Question 1

If a firm shuts down in the short run, its losses are equal to

Accepted Answer

A) TC − TR. 
B) TFC. 
C) TVC. 
D) MC. 
A) TC − TR. 
B) TFC. 
C) TVC. 
D) MC.

Question 2

Perfect competition is the term used to describe

Accepted Answer

A) an industry in which all businessmen are honest and accommodating. 
B) an industry in which numerous firms produce identical products. 
C) an industry untouched by government regulation. 
D) the kind of industry any American would support. 
A) an industry in which all businessmen are honest and accommodating. 
B) an industry in which numerous firms produce identical products. 
C) an industry untouched by government regulation. 
D) the kind of industry any American would support.

Question 3

The opportunity cost of a given investment is the potential earnings forfeited by tying up money in the investment.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following is not a characteristic of perfect competition?

Accepted Answer

A) Firms and consumers all have perfect information about the good and market. 
B) Sellers can enter the market easily. 
C) All goods sold are identical. 
D) All consumers have identical individual demand curves. 
A) Firms and consumers all have perfect information about the good and market. 
B) Sellers can enter the market easily. 
C) All goods sold are identical. 
D) All consumers have identical individual demand curves.

Question 5

For a perfectly competitive firm, the long-run supply curve is the long-run average cost curve.

Accepted Answer

A) True 
 B)False

Question 6

Figure 10-5
​  
-Figure 10-5 shows the short-run cost relationships for a perfectly competitive firm.Based on this diagram, which point would not be on the firm's short-run supply curve?

Accepted Answer

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

Question 7

In the long run, a perfectly competitive firm maximizes profit so P = MC = AC.

Accepted Answer

A) True 
 B)False

Question 8

For a perfectly competitive firm, the short-run supply curve has an output level that is

Accepted Answer

A) determined by the lowest point on the average total cost curve. 
B) determined by the point at which marginal cost equals marginal revenue. 
C) determined by the lowest point on the average variable cost curve. 
D) determined by the point at which average variable cost intersects the average total cost curve. 
A) determined by the lowest point on the average total cost curve. 
B) determined by the point at which marginal cost equals marginal revenue. 
C) determined by the lowest point on the average variable cost curve. 
D) determined by the point at which average variable cost intersects the average total cost curve.

Question 9

The entry of new firms into an industry will very likely

Accepted Answer

A) shift the industry supply curve to the right. 
B) cause the market price to fall. 
C) reduce the profits of existing firms in the industry. 
D) All of the responses are correct. 
A) shift the industry supply curve to the right. 
B) cause the market price to fall. 
C) reduce the profits of existing firms in the industry. 
D) All of the responses are correct.

Question 10

Total profit of a competitive firm can be found by multiplying profit per unit and units sold.

Accepted Answer

A) True 
 B)False

Question 11

Using only marginal revenue and marginal cost, we can determine whether a firm is incurring a profit or a loss.

Accepted Answer

A) True 
 B)False

Question 12

Why doesn't a competitive firm reduce its price below the industry price to increase sales?

Accepted Answer

A competitive firm can sell all it wishe

Question 13

For a perfectly competitive firm, marginal revenue equals average revenue because the

Accepted Answer

A) firm's supply curve is horizontal. 
B) industry's demand curve is horizontal. 
C) firm's demand curve is horizontal. 
D) industry's supply curve is horizontal. 
A) firm's supply curve is horizontal. 
B) industry's demand curve is horizontal. 
C) firm's demand curve is horizontal. 
D) industry's supply curve is horizontal.

Question 14

A firm facing a horizontal demand curve

Accepted Answer

A) cannot affect the price it receives for its output. 
B) always produces at an output at which P = MR. 
C) faces perfectly elastic demand for its product. 
D) All of the responses are correct. 
A) cannot affect the price it receives for its output. 
B) always produces at an output at which P = MR. 
C) faces perfectly elastic demand for its product. 
D) All of the responses are correct.

Question 15

Firms in perfect competition are often described as price

Accepted Answer

A) takers. 
B) makers. 
C) setters. 
D) leaders. 
A) takers. 
B) makers. 
C) setters. 
D) leaders.

Question 16

What is the nature of the elasticity of the demand curve faced by perfectly competitive firm?

Accepted Answer

A) Perfectly inelastic 
B) Perfectly elastic 
C) Unit elastic 
D) Highly elastic 
A) Perfectly inelastic 
B) Perfectly elastic 
C) Unit elastic 
D) Highly elastic

Question 17

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 18

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

Accepted Answer

A) True 
 B)False

Question 19

Which of the following observations is not true?

Accepted Answer

A) Demand curve of the perfectly competitive firm is perfectly elastic. 
B) There is only one price for a product in a perfectly competitive market. 
C) A firm in a perfectly competitive market can sell as much as it wants at market price. 
D) Demand curve of the perfectly competitive industry is perfectly elastic. 
A) Demand curve of the perfectly competitive firm is perfectly elastic. 
B) There is only one price for a product in a perfectly competitive market. 
C) A firm in a perfectly competitive market can sell as much as it wants at market price. 
D) Demand curve of the perfectly competitive industry is perfectly elastic.

Question 20

Firms entering a perfectly competitive industry will cause the price of the product to

Accepted Answer

A) fall. 
B) rise. 
C) remain constant. 
D) become more responsive to consumer demand. 
A) fall. 
B) rise. 
C) remain constant. 
D) become more responsive to consumer demand.

Exam 10: The Firm and the Industry Under Perfect Competition

If a firm shuts down in the short run, its losses are equal to

Perfect competition is the term used to describe

The opportunity cost of a given investment is the potential earnings forfeited by tying up money in the investment.

Which of the following is not a characteristic of perfect competition?

For a perfectly competitive firm, the long-run supply curve is the long-run average cost curve.

Figure 10-5 ​ -Figure 10-5 shows the short-run cost relationships for a perfectly competitive firm.Based on this diagram, which point would not be on the firm's short-run supply curve?

In the long run, a perfectly competitive firm maximizes profit so P = MC = AC.

For a perfectly competitive firm, the short-run supply curve has an output level that is

The entry of new firms into an industry will very likely

Total profit of a competitive firm can be found by multiplying profit per unit and units sold.

Using only marginal revenue and marginal cost, we can determine whether a firm is incurring a profit or a loss.

Why doesn't a competitive firm reduce its price below the industry price to increase sales?

For a perfectly competitive firm, marginal revenue equals average revenue because the

A firm facing a horizontal demand curve

Firms in perfect competition are often described as price

What is the nature of the elasticity of the demand curve faced by perfectly competitive firm?

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

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

Which of the following observations is not true?

Firms entering a perfectly competitive industry will cause the price of the product to

What Is Economics

The Economony: 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

The Financial Markets and the Economy: the Tail That Wags the Dog

The Case for Free Markets: the Price System

Monopoly

Between Competition and Monopoly

Limiting Market Power: Antitrust and Regulation

The Shortcomings of Free Markets

The Economics of 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

Contemporary Issues in the Useconomy

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Figure 10-5 -Figure 10-5 shows the short-run cost relationships for a perfectly competitive firm.Based on this diagram, which point would not be on the firm's short-run supply curve?