Question 1

The long-run equilibrium condition for perfect competition is:

Accepted Answer

A)  P = AVC = MR = MC. 
B)  P = ATC = MR = MC. 
C)  Q = AVC = MR = MC. 
D)  Q = ATC = MR = MC. 
E)  TR = ATC = MR = MC. 
A)  P = AVC = MR = MC. 
B)  P = ATC = MR = MC. 
C)  Q = AVC = MR = MC. 
D)  Q = ATC = MR = MC. 
E)  TR = ATC = MR = MC.

Question 2

Which of the following statements are false?

Accepted Answer

A) b and d. 
B) Marginal cost is always rising. 
C) Marginal and average total costs are equal at the most efficient production level. 
D) The AFC and AVC curves do not cross. 
E) The AFC and ATC curves do not cross. 
A) b and d. 
B) Marginal cost is always rising. 
C) Marginal and average total costs are equal at the most efficient production level. 
D) The AFC and AVC curves do not cross. 
E) The AFC and ATC curves do not cross.

Question 3

Exhibit 7-5 A firm's MR and MC curves
  
-In Exhibit 7-5,suppose a firm is currently producing 50 units of output.What would you advise this firm to do?

Accepted Answer

A)  Shut down. 
B)  Increase output. 
C)  Stay at its current output. 
D)  Decrease output. 
E)  Decrease price. 
A)  Shut down. 
B)  Increase output. 
C)  Stay at its current output. 
D)  Decrease output. 
E)  Decrease price.

Question 4

The fundamental rule of profit maximization for firms is to produce where:

Accepted Answer

A)  MR = MC. 
B)  ATC is minimized. 
C)  quantity of output is maximized. 
D)  price is maximized. 
E)  total revenue is maximized. 
A)  MR = MC. 
B)  ATC is minimized. 
C)  quantity of output is maximized. 
D)  price is maximized. 
E)  total revenue is maximized.

Question 5

When faced with an economic loss,a competitive firm will exit the industry in the long run.

Accepted Answer

A) True 
 B)False

Question 6

As market price increases in the short run,a profit-maximizing firm in a perfectly competitive market will expand output along its:

Accepted Answer

A)  marginal cost curve. 
B)  average total cost curve. 
C)  average variable cost curve. 
D)  market demand curve. 
A)  marginal cost curve. 
B)  average total cost curve. 
C)  average variable cost curve. 
D)  market demand curve.

Question 7

Consider a firm with the following cost information: ATC = $15,AVC = $12,and MC = $14.If we know that this firm has decided to produce Q = 20 by following the rule to maximize profits or minimize losses,then the price of the output is:

Accepted Answer

A)  $12. 
B)  $14. 
C)  $15. 
D)  $20. 
A)  $12. 
B)  $14. 
C)  $15. 
D)  $20.

Question 8

Exhibit 7-10 Price and cost data for a firm
  
-In Exhibit 7-10,following the rule regarding MR and MC,the most profitable output level is:

Accepted Answer

A)  0. 
B)  1. 
C)  2. 
D)  3. 
E)  4. 
A)  0. 
B)  1. 
C)  2. 
D)  3. 
E)  4.

Question 9

A perfectly competitive firm's short-run supply curve is its marginal cost curve below its average variable cost curve.

Accepted Answer

A) True 
 B)False

Question 10

Exhibit 7-17 Marginal revenue and cost per unit curves
  
-As shown in Exhibit 7-17,the price at which the firm earns zero economic profit in the short-run is:

Accepted Answer

A)  $10 per unit. 
B)  $15 per unit. 
C)  $40 per unit. 
D)  more than $20 per unit. 
E)  $20 per unit. 
A)  $10 per unit. 
B)  $15 per unit. 
C)  $40 per unit. 
D)  more than $20 per unit. 
E)  $20 per unit.

Question 11

In the short run,if a perfectly competitive firm is producing at a price above average total cost,its economic profit must be:

Accepted Answer

A)  positive. 
B)  zero. 
C)  negative. 
D)  normal. 
A)  positive. 
B)  zero. 
C)  negative. 
D)  normal.

Question 12

What is the profit maximizing (loss minimizing)quantity for the perfectly competitive firm to produce?

Accepted Answer

The profit maximizing (loss minimizing)q

Question 13

If a perfectly competitive firm cannot cover all of its costs,then it should shut down in the short run.

Accepted Answer

A) True 
 B)False

Question 14

In the short run,a firm will stay in business as long as:

Accepted Answer

A)  price equals average revenue. 
B)  marginal revenue is greater than or equal to marginal cost. 
C)  price exceeds average variable cost. 
D)  price is less than average variable cost. 
A)  price equals average revenue. 
B)  marginal revenue is greater than or equal to marginal cost. 
C)  price exceeds average variable cost. 
D)  price is less than average variable cost.

Question 15

Exhibit 7-15 Short-run cost curves for E-Z Care lawn mowing company
  
-In Exhibit 7-15,suppose the market price of mowing lawns falls to $10 per lawn.In this situation,E-Z-Care will:

Accepted Answer

A)  permanently exit the industry. 
B)  shut down its operations, at least in the short run. 
C)  continue to mow lawns despite its economic losses. 
D)  earn a normal profit. 
A)  permanently exit the industry. 
B)  shut down its operations, at least in the short run. 
C)  continue to mow lawns despite its economic losses. 
D)  earn a normal profit.

Question 16

In a perfectly competitive industry,assume there is a permanent increase in demand for a product.The process of transition to a new long-run equilibrium will include:

Accepted Answer

A) the exit of firms. 
B) temporarily lower production costs. 
C) both a and b. 
D) neither a nor b. 
A) the exit of firms. 
B) temporarily lower production costs. 
C) both a and b. 
D) neither a nor b.

Question 17

If marginal revenue exceeds marginal cost in the short run,the perfectly competitive firm earns an economic profit in the short-run.

Accepted Answer

A) True 
 B)False

Question 18

If marginal revenue exceeds marginal cost in the short run,total revenue for the perfectly competitive firm is greater than total cost.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following best illustrates perfect competition?

Accepted Answer

A)  Wheat farming. 
B)  Orange growers setting quotas under the Sunkist cooperative. 
C)  General Motors advertising campaign for its cars. 
D)  All of the above. 
A)  Wheat farming. 
B)  Orange growers setting quotas under the Sunkist cooperative. 
C)  General Motors advertising campaign for its cars. 
D)  All of the above.

Question 20

Exhibit 7-12 Marginal revenue and cost per unit curves
  
-As shown in Exhibit 7-12,if the price is OB,the firm's total cost of producing at its most profitable level of output is:

Accepted Answer

A)  YF. 
B)  XL. 
C)  OYFB. 
D)  OXEA. 
A)  YF. 
B)  XL. 
C)  OYFB. 
D)  OXEA.

Exam 7: Perfect Competition

The long-run equilibrium condition for perfect competition is:

Which of the following statements are false?

Exhibit 7-5 A firm's MR and MC curves -In Exhibit 7-5,suppose a firm is currently producing 50 units of output.What would you advise this firm to do?

The fundamental rule of profit maximization for firms is to produce where:

When faced with an economic loss,a competitive firm will exit the industry in the long run.

As market price increases in the short run,a profit-maximizing firm in a perfectly competitive market will expand output along its:

Consider a firm with the following cost information: ATC = $15,AVC = $12,and MC = $14.If we know that this firm has decided to produce Q = 20 by following the rule to maximize profits or minimize losses,then the price of the output is:

Exhibit 7-10 Price and cost data for a firm -In Exhibit 7-10,following the rule regarding MR and MC,the most profitable output level is:

A perfectly competitive firm's short-run supply curve is its marginal cost curve below its average variable cost curve.

Exhibit 7-17 Marginal revenue and cost per unit curves -As shown in Exhibit 7-17,the price at which the firm earns zero economic profit in the short-run is:

In the short run,if a perfectly competitive firm is producing at a price above average total cost,its economic profit must be:

What is the profit maximizing (loss minimizing)quantity for the perfectly competitive firm to produce?

If a perfectly competitive firm cannot cover all of its costs,then it should shut down in the short run.

In the short run,a firm will stay in business as long as:

Exhibit 7-15 Short-run cost curves for E-Z Care lawn mowing company -In Exhibit 7-15,suppose the market price of mowing lawns falls to $10 per lawn.In this situation,E-Z-Care will:

In a perfectly competitive industry,assume there is a permanent increase in demand for a product.The process of transition to a new long-run equilibrium will include:

If marginal revenue exceeds marginal cost in the short run,the perfectly competitive firm earns an economic profit in the short-run.

If marginal revenue exceeds marginal cost in the short run,total revenue for the perfectly competitive firm is greater than total cost.

Which of the following best illustrates perfect competition?

Exhibit 7-12 Marginal revenue and cost per unit curves -As shown in Exhibit 7-12,if the price is OB,the firm's total cost of producing at its most profitable level of output is:

Introducing the Economic Way of Thinking

A: Appendix: Applying Graphs to Economics

Production Possibilities,Opportunity Cost,and Economic Growth

Part 1: Market Demand and Supply

Part 2: Market Demand and Supply

Markets in Action

Price Elasticity of Demand

Production Costs

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets and Income Distribution

Gross Domestic Product

Business Cycles and Unemployment

Inflation

Aggregate Demand and Supply

A: Appendix: The Self-Correcting Aggregate Demand and Supply Model

Fiscal Policy

The Public Sector

Federal Deficits,Surpluses,and the National Debt

Money and the Federal Reserve System

Money Creation

Monetary Policy

A: Appendix: Policy Disputes Using the Self-Correcting Aggregate Demand and Supply Model

International Trade and Finance

Economies in Transition

Growth and the Less-Developed Countries

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