Question 1

The long-run supply curve of an industry equals the industry's

Accepted Answer

A) long-run marginal cost curve. 
B) the horizontal sum of all firms' supply curves at any point in time. 
C) long-run average cost curve. 
D) long-run total variable cost curve. 
A) long-run marginal cost curve. 
B) the horizontal sum of all firms' supply curves at any point in time. 
C) long-run average cost curve. 
D) long-run total variable cost curve.

Question 2

If a firm sells its output at a price greater than AC, it will earn economic profit.

Accepted Answer

A) True 
 B)False

Question 3

Figure 10-3
​  
-In perfect competition, marginal revenue always equals

Accepted Answer

A) total revenue. 
B) price. 
C) average cost. 
D) marginal fixed cost. 
A) total revenue. 
B) price. 
C) average cost. 
D) marginal fixed cost.

Question 4

A firm will shut down in the short run if

Accepted Answer

A) MR  AVC. 
C) AVC  MC. 
A) MR  AVC. 
C) AVC  MC.

Question 5

Entry by new firms into a perfectly competitive industry

Accepted Answer

A) has no effect on existing firms. 
B) results in higher output by existing firms in equilibrium. 
C) results in lower output by existing firms in equilibrium. 
D) results in no change in the market price or output. 
A) has no effect on existing firms. 
B) results in higher output by existing firms in equilibrium. 
C) results in lower output by existing firms in equilibrium. 
D) results in no change in the market price or output.

Question 6

Perfect competition is characterized by numerous firms.

Accepted Answer

A) True 
 B)False

Question 7

If government forced a firm to charge a price equal to marginal cost in a situation where there are scale economies,

Accepted Answer

A) new firms would enter the industry. 
B) the firm would be forced to go bankrupt. 
C) positive economic profit would grow even larger. 
D) marginal cost would exceed average cost. 
A) new firms would enter the industry. 
B) the firm would be forced to go bankrupt. 
C) positive economic profit would grow even larger. 
D) marginal cost would exceed average cost.

Question 8

Figure 10-6
​  
-Firms will continue to enter a perfectly competitive industry until

Accepted Answer

A) the supply curve is vertical. 
B) the supply curve is meaningless. 
C) any excess returns have been competed away. 
D) all resources are fully employed. 
A) the supply curve is vertical. 
B) the supply curve is meaningless. 
C) any excess returns have been competed away. 
D) all resources are fully employed.

Question 9

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 10

At a perfectly competitive firm's profit-maximizing level of output, its total revenue is $200 and its short-run variable cost is $225.The firm

Accepted Answer

A) has a loss of $25. 
B) should shut down. 
C) should increase output to reduce losses. 
D) should raise the price of its product. 
A) has a loss of $25. 
B) should shut down. 
C) should increase output to reduce losses. 
D) should raise the price of its product.

Question 11

Which of the following decisions cannot be taken by a firm in a perfectly competitive market?

Accepted Answer

A) Market exit decision 
B) Market price of the product 
C) Quantity of output it can produce 
D) Entering a market 
A) Market exit decision 
B) Market price of the product 
C) Quantity of output it can produce 
D) Entering a market

Question 12

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 13

In a long-run equilibrium in a perfectly competitive market, the average firm earns positive economic profits.

Accepted Answer

A) True 
 B)False

Question 14

In the short run, the lowest price that a perfectly competitive firm will accept without closing its doors is found by examining the average variable cost curve.

Accepted Answer

A) True 
 B)False

Question 15

Figure 10-3
​  
-In Figure 10-3, the profit maximizing firm will operate at a level of

Accepted Answer

A) OJ. 
B) OG. 
C) OI. 
D) OH. 
A) OJ. 
B) OG. 
C) OI. 
D) OH.

Question 16

Zero economic profits for a perfectly competitive firm in the long run means

Accepted Answer

A) the firm must exit the industry. 
B) the firm is in equilibrium. 
C) the firm will shut down until the market improves. 
D) average revenue is insufficient to cover long-run average cost. 
A) the firm must exit the industry. 
B) the firm is in equilibrium. 
C) the firm will shut down until the market improves. 
D) average revenue is insufficient to cover long-run average cost.

Question 17

Why study perfect competition, if it rarely exists?

Accepted Answer

Perfect competition is the circumstance

Question 18

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 19

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 20

Perfectly competitive firms are known for being "price makers."

Accepted Answer

A) True 
 B)False

Exam 10: The Firm and the Industry Under Perfect Competition

The long-run supply curve of an industry equals the industry's

If a firm sells its output at a price greater than AC, it will earn economic profit.

Figure 10-3 ​ -In perfect competition, marginal revenue always equals

A firm will shut down in the short run if

Entry by new firms into a perfectly competitive industry

Perfect competition is characterized by numerous firms.

If government forced a firm to charge a price equal to marginal cost in a situation where there are scale economies,

Figure 10-6 ​ -Firms will continue to enter a perfectly competitive industry until

A firm will shut down in the short run if

At a perfectly competitive firm's profit-maximizing level of output, its total revenue is $200 and its short-run variable cost is $225.The firm

Which of the following decisions cannot be taken by a firm in a perfectly competitive market?

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

In a long-run equilibrium in a perfectly competitive market, the average firm earns positive economic profits.

In the short run, the lowest price that a perfectly competitive firm will accept without closing its doors is found by examining the average variable cost curve.

Figure 10-3 ​ -In Figure 10-3, the profit maximizing firm will operate at a level of

Zero economic profits for a perfectly competitive firm in the long run means

Why study perfect competition, if it rarely exists?

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

Perfectly competitive firms are known for being "price makers."

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

Filters

Figure 10-3 -In perfect competition, marginal revenue always equals

Figure 10-6 -Firms will continue to enter a perfectly competitive industry until

Figure 10-3 -In Figure 10-3, the profit maximizing firm will operate at a level of