's supply curve coincides with its:

A perfectly competitive industry must have a perfectly elastic long-run supply curve.

Exhibit 8-12 Marginal revenue and cost per unit curves -If price is equal to OD for the firm shown in Exhibit 8-12, total profit is maximized when:

If a perfectly competitive firm charges more than the market price, then it loses all of its customers.

Perfect competition is defined as market structure in which:

Exhibit 8-3 Cost per unit curves -As shown in Exhibit 8-3, the firm will produce in the short run if the price is at least equal to:

If a firm shuts down in the short run, it will:

Because a competitive firm is a price taker, it faces a demand curve that is:

The long-run supply curve for a competitive constant-cost industry is:

If a firm is producing an output level at which marginal revenue exceeds marginal cost, the firm will increase profits by reducing its output level.

In the short run, if a perfectly competitive firm is producing at a price below average total cost, its economic profit is:

The long-run supply curve for a competitive industry always has a positive slope.

Which of the following best illustrates perfect competition?

Imagine you own a machine that produces perfectly authentic and legal $100 bills. You would use this machine until:

The marginal approach to profit maximization means that a firm should produce until:

Exhibit 8-5 A firm's MR and MC curves -In Exhibit 8-5, a firm is currently producing 40 units of output. What would you advise this firm to do?

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

As market price increases in the short run, a profit-maximizing firm in a perfectly competitive market will expand output along its:

Exhibit 8-17 Marginal revenue and cost per unit curves -As shown in Exhibit 8-17, the short-run supply curve for the firm corresponds to which segment of its marginal cost curve?

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

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Exam 8: Perfect Competition

Which of the following is a characteristic of a competitive price-taker market?

Above the shutdown point, a competitive firm's supply curve coincides with its:

A perfectly competitive industry must have a perfectly elastic long-run supply curve.

Exhibit 8-12 Marginal revenue and cost per unit curves -If price is equal to OD for the firm shown in Exhibit 8-12, total profit is maximized when:

If a perfectly competitive firm charges more than the market price, then it loses all of its customers.

Perfect competition is defined as market structure in which:

Exhibit 8-3 Cost per unit curves -As shown in Exhibit 8-3, the firm will produce in the short run if the price is at least equal to:

If a firm shuts down in the short run, it will:

Because a competitive firm is a price taker, it faces a demand curve that is:

The long-run supply curve for a competitive constant-cost industry is:

If a firm is producing an output level at which marginal revenue exceeds marginal cost, the firm will increase profits by reducing its output level.

In the short run, if a perfectly competitive firm is producing at a price below average total cost, its economic profit is:

The long-run supply curve for a competitive industry always has a positive slope.

Which of the following best illustrates perfect competition?

Imagine you own a machine that produces perfectly authentic and legal $100 bills. You would use this machine until:

The marginal approach to profit maximization means that a firm should produce until:

Exhibit 8-5 A firm's MR and MC curves -In Exhibit 8-5, a firm is currently producing 40 units of output. What would you advise this firm to do?

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

As market price increases in the short run, a profit-maximizing firm in a perfectly competitive market will expand output along its:

Exhibit 8-17 Marginal revenue and cost per unit curves -As shown in Exhibit 8-17, the short-run supply curve for the firm corresponds to which segment of its marginal cost curve?

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

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