Question 1

Which of the following statements is true?

Accepted Answer

A) A perfectly competitive firm that seeks to maximize profits will not be resource-allocative efficient. 
B) If the demand curve and the marginal revenue curve weren't the same curve for a perfectly competitive firm, then the firm would not be resource-allocative efficient. 
C) Resource allocative efficiency exists when a firm produces its output at the lowest possible per unit cost (lowest AT
C) . 
D) Productive efficiency exists when firms produce the quantity of output at which price equals marginal cost. 
E) c and d 
A) A perfectly competitive firm that seeks to maximize profits will not be resource-allocative efficient. 
B) If the demand curve and the marginal revenue curve weren't the same curve for a perfectly competitive firm, then the firm would not be resource-allocative efficient. 
C) Resource allocative efficiency exists when a firm produces its output at the lowest possible per unit cost (lowest AT
C) . 
D) Productive efficiency exists when firms produce the quantity of output at which price equals marginal cost. 
E) c and d

Question 2

Exhibit 22-10
   ​
-Refer to Exhibit 22-10. What quantity of output should the profit-maximizing firm produce?

Accepted Answer

A) 0 
B) 4 
C) 6 
D) 7 
E) 8 
A) 0 
B) 4 
C) 6 
D) 7 
E) 8

Question 3

What is the shape of the demand curve faced by the perfectly competitive firm? Why does it have this shape?

Accepted Answer

In perfect competition, the seller faces

Question 4

Explain the difference between resource allocative efficiency and productive efficiency.

Accepted Answer

A firm that produces the quantity of out

Question 5

A perfectly competitive firm that maximizes profit exhibits resource allocative efficiency because it produces where price

Accepted Answer

A) equals minimum average total cost. 
B) equals marginal revenue. 
C) equals marginal cost. 
D) is greater than minimum average variable cost. 
A) equals minimum average total cost. 
B) equals marginal revenue. 
C) equals marginal cost. 
D) is greater than minimum average variable cost.

Question 6

Which of the following statements about a perfectly competitive firm is necessarily false?

Accepted Answer

A) There are few substitutes for the firm's product. 
B) There are few complements to the firm's product. 
C) The firm produces the quantity at which marginal revenue equals marginal cost. 
D) The firm sells a product that is identical in the eyes of buyers to any other product sold in the industry. 
A) There are few substitutes for the firm's product. 
B) There are few complements to the firm's product. 
C) The firm produces the quantity at which marginal revenue equals marginal cost. 
D) The firm sells a product that is identical in the eyes of buyers to any other product sold in the industry.

Question 7

A perfectly competitive market is initially in long-run competitive equilibrium. Then, market demand increases. As a result, existing firms in the market begin to __________. By the time all adjustments have been made, profits will __________.

Accepted Answer

A) earn positive economic profit, rise even higher 
B) earn positive economic profit; be back at zero 
C) produce more output; be less than zero 
D) produce less output; rise 
E) earn positive economic profit; turn into losses 
A) earn positive economic profit, rise even higher 
B) earn positive economic profit; be back at zero 
C) produce more output; be less than zero 
D) produce less output; rise 
E) earn positive economic profit; turn into losses

Question 8

Equilibrium price is $19 in a perfectly competitive market. For a perfectly competitive firm, MR = MC at 120 units of output. At 120 units, ATC is $11, and AVC is $8. The best policy for this firm is to __________ in the short run. Also, this firm earns __________ of __________ if it produces and sells 120 units. Finally, the difference between total revenue and total fixed cost for this firm is __________.

Accepted Answer

A) continue to produce; profits; $960; $1,920 
B) continue to produce; losses; $960; $1,000 
C) shut down; losses; $1,200; $2,300 
D) continue to produce; profits; $1,920; $1,960 
E) none of the above 
A) continue to produce; profits; $960; $1,920 
B) continue to produce; losses; $960; $1,000 
C) shut down; losses; $1,200; $2,300 
D) continue to produce; profits; $1,920; $1,960 
E) none of the above

Question 9

Consider the following data: equilibrium price = $40, quantity of output produced = 100 units, average total cost = $47, and average variable cost = $37. What should the firm do and why?

Accepted Answer

A) Shut down in the short run, because it is taking a loss of $700. 
B) Continue to produce in the short run, because price is greater than average variable cost. 
C) Shut down in the short run, because average variable cost is less than average total cost. 
D) Continue to produce in the short run, because firms are always stuck with having to produce in the short run. 
A) Shut down in the short run, because it is taking a loss of $700. 
B) Continue to produce in the short run, because price is greater than average variable cost. 
C) Shut down in the short run, because average variable cost is less than average total cost. 
D) Continue to produce in the short run, because firms are always stuck with having to produce in the short run.

Question 10

If an industry advertises, then it

Accepted Answer

A) is definitely not a perfectly competitive industry. 
B) must be a perfectly competitive industry. 
C) may or may not be a perfectly competitive industry. 
D) is not using its resources wisely. 
E) will surely be able to increase its sales. 
A) is definitely not a perfectly competitive industry. 
B) must be a perfectly competitive industry. 
C) may or may not be a perfectly competitive industry. 
D) is not using its resources wisely. 
E) will surely be able to increase its sales.

Question 11

If a seller is a price taker it means that the seller sells his product at the price

Accepted Answer

A) he chooses. 
B) determined in the market. 
C) determined by the biggest firm in the market. 
D) determined by the largest consumer in the market. 
E) none of the above 
A) he chooses. 
B) determined in the market. 
C) determined by the biggest firm in the market. 
D) determined by the largest consumer in the market. 
E) none of the above

Question 12

In order for a firm to earn economic profits, price must exceed average total cost.

Accepted Answer

A) True 
 B)False

Question 13

When a perfectly competitive firm incurs losses, it follows that price

Accepted Answer

A) must be below average total cost. 
B) must be below average variable cost. 
C) is less than marginal cost. 
D) is less than marginal revenue. 
A) must be below average total cost. 
B) must be below average variable cost. 
C) is less than marginal cost. 
D) is less than marginal revenue.

Question 14

Exhibit 22-4
​
  
-Refer to Exhibit 22-4. Where can you find the lowest price that will motivate the firm to produce Q1 in the short run?

Accepted Answer

A) at the horizontal line running to "ATC" 
B) at the horizontal line running to "AVC" 
C) P1 
D) $0 
A) at the horizontal line running to "ATC" 
B) at the horizontal line running to "AVC" 
C) P1 
D) $0

Question 15

Resource allocative efficiency exists for a perfectly competitive firm because

Accepted Answer

A) price equals marginal revenue and the firm equates marginal revenue and marginal cost to maximize profits. 
B) price equals average total cost and the firm equates marginal revenue and average total cost to maximize profits. 
C) price is greater than marginal revenue and the firm equates marginal revenue with average total cost to maximize profits. 
D) price is less than marginal revenue and the firm equates marginal cost and marginal revenue to maximize profits. 
E) none of the above 
A) price equals marginal revenue and the firm equates marginal revenue and marginal cost to maximize profits. 
B) price equals average total cost and the firm equates marginal revenue and average total cost to maximize profits. 
C) price is greater than marginal revenue and the firm equates marginal revenue with average total cost to maximize profits. 
D) price is less than marginal revenue and the firm equates marginal cost and marginal revenue to maximize profits. 
E) none of the above

Question 16

In long-run competitive equilibrium SRATC = LRATC, because if SRATC > LRATC (at the quantity of output at which MR = MC) firms would

Accepted Answer

A) have an incentive to change their plant size to produce their current output. 
B) not be covering their total fixed costs. 
C) not be covering their total variable costs. 
D) a and b 
E) b and c 
A) have an incentive to change their plant size to produce their current output. 
B) not be covering their total fixed costs. 
C) not be covering their total variable costs. 
D) a and b 
E) b and c

Question 17

In the theory of perfect competition,

Accepted Answer

A) the market demand curve is horizontal. 
B) the single firm faces a horizontal demand curve. 
C) the single firm faces a downward-sloping demand curve. 
D) the market demand curve is downward sloping. 
E) b and d 
A) the market demand curve is horizontal. 
B) the single firm faces a horizontal demand curve. 
C) the single firm faces a downward-sloping demand curve. 
D) the market demand curve is downward sloping. 
E) b and d

Question 18

A perfectly-competitive firm produces 2,000 units of a good during some period of time. For the 2,000th unit, marginal cost is equal to marginal revenue. The difference between marginal revenue and marginal cost is greater for the first unit the firm produces than the second, and greater for the second than the third, and so on. Furthermore, marginal revenue is greater than marginal cost for every unit from the first to the 1,999th. It follows that the

Accepted Answer

A) marginal cost curve for the firm has a downward-sloping portion and an upward-sloping portion. 
B) marginal cost curve for the firm is downward-sloping. 
C) marginal cost curve for the firm is upward-sloping. 
D) marginal revenue curve is downward-sloping. 
E) c and d 
A) marginal cost curve for the firm has a downward-sloping portion and an upward-sloping portion. 
B) marginal cost curve for the firm is downward-sloping. 
C) marginal cost curve for the firm is upward-sloping. 
D) marginal revenue curve is downward-sloping. 
E) c and d

Question 19

Exhibit 22-8
​
  
-Refer to Exhibit 22-8. What is the profit (loss) of firm A at the profit-maximizing (or loss-minimizing) level of production?

Accepted Answer

A) $300 
B) $270 
C) $600 
D) $400 
E) -$300 
A) $300 
B) $270 
C) $600 
D) $400 
E) -$300

Question 20

In a perfectly competitive market, the market demand curve is perfectly elastic.

Accepted Answer

A) True 
 B)False

Exam 22: Perfect Competition

Which of the following statements is true?

Exhibit 22-10 ​ -Refer to Exhibit 22-10. What quantity of output should the profit-maximizing firm produce?

What is the shape of the demand curve faced by the perfectly competitive firm? Why does it have this shape?

Explain the difference between resource allocative efficiency and productive efficiency.

A perfectly competitive firm that maximizes profit exhibits resource allocative efficiency because it produces where price

Which of the following statements about a perfectly competitive firm is necessarily false?

A perfectly competitive market is initially in long-run competitive equilibrium. Then, market demand increases. As a result, existing firms in the market begin to __________. By the time all adjustments have been made, profits will __________.

Consider the following data: equilibrium price = $40, quantity of output produced = 100 units, average total cost = $47, and average variable cost = $37. What should the firm do and why?

If an industry advertises, then it

If a seller is a price taker it means that the seller sells his product at the price

In order for a firm to earn economic profits, price must exceed average total cost.

When a perfectly competitive firm incurs losses, it follows that price

Exhibit 22-4 ​ -Refer to Exhibit 22-4. Where can you find the lowest price that will motivate the firm to produce Q1 in the short run?

Resource allocative efficiency exists for a perfectly competitive firm because

In long-run competitive equilibrium SRATC = LRATC, because if SRATC > LRATC (at the quantity of output at which MR = MC) firms would

In the theory of perfect competition,

Exhibit 22-8 ​ -Refer to Exhibit 22-8. What is the profit (loss) of firm A at the profit-maximizing (or loss-minimizing) level of production?

In a perfectly competitive market, the market demand curve is perfectly elastic.

What Economics Is About

Production Possibilities Frontier Framework

Supply and Demand Theory

Prices Free Controlled and Relative

Supply Demand and Price Applications

Macroeconomic Measurements Part I Prices and Unemployment

Macroeconomic Measurements Part II Gdp and Real Gdp

Aggregate Demand and Aggregate Supply

Classical Macroeconomics and the Self Regulating Economy

Keynesian Macroeconomics and Economic Instability a Critique of the Self Regulating Economy

Fiscal Policy and the Federal Budget

Money Banking and the Financial System

The Federal Reserve System

Money and the Economy

Monetary Policy

Expectations Theory and the Economy

Economic Growth Resources Technology Ideas and Institutions

Debates in Macroeconomics Over the Role and Effects of Government

Elasticity

Consumer Choice and Behavioral Economics

Production and Costs

Monopoly

Monopolistic Competition Oligopoly and Game Theory

Government and Product Markets Antitrust and Regulation

Factor Markets With Emphasis on the Labor Market

Wages Unions and Labor

The Distribution of Income and Poverty

Interest Rent and Profit

Market Failure Externalities Public Goods and Asymmetric Information

Public Choice and Special Interest Group Politics

Building Theories to Explain Everyday Life From Observations to Questions to Theories to Predictions

International Trade

International Finance

The Economic Case for and Against Government Five Topics Considered

Stocks Bonds Futures and Options

Filters

Exhibit 22-10 -Refer to Exhibit 22-10. What quantity of output should the profit-maximizing firm produce?

A perfectly competitive market is initially in long-run competitive equilibrium. Then, market demand increases. As a result, existing firms in the market begin to . By the time all adjustments have been made, profits will .

Exhibit 22-4 -Refer to Exhibit 22-4. Where can you find the lowest price that will motivate the firm to produce Q₁ in the short run?

Exhibit 22-8 -Refer to Exhibit 22-8. What is the profit (loss) of firm A at the profit-maximizing (or loss-minimizing) level of production?