Question 1

In long-run equilibrium, the typical perfectly competitive firm will:

Accepted Answer

A)  earn zero economic profit. 
B)  change plant size in the long run. 
C)  change output in the short run. 
D)  do any of these. 
A)  earn zero economic profit. 
B)  change plant size in the long run. 
C)  change output in the short run. 
D)  do any of these.

Question 2

A portrait photographer produces output in packages of 100 photos each. If the output sold increases from 600 to 700 photos, total revenue increases from $1,200 to $1,400. The marginal revenue per photo is:

Accepted Answer

A)  $200. 
B)  $100. 
C)  $20. 
D)  $2. 
E)  $1. 
A)  $200. 
B)  $100. 
C)  $20. 
D)  $2. 
E)  $1.

Question 3

In long-run equilibrium, which of the following is not equal to price for a perfectly competitive firm?

Accepted Answer

A)  Short-run average variable cost. 
B)  Long-run average total cost. 
C)  Short-run marginal cost. 
D)  Short-run average total cost. 
A)  Short-run average variable cost. 
B)  Long-run average total cost. 
C)  Short-run marginal cost. 
D)  Short-run average total cost.

Question 4

Assume that a firm's marginal revenue just barely exceeds marginal cost. Under these conditions the firm should:

Accepted Answer

A)  expand output. 
B)  contract output. 
C)  maintain output. 
D)  There is insufficient information to answer the question. 
A)  expand output. 
B)  contract output. 
C)  maintain output. 
D)  There is insufficient information to answer the question.

Question 5

Suppose product price is fixed at $24; MR = MC at Q = 200; AFC = $6; AVC = $25. What do you advise this firm to do?

Accepted Answer

A)  Increase output. 
B)  Decrease output. 
C)  Shut down operations. 
D)  Stay at the current output; the firm is earning a profit of $1,400. 
E)  Stay at the current output; the firm is losing $1,400. 
A)  Increase output. 
B)  Decrease output. 
C)  Shut down operations. 
D)  Stay at the current output; the firm is earning a profit of $1,400. 
E)  Stay at the current output; the firm is losing $1,400.

Question 6

If a firm decreases output when MR > MC, then:

Accepted Answer

A)  profit will equal zero. 
B)  profit will increase. 
C)  profit will decrease. 
D)  profit will remain the same. 
E)  the firm is minimizing losses. 
A)  profit will equal zero. 
B)  profit will increase. 
C)  profit will decrease. 
D)  profit will remain the same. 
E)  the firm is minimizing losses.

Question 7

If the market price is $5 and you are currently producing at a level where average total cost is $3 and falling, you should:

Accepted Answer

A)  b or c, it doesn't matter. 
B)  shut down. 
C)  produce only enough to cover variable costs. 
D)  produce where MR = MC. 
E)  produce until the average total cost and average revenue are equal. 
A)  b or c, it doesn't matter. 
B)  shut down. 
C)  produce only enough to cover variable costs. 
D)  produce where MR = MC. 
E)  produce until the average total cost and average revenue are equal.

Question 8

Suppose a company increases production from a point where marginal cost equals average total cost to a point where marginal revenue and marginal cost are equal. Is it a good idea for the company to do this? Why?

Accepted Answer

A)  No, average total costs have increased which means the company is not minimizing losses. 
B)  Yes, because average variable costs are always less than average total costs. 
C)  No, because the marginal cost of producing the last unit is the same as the marginal revenue. 
D)  Yes, even though the previous level of output had minimized the average total cost, there was still profit to be earned by producing additional units. 
E)  No, the previous level of output was the most efficient because it had the lowest average total cost. 
A)  No, average total costs have increased which means the company is not minimizing losses. 
B)  Yes, because average variable costs are always less than average total costs. 
C)  No, because the marginal cost of producing the last unit is the same as the marginal revenue. 
D)  Yes, even though the previous level of output had minimized the average total cost, there was still profit to be earned by producing additional units. 
E)  No, the previous level of output was the most efficient because it had the lowest average total cost.

Question 9

In a perfectly competitive industry, assume the short-run average total cost increases as the output of the industry expands. In the long run, the industry supply curve will:

Accepted Answer

A)  first have a positive slope and then a negative slope. 
B)  have a negative slope. 
C)  be perfectly horizontal. 
D)  be perfectly vertical. 
E)  have a positive slope. 
A)  first have a positive slope and then a negative slope. 
B)  have a negative slope. 
C)  be perfectly horizontal. 
D)  be perfectly vertical. 
E)  have a positive slope.

Question 10

Competitive firms frequently use advertising to differentiate their product from their competitors' products.

Accepted Answer

A) True 
 B)False

Question 11

A perfectly competitive firm's short-run supply curve is the:

Accepted Answer

A)  average total cost curve. 
B)  demand curve above the marginal revenue curve. 
C)  same as the market supply curve. 
D)  marginal cost curve above the average variable cost curve. 
A)  average total cost curve. 
B)  demand curve above the marginal revenue curve. 
C)  same as the market supply curve. 
D)  marginal cost curve above the average variable cost curve.

Question 12

Suppose that price is below the minimum average total cost (ATC) but above the minimum average variable cost (AVC), and the market price is expected to rise at least to ATC in the near future. In the short run, a firm that is a price taker would:

Accepted Answer

A)  immediately shut down and get out of the industry. 
B)  continue to produce a quantity such that marginal revenue equals marginal cost. 
C)  shut down temporarily, in hopes of restarting in the near future. 
D)  cut price and expand output in hopes of achieving economies of scale 
A)  immediately shut down and get out of the industry. 
B)  continue to produce a quantity such that marginal revenue equals marginal cost. 
C)  shut down temporarily, in hopes of restarting in the near future. 
D)  cut price and expand output in hopes of achieving economies of scale

Question 13

Under perfect competition, a firm is a price taker because:

Accepted Answer

A)  setting a price higher than the going price results in profits. 
B)  each firm's product is perceived as different. 
C)  each firm has a significant market share. 
D)  setting a price higher than the going price results in zero sales. 
A)  setting a price higher than the going price results in profits. 
B)  each firm's product is perceived as different. 
C)  each firm has a significant market share. 
D)  setting a price higher than the going price results in zero sales.

Question 14

What are the characteristics of the perfectly competitive market?

Accepted Answer

The perfectly competitive market is char

Question 15

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. If the demand curve shifts from D1 to D2, the adjustment sequence between points will be:

Accepted Answer

A)  A to B, then back to A. 
B)  A to D, then back to A. 
C)  A to D, then to C. 
D)  A to B, then to C. 
A)  A to B, then back to A. 
B)  A to D, then back to A. 
C)  A to D, then to C. 
D)  A to B, then to C.

Question 16

Exhibit 8-4 Marginal cost and revenue for a firm $$\begin{array} { | c | c | c | } 
\hline \begin{array} { c } 
\text { Unit } \
\text { Quantity }
\end{array} & \text { Marginal Cost } & \begin{array} { c } 
\text { Marginal } \
\text { Revenue }
\end{array} \
\hline 12 & \$ 5 & \$ 9 \
13 & 6 & 9 \
14 & 7 & 9 \
15 & 8 & 9 \
16 & 9 & 9 \
17 & 10 & 9 \
\hline
\end{array}$$
-In Exhibit 8-4, what is this firm's profit-maximizing rate of output?

Accepted Answer

A)  13. 
B)  14. 
C)  15. 
D)  16. 
E)  17. 
A)  13. 
B)  14. 
C)  15. 
D)  16. 
E)  17.

Question 17

Assume the short-run average total cost for a perfectly competitive industry remains constant as the output of the industry expands. In the long run, the industry supply curve will:

Accepted Answer

A)  have a positive slope. 
B)  have a negative slope. 
C)  be perfectly horizontal. 
D)  be perfectly vertical. 
A)  have a positive slope. 
B)  have a negative slope. 
C)  be perfectly horizontal. 
D)  be perfectly vertical.

Question 18

Perfectly competitive markets are characterized by:

Accepted Answer

A)  a small number of very large producers. 
B)  very strong barriers to entry and exit. 
C)  firms selling a homogeneous product. 
D)  all of these. 
A)  a small number of very large producers. 
B)  very strong barriers to entry and exit. 
C)  firms selling a homogeneous product. 
D)  all of these.

Question 19

Exhibit 8-13 Price and cost per unit curves  
-In Exhibit 8-13, the firm will not produce when the price is between:

Accepted Answer

A)  zero and P2. 
B)  P2 and P3. 
C)  P3 and P4. 
D)  P4 and P5. 
A)  zero and P2. 
B)  P2 and P3. 
C)  P3 and P4. 
D)  P4 and P5.

Question 20

The long-run equilibrium condition for perfect competition is:

Accepted Answer

A)  P = AVC = MR = MC. 
B)  P = ATC = MR = MC. 
C)  Q = AVC = MR = MC. 
D)  Q = ATC = MR = MC. 
E)  TR = ATC = MR = MC. 
A)  P = AVC = MR = MC. 
B)  P = ATC = MR = MC. 
C)  Q = AVC = MR = MC. 
D)  Q = ATC = MR = MC. 
E)  TR = ATC = MR = MC.

In long-run equilibrium, the typical perfectly competitive firm will:

A portrait photographer produces output in packages of 100 photos each. If the output sold increases from 600 to 700 photos, total revenue increases from $1,200 to $1,400. The marginal revenue per photo is:

In long-run equilibrium, which of the following is not equal to price for a perfectly competitive firm?

Assume that a firm's marginal revenue just barely exceeds marginal cost. Under these conditions the firm should:

Suppose product price is fixed at $24; MR = MC at Q = 200; AFC = $6; AVC = $25. What do you advise this firm to do?

If a firm decreases output when MR > MC, then:

If the market price is $5 and you are currently producing at a level where average total cost is $3 and falling, you should:

Suppose a company increases production from a point where marginal cost equals average total cost to a point where marginal revenue and marginal cost are equal. Is it a good idea for the company to do this? Why?

In a perfectly competitive industry, assume the short-run average total cost increases as the output of the industry expands. In the long run, the industry supply curve will:

Competitive firms frequently use advertising to differentiate their product from their competitors' products.

A perfectly competitive firm's short-run supply curve is the:

Suppose that price is below the minimum average total cost (ATC) but above the minimum average variable cost (AVC), and the market price is expected to rise at least to ATC in the near future. In the short run, a firm that is a price taker would:

Under perfect competition, a firm is a price taker because:

What are the characteristics of the perfectly competitive market?

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. If the demand curve shifts from D₁ to D₂, the adjustment sequence between points will be:

Exhibit 8-4 Marginal cost and revenue for a firm Unit Quantity Marginal Cost Marginal Revenue 12 \ 5 \ 9 13 6 9 14 7 9 15 8 9 16 9 9 17 10 9 -In Exhibit 8-4, what is this firm's profit-maximizing rate of output?

Assume the short-run average total cost for a perfectly competitive industry remains constant as the output of the industry expands. In the long run, the industry supply curve will:

Perfectly competitive markets are characterized by:

Exhibit 8-13 Price and cost per unit curves -In Exhibit 8-13, the firm will not produce when the price is between:

The long-run equilibrium condition for perfect competition is:

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

In long-run equilibrium, the typical perfectly competitive firm will:

A portrait photographer produces output in packages of 100 photos each. If the output sold increases from 600 to 700 photos, total revenue increases from $1,200 to $1,400. The marginal revenue per photo is:

In long-run equilibrium, which of the following is not equal to price for a perfectly competitive firm?

Assume that a firm's marginal revenue just barely exceeds marginal cost. Under these conditions the firm should:

Suppose product price is fixed at $24; MR = MC at Q = 200; AFC = $6; AVC = $25. What do you advise this firm to do?

If a firm decreases output when MR > MC, then:

If the market price is $5 and you are currently producing at a level where average total cost is $3 and falling, you should:

Suppose a company increases production from a point where marginal cost equals average total cost to a point where marginal revenue and marginal cost are equal. Is it a good idea for the company to do this? Why?

In a perfectly competitive industry, assume the short-run average total cost increases as the output of the industry expands. In the long run, the industry supply curve will:

Competitive firms frequently use advertising to differentiate their product from their competitors' products.

A perfectly competitive firm's short-run supply curve is the:

Suppose that price is below the minimum average total cost (ATC) but above the minimum average variable cost (AVC), and the market price is expected to rise at least to ATC in the near future. In the short run, a firm that is a price taker would:

Under perfect competition, a firm is a price taker because:

What are the characteristics of the perfectly competitive market?

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. If the demand curve shifts from D1 to D2, the adjustment sequence between points will be:

Exhibit 8-4 Marginal cost and revenue for a firm Unit Quantity Marginal Cost Marginal Revenue 12 \ 5 \ 9 13 6 9 14 7 9 15 8 9 16 9 9 17 10 9 -In Exhibit 8-4, what is this firm's profit-maximizing rate of output?

Assume the short-run average total cost for a perfectly competitive industry remains constant as the output of the industry expands. In the long run, the industry supply curve will:

Perfectly competitive markets are characterized by:

Exhibit 8-13 Price and cost per unit curves -In Exhibit 8-13, the firm will not produce when the price is between:

The long-run equilibrium condition for perfect competition is:

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. If the demand curve shifts from D₁ to D₂, the adjustment sequence between points will be: