Question 1

The long-run supply curve of an industry equals the industry's

Accepted Answer

A) long-run marginal cost curve. 
B) the horizontal sum of all firms' supply curves at any point in time. 
C) long-run average cost curve. 
D) long-run total variable cost curve. 
A) long-run marginal cost curve. 
B) the horizontal sum of all firms' supply curves at any point in time. 
C) long-run average cost curve. 
D) long-run total variable cost curve.

Question 2

Figure 10-8
  
-For the perfectly competitive firm in Figure 10-8, what is the long-run price and quantity?

Accepted Answer

A) P = 4, Q = 150 
B) P = 9, Q = 200 
C) P = 10, Q = 200 
D) P = 5, Q = 150 
A) P = 4, Q = 150 
B) P = 9, Q = 200 
C) P = 10, Q = 200 
D) P = 5, Q = 150

Question 3

In the short run, a perfectly competitive firm can make a profit, a loss, or go out of business.

Accepted Answer

A) True 
 B)False

Question 4

In the short run, perfectly competitive firms can

Accepted Answer

A) make an economic profit. 
B) take a loss. 
C) break even. 
D) All of the above are correct. 
A) make an economic profit. 
B) take a loss. 
C) break even. 
D) All of the above are correct.

Question 5

Which of the following is a characteristic of perfect competition?

Accepted Answer

A) large barriers to entry 
B) a small number of firms 
C) firms selling unique goods 
D) None of the above is correct. 
A) large barriers to entry 
B) a small number of firms 
C) firms selling unique goods 
D) None of the above is correct.

Question 6

Draw a graph showing the typical competitive firm losing money but continuing to operate.Explain why the firm continues to operate rather than shut down.

Accepted Answer

@#IMG-DLM&
  Figure 10-10 shows price (= MR) above

Question 7

Describe the process that would occur in the long run in a competitive industry if there were economic profits.Illustrate this with a diagram.

Accepted Answer

The diagram should look like Figure 10-7

Question 8

In the long run, a perfectly competitive firm maximizes profit so P = MC = AC.

Accepted Answer

A) True 
 B)False

Question 9

Explain why Adam Smith believed that competitive markets are a key component of achieving the gains from the invisible hand.

Accepted Answer

Adam Smith believed that individuals act

Question 10

Zero profit in the economic sense means that firms are earning a normal rate of return.

Accepted Answer

A) True 
 B)False

Question 11

A firm that is operating at a loss may continue to operate for a while because of costs that it will still have to pay even if production ceases.

Accepted Answer

A) True 
 B)False

Question 12

The short run for the industry is defined as a period

Accepted Answer

A) too brief for new firms to enter the industry. 
B) too brief for old firms to leave the industry. 
C) in which the number of firms in the industry is fixed. 
D) All of the above are correct. 
A) too brief for new firms to enter the industry. 
B) too brief for old firms to leave the industry. 
C) in which the number of firms in the industry is fixed. 
D) All of the above are correct.

Question 13

A firm in a perfectly competitive industry

Accepted Answer

A) is unaffected by the entrance of new firms into the industry, since entering firms affect only the prices they themselves receive. 
B) always produces more output in the long run than in the short run. 
C) may choose a different output in the long run than in the short run. 
D) earns economic profit in the long run but not in the short run. 
A) is unaffected by the entrance of new firms into the industry, since entering firms affect only the prices they themselves receive. 
B) always produces more output in the long run than in the short run. 
C) may choose a different output in the long run than in the short run. 
D) earns economic profit in the long run but not in the short run.

Question 14

As long as TVC < TR, a firm will have a positive level of output in the short run.

Accepted Answer

A) True 
 B)False

Question 15

A firm operating at MC = MR must be making a profit.

Accepted Answer

A) True 
 B)False

Question 16

If a competitive firm's short run average cost curve lies above the price of the product, we can conclude that the firm

Accepted Answer

A) is earning a huge profit. 
B) is incurring losses. 
C) is earning zero economic profits. 
D) is earning a normal profit. 
A) is earning a huge profit. 
B) is incurring losses. 
C) is earning zero economic profits. 
D) is earning a normal profit.

Question 17

It pays the firm to produce only if total variable costs exceed total revenue.

Accepted Answer

A) True 
 B)False

Question 18

Perfectly competitive markets are not the best at producing the goods that are desired by consumers.

Accepted Answer

A) True 
 B)False

Question 19

A perfectly competitive firm is a "price maker."

Accepted Answer

A) True 
 B)False

Question 20

In long-run equilibrium in perfect competition, every firm is producing at minimum average cost.

Accepted Answer

A) True 
 B)False

Exam 10: The Firm and the Industry Under Perfect Competition

The long-run supply curve of an industry equals the industry's

Figure 10-8 -For the perfectly competitive firm in Figure 10-8, what is the long-run price and quantity?

In the short run, a perfectly competitive firm can make a profit, a loss, or go out of business.

In the short run, perfectly competitive firms can

Which of the following is a characteristic of perfect competition?

Draw a graph showing the typical competitive firm losing money but continuing to operate.Explain why the firm continues to operate rather than shut down.

Describe the process that would occur in the long run in a competitive industry if there were economic profits.Illustrate this with a diagram.

In the long run, a perfectly competitive firm maximizes profit so P = MC = AC.

Explain why Adam Smith believed that competitive markets are a key component of achieving the gains from the invisible hand.

Zero profit in the economic sense means that firms are earning a normal rate of return.

A firm that is operating at a loss may continue to operate for a while because of costs that it will still have to pay even if production ceases.

The short run for the industry is defined as a period

A firm in a perfectly competitive industry

As long as TVC < TR, a firm will have a positive level of output in the short run.

A firm operating at MC = MR must be making a profit.

If a competitive firm's short run average cost curve lies above the price of the product, we can conclude that the firm

It pays the firm to produce only if total variable costs exceed total revenue.

Perfectly competitive markets are not the best at producing the goods that are desired by consumers.

A perfectly competitive firm is a "price maker."

In long-run equilibrium in perfect competition, every firm is producing at minimum average cost.

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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