Question 1

A perfectly competitive industry with constant costs initially operates in long-run equilibrium. When demand increases:

Accepted Answer

A)  in the short run, prices and profits will be higher, but in the long run, price will fall back to its original level and firms will again earn zero economic profit. 
B)  in the long run and the short run, prices and profits will be higher than before the demand increase. 
C)  in the short run, prices and profits will fall, but in the long run, price will rise back to its initial level, as will profits. 
D)  in the long run and the short run, prices and profits will be lower than before the demand increase. 
A)  in the short run, prices and profits will be higher, but in the long run, price will fall back to its original level and firms will again earn zero economic profit. 
B)  in the long run and the short run, prices and profits will be higher than before the demand increase. 
C)  in the short run, prices and profits will fall, but in the long run, price will rise back to its initial level, as will profits. 
D)  in the long run and the short run, prices and profits will be lower than before the demand increase. A

Question 2

The competitive model assumes all of the following EXCEPT:

Accepted Answer

A)  a large number of buyers. 
B)  easy entry to and exit from the market. 
C)  standardized product. 
D)  patents and copyrights that serve as barriers to entry into the industry. 
A)  a large number of buyers. 
B)  easy entry to and exit from the market. 
C)  standardized product. 
D)  patents and copyrights that serve as barriers to entry into the industry. D

Question 3

The supply curve found by taking the horizontal summation of the short-run supply curves of all of the firms in a perfectly competitive industry is called the _____ curve.

Accepted Answer

A)  marginal cost 
B)  short-run market supply 
C)  interim market supply 
D)  competitive 
A)  marginal cost 
B)  short-run market supply 
C)  interim market supply 
D)  competitive B

Question 4

If a perfectly competitive firm reduces its output, the market price will increase.

Accepted Answer

A) True 
 B)False

Question 5

Use the following to answer questions:  
-(Table: Total Cost and Output) Look at the table Total Cost and Output, which describes Sergei's total costs for his perfectly competitive all-natural ice cream firm. What is the minimum price that Sergei needs to receive for a tub of ice cream to stay in business in the long run?

Accepted Answer

A)  $10.00 
B)  $20.00 
C)  $33.33 
D)  $36.67 
A)  $10.00 
B)  $20.00 
C)  $33.33 
D)  $36.67

Question 6

Use the following to answer questions:
Figure: A Perfectly Competitive Firm in the Short Run  
-(Figure: A Perfectly Competitive Firm in the Short Run) Look at the figure A Perfectly Competitive Firm in the Short Run. The minimum price that the firm must receive to produce in the short run is:

Accepted Answer

A)  F. 
B)  E. 
C)  N. 
D)  P. 
A)  F. 
B)  E. 
C)  N. 
D)  P.

Question 7

A perfectly competitive firm will continue producing in the short run as long as it can cover its _____ cost.

Accepted Answer

A)  total 
B)  average fixed 
C)  variable 
D)  fixed 
A)  total 
B)  average fixed 
C)  variable 
D)  fixed

Question 8

Lawn mowing is a perfectly competitive industry. Alex's Lawn Mowing Service should close if Alex expects his long-run economic profits to equal zero.

Accepted Answer

A) True 
 B)False

Question 9

When economic profits in an industry are zero:

Accepted Answer

A)  firms are really doing badly. 
B)  firms are doing as well as they could do in other markets. 
C)  firms should exit so they can make an economic profit in some other market. 
D)  the industry is not in long-run equilibrium. 
A)  firms are really doing badly. 
B)  firms are doing as well as they could do in other markets. 
C)  firms should exit so they can make an economic profit in some other market. 
D)  the industry is not in long-run equilibrium.

Question 10

In a perfectly competitive industry, each firm:

Accepted Answer

A)  is a price maker. 
B)  produces about half of the total industry output. 
C)  produces a differentiated product. 
D)  produces a standardized product. 
A)  is a price maker. 
B)  produces about half of the total industry output. 
C)  produces a differentiated product. 
D)  produces a standardized product.

Question 11

Use the following to answer questions:  
-(Table: Variable Costs for Lots) Look at the table Variable Costs for Lots. During the winter, Alexa runs a snow-clearing service in a perfectly competitive industry. Assume that costs are constant in each interval; that is, the variable cost of clearing anywhere from 1 through 10 lots is $200. Her only fixed cost is $1,000 for a snowplow. Her variable costs include fuel, her time, and hot coffee. If the price to clear a lot is $30, what is Alexa's profit per unit at the optimal output?

Accepted Answer

A)  -$13.75 
B)  $720 
C)  $0 
D)  -$12.25 
A)  -$13.75 
B)  $720 
C)  $0 
D)  -$12.25

Question 12

Use the following to answer questions:
Figure: Game-Day Shirts  
-(Figure: Game-Day Shirts) Rick is one of 10 vendors who sell game-day T-shirts at football games in a perfectly competitive market. His costs are identical to the costs of the other 9 vendors. If the price of a shirt is $14, the short-run industry supply will be _____ shirts.

Accepted Answer

A)  140 
B)  200 
C)  220 
D)  240 
A)  140 
B)  200 
C)  220 
D)  240

Question 13

Use the following to answer questions:  
-(Table: Variable Costs for Lots) Look at the table Variable Costs for Lots. During the winter, Alexa runs a snow-clearing service in a perfectly competitive industry, which is made up of 50 identical firms. Assume that costs are constant in each interval; that is, the variable cost of clearing anywhere from 1 through 10 lots is $200. Her only fixed cost is $1,000 for a snowplow. Her variable costs include fuel, her time, and hot coffee. Which of the following is a point on the industry short-run supply curve?

Accepted Answer

A)  P = $40; Q = 60 
B)  P = $10; Q = 10,000 
C)  P = $35; Q = 2,500 
D)  P = $25; Q = 40 
A)  P = $40; Q = 60 
B)  P = $10; Q = 10,000 
C)  P = $35; Q = 2,500 
D)  P = $25; Q = 40

Question 14

A competitive firm operating in the short run is maximizing profits and just breaking even. Its costs include a monthly state license fee of $100 that must be paid for as long as the firm operates. If the license fee is raised to $150, what should the firm do to maximize profits in the short run?

Accepted Answer

A)  increase price 
B)  increase output 
C)  reduce output 
D)  not change output 
A)  increase price 
B)  increase output 
C)  reduce output 
D)  not change output

Question 15

Use the following to answer questions:  
-(Table: Cherry Farm) Look at the table Cherry Farm. If all cherry farms are the same size, how much will each farm produce in long-run equilibrium?

Accepted Answer

A)  0 pounds 
B)  4 pounds 
C)  5 pounds 
D)  7 pounds 
A)  0 pounds 
B)  4 pounds 
C)  5 pounds 
D)  7 pounds

Question 16

Zoe's Bakery determines that P  AVC. In the short run, Zoe should:

Accepted Answer

A)  continue to operate even though she is taking an economic loss. 
B)  continue to operate, as she is making an economic profit. 
C)  shut down immediately, as she is taking an economic loss. 
D)  raise the price until she has maximized her profits. 
A)  continue to operate even though she is taking an economic loss. 
B)  continue to operate, as she is making an economic profit. 
C)  shut down immediately, as she is taking an economic loss. 
D)  raise the price until she has maximized her profits.

Question 17

Why are perfectly competitive firms described as price takers?

Accepted Answer

It is a result of the necessary conditio

Question 18

In the short run, the fixed costs of running a farm should play no role in determining the level of production.

Accepted Answer

A) True 
 B)False

Question 19

Suppose the beef industry is perfectly competitive and the demand for beef rises. As long as the demand does not subsequently fall, beef producers can expect to earn economic profits in both the short run and the long run.

Accepted Answer

A) True 
 B)False

Question 20

Use the following to answer questions:
Figure: The Profit-Maximizing Firm in the Short Run  
-(Figure: The Profit-Maximizing Firm in the Short Run) Look at the figure The Profit-Maximizing Firm in the Short Run. The MC curve is represented by:

Accepted Answer

A)  none of the curves. 
B)  curve O. 
C)  curve M. 
D)  curve N. 
A)  none of the curves. 
B)  curve O. 
C)  curve M. 
D)  curve N.

A perfectly competitive industry with constant costs initially operates in long-run equilibrium. When demand increases:

The competitive model assumes all of the following EXCEPT:

The supply curve found by taking the horizontal summation of the short-run supply curves of all of the firms in a perfectly competitive industry is called the _____ curve.

If a perfectly competitive firm reduces its output, the market price will increase.

Use the following to answer questions: Figure: A Perfectly Competitive Firm in the Short Run -(Figure: A Perfectly Competitive Firm in the Short Run) Look at the figure A Perfectly Competitive Firm in the Short Run. The minimum price that the firm must receive to produce in the short run is:

A perfectly competitive firm will continue producing in the short run as long as it can cover its _____ cost.

Lawn mowing is a perfectly competitive industry. Alex's Lawn Mowing Service should close if Alex expects his long-run economic profits to equal zero.

When economic profits in an industry are zero:

In a perfectly competitive industry, each firm:

A competitive firm operating in the short run is maximizing profits and just breaking even. Its costs include a monthly state license fee of $100 that must be paid for as long as the firm operates. If the license fee is raised to $150, what should the firm do to maximize profits in the short run?

Use the following to answer questions: -(Table: Cherry Farm) Look at the table Cherry Farm. If all cherry farms are the same size, how much will each farm produce in long-run equilibrium?

Zoe's Bakery determines that P < ATC and P > AVC. In the short run, Zoe should:

Why are perfectly competitive firms described as price takers?

In the short run, the fixed costs of running a farm should play no role in determining the level of production.

Suppose the beef industry is perfectly competitive and the demand for beef rises. As long as the demand does not subsequently fall, beef producers can expect to earn economic profits in both the short run and the long run.

Use the following to answer questions: Figure: The Profit-Maximizing Firm in the Short Run -(Figure: The Profit-Maximizing Firm in the Short Run) Look at the figure The Profit-Maximizing Firm in the Short Run. The MC curve is represented by:

First Principles

Economic Models: Trade-Offs and Trade 25

Supply and Demand

Consumer and Producer Surplus

Price Controls and Quotas: Meddling With Markets

Elasticity

Taxes

International Trade

Decision Making by Individuals Firms

The Rational Consumer

Behind the Supply Curve: Inputs and Costs

Monopoly

Oligopoly

Monopolistic Competition and Product Differentiation

Externalities

Public Goods Common Resources

The Economics of the Welfare

Factor Markets and the Distribution of Income

Uncertainty, Risk, and Private Information

Filters

Exam 12: Perfect Competition and the Supply Curve

A perfectly competitive industry with constant costs initially operates in long-run equilibrium. When demand increases:

The competitive model assumes all of the following EXCEPT:

The supply curve found by taking the horizontal summation of the short-run supply curves of all of the firms in a perfectly competitive industry is called the _____ curve.

If a perfectly competitive firm reduces its output, the market price will increase.

Use the following to answer questions: Figure: A Perfectly Competitive Firm in the Short Run -(Figure: A Perfectly Competitive Firm in the Short Run) Look at the figure A Perfectly Competitive Firm in the Short Run. The minimum price that the firm must receive to produce in the short run is:

A perfectly competitive firm will continue producing in the short run as long as it can cover its _____ cost.

Lawn mowing is a perfectly competitive industry. Alex's Lawn Mowing Service should close if Alex expects his long-run economic profits to equal zero.

When economic profits in an industry are zero:

In a perfectly competitive industry, each firm:

A competitive firm operating in the short run is maximizing profits and just breaking even. Its costs include a monthly state license fee of $100 that must be paid for as long as the firm operates. If the license fee is raised to $150, what should the firm do to maximize profits in the short run?

Use the following to answer questions: -(Table: Cherry Farm) Look at the table Cherry Farm. If all cherry farms are the same size, how much will each farm produce in long-run equilibrium?

Zoe's Bakery determines that P < ATC and P > AVC. In the short run, Zoe should:

Why are perfectly competitive firms described as price takers?

In the short run, the fixed costs of running a farm should play no role in determining the level of production.

Suppose the beef industry is perfectly competitive and the demand for beef rises. As long as the demand does not subsequently fall, beef producers can expect to earn economic profits in both the short run and the long run.

Use the following to answer questions: Figure: The Profit-Maximizing Firm in the Short Run -(Figure: The Profit-Maximizing Firm in the Short Run) Look at the figure The Profit-Maximizing Firm in the Short Run. The MC curve is represented by:

First Principles

Economic Models: Trade-Offs and Trade 25

Supply and Demand

Consumer and Producer Surplus

Price Controls and Quotas: Meddling With Markets

Elasticity

Taxes

International Trade

Decision Making by Individuals Firms

The Rational Consumer

Behind the Supply Curve: Inputs and Costs

Monopoly

Oligopoly

Monopolistic Competition and Product Differentiation

Externalities

Public Goods Common Resources

The Economics of the Welfare

Factor Markets and the Distribution of Income

Uncertainty, Risk, and Private Information

Filters