Question 1

A perfectly competitive firm will not operate where MC = MR but at MC = AC.

Accepted Answer

A) True 
 B)False

Question 2

We don't need to draw separate curves for demand, average revenue, and marginal revenue curves for a perfectly competitive firm. Why?

Accepted Answer

Under perfect competition the firm's dem

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

For a perfectly competitive firm, marginal revenue equals average revenue because the

Accepted Answer

A) firm's supply curve is horizontal. 
B) industry's demand curve is horizontal. 
C) firm's demand curve is horizontal. 
D) industry's supply curve is horizontal. 
A) firm's supply curve is horizontal. 
B) industry's demand curve is horizontal. 
C) firm's demand curve is horizontal. 
D) industry's supply curve is horizontal.

Question 5

Perfectly competitive markets are not the best at producing the goods that are desired by consumers.

Accepted Answer

A) True 
 B)False

Question 6

Why does the supply curve of the perfectly competitive industry shift to the right whenever a new firm enters the industry?

Accepted Answer

The supply curve of the competitive indu

Question 7

In a long-run equilibrium in a perfectly competitive market, the average firm earns positive economic profits.

Accepted Answer

A) True 
 B)False

Question 8

The number of firms in a perfectly competitive industry is not fixed in the long run.

Accepted Answer

A) True 
 B)False

Question 9

A firm facing a horizontal demand curve

Accepted Answer

A) cannot affect the price it receives for its output. 
B) always produces at an output at which P = MR. 
C) faces perfectly elastic demand for its product. 
D) All of the responses are correct. 
A) cannot affect the price it receives for its output. 
B) always produces at an output at which P = MR. 
C) faces perfectly elastic demand for its product. 
D) All of the responses are correct.

Question 10

The perfectly competitive firm's short-run shutdown rule is to shut down immediately if

Accepted Answer

A) TR  Q. 
A) TR  Q.

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 S2, the firm is

Accepted Answer

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

Question 12

Long-run average cost of the perfectly competitive firm includes the

Accepted Answer

A) cost of raw materials per unit of output. 
B) opportunity cost of labor per unit of output. 
C) opportunity cost of capital per unit of output. 
D) All of the responses are correct. 
A) cost of raw materials per unit of output. 
B) opportunity cost of labor per unit of output. 
C) opportunity cost of capital per unit of output. 
D) All of the responses are correct.

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

Which of the following is a characteristic of a perfectly competitive market?

Accepted Answer

A) A few large firms 
B) Firms producing specialized products in order to attract consumers 
C) Each individual firm having some control over the market price 
D) A large number of small firms 
A) A few large firms 
B) Firms producing specialized products in order to attract consumers 
C) Each individual firm having some control over the market price 
D) A large number of small firms

Question 15

To own a taxicab in New York City, you must own a medallion. New York City regulates the number of official cabs by limiting the number of medallions. Explain why the New York cab industry is not competitive by reviewing the four conditions necessary for competition. NYC violates which one?

Accepted Answer

The characteristics of perfect competiti

Question 16

The implications of the zero economic profit condition in a perfectly competitive market implies that the opportunity cost of capital is integrated into the firm's cost relationships.

Accepted Answer

A) True 
 B)False

Question 17

A firm will shut down in the short run if

Accepted Answer

A) P 
B) P > AVC. 
C) AVC > AFC. 
D) TR > TC. 
A) P 
B) P > AVC. 
C) AVC > AFC. 
D) TR > TC.

Question 18

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 19

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 20

Illustrate the cost curves and average revenue (demand)curve for the perfectly competitive firm in long-run equilibrium.

Accepted Answer

The illustration sho

Exam 10: The Firm and the Industry Under Perfect Competition

A perfectly competitive firm will not operate where MC = MR but at MC = AC.

We don't need to draw separate curves for demand, average revenue, and marginal revenue curves for a perfectly competitive firm. Why?

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

For a perfectly competitive firm, marginal revenue equals average revenue because the

Perfectly competitive markets are not the best at producing the goods that are desired by consumers.

Why does the supply curve of the perfectly competitive industry shift to the right whenever a new firm enters the industry?

In a long-run equilibrium in a perfectly competitive market, the average firm earns positive economic profits.

The number of firms in a perfectly competitive industry is not fixed in the long run.

A firm facing a horizontal demand curve

The perfectly competitive firm's short-run shutdown rule is to shut down immediately if

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 S2, the firm is

Long-run average cost of the perfectly competitive firm includes the

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

Which of the following is a characteristic of a perfectly competitive market?

To own a taxicab in New York City, you must own a medallion. New York City regulates the number of official cabs by limiting the number of medallions. Explain why the New York cab industry is not competitive by reviewing the four conditions necessary for competition. NYC violates which one?

The implications of the zero economic profit condition in a perfectly competitive market implies that the opportunity cost of capital is integrated into the firm's cost relationships.

A firm will shut down in the short run if

When a firm faces a horizontal demand curve,

A firm will shut down in the short run if

Illustrate the cost curves and average revenue (demand)curve for the perfectly competitive firm in long-run equilibrium.

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 10-4 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 S₂, the firm is