Question 1

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 2

Zero profit in the economic sense means that firms are earning a normal rate of return.

Accepted Answer

A) True 
 B)False

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

Figure 10-7
​  
-In Figure 10-7, through which point must a horizontal demand curve pass to yield a long-run equilibrium?

Accepted Answer

A) A 
B) B 
C) C 
D) All of these are correct. 
A) A 
B) B 
C) C 
D) All of these are correct.

Question 5

In perfect competition, a firm's marginal revenue equals the price of the product.

Accepted Answer

A) True 
 B)False

Question 6

The perfectly competitive firm has no influence over price because

Accepted Answer

A) its output is so insignificant relative to the market as a whole. 
B) antitrust laws constrain perfectly competitive firms. 
C) consumers establish the prices of products. 
D) it doesn't know its demand curve. 
A) its output is so insignificant relative to the market as a whole. 
B) antitrust laws constrain perfectly competitive firms. 
C) consumers establish the prices of products. 
D) it doesn't know its demand curve.

Question 7

A perfectly competitive firm would be willing to remain in the industry in the long run at zero economic profit because

Accepted Answer

A) its total revenues would be positive. 
B) accounting profit would be negative. 
C) revenue is equal to all costs, including the opportunity cost of capital and labor. 
D) its fixed costs would prevent it from leaving the industry. 
A) its total revenues would be positive. 
B) accounting profit would be negative. 
C) revenue is equal to all costs, including the opportunity cost of capital and labor. 
D) its fixed costs would prevent it from leaving the industry.

Question 8

A firm will shut down in the short run if

Accepted Answer

A) TR − TC > TFC. 
B) TR + TC > TFC. 
C) TC − TR > TFC. 
D) TFC + TVC > TR. 
A) TR − TC > TFC. 
B) TR + TC > TFC. 
C) TC − TR > TFC. 
D) TFC + TVC > TR.

Question 9

Table 10-1  
-In Table 10-1 are the short-run cost schedules of a perfectly competitive firm.Below what price would the firm choose to shut down?

Accepted Answer

A) $50 
B) $20 
C) $18 
D) $14 
A) $50 
B) $20 
C) $18 
D) $14

Question 10

A firm operating at MC = MR must be making a profit.

Accepted Answer

A) True 
 B)False

Question 11

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 responses 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 responses are correct.

Question 12

Perfect competition displays the market mechanism at its best in many respects, yet most markets in operation today are monopolistic or oligopolistic, composed of a few large firms.Should government regulation break up those large firms into several smaller firms to try to achieve perfect competition? Why or why not?

Accepted Answer

Perfect competition prevents firms from

Question 13

A perfectly competitive firm's short-run supply is infinite at the market price.

Accepted Answer

A) True 
 B)False

Question 14

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 15

Firms in perfectly competitive markets are confined to making profits in the short run, but never a loss.

Accepted Answer

A) True 
 B)False

Question 16

A firm in a perfectly competitive industry

Accepted Answer

A) is unaffected by the entrance of new firms into the industry, since entering firms affect only the prices they themselves receive. 
B) always produces more output in the long run than in the short run. 
C) may choose a different output in the long run than in the short run. 
D) earns economic profit in the long run but not in the short run. 
A) is unaffected by the entrance of new firms into the industry, since entering firms affect only the prices they themselves receive. 
B) always produces more output in the long run than in the short run. 
C) may choose a different output in the long run than in the short run. 
D) earns economic profit in the long run but not in the short run.

Question 17

The entry of firms into a perfectly competitive industry causes the supply curve to

Accepted Answer

A) increase its slope. 
B) decrease its slope. 
C) move toward the right. 
D) move toward the left. 
A) increase its slope. 
B) decrease its slope. 
C) move toward the right. 
D) move toward the left.

Question 18

The short-run supply curve of the perfectly competitive industry is found by summing the

Accepted Answer

A) AC curves of the individual firms in the industry. 
B) AVC curves of the individual firms in the industry. 
C) MC curves above AVC of the individual firms in the industry. 
D) There is no short-run supply curve in a competitive industry. 
A) AC curves of the individual firms in the industry. 
B) AVC curves of the individual firms in the industry. 
C) MC curves above AVC of the individual firms in the industry. 
D) There is no short-run supply curve in a competitive industry.

Question 19

For a perfectly competitive firm in the short run, if the following conditions are true, P = MR = MC > AC, then

Accepted Answer

A) the firm is maximizing profits and is making an economic profit. 
B) the firm is not maximizing profits but is making an economic profit. 
C) the firm is not maximizing profits and is not making an economic profit. 
D) the firm is maximizing profits and is suffering an economic loss. 
A) the firm is maximizing profits and is making an economic profit. 
B) the firm is not maximizing profits but is making an economic profit. 
C) the firm is not maximizing profits and is not making an economic profit. 
D) the firm is maximizing profits and is suffering an economic loss.

Question 20

The process of adjustment to a new long-run equilibrium in a perfectly competitive industry is not complete if

Accepted Answer

A) other firms want to enter the industry. 
B) all firms are at the minimum average cost. 
C) all firms receive zero economic profit. 
D) no firms want to exit the industry. 
A) other firms want to enter the industry. 
B) all firms are at the minimum average cost. 
C) all firms receive zero economic profit. 
D) no firms want to exit the industry.

Exam 10: The Firm and the Industry Under Perfect Competition

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

Zero profit in the economic sense means that firms are earning a normal rate of return.

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

Figure 10-7 ​ -In Figure 10-7, through which point must a horizontal demand curve pass to yield a long-run equilibrium?

In perfect competition, a firm's marginal revenue equals the price of the product.

The perfectly competitive firm has no influence over price because

A perfectly competitive firm would be willing to remain in the industry in the long run at zero economic profit because

A firm will shut down in the short run if

Table 10-1 -In Table 10-1 are the short-run cost schedules of a perfectly competitive firm.Below what price would the firm choose to shut down?

A firm operating at MC = MR must be making a profit.

If a firm shuts down, its

A perfectly competitive firm's short-run supply is infinite at the market price.

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

Firms in perfectly competitive markets are confined to making profits in the short run, but never a loss.

A firm in a perfectly competitive industry

The entry of firms into a perfectly competitive industry causes the supply curve to

The short-run supply curve of the perfectly competitive industry is found by summing the

For a perfectly competitive firm in the short run, if the following conditions are true, P = MR = MC > AC, then

The process of adjustment to a new long-run equilibrium in a perfectly competitive industry is not complete if

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 10-7 -In Figure 10-7, through which point must a horizontal demand curve pass to yield a long-run equilibrium?