Question 1

Perfectly competitive markets are characterized by:

Accepted Answer

A)  a small number of very large producers. 
B)  very strong barriers to entry and exit. 
C)  firms selling a homogeneous product. 
D)  all of the above. 
A)  a small number of very large producers. 
B)  very strong barriers to entry and exit. 
C)  firms selling a homogeneous product. 
D)  all of the above.

Question 2

Exhibit 7-11  A firm's cost and marginal revenue curves   In Exhibit 7-11, when the price is $2, the profit-maximizing (or loss-minimizing) firm:

Accepted Answer

A)  should shut down and produce zero. 
B)  should produce output equal to 4. 
C)  is making an economic profit of $8. 
D)  should try to produce more output. 
E)  has total revenue equal to $20. 
A)  should shut down and produce zero. 
B)  should produce output equal to 4. 
C)  is making an economic profit of $8. 
D)  should try to produce more output. 
E)  has total revenue equal to $20.

Question 3

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 4

Under perfect competition, a business firm can accept losses:

Accepted Answer

A)  only in the short run. 
B)  only for 1 year. 
C)  only in the long run. 
D)  no longer than 10 years. 
E)  never. 
A)  only in the short run. 
B)  only for 1 year. 
C)  only in the long run. 
D)  no longer than 10 years. 
E)  never.

Question 5

Exhibit 7-3  Cost per unit curves   As shown in Exhibit 7-3, if the product price is either $1.00, $1.50, $2.00, or $4.00, the firm's economic profit is maximum at an output of:

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 6

If a firm equates MR and MC, then:

Accepted Answer

A)  TR is at a maximum, and TC is at a minimum. 
B)  output is at a maximum. 
C)  losses are at a maximum. 
D)  profits are at a maximum or losses are at a minimum. 
E)  both TR and TC are at a maximum. 
A)  TR is at a maximum, and TC is at a minimum. 
B)  output is at a maximum. 
C)  losses are at a maximum. 
D)  profits are at a maximum or losses are at a minimum. 
E)  both TR and TC are at a maximum.

Question 7

The fundamental rule of profit maximization for firms is to produce where:

Accepted Answer

A)  MR = MC. 
B)  ATC is minimized. 
C)  quantity of output is maximized. 
D)  price is maximized. 
E)  total revenue is maximized. 
A)  MR = MC. 
B)  ATC is minimized. 
C)  quantity of output is maximized. 
D)  price is maximized. 
E)  total revenue is maximized.

Question 8

Under 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.

Question 9

When choosing the production level for tomorrow you find that at an output of 100 units, the total variable costs are $20,000 and the average fixed cost is only $50. If the market price is $200, you should:

Accepted Answer

A)  b or e. 
B)  shut down. 
C)  produce more than 100 units. 
D)  produce fewer than 100 units. 
E)  produce where MC = MR. 
A)  b or e. 
B)  shut down. 
C)  produce more than 100 units. 
D)  produce fewer than 100 units. 
E)  produce where MC = MR.

Question 10

Exhibit 7-12  Marginal revenue and cost per unit curves   As shown in Exhibit 7-12, the firm will shut down in the short-run at a price below:

Accepted Answer

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

Question 11

A perfectly competitive firm's supply curve follows the upward-sloping segment of its marginal cost curve above the:

Accepted Answer

A)  average total cost curve. 
B)  average variable cost curve. 
C)  average fixed curve. 
D)  average price curve. 
A)  average total cost curve. 
B)  average variable cost curve. 
C)  average fixed curve. 
D)  average price curve.

Question 12

In the short run, if a perfectly competitive firm is producing at a price above average total cost, its economic profit must be:

Accepted Answer

A)  positive. 
B)  zero. 
C)  negative. 
D)  normal. 
A)  positive. 
B)  zero. 
C)  negative. 
D)  normal.

Question 13

In short-run perfectly competitive equilibrium, which of the following is always true ?

Accepted Answer

A)  Profit equals zero. 
B)  Profit can be negative, zero, or positive. 
C)  Profit can be zero or positive, but not negative. 
D)  Profit is positive, otherwise firms would not produce. 
A)  Profit equals zero. 
B)  Profit can be negative, zero, or positive. 
C)  Profit can be zero or positive, but not negative. 
D)  Profit is positive, otherwise firms would not produce.

Question 14

Suppose the price of a product is less than its average variable cost. When the firm's fixed obligations are completely ended, it will now most likely:

Accepted Answer

A)  make an economic profit. 
B)  go out of business. 
C)  expand to a bigger operation. 
D)  continue to be shut down. 
E)  break even. 
A)  make an economic profit. 
B)  go out of business. 
C)  expand to a bigger operation. 
D)  continue to be shut down. 
E)  break even.

Question 15

Exhibit 7-17  Marginal revenue and cost per unit curves   As shown in Exhibit 7-17, 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. 
E)  B to D only. 
A)  C and all points above. 
B)  B and all points above. 
C)  A and all points above. 
D)  A to C only. 
E)  B to D only.

Question 16

Exhibit 7-4  Marginal cost and revenue for a firm   In Exhibit 7-4, what is this firm's profit-maximizing rate of output?

Accepted Answer

A)  13. 
B)  14. 
C)  15. 
D)  16. 
E)  17. 
A)  13. 
B)  14. 
C)  15. 
D)  16. 
E)  17.

Question 17

Which of the following is a firm's supply curve in a perfectly competitive market?

Accepted Answer

A)  Total cost. 
B)  Marginal revenue. 
C)  Marginal cost. 
D)  Average variable cost. 
A)  Total cost. 
B)  Marginal revenue. 
C)  Marginal cost. 
D)  Average variable cost.

Question 18

When faced with an economic loss, a competitive firm will exit the industry in the long run.

Accepted Answer

A) True 
 B)False

Question 19

Competitive firms frequently use advertising to differentiate their product from their competitors' products.

Accepted Answer

A) True 
 B)False

Question 20

Assume a competitive market has firms earning large economic profits. What is expected to happen over time in this competitive market and to firm's profits?

Accepted Answer

Economic profits will attract new firms

Exam 7: Perfect Competition

Perfectly competitive markets are characterized by:

Exhibit 7-11 A firm's cost and marginal revenue curves In Exhibit 7-11, when the price is $2, the profit-maximizing (or loss-minimizing) firm:

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

Under perfect competition, a business firm can accept losses:

Exhibit 7-3 Cost per unit curves As shown in Exhibit 7-3, if the product price is either $1.00, $1.50, $2.00, or $4.00, the firm's economic profit is maximum at an output of:

If a firm equates MR and MC, then:

The fundamental rule of profit maximization for firms is to produce where:

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

When choosing the production level for tomorrow you find that at an output of 100 units, the total variable costs are $20,000 and the average fixed cost is only $50. If the market price is $200, you should:

Exhibit 7-12 Marginal revenue and cost per unit curves As shown in Exhibit 7-12, the firm will shut down in the short-run at a price below:

A perfectly competitive firm's supply curve follows the upward-sloping segment of its marginal cost curve above the:

In the short run, if a perfectly competitive firm is producing at a price above average total cost, its economic profit must be:

In short-run perfectly competitive equilibrium, which of the following is always true ?

Suppose the price of a product is less than its average variable cost. When the firm's fixed obligations are completely ended, it will now most likely:

Exhibit 7-17 Marginal revenue and cost per unit curves As shown in Exhibit 7-17, the short-run supply curve for the firm corresponds to which segment of its marginal cost curve?

Exhibit 7-4 Marginal cost and revenue for a firm In Exhibit 7-4, what is this firm's profit-maximizing rate of output?

Which of the following is a firm's supply curve in a perfectly competitive market?

When faced with an economic loss, a competitive firm will exit the industry in the long run.

Competitive firms frequently use advertising to differentiate their product from their competitors' products.

Assume a competitive market has firms earning large economic profits. What is expected to happen over time in this competitive market and to firm's profits?

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

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