Question 1

Exhibit 7-18 A typical firm in a perfectly competitive market
  
-As shown in Exhibit 7-18,the perfectly competitive firm is in long-run equilibrium at a price of:

Accepted Answer

A)  $100. 
B)  $200. 
C)  $300. 
D)  $400. 
A)  $100. 
B)  $200. 
C)  $300. 
D)  $400.

Question 2

Assume that a firm's marginal revenue just barely exceeds marginal cost.Under these conditions the firm should:

Accepted Answer

A)  expand output. 
B)  contract output. 
C)  maintain output. 
D)  There is insufficient information to answer the question. 
A)  expand output. 
B)  contract output. 
C)  maintain output. 
D)  There is insufficient information to answer the question.

Question 3

Which of the following correctly explains why sellers in a perfectly competitive market are price takers?

Accepted Answer

A)  There are few sellers, and so they have the power to take whatever price they want. 
B)  There are many sellers, and so the market process generates an equilibrium price that cannot be influenced by any one seller. Thus they have no choice but to take the price generated by the market process. 
C)  Sellers in a competitive market have the power to influence price by colluding with one another and using quotas to limit overall market output and thus raise price. 
D)  Individual buyers in a competitive market have the power to influence price, and thus can impose prices and other conditions on powerless sellers. 
A)  There are few sellers, and so they have the power to take whatever price they want. 
B)  There are many sellers, and so the market process generates an equilibrium price that cannot be influenced by any one seller. Thus they have no choice but to take the price generated by the market process. 
C)  Sellers in a competitive market have the power to influence price by colluding with one another and using quotas to limit overall market output and thus raise price. 
D)  Individual buyers in a competitive market have the power to influence price, and thus can impose prices and other conditions on powerless sellers.

Question 4

If the market price is $5 and you are currently producing at a level where average total cost is $3 and falling,you should:

Accepted Answer

A)  b or c, it doesn't matter. 
B)  shut down. 
C)  produce only enough to cover variable costs. 
D)  produce where MR = MC. 
E)  produce until the average total cost and average revenue are equal. 
A)  b or c, it doesn't matter. 
B)  shut down. 
C)  produce only enough to cover variable costs. 
D)  produce where MR = MC. 
E)  produce until the average total cost and average revenue are equal.

Question 5

Which of the following is a firm's supply curve in a perfectly competitive market?

Accepted Answer

A)  Total cost. 
B)  Marginal revenue. 
C)  Marginal cost. 
D)  Average variable cost. 
A)  Total cost. 
B)  Marginal revenue. 
C)  Marginal cost. 
D)  Average variable cost.

Question 6

Exhibit 7-12 Marginal revenue and cost per unit curves
  
-As shown in Exhibit 7-12,suppose the firm's price is OB.The firm's total economic profit at this price is equal to the area of:

Accepted Answer

A)  CJID. 
B)  BFHD. 
C)  AEXD. 
D)  CGHD. 
E)  zero. 
A)  CJID. 
B)  BFHD. 
C)  AEXD. 
D)  CGHD. 
E)  zero.

Question 7

A perfectly competitive market is characterized by highly advertised goods.

Accepted Answer

A) True 
 B)False

Question 8

A perfectly competitive firm sells its output for $100 per unit and marginal cost is $100 per unit.To maximize short-run profit,the firm should:

Accepted Answer

A)  increase output. 
B)  decrease output. 
C)  maintain its current output. 
D)  shut down. 
A)  increase output. 
B)  decrease output. 
C)  maintain its current output. 
D)  shut down.

Question 9

Under perfect competition,a business firm can accept losses:

Accepted Answer

A)  only in the short run. 
B)  only for 1 year. 
C)  only in the long run. 
D)  no longer than 10 years. 
E)  never. 
A)  only in the short run. 
B)  only for 1 year. 
C)  only in the long run. 
D)  no longer than 10 years. 
E)  never.

Question 10

Exhibit 7-13 Price and cost per unit curves
  
-As shown by the five points in Exhibit 7-13,the firm's total economic profit is maximized when the price is:

Accepted Answer

A)  P₁. 
B)  P₂. 
C)  P₃. 
D)  P₄. 
E)  P₅. 
A)  P₁. 
B)  P₂. 
C)  P₃. 
D)  P₄. 
E)  P₅.

Question 11

The short-run supply curve and short-run marginal cost curve for a perfectly competitive firm coincide when the market price is greater than average variable cost.

Accepted Answer

A) True 
 B)False

Question 12

Exhibit 7-4 Marginal cost and revenue for a firm
  
-In Exhibit 7-4,this firm is currently producing 14 units of output.What would you advise this firm to do?

Accepted Answer

A)  Decrease output to 13. 
B)  Increase output to 15. 
C)  Remain at 14 units of output. 
D)  Increase output to 16. 
E)  Increase output to 17. 
A)  Decrease output to 13. 
B)  Increase output to 15. 
C)  Remain at 14 units of output. 
D)  Increase output to 16. 
E)  Increase output to 17.

Question 13

In the short run,the supply curve for a perfectly competitive firm is its marginal cost curve for all levels of output.

Accepted Answer

A) True 
 B)False

Question 14

Exhibit 7-2 Total revenue and total cost graph
  
-At an output of 250 units,as shown in Exhibit 7-2,marginal cost is:

Accepted Answer

A)  greater than marginal revenue. 
B)  equal to marginal revenue. 
C)  less than marginal revenue. 
D)  none of the above. 
A)  greater than marginal revenue. 
B)  equal to marginal revenue. 
C)  less than marginal revenue. 
D)  none of the above.

Question 15

If a fishing boat owner brings 10,000 fish to market and the market price is $7 per fish,she will have $70,000 in total revenue.If the average variable cost of 10,000 fish is $4 and the fixed cost of the boat is $20,000,what is her profit?

Accepted Answer

A)  $1. 
B)  $3. 
C)  $1,000. 
D)  $3,000. 
E)  $10,000. 
A)  $1. 
B)  $3. 
C)  $1,000. 
D)  $3,000. 
E)  $10,000.

Question 16

In the perfectly competitive market,all firms in the market are assumed to be producing:

Accepted Answer

A)  identical products. 
B)  differentiated products. 
C)  products that are heavily advertised. 
D)  complementary products. 
A)  identical products. 
B)  differentiated products. 
C)  products that are heavily advertised. 
D)  complementary products.

Question 17

Exhibit 7-17 Marginal revenue and cost per unit curves
  
-As shown in Exhibit 7-17,if the product price is either $10,$15,$20,or $40,the firm's economic profit is maximum at an output of:

Accepted Answer

A)  20 units per day. 
B)  40 units per day. 
C)  60 units per day. 
D)  80 units per day. 
A)  20 units per day. 
B)  40 units per day. 
C)  60 units per day. 
D)  80 units per day.

Question 18

Under long-run perfect competition,which of the following are the same (equal)at all levels of output?

Accepted Answer

A)  Price and marginal cost. 
B)  Price and marginal revenue. 
C)  Marginal cost and marginal revenue. 
D)  All of the above. 
A)  Price and marginal cost. 
B)  Price and marginal revenue. 
C)  Marginal cost and marginal revenue. 
D)  All of the above.

Question 19

The long run is a planning period:

Accepted Answer

A)  during which the firm can vary its plant size. 
B)  less than six months. 
C)  less than one year. 
D)  less than five years. 
A)  during which the firm can vary its plant size. 
B)  less than six months. 
C)  less than one year. 
D)  less than five years.

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 7: Perfect Competition

Exhibit 7-18 A typical firm in a perfectly competitive market -As shown in Exhibit 7-18,the perfectly competitive firm is in long-run equilibrium at a price of:

Assume that a firm's marginal revenue just barely exceeds marginal cost.Under these conditions the firm should:

Which of the following correctly explains why sellers in a perfectly competitive market are price takers?

If the market price is $5 and you are currently producing at a level where average total cost is $3 and falling,you should:

Which of the following is a firm's supply curve in a perfectly competitive market?

Exhibit 7-12 Marginal revenue and cost per unit curves -As shown in Exhibit 7-12,suppose the firm's price is OB.The firm's total economic profit at this price is equal to the area of:

A perfectly competitive market is characterized by highly advertised goods.

A perfectly competitive firm sells its output for $100 per unit and marginal cost is $100 per unit.To maximize short-run profit,the firm should:

Under perfect competition,a business firm can accept losses:

Exhibit 7-13 Price and cost per unit curves -As shown by the five points in Exhibit 7-13,the firm's total economic profit is maximized when the price is:

The short-run supply curve and short-run marginal cost curve for a perfectly competitive firm coincide when the market price is greater than average variable cost.

Exhibit 7-4 Marginal cost and revenue for a firm -In Exhibit 7-4,this firm is currently producing 14 units of output.What would you advise this firm to do?

In the short run,the supply curve for a perfectly competitive firm is its marginal cost curve for all levels of output.

Exhibit 7-2 Total revenue and total cost graph -At an output of 250 units,as shown in Exhibit 7-2,marginal cost is:

If a fishing boat owner brings 10,000 fish to market and the market price is $7 per fish,she will have $70,000 in total revenue.If the average variable cost of 10,000 fish is $4 and the fixed cost of the boat is $20,000,what is her profit?

In the perfectly competitive market,all firms in the market are assumed to be producing:

Exhibit 7-17 Marginal revenue and cost per unit curves -As shown in Exhibit 7-17,if the product price is either $10,$15,$20,or $40,the firm's economic profit is maximum at an output of:

Under long-run perfect competition,which of the following are the same (equal)at all levels of output?

The long run is a planning period:

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

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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