Question 1

​ Since a firm in perfect competition is a price taker, the demand curve for the firm's product is a horizontal line.

Accepted Answer

A) True 
 B)False  True

Question 2

Imagine you own a machine that produces perfectly authentic and legal $100 bills. You would use this machine until:

Accepted Answer

A)  the bills became worthless. 
B)  the total cost began to fall. 
C)  the marginal cost was $100. 
D)  the variable cost began to rise. 
E)  the marginal revenue began to fall. 
A)  the bills became worthless. 
B)  the total cost began to fall. 
C)  the marginal cost was $100. 
D)  the variable cost began to rise. 
E)  the marginal revenue began to fall. C

Question 3

Exhibit 7-18  A typical firm in a perfectly competitive market   In Exhibit 7-18, assume the perfectly competitive firm is in long-run equilibrium and there is an increase in demand. As a result, the firm in the short run will increase output along its:

Accepted Answer

A)  short-run average total cost curve B. 
B)  short-run marginal cost curve B. 
C)  long-run average cost curve. 
D)  none of the above because the firm shuts down. 
A)  short-run average total cost curve B. 
B)  short-run marginal cost curve B. 
C)  long-run average cost curve. 
D)  none of the above because the firm shuts down. B

Question 4

Exhibit 7-12  Marginal revenue and cost per unit curves   As shown in Exhibit 7-12, if the price is OD, a perfectly competitive firm maximizes profit at which point on its marginal cost curve?

Accepted Answer

A)  E. 
B)  F. 
C)  I. 
D)  Between E and I. 
A)  E. 
B)  F. 
C)  I. 
D)  Between E and I.

Question 5

Suppose that you have returned from your fishing expedition with 20,000 fish. The market price is $3 per fish. Your average fixed cost was $1 and your total variable cost was $5,000. If the price jumps to $3.50 before you sell your first fish, how much extra profit, if any, do you earn?

Accepted Answer

A)  c and d. 
B)  Extra profit is zero. 
C)  Extra profit is enough to cover half of the fixed cost of your next trip. 
D)  Extra profit is enough to cover all of the variable costs of your next two trips. 
E)  Extra profit is $45,000. 
A)  c and d. 
B)  Extra profit is zero. 
C)  Extra profit is enough to cover half of the fixed cost of your next trip. 
D)  Extra profit is enough to cover all of the variable costs of your next two trips. 
E)  Extra profit is $45,000.

Question 6

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 7

Exhibit 7-9  A firm's cost and marginal revenue curves   In Exhibit 7-9, product price in this market is fixed at $14. 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 continue to operate at its current output. 
E)  This firm should decrease 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 continue to operate at its current output. 
E)  This firm should decrease price.

Question 8

If a firm increases output when MR

Accepted Answer

A)  profit will equal zero. 
B)  profit will increase. 
C)  profit will decrease. 
D)  profit will remain the same. 
E)  the firm is minimizing losses. 
A)  profit will equal zero. 
B)  profit will increase. 
C)  profit will decrease. 
D)  profit will remain the same. 
E)  the firm is minimizing losses.

Question 9

A perfectly competitive firm in the short-run can earn:

Accepted Answer

A)  positive economic profits. 
B)  negative economic profits. 
C)  zero economic profits. 
D)  all of the above are possible 
A)  positive economic profits. 
B)  negative economic profits. 
C)  zero economic profits. 
D)  all of the above are possible

Question 10

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

Accepted Answer

A)  first have a positive slope and then a negative slope. 
B)  have a negative slope. 
C)  be perfectly horizontal. 
D)  be perfectly vertical. 
E)  have a positive slope. 
A)  first have a positive slope and then a negative slope. 
B)  have a negative slope. 
C)  be perfectly horizontal. 
D)  be perfectly vertical. 
E)  have a positive slope.

Question 11

Exhibit 7-13  Price and cost per unit curves   As shown by the five points in Exhibit 7-13, the firm's total economic profit is maximized when the price is:

Accepted Answer

A)  P1. 
B)  P2. 
C)  P3. 
D)  P4. 
E)  P5. 
A)  P1. 
B)  P2. 
C)  P3. 
D)  P4. 
E)  P5.

Question 12

What is a firm's short run supply curve?

Accepted Answer

A firm's short run supply curv

Question 13

Suppose product price is fixed at $24; MR = MC at Q = 200; AFC = $6; AVC = $16. What do you advise this firm to do?

Accepted Answer

A)  Increase output. 
B)  Decrease output. 
C)  Shut down operations. 
D)  Stay at the current output; the firm is earning a profit of $400. 
E)  Stay at the current output; the firm is losing $200. 
A)  Increase output. 
B)  Decrease output. 
C)  Shut down operations. 
D)  Stay at the current output; the firm is earning a profit of $400. 
E)  Stay at the current output; the firm is losing $200.

Question 14

Exhibit 7-16  Short-run cost curves for a competitive firm ​
  In Exhibit 7-16, the firm should shut down in the short run if the market price of its product falls below:

Accepted Answer

A)  $20 per unit. 
B)  $30 per unit. 
C)  $50 per unit. 
D)  $80 per unit. 
A)  $20 per unit. 
B)  $30 per unit. 
C)  $50 per unit. 
D)  $80 per unit.

Question 15

The short-run supply curve and short-run marginal cost curve for a perfectly competitive firm coincide when the market price is greater than average variable cost.

Accepted Answer

A) True 
 B)False

Question 16

Exhibit 7-17  Marginal revenue and cost per unit curves   If the price of the firm's product in Exhibit 7-17 is $15 per unit, the firm should:

Accepted Answer

A)  shut down permanently. 
B)  stay in operation for the time being even though it is making a pure economic loss. 
C)  shut down temporarily. 
D)  continue to operate because it is earning a positive economic profit. 
A)  shut down permanently. 
B)  stay in operation for the time being even though it is making a pure economic loss. 
C)  shut down temporarily. 
D)  continue to operate because it is earning a positive economic profit.

Question 17

Above the shutdown point, a competitive firm's supply curve coincides with its:

Accepted Answer

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

Question 18

Which of the following is true of a perfectly competitive firm?

Accepted Answer

A)  The firm is a price maker. 
B)  If the firm wishes to maximize profits it will produce an output level in which total revenue equals total cost. 
C)  The firm will not earn an economic profit in the long run. 
D)  The firm's short-run supply curve is its MC curve below its AVC curve. 
A)  The firm is a price maker. 
B)  If the firm wishes to maximize profits it will produce an output level in which total revenue equals total cost. 
C)  The firm will not earn an economic profit in the long run. 
D)  The firm's short-run supply curve is its MC curve below its AVC curve.

Question 19

What is the profit maximizing (loss minimizing) quantity for the perfectly competitive firm to produce?

Accepted Answer

The profit maximizing (loss minimizing)

Question 20

Under long-run perfect competition, which of the following are the same (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)  All of the above. 
A)  Price and marginal cost. 
B)  Price and marginal revenue. 
C)  Marginal cost and marginal revenue. 
D)  All of the above.

Exam 7: Perfect Competition

​ Since a firm in perfect competition is a price taker, the demand curve for the firm's product is a horizontal line.

Imagine you own a machine that produces perfectly authentic and legal $100 bills. You would use this machine until:

Exhibit 7-18 A typical firm in a perfectly competitive market In Exhibit 7-18, assume the perfectly competitive firm is in long-run equilibrium and there is an increase in demand. As a result, the firm in the short run will increase output along its:

Exhibit 7-12 Marginal revenue and cost per unit curves As shown in Exhibit 7-12, if the price is OD, a perfectly competitive firm maximizes profit at which point on its marginal cost curve?

Suppose that you have returned from your fishing expedition with 20,000 fish. The market price is $3 per fish. Your average fixed cost was $1 and your total variable cost was $5,000. If the price jumps to $3.50 before you sell your first fish, how much extra profit, if any, do you earn?

The long run is a planning period:

Exhibit 7-9 A firm's cost and marginal revenue curves In Exhibit 7-9, product price in this market is fixed at $14. This firm is currently operating where MR = MC. What do you advise this firm to do?

If a firm increases output when MR

A perfectly competitive firm in the short-run can earn:

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

Exhibit 7-13 Price and cost per unit curves As shown by the five points in Exhibit 7-13, the firm's total economic profit is maximized when the price is:

What is a firm's short run supply curve?

Suppose product price is fixed at $24; MR = MC at Q = 200; AFC = $6; AVC = $16. What do you advise this firm to do?

Exhibit 7-16 Short-run cost curves for a competitive firm ​ In Exhibit 7-16, the firm should shut down in the short run if the market price of its product falls below:

The short-run supply curve and short-run marginal cost curve for a perfectly competitive firm coincide when the market price is greater than average variable cost.

Exhibit 7-17 Marginal revenue and cost per unit curves If the price of the firm's product in Exhibit 7-17 is $15 per unit, the firm should:

Above the shutdown point, a competitive firm's supply curve coincides with its:

Which of the following is true of a perfectly competitive firm?

What is the profit maximizing (loss minimizing) quantity for the perfectly competitive firm to produce?

Under long-run perfect competition, which of the following are the same (equal) at all levels of output?

Introducing the Economic Way of Thinking

Production Possibilities, Opportunity Cost, and Economic Growth

Market Demand and Supply

Markets in Action

Price Elasticity of Demand

Production Costs

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets and Income Distribution

Gross Domestic Product

Business Cycles and Unemployment

Inflation

Aggregate Demand and Supply

Fiscal Policy

The Public Sector

Federal Deficits, Surpluses, and the National Debt

Money and the Federal Reserve System

Money Creation

Policy Disputes Using the Self-Correcting Aggregate Demand and Supply Model

International Trade and Finance

Economies in Transition

Growth and the Less-Developed Countries

Filters

Since a firm in perfect competition is a price taker, the demand curve for the firm's product is a horizontal line.

Exhibit 7-16 Short-run cost curves for a competitive firm In Exhibit 7-16, the firm should shut down in the short run if the market price of its product falls below: