Question 1

How does a firm that is losing money in the short run decide whether to shut down or continue to produce to minimize its losses?

Accepted Answer

The firm should continue to pr

Question 2

Total profit of a competitive firm can be found by multiplying profit per unit and units sold.

Accepted Answer

A) True 
 B)False

Question 3

Figure 10-9 ​
 
Figure 10-9 shows supply and demand conditions in a perfectly competitive industry and for a firm in that industry. Assume the industry initially has supply curve S1 and demand curve D1. If demand shifts to D2, then in the short run price will

Accepted Answer

A) rise to A. 
B) rise to some level between A and B. 
C) remain at B. 
D) fall to C. 
A) rise to A. 
B) rise to some level between A and B. 
C) remain at B. 
D) fall to C.

Question 4

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 5

What is the difference between the accountant's concept of profit and the economist's view of profit?

Accepted Answer

Accountants tend to include in TC contra

Question 6

Figure 10-7 ​
 
In Figure 10-7, output at which point represents short-run but not long-run equilibrium?

Accepted Answer

A) A only 
B) B only 
C) Both A and B 
D) Both B and C 
A) A only 
B) B only 
C) Both A and B 
D) Both B and C

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

The market demand curve in perfect competition is horizontal.

Accepted Answer

A) True 
 B)False

Question 10

Figure 10-5 ​
 
Figure 10-5 shows the short-run cost relationships for a perfectly competitive firm. Based on this diagram, which point would not be on the firm's short-run supply curve?

Accepted Answer

A) D 
B) B 
C) C 
D) H 
A) D 
B) B 
C) C 
D) H

Question 11

For a competitive firm, if at least some portion of its short-run average cost curve lies below the price of the product, we can conclude that the firm

Accepted Answer

A) is earning a profit at the profit maximizing output level. 
B) is incurring short-run losses. 
C) is earning zero economic profits. 
D) is going to shut down. 
A) is earning a profit at the profit maximizing output level. 
B) is incurring short-run losses. 
C) is earning zero economic profits. 
D) is going to shut down.

Question 12

The perfectly competitive widget industry is in long-run equilibrium. A profit-maximizing manufacturer receives total revenue of $55,000. He uses his labor, $15,000 worth of wire, and $15,000 worth of steel to make the widgets. The manufacturer

Accepted Answer

A) is earning an economic profit of $25,000. 
B) must have an opportunity cost of labor of less than $25,000. 
C) must have an opportunity cost of labor of exactly $25,000. 
D) must have an opportunity cost of labor of more than $25,000. 
A) is earning an economic profit of $25,000. 
B) must have an opportunity cost of labor of less than $25,000. 
C) must have an opportunity cost of labor of exactly $25,000. 
D) must have an opportunity cost of labor of more than $25,000.

Question 13

Figure 10-1 ​
 
Suppose a perfectly competitive firm's situation is shown in Figure 10-1 and the firm is currently producing at D. What can be said about this situation?

Accepted Answer

A) The firm is suffering an economic loss but is maximizing profits. 
B) The firm is not suffering an economic loss but is not maximizing profits. 
C) The firm is not suffering an economic loss and should increase output. 
D) The firm is suffering an economic loss and should decrease output. 
A) The firm is suffering an economic loss but is maximizing profits. 
B) The firm is not suffering an economic loss but is not maximizing profits. 
C) The firm is not suffering an economic loss and should increase output. 
D) The firm is suffering an economic loss and should decrease output.

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

Figure 10-8 ​
 
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 16

If there are no profits in competitive equilibrium, why do firms produce? How can they stay in business?

Accepted Answer

The "no profits" conclusion of competiti

Question 17

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

Accepted Answer

A) A profit-maximizing firm may produce any output level at which P 
B) Every firm produces at an output level at which MC = LRAC. 
C) There is no entry or exit from the industry. 
D) No firm earns an economic profit. 
A) A profit-maximizing firm may produce any output level at which P 
B) Every firm produces at an output level at which MC = LRAC. 
C) There is no entry or exit from the industry. 
D) No firm earns an economic profit.

Question 18

We expect the demand curve in the perfectly competitive industry to be

Accepted Answer

A) negatively sloped. 
B) vertical. 
C) horizontal. 
D) perfectly elastic. 
A) negatively sloped. 
B) vertical. 
C) horizontal. 
D) perfectly elastic.

Question 19

In long-run equilibrium under perfect competition,

Accepted Answer

A) the firm and the industry will have the same cost curves. 
B) only a very few firms will be earning economic profits. 
C) the demand curves facing individual firms will fall to the level of minimum AC. 
D) individual firms will tend to increase their outputs. 
A) the firm and the industry will have the same cost curves. 
B) only a very few firms will be earning economic profits. 
C) the demand curves facing individual firms will fall to the level of minimum AC. 
D) individual firms will tend to increase their outputs.

Question 20

Perfectly competitive markets have absolutely no drawbacks.

Accepted Answer

A) True 
 B)False

Exam 10: The Firm and the Industry Under Perfect Competition

How does a firm that is losing money in the short run decide whether to shut down or continue to produce to minimize its losses?

Total profit of a competitive firm can be found by multiplying profit per unit and units sold.

Figure 10-9 ​ Figure 10-9 shows supply and demand conditions in a perfectly competitive industry and for a firm in that industry. Assume the industry initially has supply curve S1 and demand curve D1. If demand shifts to D2, then in the short run price will

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

What is the difference between the accountant's concept of profit and the economist's view of profit?

Figure 10-7 ​ In Figure 10-7, output at which point represents short-run but not long-run equilibrium?

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

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

The market demand curve in perfect competition is horizontal.

Figure 10-5 ​ Figure 10-5 shows the short-run cost relationships for a perfectly competitive firm. Based on this diagram, which point would not be on the firm's short-run supply curve?

For a competitive firm, if at least some portion of its short-run average cost curve lies below the price of the product, we can conclude that the firm

The perfectly competitive widget industry is in long-run equilibrium. A profit-maximizing manufacturer receives total revenue of $55,000. He uses his labor, $15,000 worth of wire, and $15,000 worth of steel to make the widgets. The manufacturer

Figure 10-1 ​ Suppose a perfectly competitive firm's situation is shown in Figure 10-1 and the firm is currently producing at D. What can be said about this situation?

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

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

If there are no profits in competitive equilibrium, why do firms produce? How can they stay in business?

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

We expect the demand curve in the perfectly competitive industry to be

In long-run equilibrium under perfect competition,

Perfectly competitive markets have absolutely no drawbacks.

What Is Economics

The Economy: 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

Externalities, Externaliteis, the Environment, and Natural Resources

Taxation and Resource Allocation

Pricing the Factors of Production

Labor and Entrepreneurship: the Human Inputs

Poverty, Inequality, and Discrimination

International Trade and Comparative Advantage

Contemporary Issues in the Us Economy

Filters

Figure 10-9 Figure 10-9 shows supply and demand conditions in a perfectly competitive industry and for a firm in that industry. Assume the industry initially has supply curve S₁ and demand curve D₁. If demand shifts to D₂, then in the short run price will

Figure 10-7 In Figure 10-7, output at which point represents short-run but not long-run equilibrium?

Figure 10-5 Figure 10-5 shows the short-run cost relationships for a perfectly competitive firm. Based on this diagram, which point would not be on the firm's short-run supply curve?

Figure 10-1 Suppose a perfectly competitive firm's situation is shown in Figure 10-1 and the firm is currently producing at D. What can be said about this situation?

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