Question 1

If a potato farmer expands output, he finds that the increase in total revenue is less than the increase in total costs. This means that:

Accepted Answer

A)  profit is being maximized. 
B)  he should not have expanded output. 
C)  he should produce even more output. 
D)  the firm is wasting resources. 
A)  profit is being maximized. 
B)  he should not have expanded output. 
C)  he should produce even more output. 
D)  the firm is wasting resources.

Question 2

Exhibit 8-12 Marginal revenue and cost per unit curves
 
As shown in Exhibit 8-12, the price that will yield zero economic profit is:

Accepted Answer

A)  OA. 
B)  OB. 
C)  OC. 
D)  OD. 
A)  OA. 
B)  OB. 
C)  OC. 
D)  OD.

Question 3

Suppose that price is below the minimum average total cost but above the minimum average variable cost. In the short run, a firm that is a price taker would:

Accepted Answer

A)  immediately shut down and get out of the industry. 
B)  continue to produce a quantity such that marginal revenue equals marginal cost. 
C)  shut down temporarily, in hopes of restarting in the near future. 
D)  cut price and expand output in hopes of achieving economies of scale 
A)  immediately shut down and get out of the industry. 
B)  continue to produce a quantity such that marginal revenue equals marginal cost. 
C)  shut down temporarily, in hopes of restarting in the near future. 
D)  cut price and expand output in hopes of achieving economies of scale

Question 4

Exhibit 8-6 A firm's cost and MC curves
 
In Exhibit 8-6, if this firm is currently producing 20 units of output, this firm is

Accepted Answer

A)  earning a profit of $10. 
B)  earning a profit of $.50. 
C)  losing $10. 
D)  losing $0.50. 
A)  earning a profit of $10. 
B)  earning a profit of $.50. 
C)  losing $10. 
D)  losing $0.50.

Question 5

Suppose a single egg farmer alters the number of eggs she produces but the change in egg output does not have any effect on the market price. This example describes which of the following characteristics of perfect competition?

Accepted Answer

A)  large number of small firms 
B)  homogeneous product 
C)  very easy entry and exit 
D)  mutual interdependence 
A)  large number of small firms 
B)  homogeneous product 
C)  very easy entry and exit 
D)  mutual interdependence

Question 6

Exhibit 8-11 A firm's cost and marginal revenue curves
 
In Exhibit 8-11, the profit-maximizing output level at the price of $8 is:

Accepted Answer

A)  0. 
B)  7. 
C)  8. 
D)  10. 
A)  0. 
B)  7. 
C)  8. 
D)  10.

Question 7

If the price of a product is $12, its average total cost is $2 and its average total cost is $15 at the profit-maximizing output level,  in the short run the firm:

Accepted Answer

A)  should expand output until MR = MC. 
B)  cannot cover total fixed costs. 
C)  experiences a loss. 
D)  must always shut down. 
A)  should expand output until MR = MC. 
B)  cannot cover total fixed costs. 
C)  experiences a loss. 
D)  must always shut down.

Question 8

As market price increases in the short run, a profit-maximizing firm in a perfectly competitive market will expand output along its:

Accepted Answer

A)  marginal cost curve. 
B)  average total cost curve. 
C)  average variable cost curve. 
D)  market demand curve. 
A)  marginal cost curve. 
B)  average total cost curve. 
C)  average variable cost curve. 
D)  market demand curve.

Question 9

Which of the following best illustrates perfect competition?

Accepted Answer

A)  wheat farming 
B)  orange growers setting quotas under the Sunkist cooperative 
C)  General Motors advertising campaign for its cars 
D)  Coca-Cola and Pepsi battling for market share 
A)  wheat farming 
B)  orange growers setting quotas under the Sunkist cooperative 
C)  General Motors advertising campaign for its cars 
D)  Coca-Cola and Pepsi battling for market share

Question 10

Suppose that 1000 identical sellers each set their profit-maximizing output level at 18 units when price equals $10. Then what is market quantity supplied at a price of $10?

Accepted Answer

A)  100. 
B)  1,000. 
C)  10,000. 
D)  18,000. 
A)  100. 
B)  1,000. 
C)  10,000. 
D)  18,000.

Question 11

Which of the following could be a perfectly competitive market?

Accepted Answer

A)  the market for licensed electricians 
B)  the market for restaurants with permits to sell alcohol 
C)  the market for patented pharmaceuticals 
D)  the market for tradable stocks 
A)  the market for licensed electricians 
B)  the market for restaurants with permits to sell alcohol 
C)  the market for patented pharmaceuticals 
D)  the market for tradable stocks

Question 12

In long-run equilibrium, which of the following is not equal to price for a perfectly competitive firm?

Accepted Answer

A)  short-run average variable cost 
B)  long-run average total cost 
C)  short-run marginal cost 
D)  short-run average total cost 
A)  short-run average variable cost 
B)  long-run average total cost 
C)  short-run marginal cost 
D)  short-run average total cost

Question 13

Which of the following is not a characteristic of the structure of perfectly competitive markets?

Accepted Answer

A)  Each individual firm is small in size relative to the overall market. 
B)  Few sellers. 
C)  Homogeneous product. 
D)  Easy, low cost entry and exit. 
A)  Each individual firm is small in size relative to the overall market. 
B)  Few sellers. 
C)  Homogeneous product. 
D)  Easy, low cost entry and exit.

Question 14

Exhibit 8-8 A firm's cost and marginal revenue curves
 
In Exhibit 8-8, product price in this market is fixed at $35. This firm is currently operating where MR = MC. Which of the following is true ?

Accepted Answer

A)  Price > AVC and this firm should shut down. 
B)  This firm is earning a profit of zero. 
C)  This firm could increase profits by increasing output. 
D)  Price > AVC and the firm should continue producing its current output. 
A)  Price > AVC and this firm should shut down. 
B)  This firm is earning a profit of zero. 
C)  This firm could increase profits by increasing output. 
D)  Price > AVC and the firm should continue producing its current output.

Question 15

The large-number-of-sellers condition of perfect competition is met when

Accepted Answer

A)  there are more sellers than buyers in the market. 
B)  there are more than 50 firms in the industry. 
C)  there are more than 100 firms in the industry. 
D)  each firm is so small relative to the total market that no single firm can influence the market price. 
A)  there are more sellers than buyers in the market. 
B)  there are more than 50 firms in the industry. 
C)  there are more than 100 firms in the industry. 
D)  each firm is so small relative to the total market that no single firm can influence the market price.

Question 16

A firm in a perfectly competitive market:

Accepted Answer

A)  must take the price that is determined in the market. 
B)  must reduce its price if it wants to sell a larger quantity. 
C)  must be large relative to the total market. 
D)  can exert a major influence on the market price. 
A)  must take the price that is determined in the market. 
B)  must reduce its price if it wants to sell a larger quantity. 
C)  must be large relative to the total market. 
D)  can exert a major influence on the market price.

Question 17

Exhibit 8-12 Marginal revenue and cost per unit curves
 
If price is equal to OD for the firm shown in Exhibit 8-12, total profit is maximized when:

Accepted Answer

A)  output is X. 
B)  output is Y. 
C)  output is Z. 
D)  output is greater than Z. 
A)  output is X. 
B)  output is Y. 
C)  output is Z. 
D)  output is greater than Z.

Question 18

Assume the short-run average total cost for a perfectly competitive industry decreases as the output of the industry expands. In the long run, the industry supply curve will:

Accepted Answer

A)  have a positive slope. 
B)  have a negative slope. 
C)  be perfectly horizontal. 
D)  be perfectly vertical. 
A)  have a positive slope. 
B)  have a negative slope. 
C)  be perfectly horizontal. 
D)  be perfectly vertical.

Question 19

Exhibit 8-2 Total revenue and total cost graph
 
In Exhibit 8-2, economic profit for the firm is at a maximum when output per week equals:

Accepted Answer

A)  100 units. 
B)  200 units. 
C)  250 units. 
D)  300 units. 
A)  100 units. 
B)  200 units. 
C)  250 units. 
D)  300 units.

Question 20

Which of the following statements is true ?

Accepted Answer

A)  To maximize profits, a firm must maximize total revenue. 
B)  In long-run equilibrium, a competitive firm produces at the point of minimum average total cost. 
C)  In the short-run, a perfectly competitive firm produces where total cost is minimum. 
D)  In the short-run, a perfectly competitive firm will close down whenever price is less than average total cost. 
A)  To maximize profits, a firm must maximize total revenue. 
B)  In long-run equilibrium, a competitive firm produces at the point of minimum average total cost. 
C)  In the short-run, a perfectly competitive firm produces where total cost is minimum. 
D)  In the short-run, a perfectly competitive firm will close down whenever price is less than average total cost.

Exam 8: Perfect Competition

If a potato farmer expands output, he finds that the increase in total revenue is less than the increase in total costs. This means that:

Exhibit 8-12 Marginal revenue and cost per unit curves As shown in Exhibit 8-12, the price that will yield zero economic profit is:

Suppose that price is below the minimum average total cost but above the minimum average variable cost. In the short run, a firm that is a price taker would:

Exhibit 8-6 A firm's cost and MC curves In Exhibit 8-6, if this firm is currently producing 20 units of output, this firm is

Suppose a single egg farmer alters the number of eggs she produces but the change in egg output does not have any effect on the market price. This example describes which of the following characteristics of perfect competition?

Exhibit 8-11 A firm's cost and marginal revenue curves In Exhibit 8-11, the profit-maximizing output level at the price of $8 is:

If the price of a product is $12, its average total cost is $2 and its average total cost is $15 at the profit-maximizing output level, in the short run the firm:

As market price increases in the short run, a profit-maximizing firm in a perfectly competitive market will expand output along its:

Which of the following best illustrates perfect competition?

Suppose that 1000 identical sellers each set their profit-maximizing output level at 18 units when price equals $10. Then what is market quantity supplied at a price of $10?

Which of the following could be a perfectly competitive market?

In long-run equilibrium, which of the following is not equal to price for a perfectly competitive firm?

Which of the following is not a characteristic of the structure of perfectly competitive markets?

Exhibit 8-8 A firm's cost and marginal revenue curves In Exhibit 8-8, product price in this market is fixed at $35. This firm is currently operating where MR = MC. Which of the following is true ?

The large-number-of-sellers condition of perfect competition is met when

A firm in a perfectly competitive market:

Exhibit 8-12 Marginal revenue and cost per unit curves If price is equal to OD for the firm shown in Exhibit 8-12, total profit is maximized when:

Assume the short-run average total cost for a perfectly competitive industry decreases as the output of the industry expands. In the long run, the industry supply curve will:

Exhibit 8-2 Total revenue and total cost graph In Exhibit 8-2, economic profit for the firm is at a maximum when output per week equals:

Which of the following statements is true ?

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

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