Question 1

Which of the following is not a characteristic of a perfectly competitive market?

Accepted Answer

A)  There is a large number of small firms. 
B)  Firms sell a homogeneous product. 
C)  Firms can easily enter or exit the market. 
D)  Firms are price makers, not price takers. 
A)  There is a large number of small firms. 
B)  Firms sell a homogeneous product. 
C)  Firms can easily enter or exit the market. 
D)  Firms are price makers, not price takers.

Question 2

What is the largest possible loss that is consistent with a firm producing in a perfectly competitive market in long-run competitive equilibrium?

Accepted Answer

A)  An amount equal to (price less average variable cost). 
B)  An amount equal to total variable. 
C)  Zero. 
D)  An amount equal to total fixed cost. 
A)  An amount equal to (price less average variable cost). 
B)  An amount equal to total variable. 
C)  Zero. 
D)  An amount equal to total fixed cost.

Question 3

Exhibit 7-12 Marginal revenue and cost per unit curves
  
-As shown in Exhibit 7-12,if the price is OD,a perfectly competitive firm maximizes profit at which point on its marginal cost curve?

Accepted Answer

A)  E. 
B)  F. 
C)  I. 
D)  Between E and I. 
A)  E. 
B)  F. 
C)  I. 
D)  Between E and I.

Question 4

In the short run,a firm should shut down its operation if:

Accepted Answer

A)  its losses are less than TFC at the MR = MC point. 
B)  its losses equal TFC at the MR = MC point. 
C)  its losses are greater than TFC at the MR = MC point. 
D)  TR is less than TC. 
E)  TR exceeds TVC. 
A)  its losses are less than TFC at the MR = MC point. 
B)  its losses equal TFC at the MR = MC point. 
C)  its losses are greater than TFC at the MR = MC point. 
D)  TR is less than TC. 
E)  TR exceeds TVC.

Question 5

The marginal revenue of a price taker is:

Accepted Answer

A)  equal to price. 
B)  less than price. 
C)  more than price. 
D)  unrelated to price. 
A)  equal to price. 
B)  less than price. 
C)  more than price. 
D)  unrelated to price.

Question 6

If a perfectly competitive firm sells 50 units of output at a market price of $10 per unit,its marginal revenue is:

Accepted Answer

A)  more than $10. 
B)  less than $10. 
C)  $10. 
D)  $5300. 
A)  more than $10. 
B)  less than $10. 
C)  $10. 
D)  $5300.

Question 7

In long-run equilibrium for a perfectly competitive firm,price equals which of the following?

Accepted Answer

A)  Economies of real cost. 
B)  Maximum total revenue. 
C)  Diseconomies of scale cost. 
D)  Minimum point on the long-run average cost curve. 
A)  Economies of real cost. 
B)  Maximum total revenue. 
C)  Diseconomies of scale cost. 
D)  Minimum point on the long-run average cost curve.

Question 8

Jerome,the florist,sold 500 bridesmaid's bouquets in June.He estimates his costs that month were ATC = $10,AVC = $6,and MC = $9.If he sold each bouquet at the constant market price of $9,Jerome:

Accepted Answer

A)  made an economic profit of $500. 
B)  made a loss of $500. 
C)  made an economic profit of $1,500. 
D)  made a loss of $1,500. 
E)  should have shut down in June. 
A)  made an economic profit of $500. 
B)  made a loss of $500. 
C)  made an economic profit of $1,500. 
D)  made a loss of $1,500. 
E)  should have shut down in June.

Question 9

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 10

Exhibit 7-2 Total revenue and total cost graph
  
-In Exhibit 7-2,economic profit for the firm is at a maximum when output per week equals:

Accepted Answer

A)  zero units. 
B)  100 units. 
C)  200 units. 
D)  250 units. 
E)  300 units. 
A)  zero units. 
B)  100 units. 
C)  200 units. 
D)  250 units. 
E)  300 units.

Question 11

Which of the following offers the fullest explanation of why "price equals marginal cost" is the rule from marginal analysis that indicates the profit-maximizing output level?

Accepted Answer

A) If output were reduced from the profit-maximizing level,then the firm would be giving up marginal revenue that exceeds marginal cost,and thus reducing the level of profit.' 
B) If output were increased from the profit-maximizing level,then the firm would be gaining marginal revenue that is less than the marginal cost incurred in producing this additional unit,and thus reducing the level of profit. 
C) Because the firm colludes with other similar firms to set price equal to marginal cost. 
D) Both a.and b.above are correct. 
A) If output were reduced from the profit-maximizing level,then the firm would be giving up marginal revenue that exceeds marginal cost,and thus reducing the level of profit.' 
B) If output were increased from the profit-maximizing level,then the firm would be gaining marginal revenue that is less than the marginal cost incurred in producing this additional unit,and thus reducing the level of profit. 
C) Because the firm colludes with other similar firms to set price equal to marginal cost. 
D) Both a.and b.above are correct.

Question 12

If a firm is producing an output level at which marginal revenue exceeds marginal cost,the firm will increase profits by reducing its output level.

Accepted Answer

A) True 
 B)False

Question 13

Exhibit 7-1 Quantity and total revenue data for a firm
  
-Exhibit 7-1 indicates that this firm is operating in which type of market structure?

Accepted Answer

A)  Price-maker. 
B)  Unprofitable. 
C)  Perfect competition. 
D)  Nonhomogeneous. 
A)  Price-maker. 
B)  Unprofitable. 
C)  Perfect competition. 
D)  Nonhomogeneous.

Question 14

If a firm increases 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 15

Exhibit 7-11 A firm's cost and marginal revenue curves
  
-In Exhibit 7-11,the profit-maximizing output level at the price of $8 is:

Accepted Answer

A)  0. 
B)  4. 
C)  7. 
D)  8. 
E)  10. 
A)  0. 
B)  4. 
C)  7. 
D)  8. 
E)  10.

Question 16

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

Accepted Answer

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

Question 17

If a firm in a competitive industry is making zero economic profit but still producing,it must be the case that:

Accepted Answer

A)  MC = MR > ATC. 
B)  MC = MR  MR. 
D)  MC = MR = ATC. 
E)  this situation is not possible. 
A)  MC = MR > ATC. 
B)  MC = MR  MR. 
D)  MC = MR = ATC. 
E)  this situation is not possible.

Question 18

Exhibit 7-5 A firm's MR and MC curves
  
-In Exhibit 7-5,a firm is currently producing 40 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 19

Exhibit 7-17 Marginal revenue and cost per unit curves
  
-If the price of the firm's product in Exhibit 7-17 is $15 per unit,the firm should:

Accepted Answer

A)  shut down permanently. 
B)  stay in operation for the time being even though it is making a pure economic loss. 
C)  shut down temporarily. 
D)  continue to operate because it is earning a positive economic profit. 
A)  shut down permanently. 
B)  stay in operation for the time being even though it is making a pure economic loss. 
C)  shut down temporarily. 
D)  continue to operate because it is earning a positive economic profit.

Question 20

Above the shutdown point,a competitive firm's supply curve coincides with its:

Accepted Answer

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

Exam 7: Perfect Competition

Which of the following is not a characteristic of a perfectly competitive market?

What is the largest possible loss that is consistent with a firm producing in a perfectly competitive market in long-run competitive equilibrium?

Exhibit 7-12 Marginal revenue and cost per unit curves -As shown in Exhibit 7-12,if the price is OD,a perfectly competitive firm maximizes profit at which point on its marginal cost curve?

In the short run,a firm should shut down its operation if:

The marginal revenue of a price taker is:

If a perfectly competitive firm sells 50 units of output at a market price of $10 per unit,its marginal revenue is:

In long-run equilibrium for a perfectly competitive firm,price equals which of the following?

Jerome,the florist,sold 500 bridesmaid's bouquets in June.He estimates his costs that month were ATC = $10,AVC = $6,and MC = $9.If he sold each bouquet at the constant market price of $9,Jerome:

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

Exhibit 7-2 Total revenue and total cost graph -In Exhibit 7-2,economic profit for the firm is at a maximum when output per week equals:

Which of the following offers the fullest explanation of why "price equals marginal cost" is the rule from marginal analysis that indicates the profit-maximizing output level?

If a firm is producing an output level at which marginal revenue exceeds marginal cost,the firm will increase profits by reducing its output level.

Exhibit 7-1 Quantity and total revenue data for a firm -Exhibit 7-1 indicates that this firm is operating in which type of market structure?

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

Exhibit 7-11 A firm's cost and marginal revenue curves -In Exhibit 7-11,the profit-maximizing output level at the price of $8 is:

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

If a firm in a competitive industry is making zero economic profit but still producing,it must be the case that:

Exhibit 7-5 A firm's MR and MC curves -In Exhibit 7-5,a firm is currently producing 40 units of output.What would you advise this firm to do?

Exhibit 7-17 Marginal revenue and cost per unit curves -If the price of the firm's product in Exhibit 7-17 is $15 per unit,the firm should:

Above the shutdown point,a competitive firm's supply curve coincides with its:

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

Filters