Question 1

FIGURE 8-4
  
-Refer to Figure 8-4. If the market price decreased to $4.70 in Graph B, what action should this firm take?

Accepted Answer

A)  Continue producing the same level of output. 
B)  Increase the production of output. 
C)  Immediately shut down if price is greater than average variable cost. 
D)  Decrease the production of output. 
A)  Continue producing the same level of output. 
B)  Increase the production of output. 
C)  Immediately shut down if price is greater than average variable cost. 
D)  Decrease the production of output.

Question 2

What effect will the entry of new firms into an industry very likely have?

Accepted Answer

A)  It will raise the profits of existing firms in the industry. 
B)  It will shift the industry supply curve to the right. 
C)  It will cause existing firms to begin operating at a loss. 
D)  It will raise the equilibrium market price. 
A)  It will raise the profits of existing firms in the industry. 
B)  It will shift the industry supply curve to the right. 
C)  It will cause existing firms to begin operating at a loss. 
D)  It will raise the equilibrium market price.

Question 3

FIGURE 8-3
  
-Refer to Figure 8-3. When the market price equals $105 and the firm sells 675 units of output, what can we conclude about the firm?

Accepted Answer

A)  It is experiencing a loss, but should continue operating temporarily because business conditions may improve. 
B)  It is earning positive economic profits. 
C)  It is earning a normal profit. 
D)  It is experiencing a loss and should shut down. 
A)  It is experiencing a loss, but should continue operating temporarily because business conditions may improve. 
B)  It is earning positive economic profits. 
C)  It is earning a normal profit. 
D)  It is experiencing a loss and should shut down.

Question 4

If input costs remain the same as industry output expands, what would you expect to be the long-run impact of an increase in demand on an industry currently in long-run equilibrium?

Accepted Answer

A)  There will be more firms, and the price will increase. 
B)  There will be fewer firms, but the price will remain the same. 
C)  There will be fewer firms, and the price will decrease. 
D)  There will be more firms, but the price will remain the same. 
A)  There will be more firms, and the price will increase. 
B)  There will be fewer firms, but the price will remain the same. 
C)  There will be fewer firms, and the price will decrease. 
D)  There will be more firms, but the price will remain the same.

Question 5

Economic losses caused several firms to leave the car wash business in Charlottetown, PEI. Though prices have risen, why are firms still leaving the industry?

Accepted Answer

A)  Firms are still generating economic losses. 
B)  Economic profits have decreased because of the exit of existing firms. 
C)  Economic profits exist, but they are not as high as in other industries. 
D)  Economic profits are zero and firms won't stay in the industry if they are not earning an economic profit. 
A)  Firms are still generating economic losses. 
B)  Economic profits have decreased because of the exit of existing firms. 
C)  Economic profits exist, but they are not as high as in other industries. 
D)  Economic profits are zero and firms won't stay in the industry if they are not earning an economic profit.

Question 6

Perfectly competitive firms earn zero economic profit in the long run.

Accepted Answer

A) True 
 B)False

Question 7

For a perfectly competitive firm in short-run equilibrium, if the price is between AVC and ATC, what can we conclude?

Accepted Answer

A)  that economic profits will be negative 
B)  that accounting profits will be negative 
C)  that the firm will not produce 
D)  that the loss will be equal to total fixed costs 
A)  that economic profits will be negative 
B)  that accounting profits will be negative 
C)  that the firm will not produce 
D)  that the loss will be equal to total fixed costs

Question 8

For a perfectly competitive firm, which of the following does NOT describe average revenue?

Accepted Answer

A)  It is equal to total revenue divided by the number of units sold. 
B)  It is equal to marginal cost at all levels of output. 
C)  It is equal to price at all levels of output. 
D)  It is equal to marginal revenue at all levels of output. 
A)  It is equal to total revenue divided by the number of units sold. 
B)  It is equal to marginal cost at all levels of output. 
C)  It is equal to price at all levels of output. 
D)  It is equal to marginal revenue at all levels of output.

Question 9

In long-run equilibrium under perfect competition, which of the following is price NOT equal to?

Accepted Answer

A)  marginal revenue 
B)  average fixed cost 
C)  minimum average total cost 
D)  long-run marginal cost 
A)  marginal revenue 
B)  average fixed cost 
C)  minimum average total cost 
D)  long-run marginal cost

Question 10

In short-run equilibrium in a perfectly competitive market, firms always make zero economic profit.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following does NOT describe the long run under perfect competition?

Accepted Answer

A)  Long-run marginal cost is minimized. 
B)  There is no incentive for firms to enter or exit the industry. 
C)  Economic profit is zero. 
D)  Long-run average total cost is minimized. 
A)  Long-run marginal cost is minimized. 
B)  There is no incentive for firms to enter or exit the industry. 
C)  Economic profit is zero. 
D)  Long-run average total cost is minimized.

Question 12

Which of the following best describes a constant cost industry?

Accepted Answer

A)  The long-run market supply curve will be upward sloping. 
B)  Industry expansion will put upward pressure on wages and/or other input prices. 
C)  It uses a relatively small share of available resource inputs. 
D)  It uses a relatively large share of available resource inputs. 
A)  The long-run market supply curve will be upward sloping. 
B)  Industry expansion will put upward pressure on wages and/or other input prices. 
C)  It uses a relatively small share of available resource inputs. 
D)  It uses a relatively large share of available resource inputs.

Question 13

Which of the following best describes increasing cost industries?

Accepted Answer

A)  In order for industry output to expand, the prices of the specialized inputs will increase. 
B)  Expansion of industry output leads to a lower equilibrium price in the long run. 
C)  New entrants to the market face the same average costs as the incumbent firms. 
D)  They use a small portion of available specialized input resources in production. 
A)  In order for industry output to expand, the prices of the specialized inputs will increase. 
B)  Expansion of industry output leads to a lower equilibrium price in the long run. 
C)  New entrants to the market face the same average costs as the incumbent firms. 
D)  They use a small portion of available specialized input resources in production.

Question 14

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. What is the average total cost of producing 2000 kilograms of blueberries in the long run?

Accepted Answer

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

Question 15

FIGURE 8-1
  
-Refer to Figure 8-1. Graphs A and B together demonstrate the effect that a change in market demand has on the demand curve. Which of the following describes the firm that faces this situation?

Accepted Answer

A)  It is a firm that is capable of changing the market price. 
B)  It is a firm that is producing a unique product. 
C)  It is a firm that is a price taker. 
D)  It is a firm that is capable of making long-run economic profits. 
A)  It is a firm that is capable of changing the market price. 
B)  It is a firm that is producing a unique product. 
C)  It is a firm that is a price taker. 
D)  It is a firm that is capable of making long-run economic profits.

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. What is a firm that expands from producing 5000 to 6000 kilograms of blueberries in the long run experiencing?

Accepted Answer

A)  constant returns to scale 
B)  economies of scale 
C)  an increasing marginal product 
D)  diseconomies of scale 
A)  constant returns to scale 
B)  economies of scale 
C)  an increasing marginal product 
D)  diseconomies of scale

Question 17

In order to maximize profits, a firm should produce the level of output at which total revenue is maximized.

Accepted Answer

A) True 
 B)False

Question 18

The behaviour of an individual perfectly competitive firm has a perceptible influence on the market price.

Accepted Answer

A) True 
 B)False

Question 19

FIGURE 8-2
  
-Refer to Figure 8-2. As a result of the change illustrated by Graph C, what is the individual firm now experiencing in Graph D?

Accepted Answer

A)  no change in revenues 
B)  a loss in sales 
C)  an economic loss 
D)  economic profits 
A)  no change in revenues 
B)  a loss in sales 
C)  an economic loss 
D)  economic profits

Question 20

What is the term "perfect competition" used to describe?

Accepted Answer

A)  an industry in which numerous price-taking firms produce identical products 
B)  an industry in which a few price-taking firms produce identical products 
C)  an industry in which firms are price takers and compete for market share by varying the qualitative characteristics of products 
D)  an industry in which numerous firms are price makers and produce identical products 
A)  an industry in which numerous price-taking firms produce identical products 
B)  an industry in which a few price-taking firms produce identical products 
C)  an industry in which firms are price takers and compete for market share by varying the qualitative characteristics of products 
D)  an industry in which numerous firms are price makers and produce identical products

FIGURE 8-4 -Refer to Figure 8-4. If the market price decreased to $4.70 in Graph B, what action should this firm take?

What effect will the entry of new firms into an industry very likely have?

FIGURE 8-3 -Refer to Figure 8-3. When the market price equals $105 and the firm sells 675 units of output, what can we conclude about the firm?

If input costs remain the same as industry output expands, what would you expect to be the long-run impact of an increase in demand on an industry currently in long-run equilibrium?

Economic losses caused several firms to leave the car wash business in Charlottetown, PEI. Though prices have risen, why are firms still leaving the industry?

Perfectly competitive firms earn zero economic profit in the long run.

For a perfectly competitive firm in short-run equilibrium, if the price is between AVC and ATC, what can we conclude?

For a perfectly competitive firm, which of the following does NOT describe average revenue?

In long-run equilibrium under perfect competition, which of the following is price NOT equal to?

In short-run equilibrium in a perfectly competitive market, firms always make zero economic profit.

Which of the following does NOT describe the long run under perfect competition?

Which of the following best describes a constant cost industry?

Which of the following best describes increasing cost industries?

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. What is the average total cost of producing 2000 kilograms of blueberries in the long run?

FIGURE 8-1 -Refer to Figure 8-1. Graphs A and B together demonstrate the effect that a change in market demand has on the demand curve. Which of the following describes the firm that faces this situation?

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. What is a firm that expands from producing 5000 to 6000 kilograms of blueberries in the long run experiencing?

In order to maximize profits, a firm should produce the level of output at which total revenue is maximized.

The behaviour of an individual perfectly competitive firm has a perceptible influence on the market price.

FIGURE 8-2 -Refer to Figure 8-2. As a result of the change illustrated by Graph C, what is the individual firm now experiencing in Graph D?

What is the term "perfect competition" used to describe?

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

FIGURE 8-4 -Refer to Figure 8-4. If the market price decreased to $4.70 in Graph B, what action should this firm take?

What effect will the entry of new firms into an industry very likely have?

FIGURE 8-3 -Refer to Figure 8-3. When the market price equals $105 and the firm sells 675 units of output, what can we conclude about the firm?

If input costs remain the same as industry output expands, what would you expect to be the long-run impact of an increase in demand on an industry currently in long-run equilibrium?

Economic losses caused several firms to leave the car wash business in Charlottetown, PEI. Though prices have risen, why are firms still leaving the industry?

Perfectly competitive firms earn zero economic profit in the long run.

For a perfectly competitive firm in short-run equilibrium, if the price is between AVC and ATC, what can we conclude?

For a perfectly competitive firm, which of the following does NOT describe average revenue?

In long-run equilibrium under perfect competition, which of the following is price NOT equal to?

In short-run equilibrium in a perfectly competitive market, firms always make zero economic profit.

Which of the following does NOT describe the long run under perfect competition?

Which of the following best describes a constant cost industry?

Which of the following best describes increasing cost industries?

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. What is the average total cost of producing 2000 kilograms of blueberries in the long run?

FIGURE 8-1 -Refer to Figure 8-1. Graphs A and B together demonstrate the effect that a change in market demand has on the demand curve. Which of the following describes the firm that faces this situation?

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. What is a firm that expands from producing 5000 to 6000 kilograms of blueberries in the long run experiencing?

In order to maximize profits, a firm should produce the level of output at which total revenue is maximized.

The behaviour of an individual perfectly competitive firm has a perceptible influence on the market price.

FIGURE 8-2 -Refer to Figure 8-2. As a result of the change illustrated by Graph C, what is the individual firm now experiencing in Graph D?

What is the term "perfect competition" used to describe?

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