Question 1

In the long run, a perfectly competitive firm earns no accounting profits.

Accepted Answer

A) True 
 B)False

Question 2

Figure 10-1 ​
 
If the profit-maximizing firm depicted in Figure 10-1 is perfectly competitive, how much output should it produce?

Accepted Answer

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

Question 3

If the typical firm's minimum average variable cost is $10 at an output of 50 units, if marginal cost is $20 at 70 units, and there are 1,000 firms in the industry, sketch supply curves for the typical firm and for the industry as a whole.

Accepted Answer

For the firm, plot two supply points cor

Question 4

The demand curve for the perfectly competitive industry normally slopes downward, unlike the perfect competitive firm. Why?

Accepted Answer

Each firm by itself is so small that if

Question 5

If government forced a firm to charge a price equal to marginal cost in a situation where there are scale economies,

Accepted Answer

A) new firms would enter the industry. 
B) the firm would be forced to go bankrupt. 
C) positive economic profit would grow even larger. 
D) marginal cost would exceed average cost. 
A) new firms would enter the industry. 
B) the firm would be forced to go bankrupt. 
C) positive economic profit would grow even larger. 
D) marginal cost would exceed average cost.

Question 6

A firm sells in a competitive market in which price is $10. Its marginal cost is 2 + 0.5Q. Determine the profit-maximizing level of output.

Accepted Answer

The solution requires equating

Question 7

An industry supply curve is the horizontal summation of the supply curves of all of the individual firms.

Accepted Answer

A) True 
 B)False

Question 8

At a perfectly competitive firm's profit-maximizing level of output, its total revenue is $200 and its short-run variable cost is $225. The firm

Accepted Answer

A) has a loss of $25. 
B) should shut down. 
C) should increase output to reduce losses. 
D) should raise the price of its product. 
A) has a loss of $25. 
B) should shut down. 
C) should increase output to reduce losses. 
D) should raise the price of its product.

Question 9

If a perfectly competitive industry is in long-run equilibrium, firms maximize profits, and the process of entry and exit results in

Accepted Answer

A) all firms producing where P = MC = AC. 
B) a left shift in the industry supply curve. 
C) a few firms earning economic profits. 
D) the price falling to the point where MR > MC. 
A) all firms producing where P = MC = AC. 
B) a left shift in the industry supply curve. 
C) a few firms earning economic profits. 
D) the price falling to the point where MR > MC.

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

For a perfectly competitive firm in the short run, if the following conditions are true, P = MR = MC > AC, then

Accepted Answer

A) the firm is maximizing profits and is making an economic profit. 
B) the firm is not maximizing profits but is making an economic profit. 
C) the firm is not maximizing profits and is not making an economic profit. 
D) the firm is maximizing profits and is suffering an economic loss. 
A) the firm is maximizing profits and is making an economic profit. 
B) the firm is not maximizing profits but is making an economic profit. 
C) the firm is not maximizing profits and is not making an economic profit. 
D) the firm is maximizing profits and is suffering an economic loss.

Question 12

A price taking firm's short-run supply curve is perfectly elastic at the market price.

Accepted Answer

A) True 
 B)False

Question 13

Explain why taxes on pollutants reduce pollution while subsidies to firms cutting their pollutants actually increase pollution.

Accepted Answer

Taxes cause an increase in cost and a le

Question 14

The market for a perfectly competitive industry clears at a price of $3, and the minimum average cost for all firms is $2.50. In the long run, we would expect an increase in

Accepted Answer

A) each firm's output. 
B) the number of firms. 
C) each firm's profit. 
D) each firm's average cost. 
A) each firm's output. 
B) the number of firms. 
C) each firm's profit. 
D) each firm's average cost.

Question 15

If a firm has short-run losses, will it stay open? Under what conditions will a firm close in the short run? Explain.

Accepted Answer

The firm suffers losses if P minimum of

Question 16

Which of the following characteristics does not fit a perfectly competitive market?

Accepted Answer

A) Numerous small firms 
B) Identical products produced by all firms in the market 
C) Each individual firm has a small amount of control over the market price 
D) Ease of entry and exit from the market 
A) Numerous small firms 
B) Identical products produced by all firms in the market 
C) Each individual firm has a small amount of control over the market price 
D) Ease of entry and exit from the market

Question 17

Zero economic profit means that the firm's owners receive no compensation for their investment.

Accepted Answer

A) True 
 B)False

Question 18

If the price is less that the firm's AVC, the firm's output

Accepted Answer

A) is determined by the relationship between MC and AVC. 
B) will drop to zero. 
C) will change to where MC = ATC. 
D) will increase to where P = AC. 
A) is determined by the relationship between MC and AVC. 
B) will drop to zero. 
C) will change to where MC = ATC. 
D) will increase to where P = AC.

Question 19

A firm operating at MC = MR must be making a profit.

Accepted Answer

A) True 
 B)False

Question 20

In the long run, a perfectly competitive firm maximizes profit so P = MC = AC.

Accepted Answer

A) True 
 B)False

Exam 10: The Firm and the Industry Under Perfect Competition

In the long run, a perfectly competitive firm earns no accounting profits.

Figure 10-1 ​ If the profit-maximizing firm depicted in Figure 10-1 is perfectly competitive, how much output should it produce?

If the typical firm's minimum average variable cost is $10 at an output of 50 units, if marginal cost is $20 at 70 units, and there are 1,000 firms in the industry, sketch supply curves for the typical firm and for the industry as a whole.

The demand curve for the perfectly competitive industry normally slopes downward, unlike the perfect competitive firm. Why?

If government forced a firm to charge a price equal to marginal cost in a situation where there are scale economies,

A firm sells in a competitive market in which price is $10. Its marginal cost is 2 + 0.5Q. Determine the profit-maximizing level of output.

An industry supply curve is the horizontal summation of the supply curves of all of the individual firms.

At a perfectly competitive firm's profit-maximizing level of output, its total revenue is $200 and its short-run variable cost is $225. The firm

If a perfectly competitive industry is in long-run equilibrium, firms maximize profits, and the process of entry and exit results in

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

For a perfectly competitive firm in the short run, if the following conditions are true, P = MR = MC > AC, then

A price taking firm's short-run supply curve is perfectly elastic at the market price.

Explain why taxes on pollutants reduce pollution while subsidies to firms cutting their pollutants actually increase pollution.

The market for a perfectly competitive industry clears at a price of $3, and the minimum average cost for all firms is $2.50. In the long run, we would expect an increase in

If a firm has short-run losses, will it stay open? Under what conditions will a firm close in the short run? Explain.

Which of the following characteristics does not fit a perfectly competitive market?

Zero economic profit means that the firm's owners receive no compensation for their investment.

If the price is less that the firm's AVC, the firm's output

A firm operating at MC = MR must be making a profit.

In the long run, a perfectly competitive firm maximizes profit so P = MC = AC.

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 If the profit-maximizing firm depicted in Figure 10-1 is perfectly competitive, how much output should it produce?