Question 1

The result that perfectly competitive firms produce at the lowest per-unit cost is derived from the assumptions of

Accepted Answer

A) homogeneous products. 
B) few sellers. 
C) firms facing horizontal demand curves. 
D) free entry and exit. 
A) homogeneous products. 
B) few sellers. 
C) firms facing horizontal demand curves. 
D) free entry and exit.

Question 2

Profits or losses must be temporary for perfectly competitive firms.Why?

Accepted Answer

Profits must be temporary for perfectly

Question 3

Explain how the short-run supply curve of the competitive firm is derived.

Accepted Answer

Since the firm is either minimizing loss

Question 4

A tax on polluting firms

Accepted Answer

A) would shift the LRAC curve upward. 
B) would shift the LRAC curve downward. 
C) would have the same impact on the firm as a subsidy. 
D) tends to have the perverse effect of increasing pollution. 
A) would shift the LRAC curve upward. 
B) would shift the LRAC curve downward. 
C) would have the same impact on the firm as a subsidy. 
D) tends to have the perverse effect of increasing pollution.

Question 5

In a market with perfectly competitive firms, the market demand curve is usually ____ and the demand curve facing each individual firm ____.

Accepted Answer

A) upward sloping; horizontal 
B) downward sloping; horizontal 
C) horizontal; downward sloping 
D) downward sloping; downward sloping 
A) upward sloping; horizontal 
B) downward sloping; horizontal 
C) horizontal; downward sloping 
D) downward sloping; downward sloping

Question 6

In the short run, a perfectly competitive firm can make a profit, a loss, or shut down.

Accepted Answer

A) True 
 B)False

Question 7

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

Accepted Answer

A) a few large firms 
B) firms producing specialized products in order to attract consumers 
C) each individual firm having some control over the market price 
D) a large number of small firms 
A) a few large firms 
B) firms producing specialized products in order to attract consumers 
C) each individual firm having some control over the market price 
D) a large number of small firms

Question 8

Graphically show a firm earning a profit; shade the appropriate profit rectangle.Explain how the profit formula represented by the rectangle is analogous to TR - TC.

Accepted Answer

Figure 10-11 shows price (= MR) above

Question 9

Define the following terms and explain their importance to the study of economics.
a.marginal cost
b.marginal revenue
c.short-run equilibrium
d.supply curve of the firm
e.economic profit

Accepted Answer

a.Marginal cost is the cost to the firm

Question 10

In long-run equilibrium, the perfectly competitive firm produces

Accepted Answer

A) where P = MC = AC. 
B) at the lowest point on its long-run average cost curve. 
C) where its long-run average cost curve is tangent to its horizontal demand curve. 
D) All of the above are correct. 
A) where P = MC = AC. 
B) at the lowest point on its long-run average cost curve. 
C) where its long-run average cost curve is tangent to its horizontal demand curve. 
D) All of the above are correct.

Question 11

A firm can stay in business while taking a loss in the short run as long as it covers its

Accepted Answer

A) fixed costs. 
B) variable costs. 
C) fixed and variable costs. 
D) A firm can never stay in business when it experiences losses. 
A) fixed costs. 
B) variable costs. 
C) fixed and variable costs. 
D) A firm can never stay in business when it experiences losses.

Question 12

The process of adjustment to a new long-run equilibrium in a perfectly competitive industry is complete when

Accepted Answer

A) no firms want to enter or exit the industry. 
B) every firm has adjusted its production process to make the most efficient use of its resources. 
C) investors in the industry receive the standard economy-wide rate of return on their investments. 
D) All of the above are correct. 
A) no firms want to enter or exit the industry. 
B) every firm has adjusted its production process to make the most efficient use of its resources. 
C) investors in the industry receive the standard economy-wide rate of return on their investments. 
D) All of the above are correct.

Question 13

Perfectly competitive markets have absolutely no drawbacks.

Accepted Answer

A) True 
 B)False

Question 14

A firm facing a horizontal demand curve

Accepted Answer

A) cannot affect the price it receives for its output. 
B) always produces at an output at which P = MR. 
C) faces perfectly elastic demand for its product. 
D) All of the above are correct. 
A) cannot affect the price it receives for its output. 
B) always produces at an output at which P = MR. 
C) faces perfectly elastic demand for its product. 
D) All of the above are correct.

Question 15

The number of firms in a perfectly competitive industry is not fixed in the long run.

Accepted Answer

A) True 
 B)False

Question 16

The difference between zero accounting profit and zero economic profit is that

Accepted Answer

A) an economic profit of zero indicates a fair rate of return because it includes opportunity cost.opportunity cost and 
B) an economic profit of zero indicates an unacceptable rate of return because it does not include opportunity cost. 
C) an economic profit of zero indicates more than a fair rate of return because it includes opportunity cost and explicit cost.. 
D) an accounting profit of zero indicates a fair rate of return because it includes opportunity cost. 
A) an economic profit of zero indicates a fair rate of return because it includes opportunity cost.opportunity cost and 
B) an economic profit of zero indicates an unacceptable rate of return because it does not include opportunity cost. 
C) an economic profit of zero indicates more than a fair rate of return because it includes opportunity cost and explicit cost.. 
D) an accounting profit of zero indicates a fair rate of return because it includes opportunity cost.

Question 17

Which of the following statements concerning equilibrium in the long run is not true?

Accepted Answer

A) Most firms earn economic profits in the long run. 
B) The firm can vary its plant size in the long run. 
C) Economic profits are eliminated as new firms enter the industry in the long run. 
D) For firms in long-run equilibrium, P = MC = AC. 
A) Most firms earn economic profits in the long run. 
B) The firm can vary its plant size in the long run. 
C) Economic profits are eliminated as new firms enter the industry in the long run. 
D) For firms in long-run equilibrium, P = MC = AC.

Question 18

A firm sells in a competitive market in which price is $10.Its marginal cost is 2 + .5Q.Determine the profit-maximizing level of output.

Accepted Answer

The solution requires equating

Question 19

Why doesn't a competitive firm reduce its price below the industry price to increase sales?

Accepted Answer

A competitive firm can sell all it wishe

Question 20

A perfectly competitive firm can maximize profits by producing the quantity at which MR exceeds MC by the greatest amount.

Accepted Answer

A) True 
 B)False

Exam 10: The Firm and the Industry Under Perfect Competition

The result that perfectly competitive firms produce at the lowest per-unit cost is derived from the assumptions of

Profits or losses must be temporary for perfectly competitive firms.Why?

Explain how the short-run supply curve of the competitive firm is derived.

A tax on polluting firms

In a market with perfectly competitive firms, the market demand curve is usually ____ and the demand curve facing each individual firm ____.

In the short run, a perfectly competitive firm can make a profit, a loss, or shut down.

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

Graphically show a firm earning a profit; shade the appropriate profit rectangle.Explain how the profit formula represented by the rectangle is analogous to TR - TC.

Define the following terms and explain their importance to the study of economics. a.marginal cost b.marginal revenue c.short-run equilibrium d.supply curve of the firm e.economic profit

In long-run equilibrium, the perfectly competitive firm produces

A firm can stay in business while taking a loss in the short run as long as it covers its

The process of adjustment to a new long-run equilibrium in a perfectly competitive industry is complete when

Perfectly competitive markets have absolutely no drawbacks.

A firm facing a horizontal demand curve

The number of firms in a perfectly competitive industry is not fixed in the long run.

The difference between zero accounting profit and zero economic profit is that

Which of the following statements concerning equilibrium in the long run is not true?

A firm sells in a competitive market in which price is $10.Its marginal cost is 2 + .5Q.Determine the profit-maximizing level of output.

Why doesn't a competitive firm reduce its price below the industry price to increase sales?

A perfectly competitive firm can maximize profits by producing the quantity at which MR exceeds MC by the greatest amount.

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

Filters

In a market with perfectly competitive firms, the market demand curve is usually and the demand curve facing each individual firm .