Question 1

The supply curve for a perfectly competitive industry is obtained by

Accepted Answer

A) making an empirical study of historical data. 
B) vertically summing the supply curves of firms in the industry. 
C) horizontally summing the average cost curves of firms in the industry. 
D) horizontally summing the supply curves of firms in the industry. 
A) making an empirical study of historical data. 
B) vertically summing the supply curves of firms in the industry. 
C) horizontally summing the average cost curves of firms in the industry. 
D) horizontally summing the supply curves of firms in the industry.

Question 2

Draw a graph illustrating the relationship between the demand curve of the perfectly competitive firm and the perfectly competitive industry.Label all curves and axes correctly.

Accepted Answer

The diagram of the firm and in

Question 3

Using only marginal revenue and marginal cost, we can determine whether a firm is incurring a profit or a loss.

Accepted Answer

A) True 
 B)False

Question 4

Helga owns Viking, Inc., started with her $100,000 inheritance.Helga's accountant informs her that her firm earned a profit of $100,000 last year, and that if she chooses to invest the money she can expect a 10% return.If Helga did not run Viking, she would not work.What were Helga's economic profits last year?

Accepted Answer

A) Zero 
B) $100,000 
C) $90,000 
D) $95,000 
A) Zero 
B) $100,000 
C) $90,000 
D) $95,000

Question 5

A perfectly competitive firm's short-run supply is infinite at the market price.

Accepted Answer

A) True 
 B)False

Question 6

Sally Rand owns a ceiling fan company.She sells 1,000 ceiling fans at $50 each.Each fan costs her $20.She uses her own money to buy the fans; she withdraws the money from her savings account where it earns 5 percent interest.Before going into the ceiling fan business, she worked as a fan-dancer at $25,000 a year.Should Sally remain in business?

Accepted Answer

If her economic profit is at least zero,

Question 7

Regardless of quantity in long-run equilibrium, the industry price cannot exceed the

Accepted Answer

A) long-run average cost of supplying that quantity. 
B) total variable cost of supplying that quantity. 
C) long-run total cost of supplying that quantity. 
D) minimum long-run marginal cost of supplying that quantity. 
A) long-run average cost of supplying that quantity. 
B) total variable cost of supplying that quantity. 
C) long-run total cost of supplying that quantity. 
D) minimum long-run marginal cost of supplying that quantity.

Question 8

The opportunity cost of a given investment is the potential earnings forfeited by tying up money in the investment.

Accepted Answer

A) True 
 B)False

Question 9

Exhibit 10-1
A perfectly competitive producer has the following short-run average cost curve and marginal cost curve:
SR AC = 2Q + 3
MC = 4Q + 3
where costs are measured in dollars and Q represents the firm's output in units.
-If the market price of wangdoodles is $15 each, the profit-maximizing producer whose short-run cost curves are given in Exhibit 10-1 should produce ____ wangdoodles.

Accepted Answer

A) 0 
B) 3 
C) 6 
D) 15 
A) 0 
B) 3 
C) 6 
D) 15

Question 10

When a perfectly competitive industry is in long-run equilibrium, firms maximize profits, and entry forces the price down

Accepted Answer

A) until all loss making firms leave the industry. 
B) until each firm can earn acceptable level of economic profit. 
C) until price becomes tangent to the long run average cost curve. 
D) until the long average cost curve rises above the demand curve. 
A) until all loss making firms leave the industry. 
B) until each firm can earn acceptable level of economic profit. 
C) until price becomes tangent to the long run average cost curve. 
D) until the long average cost curve rises above the demand curve.

Question 11

The most efficient market structure in the long run is

Accepted Answer

A) perfect competition. 
B) monopolistic competition. 
C) oligopoly. 
D) monopoly. 
A) perfect competition. 
B) monopolistic competition. 
C) oligopoly. 
D) monopoly.

Question 12

Why study perfect competition, if it rarely exists?

Accepted Answer

Perfect competition is the circumstance

Question 13

If the objective of economic policy is to decrease the amount of pollution by an industry in the long run, the

Accepted Answer

A) most effective policy action would be a subsidy to firms for the reduction of emissions. 
B) most effective policy action would be a tax on polluting firms. 
C) appropriate course of action for government is to do nothing. 
D) appropriate course of action for government is to increase R&D outlays to develop technology to remove the emissions from the environment. 
A) most effective policy action would be a subsidy to firms for the reduction of emissions. 
B) most effective policy action would be a tax on polluting firms. 
C) appropriate course of action for government is to do nothing. 
D) appropriate course of action for government is to increase R&D outlays to develop technology to remove the emissions from the environment.

Question 14

Firms entering a perfectly competitive industry will cause the price of the product to

Accepted Answer

A) fall. 
B) rise. 
C) remain constant. 
D) become more responsive to consumer demand. 
A) fall. 
B) rise. 
C) remain constant. 
D) become more responsive to consumer demand.

Question 15

A perfectly competitive firm should continue to expand output until

Accepted Answer

A) total revenue exceeds total costs. 
B) total revenue exceeds variable costs. 
C) marginal revenue equals marginal costs. 
D) average revenue equals variable costs. 
A) total revenue exceeds total costs. 
B) total revenue exceeds variable costs. 
C) marginal revenue equals marginal costs. 
D) average revenue equals variable costs.

Question 16

Zero economic profit means that the firm's owners receive no compensation for their investment.

Accepted Answer

A) True 
 B)False

Question 17

We expect the demand curve in the perfectly competitive industry to be

Accepted Answer

A) negatively sloped. 
B) vertical. 
C) horizontal. 
D) perfectly elastic. 
A) negatively sloped. 
B) vertical. 
C) horizontal. 
D) perfectly elastic.

Question 18

The demand curve for the perfectly competitive industry normally slopes downward, unlike the perfect competitive firm.Why?

Accepted Answer

Each firm by itself is so small that if

Question 19

Firms in perfect competition are often described as price

Accepted Answer

A) takers. 
B) makers. 
C) setters. 
D) leaders. 
A) takers. 
B) makers. 
C) setters. 
D) leaders.

Question 20

What are the assumptions of the model of perfect competition?
 Explain why each is important for short-run and long-run equilibrium.

Accepted Answer

1.Numerous small firms and customers.Eac

Exam 10: The Firm and the Industry Under Perfect Competition

The supply curve for a perfectly competitive industry is obtained by

Draw a graph illustrating the relationship between the demand curve of the perfectly competitive firm and the perfectly competitive industry.Label all curves and axes correctly.

Using only marginal revenue and marginal cost, we can determine whether a firm is incurring a profit or a loss.

A perfectly competitive firm's short-run supply is infinite at the market price.

Regardless of quantity in long-run equilibrium, the industry price cannot exceed the

The opportunity cost of a given investment is the potential earnings forfeited by tying up money in the investment.

When a perfectly competitive industry is in long-run equilibrium, firms maximize profits, and entry forces the price down

The most efficient market structure in the long run is

Why study perfect competition, if it rarely exists?

If the objective of economic policy is to decrease the amount of pollution by an industry in the long run, the

Firms entering a perfectly competitive industry will cause the price of the product to

A perfectly competitive firm should continue to expand output until

Zero economic profit means that the firm's owners receive no compensation for their investment.

We expect the demand curve in the perfectly competitive industry to be

The demand curve for the perfectly competitive industry normally slopes downward, unlike the perfect competitive firm.Why?

Firms in perfect competition are often described as price

What are the assumptions of the model of perfect competition? Explain why each is important for short-run and long-run equilibrium.

What Is Economics

The Economy: Myth and Reality

The Fundamental Economic Problem: Scarcity and Choice

Supply and Demand: an Initial Look

Consumer Choice: Individual and Market Demand

Demand and Elasticity

Production, Inputs, and Cost: Building Blocks for Supply Analysis

Output, Price, and Profit: the Importance of Marginal Analysis

Securities: Business Finance and the Economy: the Tail That Wags the Dog

Monopoly

Between Competition and Monopoly

Limiting Market Power: Regulation and Antitrust

The Case for Free Markets: the Price System

The Shortcomings of Free Markets

Externalities, the Environment, and Natural Resources

Taxation and Resource Allocation

Pricing the Factors of Production

Labor and Entrepreneurship: the Human Inputs

Poverty, Inequality, and Discrimination

Is Useconomic Leadership Threatened

An Introduction to Macroeconomics

The Goals of Macroeconomic Policy

Economic Growth: Theory and Policy

Aggregate Demand and the Powerful Consumer

Demand-Side Equilibrium: Unemployment or Inflation

Bringing in the Supply Side: Unemployment and Inflation

Managing Aggregate Demand: Fiscal Policy

Money and the Banking System

Monetary Policy: Conventional and Unconventional

He Financial Crisis and the Great Recession

The Debate Over Monetary and Fiscal Policy

Budget Deficits in the Short and Long Run

The Trade-Off Between Inflation and Unemployment

International Trade and Comparative Advantage

The International Monetary System: Order or Disorder

Exchange Rates and the Macroeconomy

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