Question 1

If a perfectly competitive firm sells 50 units of output at a market price of $10 per unit, its marginal revenue is:

Accepted Answer

A)  more than $10. 
B)  less than $10. 
C)  $10. 
D)  $500. 
A)  more than $10. 
B)  less than $10. 
C)  $10. 
D)  $500.

Question 2

Exhibit 8-11 A firm's cost and marginal revenue curves
 
In Exhibit 8-11, when the price rises from $5 to $8, the profit-maximizing (or loss-minimizing) firm goes from making a:

Accepted Answer

A)  loss to making a smaller loss. 
B)  loss to making a larger loss. 
C)  loss to making a profit. 
D)  profit to making a loss. 
A)  loss to making a smaller loss. 
B)  loss to making a larger loss. 
C)  loss to making a profit. 
D)  profit to making a loss.

Question 3

Exhibit 8-19 Long-run perfectly competitive industry
 
As shown in Exhibit 8-19, assume that a perfectly competitive industry is in long-run equilibrium at point A. If the demand curve shifts from D1 to D2, the adjustment sequence between points will be:

Accepted Answer

A)  A to B, then back to A. 
B)  A to D, then back to A. 
C)  A to D, then to C. 
D)  A to B, then to C. 
A)  A to B, then back to A. 
B)  A to D, then back to A. 
C)  A to D, then to C. 
D)  A to B, then to C.

Question 4

In the perfectly competitive market, individual firms exert no effect on the market price. Therefore, the firm's marginal revenue is:

Accepted Answer

A)  zero. 
B)  an upward-sloping curve. 
C)  a downward-sloping curve. 
D)  the same as the firm's demand curve. 
A)  zero. 
B)  an upward-sloping curve. 
C)  a downward-sloping curve. 
D)  the same as the firm's demand curve.

Question 5

If a firm is currently equating MR and MC and product price = $24, AVC = $22, and ATC = $26, then in the long run this firm:

Accepted Answer

A)  will continue to operate at a loss. 
B)  will earn a positive profit. 
C)  will go out of business. 
D)  should decrease price. 
A)  will continue to operate at a loss. 
B)  will earn a positive profit. 
C)  will go out of business. 
D)  should decrease price.

Question 6

When a product is defined as homogeneous,

Accepted Answer

A)  buyers prefer one seller's product to another's. 
B)  buyers are indifferent as to which seller's product they buy. 
C)  sellers are indifferent as to the quantity of the product they sell. 
D)  sellers have an incentive to charge a price higher than the market price. 
A)  buyers prefer one seller's product to another's. 
B)  buyers are indifferent as to which seller's product they buy. 
C)  sellers are indifferent as to the quantity of the product they sell. 
D)  sellers have an incentive to charge a price higher than the market price.

Question 7

Exhibit 8-16 Short-run cost curves for a competitive firm
 
In Exhibit 8-16, if the market price of its product is $50 per unit, then the firm will:

Accepted Answer

A)  break even. 
B)  shut down. 
C)  exit the industry. 
D)  earn a positive economic profit. 
A)  break even. 
B)  shut down. 
C)  exit the industry. 
D)  earn a positive economic profit.

Question 8

Under perfect competition, a firm is a price taker because:

Accepted Answer

A)  setting a price higher than the going price results in profits. 
B)  each firm's product is perceived as different. 
C)  each firm has a significant market share. 
D)  setting a price higher than the going price results in zero sales. 
A)  setting a price higher than the going price results in profits. 
B)  each firm's product is perceived as different. 
C)  each firm has a significant market share. 
D)  setting a price higher than the going price results in zero sales.

Question 9

If a fishing boat owner brings 10,000 fish to market and the market price is $7 per fish, she will have $70,000 in total revenue. If the average variable cost of 10,000 fish is $4 and the fixed cost of the boat is $20,000, what is her profit?

Accepted Answer

A)  $3. 
B)  $1,000. 
C)  $3,000. 
D)  $10,000. 
A)  $3. 
B)  $1,000. 
C)  $3,000. 
D)  $10,000.

Question 10

In the short run, a firm should shut down its operation if:

Accepted Answer

A)  its losses are less than TFC at the MR = MC point. 
B)  its losses equal TFC at the MR = MC point. 
C)  its losses are greater than TFC at the MR = MC point. 
D)  TR is less than TC. 
A)  its losses are less than TFC at the MR = MC point. 
B)  its losses equal TFC at the MR = MC point. 
C)  its losses are greater than TFC at the MR = MC point. 
D)  TR is less than TC.

Question 11

Under perfect competition, which of the following are equal at all levels of output?

Accepted Answer

A)  price and marginal cost 
B)  price and marginal revenue 
C)  marginal cost and marginal revenue 
D)  marginal cost and short-run average total cost 
A)  price and marginal cost 
B)  price and marginal revenue 
C)  marginal cost and marginal revenue 
D)  marginal cost and short-run average total cost

Question 12

Which of the following is a key characteristic of the long-run competitive equilibrium that distinguishes it from the short-run competitive equilibrium?

Accepted Answer

A)  Free entry to reduce short-run profits, or free exit to reduce short-run losses. 
B)  Economic profits are positive, but cannot be negative. 
C)  Marginal revenue is greater than marginal cost. 
D)  Average revenue is less than average cost. 
A)  Free entry to reduce short-run profits, or free exit to reduce short-run losses. 
B)  Economic profits are positive, but cannot be negative. 
C)  Marginal revenue is greater than marginal cost. 
D)  Average revenue is less than average cost.

Question 13

If a perfectly competitive industry's long-run supply curve is downward sloping, we can conclude that input prices will:

Accepted Answer

A)  increase as industry output increases. 
B)  decrease as industry output increases. 
C)  remain constant as industry output increases. 
D)  not change systematically as industry output increases. 
A)  increase as industry output increases. 
B)  decrease as industry output increases. 
C)  remain constant as industry output increases. 
D)  not change systematically as industry output increases.

Question 14

Exhibit 8-3 Cost per unit curves
 
In Exhibit 8-3, if the price of the firm's product is $2.00 per unit, the firm will produce:

Accepted Answer

A)  5 units per day. 
B)  10 units per day. 
C)  15 units per day. 
D)  20 units per day. 
A)  5 units per day. 
B)  10 units per day. 
C)  15 units per day. 
D)  20 units per day.

Question 15

Exhibit 8-9 A firm's cost and marginal revenue curves
 
In Exhibit 8-9, product price in this market is fixed at $7. This firm is currently operating where MR = MC. What do you advise this firm to do?

Accepted Answer

A)  This firm should shut down. 
B)  This firm could increase profits by increasing output. 
C)  This firm could increase profits by decreasing output. 
D)  This firm should increase price. 
A)  This firm should shut down. 
B)  This firm could increase profits by increasing output. 
C)  This firm could increase profits by decreasing output. 
D)  This firm should increase price.

Question 16

Exhibit 8-15 Short-run cost curves for E-Z Care lawn mowing company
 
In Exhibit 8-15, what market price would cause E-Z-Care to just break even?

Accepted Answer

A)  $6 per lawn. 
B)  $8 per lawn. 
C)  $12 per lawn. 
D)  $16 per lawn. 
A)  $6 per lawn. 
B)  $8 per lawn. 
C)  $12 per lawn. 
D)  $16 per lawn.

Question 17

Which of the following offers the best explanation of why "marginal revenue equals marginal cost" is the rule that indicates the profit-maximizing output level?

Accepted Answer

A)  If output were reduced from the profit-maximizing level, then the firm would be gaining marginal revenue that exceeds marginal cost, and thus increasing the level of profit. 
B)  If output were increased from the profit-maximizing level, then the firm would be gaining marginal revenue that is less than the marginal cost incurred in producing this additional unit, and thus reducing the level of profit. 
C)  Because the firm colludes with other similar firms to set price equal to marginal cost. 
D)  The marginal revenue is equal to the marginal cost at all levels of output for a perfectly competitive firm. 
A)  If output were reduced from the profit-maximizing level, then the firm would be gaining marginal revenue that exceeds marginal cost, and thus increasing the level of profit. 
B)  If output were increased from the profit-maximizing level, then the firm would be gaining marginal revenue that is less than the marginal cost incurred in producing this additional unit, and thus reducing the level of profit. 
C)  Because the firm colludes with other similar firms to set price equal to marginal cost. 
D)  The marginal revenue is equal to the marginal cost at all levels of output for a perfectly competitive firm.

Question 18

The long run is a planning period:

Accepted Answer

A)  during which the firm can vary its plant size. 
B)  less than six months. 
C)  less than one year. 
D)  less than five years. 
A)  during which the firm can vary its plant size. 
B)  less than six months. 
C)  less than one year. 
D)  less than five years.

Question 19

Which of the following is not a characteristic of a perfectly competitive market?

Accepted Answer

A)  There is a large number of small firms. 
B)  Firms sell a homogeneous product. 
C)  Firms can easily enter or exit the market. 
D)  Firms are price makers, not price takers. 
A)  There is a large number of small firms. 
B)  Firms sell a homogeneous product. 
C)  Firms can easily enter or exit the market. 
D)  Firms are price makers, not price takers.

Question 20

The long-run equilibrium condition for perfect competition is:

Accepted Answer

A)  P = AVC = MR = MC. 
B)  P = ATC = MR = MC. 
C)  Q = AVC = MR = MC. 
D)  Q = ATC = MR = MC. 
A)  P = AVC = MR = MC. 
B)  P = ATC = MR = MC. 
C)  Q = AVC = MR = MC. 
D)  Q = ATC = MR = MC.

Exam 8: Perfect Competition

If a perfectly competitive firm sells 50 units of output at a market price of $10 per unit, its marginal revenue is:

Exhibit 8-11 A firm's cost and marginal revenue curves In Exhibit 8-11, when the price rises from $5 to $8, the profit-maximizing (or loss-minimizing) firm goes from making a:

Exhibit 8-19 Long-run perfectly competitive industry As shown in Exhibit 8-19, assume that a perfectly competitive industry is in long-run equilibrium at point A. If the demand curve shifts from D1 to D2, the adjustment sequence between points will be:

In the perfectly competitive market, individual firms exert no effect on the market price. Therefore, the firm's marginal revenue is:

If a firm is currently equating MR and MC and product price = $24, AVC = $22, and ATC = $26, then in the long run this firm:

When a product is defined as homogeneous,

Exhibit 8-16 Short-run cost curves for a competitive firm In Exhibit 8-16, if the market price of its product is $50 per unit, then the firm will:

Under perfect competition, a firm is a price taker because:

If a fishing boat owner brings 10,000 fish to market and the market price is $7 per fish, she will have $70,000 in total revenue. If the average variable cost of 10,000 fish is $4 and the fixed cost of the boat is $20,000, what is her profit?

In the short run, a firm should shut down its operation if:

Under perfect competition, which of the following are equal at all levels of output?

Which of the following is a key characteristic of the long-run competitive equilibrium that distinguishes it from the short-run competitive equilibrium?

If a perfectly competitive industry's long-run supply curve is downward sloping, we can conclude that input prices will:

Exhibit 8-3 Cost per unit curves In Exhibit 8-3, if the price of the firm's product is $2.00 per unit, the firm will produce:

Exhibit 8-9 A firm's cost and marginal revenue curves In Exhibit 8-9, product price in this market is fixed at $7. This firm is currently operating where MR = MC. What do you advise this firm to do?

Exhibit 8-15 Short-run cost curves for E-Z Care lawn mowing company In Exhibit 8-15, what market price would cause E-Z-Care to just break even?

Which of the following offers the best explanation of why "marginal revenue equals marginal cost" is the rule that indicates the profit-maximizing output level?

The long run is a planning period:

Which of the following is not a characteristic of a perfectly competitive market?

The long-run equilibrium condition for perfect competition is:

Introducing the Economic Way of Thinking

Production Possibilities Opportunity Cost and Economic Growth

Market Demand and Supply

Markets in Action

Price Elasticity of Demand and Supply

Consumer Choice Theory

Production Costs

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets

Income Distribution Poverty and Discrimination

Antitrust and Regulation

Environmental Economics

Gross Domestic Product

Business Cycles and Unemployment

Inflation

The Keynesian Model

The Keynesian Model in Action

Aggregate Demand and Supply

Fiscal Policy

The Public Sector

Federal Deficits Surpluses and the National Debt

Money and the Federal Reserve System

Money Creation

Monetary Policy

The Phillips Curve and Expectations Theory

International Trade and Finance

Economies in Transition

Growth and the Less Developed Countries

Understanding Direct and Inverse Relationships between Variables

Filters

Exhibit 8-19 Long-run perfectly competitive industry As shown in Exhibit 8-19, assume that a perfectly competitive industry is in long-run equilibrium at point A. If the demand curve shifts from D₁ to D₂, the adjustment sequence between points will be: