Question 1

Which market structure is characterized by many sellers, easy entry, and homogeneous products?

Accepted Answer

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

Question 2

The demand curve faced by a perfectly competitive firm is vertical.

Accepted Answer

A) True 
 B)False

Question 3

The figure below shows the price, marginal cost, and average cost curves of a perfectly competitive firm.
FIGURE 8-5
  
-Refer to Figure 8-5. What action should the firm take?

Accepted Answer

A)  They should keep operating temporarily in order to minimize losses, since price exceeds average total cost. 
B)  They should keep operating temporarily in order to minimize losses, since price exceeds average variable cost. 
C)  They should shut down in order to minimize losses. 
D)  They should decrease output to 30 units, since marginal revenue exceeds marginal cost by the greatest dollar amount at that level of output. 
A)  They should keep operating temporarily in order to minimize losses, since price exceeds average total cost. 
B)  They should keep operating temporarily in order to minimize losses, since price exceeds average variable cost. 
C)  They should shut down in order to minimize losses. 
D)  They should decrease output to 30 units, since marginal revenue exceeds marginal cost by the greatest dollar amount at that level of output.

Question 4

Which of the following is NOT a characteristic of a perfectly competitive market?

Accepted Answer

A)  Firms earn zero economic profit in the long run. 
B)  Competing products are virtually identical. 
C)  Firms are price takers. 
D)  Firms advertise in order to distinguish their products and increase market share. 
A)  Firms earn zero economic profit in the long run. 
B)  Competing products are virtually identical. 
C)  Firms are price takers. 
D)  Firms advertise in order to distinguish their products and increase market share.

Question 5

Which of the following best resembles a perfectly competitive market?

Accepted Answer

A)  the book publishing industry 
B)  the used car industry 
C)  a stock market 
D)  the steel industry 
A)  the book publishing industry 
B)  the used car industry 
C)  a stock market 
D)  the steel industry

Question 6

Why is the fast-food industry generally considered to be a constant cost industry in regards to its use of labour as an input?

Accepted Answer

A)  because few people prefer to work in the industry 
B)  because the productivity of the workers is relatively low 
C)  because firms use a relatively small share of unskilled labour in most cities 
D)  because available labour is in short supply 
A)  because few people prefer to work in the industry 
B)  because the productivity of the workers is relatively low 
C)  because firms use a relatively small share of unskilled labour in most cities 
D)  because available labour is in short supply

Question 7

The following table shows how the total cost of producing canisters of peanuts varies with output and capital in the long run in a perfectly competitive industry.
Table 8-3
  
-In the table, what levels of capital (K = 1, K = 2, or K = 3) would the firm choose in the long run for producing three canisters and five canisters of peanuts per hour, respectively?

Accepted Answer

The firm would choose a level of capital

Question 8

A firm sells apples in a perfectly competitive market at a price of $1.50 per kilogram. What is the firm's marginal revenue?

Accepted Answer

A)  It is equal to $1.00. 
B)  It is equal to $1.50. 
C)  It is greater than $1.50. 
D)  It is less than $1.00. 
A)  It is equal to $1.00. 
B)  It is equal to $1.50. 
C)  It is greater than $1.50. 
D)  It is less than $1.00.

Question 9

Which of the following is most likely a price taker?

Accepted Answer

A)  a Saskatchewan wheat farmer 
B)  a respected heart surgeon 
C)  an ice cream shop owner located in Sudbury, Ontario 
D)  a beachside tourist resort 
A)  a Saskatchewan wheat farmer 
B)  a respected heart surgeon 
C)  an ice cream shop owner located in Sudbury, Ontario 
D)  a beachside tourist resort

Question 10

In long-run equilibrium, where does the perfectly competitive firm NOT produce?

Accepted Answer

A)  where its long-run average cost curve is tangent to its horizontal demand curve 
B)  at the lowest point on its long-run average cost curve 
C)  at the highest point on its long-run average cost curve 
D)  where P = MC = AC 
A)  where its long-run average cost curve is tangent to its horizontal demand curve 
B)  at the lowest point on its long-run average cost curve 
C)  at the highest point on its long-run average cost curve 
D)  where P = MC = AC

Question 11

In a market with perfectly competitive firms, how is the individual firms demand curve drawn?

Accepted Answer

A)  downward sloping 
B)  a vertical line 
C)  upward sloping 
D)  a horizontal line 
A)  downward sloping 
B)  a vertical line 
C)  upward sloping 
D)  a horizontal line

Question 12

If a firm produces in the short run, at what output are profits maximized?

Accepted Answer

A)  where marginal revenue is at its maximum 
B)  where marginal revenue is equal to marginal cost 
C)  where marginal revenue exceeds marginal cost by the greatest amount 
D)  where marginal revenue is less than marginal cost 
A)  where marginal revenue is at its maximum 
B)  where marginal revenue is equal to marginal cost 
C)  where marginal revenue exceeds marginal cost by the greatest amount 
D)  where marginal revenue is less than marginal cost

Question 13

Under what circumstances will a price-taking firm tend to expand its output?

Accepted Answer

A)  when its price exceeds average variable cost and its marginal revenue is less than the market price 
B)  when its price exceeds average variable cost and its marginal revenue is greater than the market price 
C)  when its price exceeds average variable cost and its marginal revenue is positive 
D)  when its price exceeds average variable cost and its marginal cost is less than the market price 
A)  when its price exceeds average variable cost and its marginal revenue is less than the market price 
B)  when its price exceeds average variable cost and its marginal revenue is greater than the market price 
C)  when its price exceeds average variable cost and its marginal revenue is positive 
D)  when its price exceeds average variable cost and its marginal cost is less than the market price

Question 14

Which of the following best describes extractive industries such as farming, mining, or lumbering?

Accepted Answer

A)  They are typically considered to be constant cost industries. 
B)  They are typically considered to be decreasing cost industries. 
C)  They are typically considered to be increasing cost industries. 
D)  They typically use only small portions of the total supply of specialized resources. 
A)  They are typically considered to be constant cost industries. 
B)  They are typically considered to be decreasing cost industries. 
C)  They are typically considered to be increasing cost industries. 
D)  They typically use only small portions of the total supply of specialized resources.

Question 15

Which of the following statements is NOT characteristic of a perfectly competitive industry in long-run equilibrium?

Accepted Answer

A)  Ceteris paribus, there is no tendency for firms to either enter or exit the industry. 
B)  A profit-maximizing firm may produce any output level at which P < LRATC. 
C)  No firm earns an economic profit. 
D)  Every firm produces at an output level at which MC = LRATC. 
A)  Ceteris paribus, there is no tendency for firms to either enter or exit the industry. 
B)  A profit-maximizing firm may produce any output level at which P < LRATC. 
C)  No firm earns an economic profit. 
D)  Every firm produces at an output level at which MC = LRATC.

Question 16

The long-run total cost schedule of a perfectly competitive firm that produces blueberries is as follows:
TABLE 8-2
  
-Refer to Table 8-2. If input costs are constant and there are no barriers to entry, what will the long-run equilibrium price of a kilogram of blueberries be?

Accepted Answer

A)  approximately $2 
B)  approximately $2.20 
C)  approximately $2.50 
D)  approximately $2.75 
A)  approximately $2 
B)  approximately $2.20 
C)  approximately $2.50 
D)  approximately $2.75

Question 17

FIGURE 8-1
  
-Refer to Figure 8-1. In Graph A, what is the result of the market demand increasing from D₀ to D₁?

Accepted Answer

A)  The quantity of goods transacted in the market has fallen from Q1 to Q0. 
B)  Both the market price and the price of the price-taking firm have fallen to $5. 
C)  Both the market price and the price of the price-taking firm have risen to $6. 
D)  At the new equilibrium price, the firm will be unable to sell any of its output. 
A)  The quantity of goods transacted in the market has fallen from Q1 to Q0. 
B)  Both the market price and the price of the price-taking firm have fallen to $5. 
C)  Both the market price and the price of the price-taking firm have risen to $6. 
D)  At the new equilibrium price, the firm will be unable to sell any of its output.

Question 18

In a constant cost industry, the cost curves of individual firms will shift upward as the industry output expands.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following describes the horizontal demand curve facing an individual firm in a perfectly competitive market?

Accepted Answer

A)  It is a reflection of the inelastic demand for its product. 
B)  It is maintained only with the help of high barriers to entry. 
C)  It is a reflection of the firm's small size relative to the total market. 
D)  It violates the law of demand, which states that demand curves slope downward. 
A)  It is a reflection of the inelastic demand for its product. 
B)  It is maintained only with the help of high barriers to entry. 
C)  It is a reflection of the firm's small size relative to the total market. 
D)  It violates the law of demand, which states that demand curves slope downward.

Question 20

In a perfectly competitive industry, what influences the price?

Accepted Answer

A)  the forces of supply and demand 
B)  individual sellers 
C)  the largest firms 
D)  individual buyers 
A)  the forces of supply and demand 
B)  individual sellers 
C)  the largest firms 
D)  individual buyers

Which market structure is characterized by many sellers, easy entry, and homogeneous products?

The demand curve faced by a perfectly competitive firm is vertical.

The figure below shows the price, marginal cost, and average cost curves of a perfectly competitive firm. FIGURE 8-5 -Refer to Figure 8-5. What action should the firm take?

Which of the following is NOT a characteristic of a perfectly competitive market?

Which of the following best resembles a perfectly competitive market?

Why is the fast-food industry generally considered to be a constant cost industry in regards to its use of labour as an input?

A firm sells apples in a perfectly competitive market at a price of $1.50 per kilogram. What is the firm's marginal revenue?

Which of the following is most likely a price taker?

In long-run equilibrium, where does the perfectly competitive firm NOT produce?

In a market with perfectly competitive firms, how is the individual firms demand curve drawn?

If a firm produces in the short run, at what output are profits maximized?

Under what circumstances will a price-taking firm tend to expand its output?

Which of the following best describes extractive industries such as farming, mining, or lumbering?

Which of the following statements is NOT characteristic of a perfectly competitive industry in long-run equilibrium?

The long-run total cost schedule of a perfectly competitive firm that produces blueberries is as follows: TABLE 8-2 -Refer to Table 8-2. If input costs are constant and there are no barriers to entry, what will the long-run equilibrium price of a kilogram of blueberries be?

FIGURE 8-1 -Refer to Figure 8-1. In Graph A, what is the result of the market demand increasing from D₀ to D₁?

In a constant cost industry, the cost curves of individual firms will shift upward as the industry output expands.

Which of the following describes the horizontal demand curve facing an individual firm in a perfectly competitive market?

In a perfectly competitive industry, what influences the price?

The Role and Method of Economics

Scarcity, Trade-Offs, and Production Possibilities

Supply and Demand

Bringing Supply and Demand Together

Elasticity

Market Efficiency and Market Failure

Production and Costs

Monopoly

Monopolistic Competition and Oligopoly

Labour Markets and the Distribution of Income

The Environment

Filters

Exam 8: Perfect Competition

Which market structure is characterized by many sellers, easy entry, and homogeneous products?

The demand curve faced by a perfectly competitive firm is vertical.

The figure below shows the price, marginal cost, and average cost curves of a perfectly competitive firm. FIGURE 8-5 -Refer to Figure 8-5. What action should the firm take?

Which of the following is NOT a characteristic of a perfectly competitive market?

Which of the following best resembles a perfectly competitive market?

Why is the fast-food industry generally considered to be a constant cost industry in regards to its use of labour as an input?

A firm sells apples in a perfectly competitive market at a price of $1.50 per kilogram. What is the firm's marginal revenue?

Which of the following is most likely a price taker?

In long-run equilibrium, where does the perfectly competitive firm NOT produce?

In a market with perfectly competitive firms, how is the individual firms demand curve drawn?

If a firm produces in the short run, at what output are profits maximized?

Under what circumstances will a price-taking firm tend to expand its output?

Which of the following best describes extractive industries such as farming, mining, or lumbering?

Which of the following statements is NOT characteristic of a perfectly competitive industry in long-run equilibrium?

The long-run total cost schedule of a perfectly competitive firm that produces blueberries is as follows: TABLE 8-2 -Refer to Table 8-2. If input costs are constant and there are no barriers to entry, what will the long-run equilibrium price of a kilogram of blueberries be?

FIGURE 8-1 -Refer to Figure 8-1. In Graph A, what is the result of the market demand increasing from D₀ to D₁?

In a constant cost industry, the cost curves of individual firms will shift upward as the industry output expands.

Which of the following describes the horizontal demand curve facing an individual firm in a perfectly competitive market?

In a perfectly competitive industry, what influences the price?

The Role and Method of Economics

Scarcity, Trade-Offs, and Production Possibilities

Supply and Demand

Bringing Supply and Demand Together

Elasticity

Market Efficiency and Market Failure

Production and Costs

Monopoly

Monopolistic Competition and Oligopoly

Labour Markets and the Distribution of Income

The Environment

Filters