Question 1

The perfectly competitive firm will shut down in the short run if price is

Accepted Answer

A) less than average variable cost. 
B) greater than average variable cost but less than average total cost. 
C) greater than average total cost. 
D) equal to average total cost. 
E) a and b 
A) less than average variable cost. 
B) greater than average variable cost but less than average total cost. 
C) greater than average total cost. 
D) equal to average total cost. 
E) a and b

Question 2

Exhibit 22-4
​
  
-Refer to Exhibit 22-4. The firm sells its product at P1 and produces Q1. Given this situation,

Accepted Answer

A) total variable cost is equal to area 1 + area 2. 
B) total revenue is equal to area 1. 
C) total cost is equal to area 2 + area 3. 
D) a and b 
E) a, b, and c 
A) total variable cost is equal to area 1 + area 2. 
B) total revenue is equal to area 1. 
C) total cost is equal to area 2 + area 3. 
D) a and b 
E) a, b, and c

Question 3

A perfectly competitive market is initially in long-run competitive equilibrium. Each firm in the market is earning zero economic profit. The owner of one firm decides to discriminate against employees of race X by not hiring them, or by firing those employees of race X who currently work for him. If employees of race X are high-quality employees, and other firms hire them, then the owner of the discriminating firm will soon find that his costs rise (above that of other firms) and he will begin earning

Accepted Answer

A) below normal profits. 
B) normal profits. 
C) positive economic profits. 
D) losses. 
E) a and d 
A) below normal profits. 
B) normal profits. 
C) positive economic profits. 
D) losses. 
E) a and d

Question 4

Equilibrium price is $22 in a perfectly competitive market. For a perfectly competitive firm, MR = MC at 200 units of output. At 200 units, ATC is $23, and AVC is $18. The best policy for this firm is to __________ in the short run. Also, this firm earns __________ of __________ if it produces and sells 200 units. Finally, the difference between total variable cost and total fixed cost for this firm is __________.

Accepted Answer

A) continue to produce, profits, $1800, $3,600 
B) shut down, losses, $200, $3,600 
C) continue to produce, losses, $200, $2,600 
D) shut down, profits, $200, $1,800 
E) none of the above 
A) continue to produce, profits, $1800, $3,600 
B) shut down, losses, $200, $3,600 
C) continue to produce, losses, $200, $2,600 
D) shut down, profits, $200, $1,800 
E) none of the above

Question 5

The profit-maximization rule is as follows:

Accepted Answer

A) Produce the quantity of output at which price equals average total cost (unit cost). 
B) Produce as much output as can be sold. 
C) Produce the quantity of output at which marginal revenue equals marginal cost. 
D) Produce the quantity of output at which marginal revenue equals unit cost. 
E) Produce the quantity of output at which total cost is minimized. 
A) Produce the quantity of output at which price equals average total cost (unit cost). 
B) Produce as much output as can be sold. 
C) Produce the quantity of output at which marginal revenue equals marginal cost. 
D) Produce the quantity of output at which marginal revenue equals unit cost. 
E) Produce the quantity of output at which total cost is minimized.

Question 6

Exhibit 22-4
​
  
-Refer to Exhibit 22-4. The firm sells its product at P1 and produces Q1. Given this situation,

Accepted Answer

A) total variable cost is equal to area 2 + area 3. 
B) total revenue is equal to area 1 + area 2. 
C) total cost is equal to area 1 + area 2 + area 3. 
D) profit equals area 1. 
E) none of the above 
A) total variable cost is equal to area 2 + area 3. 
B) total revenue is equal to area 1 + area 2. 
C) total cost is equal to area 1 + area 2 + area 3. 
D) profit equals area 1. 
E) none of the above

Question 7

A perfectly competitive market is initially in long-run competitive equilibrium. Then, market demand increases. As a result,

Accepted Answer

A) the marginal revenue curve for each firm shifts upward. 
B) the demand curve for each firm shifts upward. 
C) marginal cost for each firm falls. 
D) average total cost for each firm rises. 
E) a and b 
A) the marginal revenue curve for each firm shifts upward. 
B) the demand curve for each firm shifts upward. 
C) marginal cost for each firm falls. 
D) average total cost for each firm rises. 
E) a and b

Question 8

Real-world markets that approximate the four assumptions of the theory of perfect competition include

Accepted Answer

A) some agricultural markets. 
B) the soft drink market. 
C) the stock market. 
D) a and c 
E) a, b, and c 
A) some agricultural markets. 
B) the soft drink market. 
C) the stock market. 
D) a and c 
E) a, b, and c

Question 9

A perfectly competitive firm should increase its level of production as long as

Accepted Answer

A) total revenue is less than total cost. 
B) the total revenue curve is rising. 
C) marginal revenue is greater than marginal cost. 
D) the marginal revenue curve is rising. 
A) total revenue is less than total cost. 
B) the total revenue curve is rising. 
C) marginal revenue is greater than marginal cost. 
D) the marginal revenue curve is rising.

Question 10

Which of the following is not a condition of long-run competitive equilibrium?

Accepted Answer

A) Economic profits are zero. 
B) Marginal revenue is greater than marginal cost. 
C) Price is equal to marginal cost. 
D) Firms do not have an incentive to change plant size. 
E) none of the above 
A) Economic profits are zero. 
B) Marginal revenue is greater than marginal cost. 
C) Price is equal to marginal cost. 
D) Firms do not have an incentive to change plant size. 
E) none of the above

Question 11

A perfectly competitive firm should shut down production in the short run if price is less than average fixed cost at the loss-minimizing level of output.

Accepted Answer

A) True 
 B)False

Question 12

In perfect competition, the firm's marginal revenue curve is

Accepted Answer

A) perfectly elastic. 
B) the same as the firm's demand curve. 
C) the same as the firm's total revenue curve. 
D) a and b 
E) a and c 
A) perfectly elastic. 
B) the same as the firm's demand curve. 
C) the same as the firm's total revenue curve. 
D) a and b 
E) a and c

Question 13

Exhibit 22-6
​
  
-Refer to Exhibit 22-6. A perfectly competitive firm operating in the market depicted in graph (1) is producing 311 units of output at the profit-maximizing level. What is the marginal revenue of the 312th unit?

Accepted Answer

A) $0.312 
B) $1 
C) $10 
D) $312 
E) This cannot be determined based on the information provided. 
A) $0.312 
B) $1 
C) $10 
D) $312 
E) This cannot be determined based on the information provided.

Question 14

The price at which a perfectly competitive firm sells its product is determined by

Accepted Answer

A) the individual seller based on his costs of production and his profit margin. 
B) all sellers and buyers of the product. 
C) the buyers of the product, because there are so many sellers that they cannot agree on a price. 
D) the government, because there are so many buyers and sellers of the product that together they cannot agree on the price. 
A) the individual seller based on his costs of production and his profit margin. 
B) all sellers and buyers of the product. 
C) the buyers of the product, because there are so many sellers that they cannot agree on a price. 
D) the government, because there are so many buyers and sellers of the product that together they cannot agree on the price.

Question 15

Describe how profit serves as both an incentive for individuals to produce and as a signal.

Accepted Answer

Profit is an incentive because it motiva

Question 16

Is it possible for a perfectly competitive firm to be maximizing profits, but not achieving resource allocative efficiency?

Accepted Answer

A) Definitely yes, because it is impossible to achieve both at the same time. 
B) Yes, it is possible, but it is not possible to minimize losses without also achieving resource allocative efficiency. 
C) No, it is not possible, because the output at which MR = MC is also the output at which P = MC. 
D) There is not enough information to answer this question. 
A) Definitely yes, because it is impossible to achieve both at the same time. 
B) Yes, it is possible, but it is not possible to minimize losses without also achieving resource allocative efficiency. 
C) No, it is not possible, because the output at which MR = MC is also the output at which P = MC. 
D) There is not enough information to answer this question.

Question 17

Does a real-world market have to meet all the assumptions of the theory of perfect competition before it is considered a perfectly competitive market?

Accepted Answer

A) No, probably no real-world market meets all the assumptions of the theory of perfect competition.All that is necessary is that a real-world market behave as if it satisfies all the assumptions. 
B) Yes, if a real-world market does not meet the assumptions, then it cannot be considered a perfectly competitive market. 
C) Yes, unless it is a new market such as the computer market.New markets are not held to the same assumptions as old, more established markets. 
D) No, but it does have to meet the assumption of producing and selling a homogeneous product.It does not have to fully meet the other assumptions. 
A) No, probably no real-world market meets all the assumptions of the theory of perfect competition.All that is necessary is that a real-world market behave as if it satisfies all the assumptions. 
B) Yes, if a real-world market does not meet the assumptions, then it cannot be considered a perfectly competitive market. 
C) Yes, unless it is a new market such as the computer market.New markets are not held to the same assumptions as old, more established markets. 
D) No, but it does have to meet the assumption of producing and selling a homogeneous product.It does not have to fully meet the other assumptions.

Question 18

Exhibit 22-7
​
  
-Refer to Exhibit 22-7. The perfectly competitive, profit-maximizing firm will produce __________ units of output.

Accepted Answer

A) 10 
B) 30 
C) 50 
D) 60 
E) 70 
A) 10 
B) 30 
C) 50 
D) 60 
E) 70

Question 19

Equilibrium price is $17 in a perfectly competitive market. For a perfectly competitive firm, MR = MC at 275 units of output. At 275 units, ATC is $19, and AVC is $13. The best policy for this firm is to __________ in the short run. Also, total fixed cost equals __________ for this firm.

Accepted Answer

A) continue to produce; $3,575 
B) shut down; $699 
C) continue to produce; $1,650 
D) shut down; $2,796 
E) continue to produce; $6 
A) continue to produce; $3,575 
B) shut down; $699 
C) continue to produce; $1,650 
D) shut down; $2,796 
E) continue to produce; $6

Question 20

Exhibit 22-10
   ​
-Refer to Exhibit 22-10. What price does this firm charge for its product?

Accepted Answer

A) $10 
B) $20 
C) $25 
D) $30 
E) There is not enough information to answer this question. 
A) $10 
B) $20 
C) $25 
D) $30 
E) There is not enough information to answer this question.

Exam 22: Perfect Competition

The perfectly competitive firm will shut down in the short run if price is

Exhibit 22-4 ​ -Refer to Exhibit 22-4. The firm sells its product at P1 and produces Q1. Given this situation,

The profit-maximization rule is as follows:

Exhibit 22-4 ​ -Refer to Exhibit 22-4. The firm sells its product at P1 and produces Q1. Given this situation,

A perfectly competitive market is initially in long-run competitive equilibrium. Then, market demand increases. As a result,

Real-world markets that approximate the four assumptions of the theory of perfect competition include

A perfectly competitive firm should increase its level of production as long as

Which of the following is not a condition of long-run competitive equilibrium?

A perfectly competitive firm should shut down production in the short run if price is less than average fixed cost at the loss-minimizing level of output.

In perfect competition, the firm's marginal revenue curve is

Exhibit 22-6 ​ -Refer to Exhibit 22-6. A perfectly competitive firm operating in the market depicted in graph (1) is producing 311 units of output at the profit-maximizing level. What is the marginal revenue of the 312th unit?

The price at which a perfectly competitive firm sells its product is determined by

Describe how profit serves as both an incentive for individuals to produce and as a signal.

Is it possible for a perfectly competitive firm to be maximizing profits, but not achieving resource allocative efficiency?

Does a real-world market have to meet all the assumptions of the theory of perfect competition before it is considered a perfectly competitive market?

Exhibit 22-7 ​ -Refer to Exhibit 22-7. The perfectly competitive, profit-maximizing firm will produce __________ units of output.

Equilibrium price is $17 in a perfectly competitive market. For a perfectly competitive firm, MR = MC at 275 units of output. At 275 units, ATC is $19, and AVC is $13. The best policy for this firm is to __________ in the short run. Also, total fixed cost equals __________ for this firm.

Exhibit 22-10 ​ -Refer to Exhibit 22-10. What price does this firm charge for its product?

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 22-4 -Refer to Exhibit 22-4. The firm sells its product at P₁ and produces Q₁. Given this situation,

Exhibit 22-4 -Refer to Exhibit 22-4. The firm sells its product at P₁ and produces Q₁. Given this situation,

Exhibit 22-6 -Refer to Exhibit 22-6. A perfectly competitive firm operating in the market depicted in graph (1) is producing 311 units of output at the profit-maximizing level. What is the marginal revenue of the 312th unit?

Exhibit 22-7 -Refer to Exhibit 22-7. The perfectly competitive, profit-maximizing firm will produce __________ units of output.

Equilibrium price is $17 in a perfectly competitive market. For a perfectly competitive firm, MR = MC at 275 units of output. At 275 units, ATC is $19, and AVC is $13. The best policy for this firm is to in the short run. Also, total fixed cost equals for this firm.

Exhibit 22-10 -Refer to Exhibit 22-10. What price does this firm charge for its product?