Question 1

If the market price of oats is $2.5 per bushel and a farmer decides to sell at $2.8 per bushel,he is likely to sell:

Accepted Answer

A) more than 5 bushels per day. 
B) more than 10 bushels per day. 
C) less than 5 bushels per day. 
D) 10 bushels per day. 
E) nothing. 
A) more than 5 bushels per day. 
B) more than 10 bushels per day. 
C) less than 5 bushels per day. 
D) 10 bushels per day. 
E) nothing.

Question 2

If a firm in a perfectly competitive market raises its price:

Accepted Answer

A) it will sell less but earn more revenue. 
B) it will sell less but earn the same revenue. 
C) it will sell exactly the same amount. 
D) whether it sells less or more depends on elasticity. 
E) it will sell nothing. 
A) it will sell less but earn more revenue. 
B) it will sell less but earn the same revenue. 
C) it will sell exactly the same amount. 
D) whether it sells less or more depends on elasticity. 
E) it will sell nothing.

Question 3

The figure given below shows the revenue and cost curves of a perfectly competitive firm. Figure 9.2   
MC: Marginal cost curve
MR: Marginal revenue curve
ATC: Average-total-cost curve
AVC: Average-variable-cost curve
-Refer to Figure 9.2.The firm will suspend production if the price falls below:

Accepted Answer

A) $30. 
B) $50. 
C) $10. 
D) $20. 
E) $35. 
A) $30. 
B) $50. 
C) $10. 
D) $20. 
E) $35.

Question 4

If a firm in a perfectly competitive market is operating at its profit-maximizing level of output and suddenly faces a reduction in the price it can charge for its product,will the firm suspend operations?

Accepted Answer

A) No,because it can always raise its prices in the short run. 
B) No,because it can always raise its prices in the long run. 
C) No,as long as the firm earns sufficient revenue to pay all of the variable costs. 
D) Yes,since it never makes sense to operate at a loss,even in the short run. 
E) No,because it always makes sense to operate at a loss,even in the long run. 
A) No,because it can always raise its prices in the short run. 
B) No,because it can always raise its prices in the long run. 
C) No,as long as the firm earns sufficient revenue to pay all of the variable costs. 
D) Yes,since it never makes sense to operate at a loss,even in the short run. 
E) No,because it always makes sense to operate at a loss,even in the long run.

Question 5

If the market price falls below the average-variable-cost,the firm will suspend production.

Accepted Answer

A) True 
 B)False

Question 6

A competitive firm's minimum supply price in the short run is its shutdown price.

Accepted Answer

A) True 
 B)False

Question 7

If significant barriers to entry exist in a market,then the market is best described through the model of perfect competition.

Accepted Answer

A) True 
 B)False

Question 8

The figure given below shows the demand and cost curves of a perfectly competitive firm. Figure: 9.4   
D: Demand curve
MC: Marginal cost curve
ATC: Average-total cost curve
AVC: Average-variable-cost curve
-Refer to Figure 9.4.At the profit-maximizing output level,which of the following is true?

Accepted Answer

A) The firm is making a profit of $10 per unit. 
B) The firm is making a profit of $45 per unit. 
C) The firm is losing $35 per unit. 
D) The firm is losing $10 per unit. 
E) The firm is breaking even. 
A) The firm is making a profit of $10 per unit. 
B) The firm is making a profit of $45 per unit. 
C) The firm is losing $35 per unit. 
D) The firm is losing $10 per unit. 
E) The firm is breaking even.

Question 9

The figure given below shows the revenue and cost curves of a perfectly competitive firm. Figure 9.5   
MC: Marginal cost curve
MR: Marginal revenue curve.
ATC: Average-total-cost curve
AVC: Average-variable-cost curve
-According to Figure 9.5,the firm has:

Accepted Answer

A) profits equal to the area AP1EF. 
B) profits equal to the area P1BDE. 
C) losses equal to the area 0AFQ1. 
D) losses equal to the area P1BDE. 
E) no profit no loss. 
A) profits equal to the area AP1EF. 
B) profits equal to the area P1BDE. 
C) losses equal to the area 0AFQ1. 
D) losses equal to the area P1BDE. 
E) no profit no loss.

Question 10

The table given below shows the price of each unit of the product manufactured by a firm and the marginal cost of producing different units of the output. Table: 9.1
 
- Refer to Table 9.1.The firm depicted in the table is a(n):

Accepted Answer

A) monopolist. 
B) oligopolist. 
C) monopolistically competitive firm. 
D) perfectly competitive firm. 
E) monopsonist. 
A) monopolist. 
B) oligopolist. 
C) monopolistically competitive firm. 
D) perfectly competitive firm. 
E) monopsonist.

Question 11

What causes the market supply curve to shift rightward?

Accepted Answer

A) Increase in the aggregate demand 
B) Decrease in the number of existing firms 
C) Decrease in the price level 
D) Increase in the cost of production 
E) Entry of new firms 
A) Increase in the aggregate demand 
B) Decrease in the number of existing firms 
C) Decrease in the price level 
D) Increase in the cost of production 
E) Entry of new firms

Question 12

Which of the following statements concerning perfect competition is not true?

Accepted Answer

A) Firms are price takers. 
B) The demand curve facing the individual firm is horizontal. 
C) The firm's demand curve is identical to its marginal revenue curve. 
D) The firms produce differentiated products. 
E) If the firm raises its price,it will lose all of its customers. 
A) Firms are price takers. 
B) The demand curve facing the individual firm is horizontal. 
C) The firm's demand curve is identical to its marginal revenue curve. 
D) The firms produce differentiated products. 
E) If the firm raises its price,it will lose all of its customers.

Question 13

Under the long-run equilibrium for perfectly competitive markets without any government intervention:

Accepted Answer

A) producer surplus is greater than consumer surplus. 
B) consumer surplus is greater than producer surplus. 
C) the sum of consumer and producer surplus is maximized. 
D) consumer surplus is maximized. 
E) producer surplus is maximized. 
A) producer surplus is greater than consumer surplus. 
B) consumer surplus is greater than producer surplus. 
C) the sum of consumer and producer surplus is maximized. 
D) consumer surplus is maximized. 
E) producer surplus is maximized.

Question 14

One method that firms in many nations use to exit the market is the use of:

Accepted Answer

A) antitrust laws. 
B) the uniform commercial code. 
C) bankruptcy laws. 
D) statutes laws. 
E) the federal code. 
A) antitrust laws. 
B) the uniform commercial code. 
C) bankruptcy laws. 
D) statutes laws. 
E) the federal code.

Question 15

In the long run with the entry of new firms in a competitive market shifts the aggregate supply curve to the left.

Accepted Answer

A) True 
 B)False

Question 16

The model of perfect competition best applies to markets with:

Accepted Answer

A) a few firms selling identical products. 
B) a few firms selling differentiated products. 
C) many firms selling differentiated products. 
D) many firms selling identical products. 
E) significant barriers to entry and exit. 
A) a few firms selling identical products. 
B) a few firms selling differentiated products. 
C) many firms selling differentiated products. 
D) many firms selling identical products. 
E) significant barriers to entry and exit.

Question 17

A firm whose price is below its average cost:

Accepted Answer

A) is earning negative economic profit. 
B) is earning positive economic profit. 
C) is just breaking even. 
D) is earning zero economic profit. 
E) is earning zero accounting profit. 
A) is earning negative economic profit. 
B) is earning positive economic profit. 
C) is just breaking even. 
D) is earning zero economic profit. 
E) is earning zero accounting profit.

Question 18

At long run equilibrium of a perfectly competitive firm the following condition holds good: Long Run Average-Total-Cost = Long Run Marginal Cost = Average Revenue = Marginal Revenue = Price.

Accepted Answer

A) True 
 B)False

Question 19

On August 5,2003,a tragic fire destroyed a large Jim Beam whiskey factory in Kentucky.Assume that the U.S.market for whiskey is perfectly competitive,and that the market was originally in long run equilibrium.What would be the effects of such a whiskey factory fire?

Accepted Answer

A) An increase in supply would cause a reduction in price,which would then lead to entry of firms. 
B) A decrease in supply would cause an increase in price,which would then lead to entry of firms.` 
C) An increase in supply would cause an increase in price,which would then lead to entry of firms 
D) A decrease in supply would cause an increase in price,which would then lead to exit of firms. 
E) Price of the whiskey remains unchanged and the existing firms continue to earn zero economic profit. 
A) An increase in supply would cause a reduction in price,which would then lead to entry of firms. 
B) A decrease in supply would cause an increase in price,which would then lead to entry of firms.` 
C) An increase in supply would cause an increase in price,which would then lead to entry of firms 
D) A decrease in supply would cause an increase in price,which would then lead to exit of firms. 
E) Price of the whiskey remains unchanged and the existing firms continue to earn zero economic profit.

Question 20

From a social viewpoint,when price = marginal cost:

Accepted Answer

A) the economy as a whole would be better off if more was produced. 
B) the economy as a whole would be better off if less was produced. 
C) firms would be better off by producing less. 
D) economic efficiency is attained as a whole. 
E) consumers will be better by consuming less. 
A) the economy as a whole would be better off if more was produced. 
B) the economy as a whole would be better off if less was produced. 
C) firms would be better off by producing less. 
D) economic efficiency is attained as a whole. 
E) consumers will be better by consuming less.

Exam 9: Perfect Competition

If the market price of oats is $2.5 per bushel and a farmer decides to sell at $2.8 per bushel,he is likely to sell:

If a firm in a perfectly competitive market raises its price:

The figure given below shows the revenue and cost curves of a perfectly competitive firm. Figure 9.2 MC: Marginal cost curve MR: Marginal revenue curve ATC: Average-total-cost curve AVC: Average-variable-cost curve -Refer to Figure 9.2.The firm will suspend production if the price falls below:

If a firm in a perfectly competitive market is operating at its profit-maximizing level of output and suddenly faces a reduction in the price it can charge for its product,will the firm suspend operations?

If the market price falls below the average-variable-cost,the firm will suspend production.

A competitive firm's minimum supply price in the short run is its shutdown price.

If significant barriers to entry exist in a market,then the market is best described through the model of perfect competition.

The figure given below shows the demand and cost curves of a perfectly competitive firm. Figure: 9.4 D: Demand curve MC: Marginal cost curve ATC: Average-total cost curve AVC: Average-variable-cost curve -Refer to Figure 9.4.At the profit-maximizing output level,which of the following is true?

The figure given below shows the revenue and cost curves of a perfectly competitive firm. Figure 9.5 MC: Marginal cost curve MR: Marginal revenue curve. ATC: Average-total-cost curve AVC: Average-variable-cost curve -According to Figure 9.5,the firm has:

The table given below shows the price of each unit of the product manufactured by a firm and the marginal cost of producing different units of the output. Table: 9.1 - Refer to Table 9.1.The firm depicted in the table is a(n):

What causes the market supply curve to shift rightward?

Which of the following statements concerning perfect competition is not true?

Under the long-run equilibrium for perfectly competitive markets without any government intervention:

One method that firms in many nations use to exit the market is the use of:

In the long run with the entry of new firms in a competitive market shifts the aggregate supply curve to the left.

The model of perfect competition best applies to markets with:

A firm whose price is below its average cost:

At long run equilibrium of a perfectly competitive firm the following condition holds good: Long Run Average-Total-Cost = Long Run Marginal Cost = Average Revenue = Marginal Revenue = Price.

On August 5,2003,a tragic fire destroyed a large Jim Beam whiskey factory in Kentucky.Assume that the U.S.market for whiskey is perfectly competitive,and that the market was originally in long run equilibrium.What would be the effects of such a whiskey factory fire?

From a social viewpoint,when price = marginal cost:

Economics: The World Around You

Choice, opportunity Costs, and Specialization

Markets, Demand and Supply, and the Price System

The Market System and the Private and Public Sector

Elasticity: Demand and Supply

Consumer Choice

Supply: The Costs of Doing Business

Profit Maximization

Monopoly

Monopolistic Competition and Oligopoly

Antitrust and Regulation

Market Failures, Government Failures, and Rent Seeking

Resource Markets

The Labor Market

Capital Markets

The Land Market and Natural Resources

Aging, Social Security and Health Care

Income Distribution,Poverty and Government Policy

World Trade Equilibrium

International Trade Restrictions

Exchange Rates and Financial Links Between Countries

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