Question 1

What is the difference between the accountant's concept of profit and the economist's view of profit?

Accepted Answer

Accountants tend to include in TC contra

Question 2

In the short-run, only a limited number of new firms may enter a perfectly competitive market.

Accepted Answer

A) True 
 B)False

Question 3

The supply curve for a perfectly competitive industry is obtained by

Accepted Answer

A)  making an empirical study of historical data. 
B)  vertically summing the supply curves of firms in the industry. 
C)  horizontally summing the average cost curves of firms in the industry. 
D)  horizontally summing the supply curves of firms in the industry. 
A)  making an empirical study of historical data. 
B)  vertically summing the supply curves of firms in the industry. 
C)  horizontally summing the average cost curves of firms in the industry. 
D)  horizontally summing the supply curves of firms in the industry.

Question 4

A firm earns a profit of exactly zero at its optimal output level only if

Accepted Answer

A)  P = MR. 
B)  P = MC. 
C)  P = AC. 
D)  P = SR AVC. 
A)  P = MR. 
B)  P = MC. 
C)  P = AC. 
D)  P = SR AVC.

Question 5

Figure 10-4
  
-Figure 10-4 shows the industry's supply and demand curves in panel (1) and the cost curves of a firm in the industry in panel (2).At S₃, the firm is

Accepted Answer

A)  going to shut down. 
B)  incurring losses. 
C)  earning zero economic profits. 
D)  earning economic profit greater than zero. 
A)  going to shut down. 
B)  incurring losses. 
C)  earning zero economic profits. 
D)  earning economic profit greater than zero.

Question 6

Figure 10-9
  
-Figure 10-9 shows supply and demand conditions in a perfectly competitive industry and for a firm in that industry.Assume the industry initially has supply curve S₁ and demand curve D₁.If demand shifts to D₂, then in the short run price will

Accepted Answer

A)  rise to A. 
B)  rise to some level between A and B. 
C)  remain at B. 
D)  fall to C. 
A)  rise to A. 
B)  rise to some level between A and B. 
C)  remain at B. 
D)  fall to C.

Question 7

An increase in market demand will cause an increase in industry output in the long run because

Accepted Answer

A)  new firms enter the industry. 
B)  new firms enter the industry and all firms increase their output. 
C)  all firms decrease their output but more new firms enter. 
D)  no firms enter but the existing firms increase their output. 
A)  new firms enter the industry. 
B)  new firms enter the industry and all firms increase their output. 
C)  all firms decrease their output but more new firms enter. 
D)  no firms enter but the existing firms increase their output.

Question 8

The most efficient market structure in the long run is

Accepted Answer

A)  perfect competition. 
B)  monopolistic competition. 
C)  oligopoly. 
D)  monopoly. 
A)  perfect competition. 
B)  monopolistic competition. 
C)  oligopoly. 
D)  monopoly.

Question 9

Richard Bland quit his job as an accounting professor to start his own restaurant.He gave up a salary of $50,000 per year and withdrew $100,000 in bank CDs earning 5 percent to buy a building and equipment.In the restaurant's first year it had direct expenses of $75,000 and revenues of $150,000.The restaurant's economic profit was

Accepted Answer

A)  $15,000. 
B)  $20,000. 
C)  $75,000. 
D)  not possible to determine from the information given. 
A)  $15,000. 
B)  $20,000. 
C)  $75,000. 
D)  not possible to determine from the information given.

Question 10

What makes the demand curve of the perfectly competitive firm uniquely different from that of firms in other kinds of market structures?

Accepted Answer

The perfectly competitive firm's demand

Question 11

What are the assumptions of the model of perfect competition? Explain why each is important for short-run and long-run equilibrium.

Accepted Answer

There are four assumptions:
1.Numerous s

Question 12

Define the following terms and explain their importance to the study of economics.
a.marginal cost
b.marginal revenue
c.short-run equilibrium
d.supply curve of the firm
e.economic profit

Accepted Answer

a.Marginal cost is the cost to the firm

Question 13

Which of the following is closest to the economist's definition of perfect competition?

Accepted Answer

A)  the airline industry 
B)  the soft drink industry 
C)  the fishing industry 
D)  cellular telephone service 
A)  the airline industry 
B)  the soft drink industry 
C)  the fishing industry 
D)  cellular telephone service

Question 14

If the objective of economic policy is to decrease the amount of pollution by an industry in the long run, the

Accepted Answer

A)  most effective policy action would be a subsidy to firms for the reduction of emissions. 
B)  most effective policy action would be a tax on polluting firms. 
C)  appropriate course of action for government is to do nothing. 
D)  appropriate course of action for government is to increase R&D outlays to develop technology to remove the emissions from the environment. 
A)  most effective policy action would be a subsidy to firms for the reduction of emissions. 
B)  most effective policy action would be a tax on polluting firms. 
C)  appropriate course of action for government is to do nothing. 
D)  appropriate course of action for government is to increase R&D outlays to develop technology to remove the emissions from the environment.

Question 15

A firm's minimum AC is $10, its minimum AVC $7.Show this firm's short-run supply curve, explaining how you obtained it.

Accepted Answer

Draw a U-shaped AC and AVC, with Q at mi

Question 16

We expect the demand curve in the perfectly competitive industry to be

Accepted Answer

A)  negatively sloped. 
B)  vertical. 
C)  horizontal. 
D)  perfectly elastic. 
A)  negatively sloped. 
B)  vertical. 
C)  horizontal. 
D)  perfectly elastic.

Question 17

In long-run equilibrium under perfect competition,

Accepted Answer

A)  the firm and the industry will have the same cost curves. 
B)  only a very few firms will be earning economic profits. 
C)  the demand curves facing individual firms will fall to the level of minimum AC. 
D)  individual firms will tend to increase their outputs. 
A)  the firm and the industry will have the same cost curves. 
B)  only a very few firms will be earning economic profits. 
C)  the demand curves facing individual firms will fall to the level of minimum AC. 
D)  individual firms will tend to increase their outputs.

Question 18

The number of firms in a perfectly competitive industry is not fixed in the long run.

Accepted Answer

A) True 
 B)False

Question 19

Figure 10-4
  
-Figure 10-4 shows the industry's supply and demand curves in panel (1) and the cost curves of a firm in the industry in panel (2).At S₂, the firm is

Accepted Answer

A)  going to shut down. 
B)  incurring losses. 
C)  earning zero economic profits. 
D)  earning economic profit greater than zero. 
A)  going to shut down. 
B)  incurring losses. 
C)  earning zero economic profits. 
D)  earning economic profit greater than zero.

Question 20

A firm can stay in business while taking a loss in the short run as long as it covers its

Accepted Answer

A)  fixed costs. 
B)  variable costs. 
C)  fixed and variable costs. 
D)  A firm can never stay in business when it experiences losses. 
A)  fixed costs. 
B)  variable costs. 
C)  fixed and variable costs. 
D)  A firm can never stay in business when it experiences losses.

Exam 10: The Firm and the Industry under Perfect Competition

What is the difference between the accountant's concept of profit and the economist's view of profit?

In the short-run, only a limited number of new firms may enter a perfectly competitive market.

The supply curve for a perfectly competitive industry is obtained by

A firm earns a profit of exactly zero at its optimal output level only if

Figure 10-4 -Figure 10-4 shows the industry's supply and demand curves in panel (1) and the cost curves of a firm in the industry in panel (2).At S₃, the firm is

Figure 10-9 -Figure 10-9 shows supply and demand conditions in a perfectly competitive industry and for a firm in that industry.Assume the industry initially has supply curve S₁ and demand curve D₁.If demand shifts to D₂, then in the short run price will

An increase in market demand will cause an increase in industry output in the long run because

The most efficient market structure in the long run is

What makes the demand curve of the perfectly competitive firm uniquely different from that of firms in other kinds of market structures?

What are the assumptions of the model of perfect competition? Explain why each is important for short-run and long-run equilibrium.

Define the following terms and explain their importance to the study of economics. a.marginal cost b.marginal revenue c.short-run equilibrium d.supply curve of the firm e.economic profit

Which of the following is closest to the economist's definition of perfect competition?

If the objective of economic policy is to decrease the amount of pollution by an industry in the long run, the

A firm's minimum AC is $10, its minimum AVC $7.Show this firm's short-run supply curve, explaining how you obtained it.

We expect the demand curve in the perfectly competitive industry to be

In long-run equilibrium under perfect competition,

The number of firms in a perfectly competitive industry is not fixed in the long run.

Figure 10-4 -Figure 10-4 shows the industry's supply and demand curves in panel (1) and the cost curves of a firm in the industry in panel (2).At S₂, the firm is

A firm can stay in business while taking a loss in the short run as long as it covers its

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

Filters