Question 1

Figure 10-1
  
-If the profit-maximizing firm depicted in Figure 10-1 is perfectly competitive, how much output should it produce?

Accepted Answer

A)  A 
B)  B 
C)  C 
D)  D 
A)  A 
B)  B 
C)  C 
D)  D

Question 2

Economists study perfect competition

Accepted Answer

A)  because many markets are perfectly competitive. 
B)  for its descriptive realism. 
C)  to establish a benchmark by which to measure the performance of the economy. 
D)  All of the above are correct. 
A)  because many markets are perfectly competitive. 
B)  for its descriptive realism. 
C)  to establish a benchmark by which to measure the performance of the economy. 
D)  All of the above are correct.

Question 3

Explain the reasoning behind the shutdown rules.When is it appropriate to operate with a loss?

Accepted Answer

1.The firm will make a profit if total r

Question 4

In the short run, a firm may have accounting losses and remain in operation.

Accepted Answer

A) True 
 B)False

Question 5

A firm that is earning zero economic profit should go out of business.

Accepted Answer

A) True 
 B)False

Question 6

Explain how the short-run supply curve of the competitive firm is derived.

Accepted Answer

Since the firm is either minimizing loss

Question 7

A perfectly competitive firm should continue to expand output until

Accepted Answer

A)  total revenue exceeds total costs. 
B)  total revenue exceeds variable costs. 
C)  marginal revenue equals marginal costs. 
D)  average revenue equals variable costs. 
A)  total revenue exceeds total costs. 
B)  total revenue exceeds variable costs. 
C)  marginal revenue equals marginal costs. 
D)  average revenue equals variable costs.

Question 8

A firm will shut down in the short run if

Accepted Answer

A)  P  AVC. 
C)  AVC > AFC. 
D)  TR > TC. 
A)  P  AVC. 
C)  AVC > AFC. 
D)  TR > TC.

Question 9

The result that perfectly competitive firms produce at the lowest per-unit cost is derived from the assumptions of

Accepted Answer

A)  homogeneous products. 
B)  few sellers. 
C)  firms facing horizontal demand curves. 
D)  free entry and exit. 
A)  homogeneous products. 
B)  few sellers. 
C)  firms facing horizontal demand curves. 
D)  free entry and exit.

Question 10

Perfect competition forms one extreme of the market structure spectrum.

Accepted Answer

A) True 
 B)False

Question 11

Firms in a perfectly competitive market produce at minimum average cost in the short run and the long run.

Accepted Answer

A) True 
 B)False

Question 12

A perfectly competitive firm is a "price taker" because it cannot sell its product for more than the market price.

Accepted Answer

A) True 
 B)False

Question 13

Which requirement for perfect competition rules out trade associations or other collusive arrangements in which firms work together to influence price?

Accepted Answer

A)  Freedom of entry and exit. 
B)  Homogeneity of product. 
C)  Perfect information. 
D)  Numerous small firms and customers. 
A)  Freedom of entry and exit. 
B)  Homogeneity of product. 
C)  Perfect information. 
D)  Numerous small firms and customers.

Question 14

If a firm shuts down, its

Accepted Answer

A)  fixed costs remain unchanged. 
B)  revenue will fall to zero. 
C)  short-run variable costs will fall to zero. 
D)  All of the above are correct. 
A)  fixed costs remain unchanged. 
B)  revenue will fall to zero. 
C)  short-run variable costs will fall to zero. 
D)  All of the above are correct.

Question 15

Under the theory of perfect competition, firms and buyers know the availability and prices associated with all products in the market.

Accepted Answer

A) True 
 B)False

Question 16

The entry of new firms into a perfectly competitive market shifts the demand curve outward.

Accepted Answer

A) True 
 B)False

Question 17

Subsidizing firms that pollute will reduce pollution in the long run.

Accepted Answer

A) True 
 B)False

Question 18

When new farmers enter the wheat industry, the equilibrium price of wheat

Accepted Answer

A)  always falls. 
B)  falls only if existing firms gang up on the entrant. 
C)  falls only if existing firms are earning no economic profit. 
D)  falls only if the new firm is more efficient than existing firms. 
A)  always falls. 
B)  falls only if existing firms gang up on the entrant. 
C)  falls only if existing firms are earning no economic profit. 
D)  falls only if the new firm is more efficient than existing firms.

Question 19

In long-run equilibrium, the perfectly competitive firm produces

Accepted Answer

A)  where P = MC = AC. 
B)  at the lowest point on its long-run average cost curve. 
C)  where its long-run average cost curve is tangent to its horizontal demand curve. 
D)  All of the above are correct. 
A)  where P = MC = AC. 
B)  at the lowest point on its long-run average cost curve. 
C)  where its long-run average cost curve is tangent to its horizontal demand curve. 
D)  All of the above are correct.

Question 20

What happens to the price of the product and total revenue for a perfectly competitive firm if it doubles the amount of output it supplies in the market?

Accepted Answer

The perfectly competitive firm is so ins

Exam 10: The Firm and the Industry under Perfect Competition

Figure 10-1 -If the profit-maximizing firm depicted in Figure 10-1 is perfectly competitive, how much output should it produce?

Economists study perfect competition

Explain the reasoning behind the shutdown rules.When is it appropriate to operate with a loss?

In the short run, a firm may have accounting losses and remain in operation.

A firm that is earning zero economic profit should go out of business.

Explain how the short-run supply curve of the competitive firm is derived.

A perfectly competitive firm should continue to expand output until

A firm will shut down in the short run if

The result that perfectly competitive firms produce at the lowest per-unit cost is derived from the assumptions of

Perfect competition forms one extreme of the market structure spectrum.

Firms in a perfectly competitive market produce at minimum average cost in the short run and the long run.

A perfectly competitive firm is a "price taker" because it cannot sell its product for more than the market price.

Which requirement for perfect competition rules out trade associations or other collusive arrangements in which firms work together to influence price?

If a firm shuts down, its

Under the theory of perfect competition, firms and buyers know the availability and prices associated with all products in the market.

The entry of new firms into a perfectly competitive market shifts the demand curve outward.

Subsidizing firms that pollute will reduce pollution in the long run.

When new farmers enter the wheat industry, the equilibrium price of wheat

In long-run equilibrium, the perfectly competitive firm produces

What happens to the price of the product and total revenue for a perfectly competitive firm if it doubles the amount of output it supplies in the market?

What Is Economics?

The Economy: Myth and Reality

The Fundamental Economic Problem: Scarcity and Choice

Supply and Demand: An Initial Look

Consumer Choice: Individual and Market Demand

Demand and Elasticity

Production, Inputs, and Cost: Building Blocks for Supply Analysis

Output, Price, and Profit: The Importance of Marginal Analysis

Securities: Business Finance, and the Economy: The Tail that Wags the Dog?

Monopoly

Between Competition and Monopoly

Limiting Market Power: Regulation and Antitrust

The Case for Free Markets I: The Price System

The Shortcomings of Free Markets

The Market's Prime Achievement: Innovation and Growth

Externalities, the Environment, and Natural Resources

Taxation and Resource Allocation

Pricing the Factors of Production

Labor and Entrepreneurship: The Human Inputs

Poverty, Inequality, and Discrimination

An Introduction to Macroeconomics

The Goals of Macroeconomic Policy

Economic Growth: Theory and Policy

Aggregate Demand and the Powerful Consumer

Demand-Side Equilibrium: Unemployment or Inflation?

Bringing in the Supply Side: Unemployment and Inflation?

Managing Aggregate Demand: Fiscal Policy

Money and the Banking System

Monetary Policy: Conventional and Unconventional

The Financial Crisis and the Great Recession

The Debate over Monetary and Fiscal Policy

Budget Deficits in the Short and Long Run

The Trade-Off between Inflation and Unemployment

International Trade and Comparative Advantage

The International Monetary System: Order or Disorder?

Exchange Rates and the Macroeconomy

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