Question 1

In the short run, if price is below AC, maximizing profits really means minimizing total losses.

Accepted Answer

A) True 
 B)False

Question 2

At its long-run equilibrium level of output, the demand curve facing an individual perfectly competitive firm is tangent to its

Accepted Answer

A) total economic profit curve. 
B) long-run average cost curve. 
C) marginal cost curve. 
D) marginal profit curve. 
A) total economic profit curve. 
B) long-run average cost curve. 
C) marginal cost curve. 
D) marginal profit curve.

Question 3

Explain why Adam Smith believed that competitive markets are a key component of achieving the gains from the invisible hand.

Accepted Answer

Adam Smith believed that individuals act

Question 4

Figure 10-1 ​
 
A firm earns a profit of exactly zero at its optimal output level only if

Accepted Answer

A) P = MR. 
B) P = MC. 
C) P = AC. 
D) P = SRAVC. 
A) P = MR. 
B) P = MC. 
C) P = AC. 
D) P = SRAVC.

Question 5

In the short run, a perfectly competitive firm can make a profit, a loss, or shut down.

Accepted Answer

A) True 
 B)False

Question 6

Perfect competition is characterized by numerous firms.

Accepted Answer

A) True 
 B)False

Question 7

A firm in a perfectly competitive industry

Accepted Answer

A) is unaffected by the entrance of new firms into the industry, since entering firms affect only the prices they themselves receive. 
B) always produces more output in the long run than in the short run. 
C) may choose a different output in the long run than in the short run. 
D) earns economic profit in the long run but not in the short run. 
A) is unaffected by the entrance of new firms into the industry, since entering firms affect only the prices they themselves receive. 
B) always produces more output in the long run than in the short run. 
C) may choose a different output in the long run than in the short run. 
D) earns economic profit in the long run but not in the short run.

Question 8

In a perfectly competitive industry, influence over price is exerted by

Accepted Answer

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

Question 9

Explain how the short-run industry supply curve for a perfectly competitive market is derived.

Accepted Answer

At any given price, the quanti

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

Firms in a perfectly competitive market produce at minimum average cost in the short run and the long run.

Accepted Answer

A) True 
 B)False

Question 12

If a firm shuts down in the short run, its losses are equal to

Accepted Answer

A) TC − TR. 
B) TFC. 
C) TVC. 
D) MC. 
A) TC − TR. 
B) TFC. 
C) TVC. 
D) MC.

Question 13

The short-run supply curve of the perfectly competitive industry is found by summing the

Accepted Answer

A) AC curves of the individual firms in the industry. 
B) AVC curves of the individual firms in the industry. 
C) MC curves above AVC of the individual firms in the industry. 
D) There is no short-run supply curve in a competitive industry. 
A) AC curves of the individual firms in the industry. 
B) AVC curves of the individual firms in the industry. 
C) MC curves above AVC of the individual firms in the industry. 
D) There is no short-run supply curve in a competitive industry.

Question 14

A firm will shut down in the short run if

Accepted Answer

A) MR 
B) MR > AVC. 
C) AVC 
D) P > MC. 
A) MR 
B) MR > AVC. 
C) AVC 
D) P > MC.

Question 15

The short-run market demand curve in perfect competition is positively sloped.

Accepted Answer

A) True 
 B)False

Question 16

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 17

Explain how the short-run supply curve of the competitive firm is derived.

Accepted Answer

Since the firm is either minimizing loss

Question 18

Why doesn't a competitive firm reduce its price below the industry price to increase sales?

Accepted Answer

A competitive firm can sell all it wishe

Question 19

The firm whose short-run cost curves are given in Exhibi has a long-run fixed cost of

Accepted Answer

A) $0. 
B) $2. 
C) $3. 
D) $4. 
A) $0. 
B) $2. 
C) $3. 
D) $4.

Question 20

A perfectly competitive industry in long-run equilibrium is described as efficient because firms

Accepted Answer

A) produce at the low point on their average cost curve. 
B) produce where marginal cost yields a profit. 
C) earn no more than the cost of capital. 
D) are not profitable. 
A) produce at the low point on their average cost curve. 
B) produce where marginal cost yields a profit. 
C) earn no more than the cost of capital. 
D) are not profitable.

Exam 10: The Firm and the Industry Under Perfect Competition

In the short run, if price is below AC, maximizing profits really means minimizing total losses.

At its long-run equilibrium level of output, the demand curve facing an individual perfectly competitive firm is tangent to its

Explain why Adam Smith believed that competitive markets are a key component of achieving the gains from the invisible hand.

Figure 10-1 ​ A firm earns a profit of exactly zero at its optimal output level only if

In the short run, a perfectly competitive firm can make a profit, a loss, or shut down.

Perfect competition is characterized by numerous firms.

A firm in a perfectly competitive industry

In a perfectly competitive industry, influence over price is exerted by

Explain how the short-run industry supply curve for a perfectly competitive market is derived.

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

Firms in a perfectly competitive market produce at minimum average cost in the short run and the long run.

If a firm shuts down in the short run, its losses are equal to

The short-run supply curve of the perfectly competitive industry is found by summing the

A firm will shut down in the short run if

The short-run market demand curve in perfect competition is positively sloped.

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

Explain how the short-run supply curve of the competitive firm is derived.

Why doesn't a competitive firm reduce its price below the industry price to increase sales?

The firm whose short-run cost curves are given in Exhibi has a long-run fixed cost of

A perfectly competitive industry in long-run equilibrium is described as efficient because firms

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 10-1 A firm earns a profit of exactly zero at its optimal output level only 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 S₁, the firm is