Question 1

Exhibit 8-12 Marginal revenue and cost per unit curves
 
As shown in Exhibit 8-12, if the firm's price is OD, the firm will supply

Accepted Answer

A)  zero units of output because it is unprofitable. 
B)  X units and incur a loss. 
C)  Y units and break even. 
D)  Z units and make an economic profit. 
A)  zero units of output because it is unprofitable. 
B)  X units and incur a loss. 
C)  Y units and break even. 
D)  Z units and make an economic profit.

Question 2

In the short run, a firm should shut down its business if price is less than:

Accepted Answer

A)  ATC. 
B)  AR. 
C)  MC. 
D)  AVC. 
A)  ATC. 
B)  AR. 
C)  MC. 
D)  AVC.

Question 3

Exhibit 8-13 Price and cost per unit curves
 
In Exhibit 8-13, if the price is P3, the firm will

Accepted Answer

A)  produce Q3 and earn an economic profit. 
B)  produce Q3 and incur a loss in the short run. 
C)  produce Q3 and earn zero economic profit. 
D)  decide not to produce any output to minimize the loss. 
A)  produce Q3 and earn an economic profit. 
B)  produce Q3 and incur a loss in the short run. 
C)  produce Q3 and earn zero economic profit. 
D)  decide not to produce any output to minimize the loss.

Question 4

What is a firm's short run supply curve?

Accepted Answer

A firm's short run supply curv

Question 5

If the market price is $5 and you are currently producing at a level where average total cost is $3 and falling, you should:

Accepted Answer

A)  produce until the average total cost and average revenue are equal. 
B)  shut down. 
C)  produce only enough to cover variable costs. 
D)  produce where MR = MC. 
A)  produce until the average total cost and average revenue are equal. 
B)  shut down. 
C)  produce only enough to cover variable costs. 
D)  produce where MR = MC.

Question 6

Which of the following best explains why a firm in a perfectly competitive market must take the price determined in the market?

Accepted Answer

A)  The short-run average total costs of firms that are price takers will be constant. 
B)  If a price taker increased its price, consumers would buy from other suppliers. 
C)  Firms in a price-taker market will have to advertise to increase sales. 
D)  There are no good substitutes for the product supplied by a firm that is a price taker. 
A)  The short-run average total costs of firms that are price takers will be constant. 
B)  If a price taker increased its price, consumers would buy from other suppliers. 
C)  Firms in a price-taker market will have to advertise to increase sales. 
D)  There are no good substitutes for the product supplied by a firm that is a price taker.

Question 7

Which of the following correctly explains why sellers in a perfectly competitive market are price takers?

Accepted Answer

A)  There are few sellers, and so they have the power to take whatever price they want. 
B)  There are many sellers, and so the market process generates an equilibrium price that cannot be influenced by any one seller. Thus they have no choice but to take the price generated by the market process. 
C)  Sellers in a competitive market have the power to influence price by colluding with one another and using quotas to limit overall market output and thus raise price. 
D)  Individual buyers in a competitive market have the power to influence price, and thus can impose prices and other conditions on powerless sellers. 
A)  There are few sellers, and so they have the power to take whatever price they want. 
B)  There are many sellers, and so the market process generates an equilibrium price that cannot be influenced by any one seller. Thus they have no choice but to take the price generated by the market process. 
C)  Sellers in a competitive market have the power to influence price by colluding with one another and using quotas to limit overall market output and thus raise price. 
D)  Individual buyers in a competitive market have the power to influence price, and thus can impose prices and other conditions on powerless sellers.

Question 8

Pedro goes to the local farmer's market and is just as happy buying corn from the first vendor as he is from the second vendor. 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)  differentiated product 
A)  large number of small firms 
B)  homogeneous product 
C)  very easy entry and exit 
D)  differentiated product

Question 9

Maximizing profit means finding the maximum difference between:

Accepted Answer

A)  TR and TC. 
B)  MR and MC. 
C)  price and ATC. 
D)  ATC and MC. 
A)  TR and TC. 
B)  MR and MC. 
C)  price and ATC. 
D)  ATC and MC.

Question 10

The short-run supply curve for a perfectly competitive firm is the marginal cost curve
​

Accepted Answer

A)  at all price levels because the firm chooses the profit-maximizing quantity of output where marginal revenue equals marginal cost. 
B)  above the minimum point of the average variable cost (AV
C)  curve because as the price falls, the firm maximizes profit by producing more output to account for a smaller profit margin on each unit. 
C)  above the minimum point of the average variable cost (AV
C)  curve because the firm maximizes profit by choosing the quantity at which marginal revenue equals marginal cost and below the minimum point of AVC the firm will shut down to minimize its losses. 
D)  above the minimum point of the average total cost (AT
C)  curve because the firm maximizes profit by choosing the quantity at which marginal revenue equals marginal cost and below the minimum point of ATC the firm will shut down to minimize its losses. 
A)  at all price levels because the firm chooses the profit-maximizing quantity of output where marginal revenue equals marginal cost. 
B)  above the minimum point of the average variable cost (AV
C)  curve because as the price falls, the firm maximizes profit by producing more output to account for a smaller profit margin on each unit. 
C)  above the minimum point of the average variable cost (AV
C)  curve because the firm maximizes profit by choosing the quantity at which marginal revenue equals marginal cost and below the minimum point of AVC the firm will shut down to minimize its losses. 
D)  above the minimum point of the average total cost (AT
C)  curve because the firm maximizes profit by choosing the quantity at which marginal revenue equals marginal cost and below the minimum point of ATC the firm will shut down to minimize its losses.

Question 11

What is the largest possible loss that is consistent with a firm producing in a perfectly competitive market in long-run competitive equilibrium?

Accepted Answer

A)  an amount equal to price minus average variable cost 
B)  an amount equal to total variable 
C)  zero 
D)  an amount equal to total fixed cost 
A)  an amount equal to price minus average variable cost 
B)  an amount equal to total variable 
C)  zero 
D)  an amount equal to total fixed cost

Question 12

Suppose that in a perfectly competitive market, firms are making economic profits. In the long run, we can expect to see:

Accepted Answer

A)  some firms leave. 
B)  the market price rise. 
C)  market supply shift to the left. 
D)  economic profits become zero. 
A)  some firms leave. 
B)  the market price rise. 
C)  market supply shift to the left. 
D)  economic profits become zero.

Question 13

If a firm in a competitive industry is making zero economic profit but still producing, it must be the case that:

Accepted Answer

A)  MC = MR > ATC. 
B)  MC = MR 
C)  MC = ATC > MR. 
D)  MC = MR = ATC. 
A)  MC = MR > ATC. 
B)  MC = MR 
C)  MC = ATC > MR. 
D)  MC = MR = ATC.

Question 14

Suppose the marginal revenue curve for a perfectly competitive firm intersects the average total cost curve at its minimum point. As the marginal revenue curve moves upward from that point along the marginal cost curve,

Accepted Answer

A)  the profit-maximizing quantity decreases. 
B)  the profit-maximizing quantity increases. 
C)  the firm will choose not to produce to minimize its loss. 
D)  the average fixed cost curve will shift upward. 
A)  the profit-maximizing quantity decreases. 
B)  the profit-maximizing quantity increases. 
C)  the firm will choose not to produce to minimize its loss. 
D)  the average fixed cost curve will shift upward.

Question 15

Exhibit 8-17 Marginal revenue and cost per unit curves
 
As shown in Exhibit 8-17, the short-run supply curve for the firm corresponds to which segment of its marginal cost curve?

Accepted Answer

A)  C and all points above. 
B)  B and all points above. 
C)  A and all points above. 
D)  A to C only. 
A)  C and all points above. 
B)  B and all points above. 
C)  A and all points above. 
D)  A to C only.

Question 16

Exhibit 8-10 Price and cost data for a firm
 
In Exhibit 8-10, the maximum possible total profit is:

Accepted Answer

A)  $36. 
B)  $24. 
C)  $12. 
D)  $8. 
A)  $36. 
B)  $24. 
C)  $12. 
D)  $8.

Question 17

If a firm increases output when MR > MC, then:

Accepted Answer

A)  profit will equal zero. 
B)  profit will increase. 
C)  profit will decrease. 
D)  profit will remain the same. 
A)  profit will equal zero. 
B)  profit will increase. 
C)  profit will decrease. 
D)  profit will remain the same.

Question 18

Exhibit 8-18 A typical firm in a perfectly competitive market
 
As shown in Exhibit 8-18, the perfectly competitive firm is in long-run equilibrium at a price of:

Accepted Answer

A)  $100. 
B)  $200. 
C)  $300. 
D)  $400. 
A)  $100. 
B)  $200. 
C)  $300. 
D)  $400.

Question 19

Exhibit 8-13 Price and cost per unit curves
 
In Exhibit 8-13, if the price is P3, total economic profit is maximized or economic loss minimized at the output:

Accepted Answer

A)  Q1. 
B)  Q2. 
C)  Q3. 
D)  Q4. 
A)  Q1. 
B)  Q2. 
C)  Q3. 
D)  Q4.

Question 20

Exhibit 8-10 Price and cost data for a firm
 
In Exhibit 8-10, MR is the same as which column?

Accepted Answer

A)  Q. 
B)  P. 
C)  AVC. 
D)  ATC. 
E)  MC. 
A)  Q. 
B)  P. 
C)  AVC. 
D)  ATC. 
E)  MC.

Exam 8: Perfect Competition

Exhibit 8-12 Marginal revenue and cost per unit curves As shown in Exhibit 8-12, if the firm's price is OD, the firm will supply

In the short run, a firm should shut down its business if price is less than:

Exhibit 8-13 Price and cost per unit curves In Exhibit 8-13, if the price is P3, the firm will

What is a firm's short run supply curve?

If the market price is $5 and you are currently producing at a level where average total cost is $3 and falling, you should:

Which of the following best explains why a firm in a perfectly competitive market must take the price determined in the market?

Which of the following correctly explains why sellers in a perfectly competitive market are price takers?

Pedro goes to the local farmer's market and is just as happy buying corn from the first vendor as he is from the second vendor. This example describes which of the following characteristics of perfect competition?

Maximizing profit means finding the maximum difference between:

The short-run supply curve for a perfectly competitive firm is the marginal cost curve ​

What is the largest possible loss that is consistent with a firm producing in a perfectly competitive market in long-run competitive equilibrium?

Suppose that in a perfectly competitive market, firms are making economic profits. In the long run, we can expect to see:

If a firm in a competitive industry is making zero economic profit but still producing, it must be the case that:

Suppose the marginal revenue curve for a perfectly competitive firm intersects the average total cost curve at its minimum point. As the marginal revenue curve moves upward from that point along the marginal cost curve,

Exhibit 8-17 Marginal revenue and cost per unit curves As shown in Exhibit 8-17, the short-run supply curve for the firm corresponds to which segment of its marginal cost curve?

Exhibit 8-10 Price and cost data for a firm In Exhibit 8-10, the maximum possible total profit is:

If a firm increases output when MR > MC, then:

Exhibit 8-18 A typical firm in a perfectly competitive market As shown in Exhibit 8-18, the perfectly competitive firm is in long-run equilibrium at a price of:

Exhibit 8-13 Price and cost per unit curves In Exhibit 8-13, if the price is P3, total economic profit is maximized or economic loss minimized at the output:

Exhibit 8-10 Price and cost data for a firm In Exhibit 8-10, MR is the same as which column?

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 8-13 Price and cost per unit curves In Exhibit 8-13, if the price is P₃, the firm will

The short-run supply curve for a perfectly competitive firm is the marginal cost curve

Exhibit 8-13 Price and cost per unit curves In Exhibit 8-13, if the price is P₃, total economic profit is maximized or economic loss minimized at the output: