Question 1

At the profit-maximizing level of output for a perfectly competitive firm,price equals marginal cost.Which of the following is also true?

Accepted Answer

A) The difference between total revenue and total cost is the greatest. 
B) Total revenue equals total cost. 
C) Average revenue equals average total cost. 
D) Marginal profit equals marginal cost. 
A) The difference between total revenue and total cost is the greatest. 
B) Total revenue equals total cost. 
C) Average revenue equals average total cost. 
D) Marginal profit equals marginal cost.

Question 2

A perfectly competitive firm's horizontal demand curve implies that the firm does not have to lower its price to sell more output.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following is not an option for a perfectly competitive firm that suffers short-run losses?

Accepted Answer

A) shutting down 
B) reducing production 
C) reducing the use of variable factors 
D) raising price 
A) shutting down 
B) reducing production 
C) reducing the use of variable factors 
D) raising price

Question 4

A firm's total profit can be calculated as all of the following except

Accepted Answer

A) total revenue minus total cost. 
B) average profit per unit times quantity sold. 
C) (price minus average total cost)times quantity sold. 
D) marginal profit times quantity sold. 
A) total revenue minus total cost. 
B) average profit per unit times quantity sold. 
C) (price minus average total cost)times quantity sold. 
D) marginal profit times quantity sold.

Question 5

Writing in the New York Times on the technology boom of the late 1990s,Michael Lewis argues,"The sad truth,for investors,seems to be that most of the benefits of new technologies are passed right through to consumers free of charge." What does Lewis means by the benefits of new technology being "passed right through to consumers free of charge"?

Accepted Answer

A) Firms in perfect competition are price takers.Since they cannot influence price, they cannot dictate who benefits from new technologies, even if the benefits of new technology are being "passed right through to consumers free of charge." 
B) In perfect competition, price equals marginal cost of production.In this sense, consumers receive the new technology "free of charge." 
C) In the long run, price equals the lowest possible average cost of production.In this sense, consumers receive the new technology "free of charge." 
D) In perfect competition, consumers place a value on the good equal to its marginal cost of production and since they are willing to pay the marginal valuation of the good, they are essentially receiving the new technology "free of charge." 
A) Firms in perfect competition are price takers.Since they cannot influence price, they cannot dictate who benefits from new technologies, even if the benefits of new technology are being "passed right through to consumers free of charge." 
B) In perfect competition, price equals marginal cost of production.In this sense, consumers receive the new technology "free of charge." 
C) In the long run, price equals the lowest possible average cost of production.In this sense, consumers receive the new technology "free of charge." 
D) In perfect competition, consumers place a value on the good equal to its marginal cost of production and since they are willing to pay the marginal valuation of the good, they are essentially receiving the new technology "free of charge."

Question 6

Of the following industries,which are perfectly competitive? For those that are not perfectly competitive,explain why.
a.Restaurants
b.Corn
c.College education
d.Local radio and television

Accepted Answer

a. Restaurants are not perfectly competi

Question 7

Perfectly competitive firms produce up to the point where the price of the good equals the marginal cost of producing the last unit.This condition is referred to as

Accepted Answer

A) productive efficiency. 
B) constant returns to scale. 
C) allocative efficiency. 
D) perfectly competitive efficiency. 
A) productive efficiency. 
B) constant returns to scale. 
C) allocative efficiency. 
D) perfectly competitive efficiency.

Question 8

If a firm in a perfectly competitive industry experiences persistent losses,in the long run it should

Accepted Answer

A) shut down temporarily and wait for market conditions to change. 
B) exit the industry. 
C) raise its price to cover average total cost. 
D) continue to operate if it can raise the demand for its product through advertising and quality improvements. 
A) shut down temporarily and wait for market conditions to change. 
B) exit the industry. 
C) raise its price to cover average total cost. 
D) continue to operate if it can raise the demand for its product through advertising and quality improvements.

Question 9

Figure 9-5
   
Figure 9-5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry.
-Refer to Figure 9-5.If the firm's fixed cost increases by $1,000 due to a new environmental regulation,what happens in the diagram above?

Accepted Answer

A) All the cost curves shift upward. 
B) Only the average variable cost and average total cost curves shift upward; marginal cost is not affected. 
C) Only the average total cost curve shifts upward; the marginal cost and average variable cost curves are not affected. 
D) None of the curves shifts; only the fixed cost curve, which is not shown here, is affected. 
A) All the cost curves shift upward. 
B) Only the average variable cost and average total cost curves shift upward; marginal cost is not affected. 
C) Only the average total cost curve shifts upward; the marginal cost and average variable cost curves are not affected. 
D) None of the curves shifts; only the fixed cost curve, which is not shown here, is affected.

Question 10

In a decreasing-cost industry,the entry of new firms lowers average cost at each level of output.

Accepted Answer

A) True 
 B)False

Question 11

Firms in perfect competition produce the productively efficient output level in the short run and in the long run.

Accepted Answer

A) True 
 B)False

Question 12

A firm could continue to operate for years without ever earning a profit as long as it is producing an output where

Accepted Answer

A) MR AVC. C) MR > AVC. D) AFC < AVC. A) MR AVC. C) MR > AVC. D) AFC < AVC.

Question 13

A perfectly competitive firm earns a profit when price is

Accepted Answer

A) equal to minimum average total cost. 
B) above minimum average total cost. 
C) equal to minimum average variable cost. 
D) equal to minimum average fixed cost. 
A) equal to minimum average total cost. 
B) above minimum average total cost. 
C) equal to minimum average variable cost. 
D) equal to minimum average fixed cost.

Question 14

If,for a perfectly competitive firm,price exceeds the marginal cost of production,the firm should

Accepted Answer

A) increase its output. 
B) reduce its output. 
C) keep output constant and enjoy the above normal profit. 
D) lower the price. 
A) increase its output. 
B) reduce its output. 
C) keep output constant and enjoy the above normal profit. 
D) lower the price.

Question 15

Firms in perfect competition are price takers because

Accepted Answer

A) one firm determines the price that all other firms in the industry will charge. 
B) consumers have enough market power to set prices. 
C) firms accept the price determined by the government. 
D) each firm is too small relative to the market to be able to influence price. 
A) one firm determines the price that all other firms in the industry will charge. 
B) consumers have enough market power to set prices. 
C) firms accept the price determined by the government. 
D) each firm is too small relative to the market to be able to influence price.

Question 16

If total revenue exceeds fixed cost,a firm

Accepted Answer

A) should produce in the short run. 
B) has covered its variable cost. 
C) is making short-run profits. 
D) may or may not produce in the short run, depending on whether total revenue covers variable cost. 
A) should produce in the short run. 
B) has covered its variable cost. 
C) is making short-run profits. 
D) may or may not produce in the short run, depending on whether total revenue covers variable cost.

Question 17

In the short run,if a firm shuts down its maximum loss equals the amount of its fixed cost.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following describes the difference between the market demand curve for a perfectly competitive industry and the demand curve for a firm in this industry?

Accepted Answer

A) The market demand curve is a horizontal line; the firm's demand curve is downward-sloping. 
B) The market demand curve is downward-sloping; the firm's demand curve is a vertical line. 
C) The market demand curve can not have a constant slope; the firm's demand curve has a slope equal to zero. 
D) The market demand curve is downward-sloping; the firm's demand curve is a horizontal line. 
A) The market demand curve is a horizontal line; the firm's demand curve is downward-sloping. 
B) The market demand curve is downward-sloping; the firm's demand curve is a vertical line. 
C) The market demand curve can not have a constant slope; the firm's demand curve has a slope equal to zero. 
D) The market demand curve is downward-sloping; the firm's demand curve is a horizontal line.

Question 19

A perfectly competitive market is in long-run equilibrium.At present there are 100 identical firms each producing 5,000 units of output.The prevailing market price is $20.Assume that each firm faces increasing marginal cost.Now suppose there is a sudden increase in demand for the industry's product which causes the price of the good to rise to $24.Which of the following describes the effect of this increase in demand on a typical firm in the industry?

Accepted Answer

A) In the short run, the typical firm increases its output and makes an above normal profit. 
B) In the short run, the typical firm's output remains the same but because of the higher price, its profit increases. 
C) In the short run, the typical firm increases its output but its total cost also rises, resulting in no change in profit. 
D) In the short run, the typical firm increases its output but its total cost also rises.Hence, the effect on the firm's profit cannot be determined without more information. 
A) In the short run, the typical firm increases its output and makes an above normal profit. 
B) In the short run, the typical firm's output remains the same but because of the higher price, its profit increases. 
C) In the short run, the typical firm increases its output but its total cost also rises, resulting in no change in profit. 
D) In the short run, the typical firm increases its output but its total cost also rises.Hence, the effect on the firm's profit cannot be determined without more information.

Question 20

The perfectly competitive market structure benefits consumers because

Accepted Answer

A) firms do not produce goods at the lowest possible price in the long run. 
B) firms are forced by competitive pressure to be as efficient as possible. 
C) firms add a much smaller markup over average cost than firms in any other type of market structure. 
D) firms produce high quality goods at low prices. 
A) firms do not produce goods at the lowest possible price in the long run. 
B) firms are forced by competitive pressure to be as efficient as possible. 
C) firms add a much smaller markup over average cost than firms in any other type of market structure. 
D) firms produce high quality goods at low prices.

At the profit-maximizing level of output for a perfectly competitive firm,price equals marginal cost.Which of the following is also true?

A perfectly competitive firm's horizontal demand curve implies that the firm does not have to lower its price to sell more output.

Which of the following is not an option for a perfectly competitive firm that suffers short-run losses?

A firm's total profit can be calculated as all of the following except

Of the following industries,which are perfectly competitive? For those that are not perfectly competitive,explain why. a.Restaurants b.Corn c.College education d.Local radio and television

Perfectly competitive firms produce up to the point where the price of the good equals the marginal cost of producing the last unit.This condition is referred to as

If a firm in a perfectly competitive industry experiences persistent losses,in the long run it should

Figure 9-5 Figure 9-5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry. -Refer to Figure 9-5.If the firm's fixed cost increases by $1,000 due to a new environmental regulation,what happens in the diagram above?

In a decreasing-cost industry,the entry of new firms lowers average cost at each level of output.

Firms in perfect competition produce the productively efficient output level in the short run and in the long run.

A firm could continue to operate for years without ever earning a profit as long as it is producing an output where

A perfectly competitive firm earns a profit when price is

If,for a perfectly competitive firm,price exceeds the marginal cost of production,the firm should

Firms in perfect competition are price takers because

If total revenue exceeds fixed cost,a firm

In the short run,if a firm shuts down its maximum loss equals the amount of its fixed cost.

Which of the following describes the difference between the market demand curve for a perfectly competitive industry and the demand curve for a firm in this industry?

The perfectly competitive market structure benefits consumers because

Economics: Foundations and Models

Trade-Offs, comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Market Efficiency and Market Failure

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Consumer Choice and Elasticity

Technology, production, and Costs

Monopoly and Antitrust Policy

Monopolistic Competition and Oligopoly

Gdp: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Aggregate Demand and Aggregate Supply Analysis

Money, banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Comparative Advantage, international Trade, and Exchange Rates

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Exam 9: Firms in Perfectly Competitive Markets

At the profit-maximizing level of output for a perfectly competitive firm,price equals marginal cost.Which of the following is also true?

A perfectly competitive firm's horizontal demand curve implies that the firm does not have to lower its price to sell more output.

Which of the following is not an option for a perfectly competitive firm that suffers short-run losses?

A firm's total profit can be calculated as all of the following except

Of the following industries,which are perfectly competitive? For those that are not perfectly competitive,explain why. a.Restaurants b.Corn c.College education d.Local radio and television

Perfectly competitive firms produce up to the point where the price of the good equals the marginal cost of producing the last unit.This condition is referred to as

If a firm in a perfectly competitive industry experiences persistent losses,in the long run it should

Figure 9-5 Figure 9-5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry. -Refer to Figure 9-5.If the firm's fixed cost increases by $1,000 due to a new environmental regulation,what happens in the diagram above?

In a decreasing-cost industry,the entry of new firms lowers average cost at each level of output.

Firms in perfect competition produce the productively efficient output level in the short run and in the long run.

A firm could continue to operate for years without ever earning a profit as long as it is producing an output where

A perfectly competitive firm earns a profit when price is

If,for a perfectly competitive firm,price exceeds the marginal cost of production,the firm should

Firms in perfect competition are price takers because

If total revenue exceeds fixed cost,a firm

In the short run,if a firm shuts down its maximum loss equals the amount of its fixed cost.

Which of the following describes the difference between the market demand curve for a perfectly competitive industry and the demand curve for a firm in this industry?

The perfectly competitive market structure benefits consumers because

Economics: Foundations and Models

Trade-Offs, comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Market Efficiency and Market Failure

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Consumer Choice and Elasticity

Technology, production, and Costs

Monopoly and Antitrust Policy

Monopolistic Competition and Oligopoly

Gdp: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Aggregate Demand and Aggregate Supply Analysis

Money, banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Comparative Advantage, international Trade, and Exchange Rates

Filters