Question 1

In the short run, the supply curve for a perfectly competitive firm is its marginal cost curve for all levels of output.

Accepted Answer

A) True 
 B)False

Question 2

If a firm's marginal revenue from its 100th unit of output is $50 and the marginal cost from its 100th unit of output is $45, then in the short run this firm should:

Accepted Answer

A)  increase its plant size. 
B)  change its technology. 
C)  produce more than 99 units of output. 
D)  produce less than 100 units of output. 
E)  shut down. 
A)  increase its plant size. 
B)  change its technology. 
C)  produce more than 99 units of output. 
D)  produce less than 100 units of output. 
E)  shut down.

Question 3

Exhibit 7-1  Quantity and total revenue data for a firm   Exhibit 7-1 indicates that this firm is operating in which type of market structure?

Accepted Answer

A)  Price-maker. 
B)  Unprofitable. 
C)  Perfect competition. 
D)  Nonhomogeneous. 
A)  Price-maker. 
B)  Unprofitable. 
C)  Perfect competition. 
D)  Nonhomogeneous.

Question 4

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 in order 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 in order to increase sales. 
D)  There are no good substitutes for the product supplied by a firm that is a price taker.

Question 5

If a perfectly competitive firm cannot cover all of its costs, then it should shut down in the short run.

Accepted Answer

A) True 
 B)False

Question 6

Exhibit 7-11  A firm's cost and marginal revenue curves   In Exhibit 7-11, when the price is $5, the firm:

Accepted Answer

A)  is making an economic profit of $21. 
B)  should produce output equal to 10. 
C)  is breaking even. 
D)  should shut down. 
E)  should produce output equal to 7. 
A)  is making an economic profit of $21. 
B)  should produce output equal to 10. 
C)  is breaking even. 
D)  should shut down. 
E)  should produce output equal to 7.

Question 7

Exhibit 7-11  A firm's cost and marginal revenue curves   In Exhibit 7-11, 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. 
E)  profit to making a larger profit. 
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. 
E)  profit to making a larger profit.

Question 8

If a business firm is not operating at the point where MR = MC, then:

Accepted Answer

A)  it should shut down. 
B)  it will incur losses. 
C)  it cannot be earning a profit. 
D)  its profit is zero. 
E)  it is not earning the maximum potential profit. 
A)  it should shut down. 
B)  it will incur losses. 
C)  it cannot be earning a profit. 
D)  its profit is zero. 
E)  it is not earning the maximum potential profit.

Question 9

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 10

A firm in a price-taker 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 11

If marginal revenue exceeds marginal cost in the short run, the perfectly competitive firm earns an economic profit in the short-run.

Accepted Answer

A) True 
 B)False

Question 12

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 13

Exhibit 7-9  A firm's cost and marginal revenue curves   In Exhibit 7-9, 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 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 14

Exhibit 7-5  A firm's MR and MC curves   In Exhibit 7-5, suppose a firm is currently producing 45 units of output. What would you advise this firm to do?

Accepted Answer

A)  Shut down. 
B)  Increase output. 
C)  Stay at its current output 
D)  Decrease output 
E)  Decrease price. 
A)  Shut down. 
B)  Increase output. 
C)  Stay at its current output 
D)  Decrease output 
E)  Decrease price.

Question 15

In the long run, a competitive firm will earn zero economic profit.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following is characteristic of a perfectly competitive market?

Accepted Answer

A)  There is free entry into and exit from the market. 
B)  Individual firms can exert a perceptible influence on the market price. 
C)  The firms in the market produce differentiated products. 
D)  All of the above are true. 
A)  There is free entry into and exit from the market. 
B)  Individual firms can exert a perceptible influence on the market price. 
C)  The firms in the market produce differentiated products. 
D)  All of the above are true.

Question 17

The marginal approach to profit maximization means that a firm should produce until:

Accepted Answer

A)  marginal revenue equals zero. 
B)  marginal revenue equals marginal cost. 
C)  marginal cost becomes negatively sloped. 
D)  marginal revenue equals price. 
E)  price equals average total cost. 
A)  marginal revenue equals zero. 
B)  marginal revenue equals marginal cost. 
C)  marginal cost becomes negatively sloped. 
D)  marginal revenue equals price. 
E)  price equals average total cost.

Question 18

If marginal revenue exceeds marginal cost, profit maximizers should:

Accepted Answer

A)  reduce output until they are equal. 
B)  increase output until they are equal. 
C)  increase output until profits are zero. 
D)  decrease output unless profits are zero. 
E)  maintain current output. 
A)  reduce output until they are equal. 
B)  increase output until they are equal. 
C)  increase output until profits are zero. 
D)  decrease output unless profits are zero. 
E)  maintain current output.

Question 19

A perfectly competitive firm's short-run supply curve is the part of its marginal cost curve that is:

Accepted Answer

A)  upward sloping. 
B)  above the minimum level of average variable cost. 
C)  above average fixed cost. 
D)  both a and b. 
A)  upward sloping. 
B)  above the minimum level of average variable cost. 
C)  above average fixed cost. 
D)  both a and b.

Question 20

By producing at the point where MR = MC, the firm:

Accepted Answer

A)  is guaranteed a profit. 
B)  will earn a profit of zero. 
C)  will lose money. 
D)  profit is maximized. 
E)  output. 
A)  is guaranteed a profit. 
B)  will earn a profit of zero. 
C)  will lose money. 
D)  profit is maximized. 
E)  output.

Exam 7: Perfect Competition

In the short run, the supply curve for a perfectly competitive firm is its marginal cost curve for all levels of output.

If a firm's marginal revenue from its 100th unit of output is $50 and the marginal cost from its 100th unit of output is $45, then in the short run this firm should:

Exhibit 7-1 Quantity and total revenue data for a firm Exhibit 7-1 indicates that this firm is operating in which type of market structure?

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

If a perfectly competitive firm cannot cover all of its costs, then it should shut down in the short run.

Exhibit 7-11 A firm's cost and marginal revenue curves In Exhibit 7-11, when the price is $5, the firm:

Exhibit 7-11 A firm's cost and marginal revenue curves In Exhibit 7-11, when the price rises from $5 to $8, the profit-maximizing (or loss-minimizing) firm goes from making a:

If a business firm is not operating at the point where MR = MC, then:

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

A firm in a price-taker market:

If marginal revenue exceeds marginal cost in the short run, the perfectly competitive firm earns an economic profit in the short-run.

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

Exhibit 7-9 A firm's cost and marginal revenue curves In Exhibit 7-9, 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 7-5 A firm's MR and MC curves In Exhibit 7-5, suppose a firm is currently producing 45 units of output. What would you advise this firm to do?

In the long run, a competitive firm will earn zero economic profit.

Which of the following is characteristic of a perfectly competitive market?

The marginal approach to profit maximization means that a firm should produce until:

If marginal revenue exceeds marginal cost, profit maximizers should:

A perfectly competitive firm's short-run supply curve is the part of its marginal cost curve that is:

By producing at the point where MR = MC, the firm:

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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