Question 1

A firm operating in a perfectly competitive market is a price taker because:

Accepted Answer

A)  no firm has a significant market share. 
B)  no firm's product is perceived as different. 
C)  setting a price higher than the going price results in zero sales. 
D)  all of the above. 
A)  no firm has a significant market share. 
B)  no firm's product is perceived as different. 
C)  setting a price higher than the going price results in zero sales. 
D)  all of the above.

Question 2

Which of the following statements is true?

Accepted Answer

A)  To maximize profits, a firm must maximize total revenue. 
B)  In long-run equilibrium, a competitive firm produces at the point of minimum average total cost. 
C)  In the short-run, a perfectly competitive firm produces where total cost is minimum. 
D)  In the short-run, a perfectly competitive firm will close down whenever price is less than average total cost. 
A)  To maximize profits, a firm must maximize total revenue. 
B)  In long-run equilibrium, a competitive firm produces at the point of minimum average total cost. 
C)  In the short-run, a perfectly competitive firm produces where total cost is minimum. 
D)  In the short-run, a perfectly competitive firm will close down whenever price is less than average total cost.

Question 3

Exhibit 7-3 Cost per unit curves
  
-In Exhibit 7-3,if the price of the firm's product is $2.00 per unit,the firm will produce:

Accepted Answer

A)  5 units per day. 
B)  10 units per day. 
C)  15 units per day. 
D)  20 units per day. 
A)  5 units per day. 
B)  10 units per day. 
C)  15 units per day. 
D)  20 units per day.

Question 4

The point of maximum profit for a business firm is where:

Accepted Answer

A)  P = AC. 
B)  TR = TC. 
C)  MR = AR. 
D)  MR = MC. 
E)  TR = MR. 
A)  P = AC. 
B)  TR = TC. 
C)  MR = AR. 
D)  MR = MC. 
E)  TR = MR.

Question 5

-In Exhibit 7-14,if output is at 200 units per week,total economic profit for the firm is:

Accepted Answer

A)  zero. 
B)  positive. 
C)  negative. 
D)  none of the above. 
A)  zero. 
B)  positive. 
C)  negative. 
D)  none of the above.

Question 6

The price-taker firm should discontinue production immediately if:

Accepted Answer

A)  the market price exceeds the firm's average total costs. 
B)  the market price is less than the firm's average variable costs. 
C)  the market price is less than the firm's average total costs, but greater than its average variable cost. 
D)  its accounting statement indicates that it is suffering losses. 
A)  the market price exceeds the firm's average total costs. 
B)  the market price is less than the firm's average variable costs. 
C)  the market price is less than the firm's average total costs, but greater than its average variable cost. 
D)  its accounting statement indicates that it is suffering losses.

Question 7

A competitive firm maximizes its profits (or minimizes is losses)by producing the quantity where the market price equals the firm's:

Accepted Answer

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

Question 8

In the short run,why would a firm in a perfectly competitive market shut down production if the prevailing market price falls below the lowest possible average variable cost?

Accepted Answer

A)  At that point (economic) profit is zero. 
B)  Below that point average revenue becomes less than marginal revenue. 
C)  Below that point marginal revenue becomes insufficient to pay for avoidable average variable cost. 
D)  Below that point other firms with similar cost will find it profitable to enter the market and take away demand from the existing firms. 
A)  At that point (economic) profit is zero. 
B)  Below that point average revenue becomes less than marginal revenue. 
C)  Below that point marginal revenue becomes insufficient to pay for avoidable average variable cost. 
D)  Below that point other firms with similar cost will find it profitable to enter the market and take away demand from the existing firms.

Question 9

Exhibit 7-15 Short-run cost curves for E-Z Care lawn mowing company
  
-In Exhibit 7-15,if the market price of mowing lawns is $16 per lawn,then E-Z-Care will earn the biggest profit by mowing:

Accepted Answer

A)  5 lawns per day. 
B)  7 lawns per day. 
C)  8 lawns per day. 
D)  as many lawns per day as is physically possible. 
A)  5 lawns per day. 
B)  7 lawns per day. 
C)  8 lawns per day. 
D)  as many lawns per day as is physically possible.

Question 10

Exhibit 7-17 Marginal revenue and cost per unit curves
  
-As shown in Exhibit 7-17,the firm will produce in the short run if the price is at least equal to:

Accepted Answer

A)  $10 per unit. 
B)  $15 per unit. 
C)  $20 per unit. 
D)  $30 per unit. 
E)  $40 per unit. 
A)  $10 per unit. 
B)  $15 per unit. 
C)  $20 per unit. 
D)  $30 per unit. 
E)  $40 per unit.

Question 11

If a firm decreases output when MR > MC,then:

Accepted Answer

A)  profit will equal zero. 
B)  profit will increase. 
C)  profit will decrease. 
D)  profit will remain the same. 
E)  the firm is minimizing losses. 
A)  profit will equal zero. 
B)  profit will increase. 
C)  profit will decrease. 
D)  profit will remain the same. 
E)  the firm is minimizing losses.

Question 12

In a perfectly competitive industry,assume the short-run average total cost increases as the output of the industry expands.In the long run,the industry supply curve will:

Accepted Answer

A)  first have a positive slope and then a negative slope. 
B)  have a negative slope. 
C)  be perfectly horizontal. 
D)  be perfectly vertical. 
E)  have a positive slope. 
A)  first have a positive slope and then a negative slope. 
B)  have a negative slope. 
C)  be perfectly horizontal. 
D)  be perfectly vertical. 
E)  have a positive slope.

Question 13

Consider a firm operating with the following: price = 10; MR = 10; MC = 10; ATC = 10.This firm is:

Accepted Answer

A)  making an economic profit of 10. 
B)  an example of monopolistic competition. 
C)  going to go out of business in the long run. 
D)  a monopolist for a product with a relatively inelastic demand. 
E)  perfectly competitive in long-run equilibrium. 
A)  making an economic profit of 10. 
B)  an example of monopolistic competition. 
C)  going to go out of business in the long run. 
D)  a monopolist for a product with a relatively inelastic demand. 
E)  perfectly competitive in long-run equilibrium.

Question 14

Which of the following is a characteristic of a competitive price-taker market?

Accepted Answer

A)  Profit maximizing firms in the market will expand output until price equals average variable cost. 
B)  The market demand curve for the product is a horizontal line. 
C)  There are many firms in the market, each producing a small share of total market output. 
D)  The product produced by each of the firms is differentiated. 
A)  Profit maximizing firms in the market will expand output until price equals average variable cost. 
B)  The market demand curve for the product is a horizontal line. 
C)  There are many firms in the market, each producing a small share of total market output. 
D)  The product produced by each of the firms is differentiated.

Question 15

Which of the following best illustrates a perfectly competitive market?

Accepted Answer

A)  Soft drinks. 
B)  Automobiles. 
C)  Electric power. 
D)  Soybean farmers. 
A)  Soft drinks. 
B)  Automobiles. 
C)  Electric power. 
D)  Soybean farmers.

Question 16

Exhibit 7-18 A typical firm in a perfectly competitive market
  
-In Exhibit 7-18,assume the perfectly competitive firm is in long-run equilibrium and there is an increase in demand.As a result,the firm in the short run will increase output along its:

Accepted Answer

A)  short-run average total cost curve B. 
B)  short-run marginal cost curve B. 
C)  long-run average cost curve. 
D)  none of the above because the firm shuts down. 
A)  short-run average total cost curve B. 
B)  short-run marginal cost curve B. 
C)  long-run average cost curve. 
D)  none of the above because the firm shuts down.

Question 17

By producing at the point where MR = MC,the firm:

Accepted Answer

A)  is guaranteed a profit. 
B)  will earn a profit of zero. 
C)  will lose money. 
D)  profit is maximized. 
E)  output. 
A)  is guaranteed a profit. 
B)  will earn a profit of zero. 
C)  will lose money. 
D)  profit is maximized. 
E)  output.

Question 18

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

Accepted Answer

A) the entry of new firms. 
B) temporarily higher profits. 
C) both a and b. 
D) neither a nor b. 
A) the entry of new firms. 
B) temporarily higher profits. 
C) both a and b. 
D) neither a nor b.

Question 19

If a firm shuts down in the short run,it will:

Accepted Answer

A)  incur losses equal to its fixed costs. 
B)  produce at the output level where MC = MR. 
C)  reduce its losses to zero. 
D)  do this because P > AVC. 
E)  have total revenue greater than total fixed costs. 
A)  incur losses equal to its fixed costs. 
B)  produce at the output level where MC = MR. 
C)  reduce its losses to zero. 
D)  do this because P > AVC. 
E)  have total revenue greater than total fixed costs.

Question 20

In long-run equilibrium,which of the following is not equal to price for a perfectly competitive firm?

Accepted Answer

A)  Short-run average variable cost. 
B)  Long-run average total cost. 
C)  Short-run marginal cost. 
D)  Short-run average total cost. 
A)  Short-run average variable cost. 
B)  Long-run average total cost. 
C)  Short-run marginal cost. 
D)  Short-run average total cost.

Exam 7: Perfect Competition

A firm operating in a perfectly competitive market is a price taker because:

Which of the following statements is true?

Exhibit 7-3 Cost per unit curves -In Exhibit 7-3,if the price of the firm's product is $2.00 per unit,the firm will produce:

The point of maximum profit for a business firm is where:

-In Exhibit 7-14,if output is at 200 units per week,total economic profit for the firm is:

The price-taker firm should discontinue production immediately if:

A competitive firm maximizes its profits (or minimizes is losses)by producing the quantity where the market price equals the firm's:

In the short run,why would a firm in a perfectly competitive market shut down production if the prevailing market price falls below the lowest possible average variable cost?

Exhibit 7-15 Short-run cost curves for E-Z Care lawn mowing company -In Exhibit 7-15,if the market price of mowing lawns is $16 per lawn,then E-Z-Care will earn the biggest profit by mowing:

Exhibit 7-17 Marginal revenue and cost per unit curves -As shown in Exhibit 7-17,the firm will produce in the short run if the price is at least equal to:

If a firm decreases output when MR > MC,then:

In a perfectly competitive industry,assume the short-run average total cost increases as the output of the industry expands.In the long run,the industry supply curve will:

Consider a firm operating with the following: price = 10; MR = 10; MC = 10; ATC = 10.This firm is:

Which of the following is a characteristic of a competitive price-taker market?

Which of the following best illustrates a perfectly competitive market?

Exhibit 7-18 A typical firm in a perfectly competitive market -In Exhibit 7-18,assume the perfectly competitive firm is in long-run equilibrium and there is an increase in demand.As a result,the firm in the short run will increase output along its:

By producing at the point where MR = MC,the firm:

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

If a firm shuts down in the short run,it will:

In long-run equilibrium,which of the following is not equal to price for a perfectly competitive firm?

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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