Question 1

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 2

The market demand curve in perfect competition is horizontal.

Accepted Answer

A) True 
 B)False

Question 3

A price taking firm is able to sell its product just slightly above the current market price.

Accepted Answer

A) True 
 B)False

Question 4

Figure 10-3
​  
-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 5

When a firm faces a horizontal demand curve,

Accepted Answer

A) the marginal cost curve is upward sloping. 
B) the market price is also the firm's marginal revenue. 
C) the market demand curve is also a horizontal line at the market price. 
D) entry by new firms is unlikely. 
A) the marginal cost curve is upward sloping. 
B) the market price is also the firm's marginal revenue. 
C) the market demand curve is also a horizontal line at the market price. 
D) entry by new firms is unlikely.

Question 6

A firm in short-run equilibrium always earns positive profits if

Accepted Answer

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

Question 7

The exit of existing firms from an industry will very likely

Accepted Answer

A) shift the industry supply curve to the left. 
B) cause the market price to rise. 
C) eliminate the losses of existing firms in the industry. 
D) All of the responses are correct. 
A) shift the industry supply curve to the left. 
B) cause the market price to rise. 
C) eliminate the losses of existing firms in the industry. 
D) All of the responses are correct.

Question 8

Under perfect competition, regarding short-run profit, a firm may find itself losing money.This is true because

Accepted Answer

A) the firm was unable to pick the output that maximized profit. 
B) the market conditions make the highest possible profit a negative number. 
C) the demand for its product is strong. 
D) the firm could not produce enough output to make a profit. 
A) the firm was unable to pick the output that maximized profit. 
B) the market conditions make the highest possible profit a negative number. 
C) the demand for its product is strong. 
D) the firm could not produce enough output to make a profit.

Question 9

Figure 10-7
​  
-In the long run, the perfectly competitive firm in Figure 10-8 will leave the industry if the price falls below

Accepted Answer

A) $10. 
B) $9. 
C) $5. 
D) $2. 
A) $10. 
B) $9. 
C) $5. 
D) $2.

Question 10

Figure 10-5
​  
-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 11

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 S1, the firm is

Accepted Answer

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

Question 12

The demand curve for the perfectly competitive industry normally slopes downward, unlike the perfect competitive firm.Why?

Accepted Answer

Each firm by itself is so small that if

Question 13

In a long-run equilibrium in a perfectly competitive market, firms are selling at a price equal to average cost.

Accepted Answer

A) True 
 B)False

Question 14

The quantity that a firm will supply in the short run

Accepted Answer

A) can be read from its average cost curve. 
B) can be read from its average variable cost curve. 
C) can be read from the firm's marginal cost curve above average variable cost. 
D) is always zero above minimum average variable cost. 
A) can be read from its average cost curve. 
B) can be read from its average variable cost curve. 
C) can be read from the firm's marginal cost curve above average variable cost. 
D) is always zero above minimum average variable cost.

Question 15

Figure 10-1
​  
-Suppose a perfectly competitive firm's situation is shown in Figure 10-1 and the firm is currently producing at B.What should the firm do in this situation?

Accepted Answer

A) The firm should continue producing at B since that is the short-run equilibrium. 
B) The firm should increase production to C, so that MR = MC. 
C) The firm should decrease production to lower marginal costs. 
D) The firm should lower the price and continue to produce at B. 
A) The firm should continue producing at B since that is the short-run equilibrium. 
B) The firm should increase production to C, so that MR = MC. 
C) The firm should decrease production to lower marginal costs. 
D) The firm should lower the price and continue to produce at B.

Question 16

In long-run equilibrium, a firm in perfect competition has no economic profit.

Accepted Answer

A) True 
 B)False

Question 17

Economic profit equals gross earnings minus the firm's direct costs.

Accepted Answer

A) True 
 B)False

Question 18

To determine whether a market is perfectly competitive, economists examine the

Accepted Answer

A) number of firms in the market. 
B) similarities among the products of the different firms in the market. 
C) ease of entry and exit by firms in the market. 
D) All of the responses are correct. 
A) number of firms in the market. 
B) similarities among the products of the different firms in the market. 
C) ease of entry and exit by firms in the market. 
D) All of the responses are correct.

Question 19

In the long run, a perfectly competitive firm earns no accounting profits.

Accepted Answer

A) True 
 B)False

Question 20

In perfect competition, an increase in the firm's fixed costs lead to

Accepted Answer

A) a drop in the firm's output. 
B) an increase in the firm's output. 
C) an increase in its total costs. 
D) a drop in industry output. 
A) a drop in the firm's output. 
B) an increase in the firm's output. 
C) an increase in its total costs. 
D) a drop in industry output.

Exam 10: The Firm and the Industry Under Perfect Competition

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

The market demand curve in perfect competition is horizontal.

A price taking firm is able to sell its product just slightly above the current market price.

Figure 10-3 ​ -A perfectly competitive firm should continue to expand output until

When a firm faces a horizontal demand curve,

A firm in short-run equilibrium always earns positive profits if

The exit of existing firms from an industry will very likely

Under perfect competition, regarding short-run profit, a firm may find itself losing money.This is true because

Figure 10-7 ​ -In the long run, the perfectly competitive firm in Figure 10-8 will leave the industry if the price falls below

Figure 10-5 ​ -The supply curve for a perfectly competitive industry is obtained by

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 S1, the firm is

The demand curve for the perfectly competitive industry normally slopes downward, unlike the perfect competitive firm.Why?

In a long-run equilibrium in a perfectly competitive market, firms are selling at a price equal to average cost.

The quantity that a firm will supply in the short run

Figure 10-1 ​ -Suppose a perfectly competitive firm's situation is shown in Figure 10-1 and the firm is currently producing at B.What should the firm do in this situation?

In long-run equilibrium, a firm in perfect competition has no economic profit.

Economic profit equals gross earnings minus the firm's direct costs.

To determine whether a market is perfectly competitive, economists examine the

In the long run, a perfectly competitive firm earns no accounting profits.

In perfect competition, an increase in the firm's fixed costs lead 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

Filters

Figure 10-3 -A perfectly competitive firm should continue to expand output until

Figure 10-7 -In the long run, the perfectly competitive firm in Figure 10-8 will leave the industry if the price falls below

Figure 10-5 -The supply curve for a perfectly competitive industry is obtained by

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 S₁, the firm is

Figure 10-1 -Suppose a perfectly competitive firm's situation is shown in Figure 10-1 and the firm is currently producing at B.What should the firm do in this situation?