Question 1

In a perfectly competitive market, which of the following increases the price that the firms charge in the short run?

Accepted Answer

A) an increase in the number of firms 
B) an increase in the price of a good that is a complement of the good produced in this market 
C) an increase in market supply 
D) a decrease in the price of a good that is a substitute for the good produced in this market 
E) an increase in market demand 
A) an increase in the number of firms 
B) an increase in the price of a good that is a complement of the good produced in this market 
C) an increase in market supply 
D) a decrease in the price of a good that is a substitute for the good produced in this market 
E) an increase in market demand

Question 2

Use the table below to answer the following questions.
Table 12.2.1
  
-Refer to Table 12.2.1, which gives the total revenue schedule and total cost schedule of a perfectly competitive firm. The marginal revenue received from the sale of the 4th unit of output is

Accepted Answer

A) $3. 
B) $15. 
C) $10. 
D) $120. 
E) $30. 
A) $3. 
B) $15. 
C) $10. 
D) $120. 
E) $30.

Question 3

A firm that temporarily shuts down and produces no output incurs a loss equal to its

Accepted Answer

A) total fixed cost. 
B) total variable cost. 
C) marginal cost. 
D) average fixed cost. 
E) average total cost. 
A) total fixed cost. 
B) total variable cost. 
C) marginal cost. 
D) average fixed cost. 
E) average total cost.

Question 4

All of the following statements are true except

Accepted Answer

A) consumers allocate their budgets to get the most value possible. 
B) we derive a consumer's demand curve by finding how the best budget allocation changes as the price of a good changes. 
C) firms get the most value out of their resources at every point along a consumer's demand curve. 
D) a competitive equilibrium achieves an efficient outcome. 
E) when firms in perfect competition are away from the long-run equilibrium, the market is still efficient. 
A) consumers allocate their budgets to get the most value possible. 
B) we derive a consumer's demand curve by finding how the best budget allocation changes as the price of a good changes. 
C) firms get the most value out of their resources at every point along a consumer's demand curve. 
D) a competitive equilibrium achieves an efficient outcome. 
E) when firms in perfect competition are away from the long-run equilibrium, the market is still efficient.

Question 5

Use the figure below to answer the following questions.
   
Figure 12.4.3
-Refer to Figure 12.4.3, which shows the cost curves and marginal revenue curve of a firm in a perfectly competitive market. In the long run,

Accepted Answer

A) firms that remain in the market will expand production. 
B) market demand will increase. 
C) firms will adopt labour-saving technology. 
D) industry output will remain constant. 
E) firms will enter the market. 
A) firms that remain in the market will expand production. 
B) market demand will increase. 
C) firms will adopt labour-saving technology. 
D) industry output will remain constant. 
E) firms will enter the market.

Question 6

A perfectly competitive market is in short-run equilibrium with price below average total cost. Which one of the following is not a prediction of the long-run consequences of such a situation?

Accepted Answer

A) Price will rise. 
B) Market output will increase. 
C) Firms will exit the market. 
D) The output of each existing firm will increase. 
E) Economic profit will be zero. 
A) Price will rise. 
B) Market output will increase. 
C) Firms will exit the market. 
D) The output of each existing firm will increase. 
E) Economic profit will be zero.

Question 7

In a perfectly competitive market, the market demand curve is illustrated by

Accepted Answer

A) a downward-sloping curve. 
B) a line that is vertical at the market output. 
C) an upward-sloping curve. 
D) a line that is horizontal at the market price. 
E) a curve that is bowed towards the origin. 
A) a downward-sloping curve. 
B) a line that is vertical at the market output. 
C) an upward-sloping curve. 
D) a line that is horizontal at the market price. 
E) a curve that is bowed towards the origin.

Question 8

In a perfectly competitive market, a firm maximizes its profit by producing the quantity of output at which

Accepted Answer

A) market price equals average fixed cost. 
B) market price equals marginal cost. 
C) average variable cost equals average fixed cost. 
D) market price equals minimum average variable cost. 
E) market price equals marginal revenue. 
A) market price equals average fixed cost. 
B) market price equals marginal cost. 
C) average variable cost equals average fixed cost. 
D) market price equals minimum average variable cost. 
E) market price equals marginal revenue.

Question 9

If firms in a perfectly competitive market are making an economic profit, new firms will enter. This entry shifts the market

Accepted Answer

A) demand curve leftward, and the market price falls. 
B) demand curve rightward, and the market price rises. 
C) supply curve leftward, and the market price rises. 
D) supply curve rightward, and the market price falls. 
E) supply curve rightward and the market demand curve leftward. 
A) demand curve leftward, and the market price falls. 
B) demand curve rightward, and the market price rises. 
C) supply curve leftward, and the market price rises. 
D) supply curve rightward, and the market price falls. 
E) supply curve rightward and the market demand curve leftward.

Question 10

In a perfectly competitive market, each firm maximizes its profit by choosing only the quantity to produce. Regardless of whether the firm makes an economic profit or incurs an economic loss, the short-run equilibrium is efficient. This statement is

Accepted Answer

A) false. The market is efficient only in the long run because it is only in the long run that economic profit equals zero. 
B) false. The firm chooses both the price and the quantity to produce in a perfectly competitive market. 
C) true. The firm is a price taker so it chooses only the quantity to produce. The market is efficient because at the short-run equilibrium, marginal social benefit equals marginal social cost. 
D) true. The firm is a price taker so it chooses only the quantity to produce. A competitive market is efficient in the short run but it is inefficient in the long run. 
E) false. In a perfectly competitive market, each firm chooses the price that maximizes its economic profit. 
A) false. The market is efficient only in the long run because it is only in the long run that economic profit equals zero. 
B) false. The firm chooses both the price and the quantity to produce in a perfectly competitive market. 
C) true. The firm is a price taker so it chooses only the quantity to produce. The market is efficient because at the short-run equilibrium, marginal social benefit equals marginal social cost. 
D) true. The firm is a price taker so it chooses only the quantity to produce. A competitive market is efficient in the short run but it is inefficient in the long run. 
E) false. In a perfectly competitive market, each firm chooses the price that maximizes its economic profit.

Question 11

If a profit-maximizing firm in a perfectly competitive market is incurring an economic loss, then it must be producing a level of output where

Accepted Answer

A) price is greater than marginal cost. 
B) price is greater than marginal revenue. 
C) marginal cost is greater than marginal revenue. 
D) average total cost is greater than marginal cost. 
E) average total cost is less than marginal cost. 
A) price is greater than marginal cost. 
B) price is greater than marginal revenue. 
C) marginal cost is greater than marginal revenue. 
D) average total cost is greater than marginal cost. 
E) average total cost is less than marginal cost.

Question 12

Use the figure below to answer the following question.
   
Figure 12.3.3
-Refer to Figure 12.3.3, which shows the cost curves and marginal revenue curve of a firm in a perfectly competitive industry. The firm is

Accepted Answer

A) making an economic profit. 
B) incurring an economic loss. 
C) breaking even. 
D) at its shutdown point. 
E) larger than the other firms in the industry. 
A) making an economic profit. 
B) incurring an economic loss. 
C) breaking even. 
D) at its shutdown point. 
E) larger than the other firms in the industry.

Question 13

If firms in a perfectly competitive market are incurring an economic loss, some firms will exit. This exit shifts the market

Accepted Answer

A) demand curve leftward, and the market price falls. 
B) demand curve rightward, and the market price rises. 
C) supply curve leftward, and the market price rises. 
D) supply curve rightward, and the market price falls. 
E) supply curve leftward and the market demand curve rightward. 
A) demand curve leftward, and the market price falls. 
B) demand curve rightward, and the market price rises. 
C) supply curve leftward, and the market price rises. 
D) supply curve rightward, and the market price falls. 
E) supply curve leftward and the market demand curve rightward.

Question 14

If a perfectly competitive firm is producing in the short run at an output where price is less than average total cost, the firm

Accepted Answer

A) will shut down. 
B) is breaking even. 
C) is still making a positive economic profit. 
D) is incurring an economic loss but will continue to operate as long as price is above minimum average fixed cost. 
E) is incurring an economic loss but will continue to operate as long as price is above minimum average variable cost. 
A) will shut down. 
B) is breaking even. 
C) is still making a positive economic profit. 
D) is incurring an economic loss but will continue to operate as long as price is above minimum average fixed cost. 
E) is incurring an economic loss but will continue to operate as long as price is above minimum average variable cost.

Question 15

Use the table below to answer the following questions.
Table 12.2.1
  
-Refer to Table 12.2.1, which gives the total revenue schedule and total cost schedule of a perfectly competitive firm. The marginal cost of increasing production from 4 units to 5 units is

Accepted Answer

A) $16. 
B) $128. 
C) $100. 
D) $116. 
E) $30. 
A) $16. 
B) $128. 
C) $100. 
D) $116. 
E) $30.

Question 16

In which one of the following situations will a perfectly competitive firm make an economic profit?

Accepted Answer

A) MR > AVC 
B) MR > ATC 
C) ATC > MC 
D) ATC > MR 
E) MC > AVC 
A) MR > AVC 
B) MR > ATC 
C) ATC > MC 
D) ATC > MR 
E) MC > AVC

Question 17

Use the information below to answer the following questions.
Fact 12.4.1
Franklin is a fiddlehead farmer. He sold 10 bags of fiddleheads last month, with total fixed cost of $100 and total variable cost of $50.
-Refer to Fact 12.4.1. Suppose the price of fiddleheads is expected to stay at $10 per bag for the foreseeable future, and Franklin's production and cost figures are expected to stay the same. His total fixed cost consists entirely of rent on land, and his five-year lease on the land runs out at the end of the month. Should Franklin renew the lease?

Accepted Answer

A) Yes, because total revenue will still cover total fixed cost. 
B) Yes, because total revenue will still cover total variable cost and a portion of total fixed cost. 
C) No, because total revenue must cover all costs for factors of production to remain in fiddlehead farming in the long run. 
D) No, because in the long run, zero economic profit is a signal to move factors of production out of fiddlehead farming. 
E) Insufficient information to answer. 
A) Yes, because total revenue will still cover total fixed cost. 
B) Yes, because total revenue will still cover total variable cost and a portion of total fixed cost. 
C) No, because total revenue must cover all costs for factors of production to remain in fiddlehead farming in the long run. 
D) No, because in the long run, zero economic profit is a signal to move factors of production out of fiddlehead farming. 
E) Insufficient information to answer.

Question 18

A firm maximizes profit by producing the output at which marginal cost equals

Accepted Answer

A) marginal revenue. 
B) minimum average total cost. 
C) minimum average variable cost. 
D) average fixed cost. 
E) total revenue. 
A) marginal revenue. 
B) minimum average total cost. 
C) minimum average variable cost. 
D) average fixed cost. 
E) total revenue.

Question 19

In a perfectly competitive market, the market price is $8. An individual firm is producing the output at which MC = $8. AVC at that output is $10. What should the firm do to maximize its economic profit in the short run?

Accepted Answer

A) shut down 
B) expand output 
C) contract output but continue to produce 
D) leave output unchanged 
E) raise the price 
A) shut down 
B) expand output 
C) contract output but continue to produce 
D) leave output unchanged 
E) raise the price

Question 20

In a competitive market, the market demand curve measures the ________ if ________ exist. In a competitive market, the market supply curve measures the ________ if ________ exist.

Accepted Answer

A) marginal social benefit; no external costs; marginal social cost; no external benefits 
B) firms' marginal benefit; external benefits; consumers' marginal cost; external costs 
C) marginal social benefit; no external benefits; marginal social cost; no external costs 
D) marginal social benefit; external benefits; marginal social cost; external costs 
E) consumer surplus; external benefits; producer surplus; external costs 
A) marginal social benefit; no external costs; marginal social cost; no external benefits 
B) firms' marginal benefit; external benefits; consumers' marginal cost; external costs 
C) marginal social benefit; no external benefits; marginal social cost; no external costs 
D) marginal social benefit; external benefits; marginal social cost; external costs 
E) consumer surplus; external benefits; producer surplus; external costs

Exam 12: Perfect Competition

In a perfectly competitive market, which of the following increases the price that the firms charge in the short run?

Use the table below to answer the following questions. Table 12.2.1 -Refer to Table 12.2.1, which gives the total revenue schedule and total cost schedule of a perfectly competitive firm. The marginal revenue received from the sale of the 4th unit of output is

A firm that temporarily shuts down and produces no output incurs a loss equal to its

All of the following statements are true except

Use the figure below to answer the following questions. Figure 12.4.3 -Refer to Figure 12.4.3, which shows the cost curves and marginal revenue curve of a firm in a perfectly competitive market. In the long run,

A perfectly competitive market is in short-run equilibrium with price below average total cost. Which one of the following is not a prediction of the long-run consequences of such a situation?

In a perfectly competitive market, the market demand curve is illustrated by

In a perfectly competitive market, a firm maximizes its profit by producing the quantity of output at which

If firms in a perfectly competitive market are making an economic profit, new firms will enter. This entry shifts the market

In a perfectly competitive market, each firm maximizes its profit by choosing only the quantity to produce. Regardless of whether the firm makes an economic profit or incurs an economic loss, the short-run equilibrium is efficient. This statement is

If a profit-maximizing firm in a perfectly competitive market is incurring an economic loss, then it must be producing a level of output where

Use the figure below to answer the following question. Figure 12.3.3 -Refer to Figure 12.3.3, which shows the cost curves and marginal revenue curve of a firm in a perfectly competitive industry. The firm is

If firms in a perfectly competitive market are incurring an economic loss, some firms will exit. This exit shifts the market

If a perfectly competitive firm is producing in the short run at an output where price is less than average total cost, the firm

Use the table below to answer the following questions. Table 12.2.1 -Refer to Table 12.2.1, which gives the total revenue schedule and total cost schedule of a perfectly competitive firm. The marginal cost of increasing production from 4 units to 5 units is

In which one of the following situations will a perfectly competitive firm make an economic profit?

A firm maximizes profit by producing the output at which marginal cost equals

In a perfectly competitive market, the market price is $8. An individual firm is producing the output at which MC = $8. AVC at that output is $10. What should the firm do to maximize its economic profit in the short run?

In a competitive market, the market demand curve measures the ________ if ________ exist. In a competitive market, the market supply curve measures the ________ if ________ exist.

What Is Economics

The Economic Problem

Demand and Supply

Elasticity

Efficiency and Equity

Governments Actions in Markets

Global Markets in Action

Utility and Demand

Possibilities, Preferences, and Choices

Organizing Production

Output and Costs

Monopoly

Monopolistic Competition

Oligopoly

Externalities

Public Goods and Common Resources

Markets for Factors of Production

Economic Inequality

Measuring Gdp and Economic Growth

Monitoring Jobs and Inflation

Economic Growth

Finance, Saving, and Investment

Money, the Price Level, and Inflation

The Exchange Rate and the Balance of Payments

Aggregate Supply and Aggregate Demand

Expenditure Multipliers

The Business Cycle, Inflation, and Deflation

Fiscal Policy

Monetary Policy

Macro Only: International Trade Policy

Filters

In a competitive market, the market demand curve measures the if exist. In a competitive market, the market supply curve measures the if exist.