Question 1

-In the above figure, at the profit-maximizing rate of production for the perfectly competitive firm average total cost is

Accepted Answer

A)  $10. 
B)  $3. 
C)  $7. 
D)  $70. 
A)  $10. 
B)  $3. 
C)  $7. 
D)  $70. C

Question 2

Which of the following is closest to a perfectly competitive market?

Accepted Answer

A)  the computer software market 
B)  the market for handmade guitars 
C)  the market for broccoli 
D)  the market for athletic shoes 
A)  the computer software market 
B)  the market for handmade guitars 
C)  the market for broccoli 
D)  the market for athletic shoes C

Question 3

Which of the following is NOT a characteristic of a perfectly competitive long-run equilibrium?

Accepted Answer

A)  Firms are earning zero profits. 
B)  Price equals marginal cost. 
C)  Price equals long-run minimum average cost. 
D)  Firms are producing on the downward sloping portions of their short-run average cost curves. 
A)  Firms are earning zero profits. 
B)  Price equals marginal cost. 
C)  Price equals long-run minimum average cost. 
D)  Firms are producing on the downward sloping portions of their short-run average cost curves. D

Question 4

-In the above figure, if the market price is $8, the firm

Accepted Answer

A)  continues to produce but at an economic loss. 
B)  continues to produce but at an economic profit. 
C)  shuts down operations. 
D)  produces 10 units. 
A)  continues to produce but at an economic loss. 
B)  continues to produce but at an economic profit. 
C)  shuts down operations. 
D)  produces 10 units.

Question 5

In the long run when a perfectly competitive firm experiences negative economic profits,

Accepted Answer

A)  firms exit the industry, the market supply curve shifts rightward, and the market price falls. 
B)  firms enter the industry, the market supply curve shifts rightward, and the market price falls. 
C)  firms exit the industry, the market supply curve shifts leftward, and the market price rises. 
D)  firms enter the industry, the market supply curve shifts rightward, and the market price rises. 
A)  firms exit the industry, the market supply curve shifts rightward, and the market price falls. 
B)  firms enter the industry, the market supply curve shifts rightward, and the market price falls. 
C)  firms exit the industry, the market supply curve shifts leftward, and the market price rises. 
D)  firms enter the industry, the market supply curve shifts rightward, and the market price rises.

Question 6

-Refer to the above table. This firm operates in a perfectly competitive market in which the market price is $10/unit. What is true when the firm produces 103 units?

Accepted Answer

A)  Total revenue equals $5,060. 
B)  Total costs exceed total revenue by $403. 
C)  Marginal revenue is less than marginal cost. 
D)  Its total profit is $524. 
A)  Total revenue equals $5,060. 
B)  Total costs exceed total revenue by $403. 
C)  Marginal revenue is less than marginal cost. 
D)  Its total profit is $524.

Question 7

-Refer to the above figure. Profits for this firm are negative

Accepted Answer

A)  only for all points less than B. 
B)  only at points B and C. 
C)  for points between B and C. 
D)  for all points less than B and greater than C. 
A)  only for all points less than B. 
B)  only at points B and C. 
C)  for points between B and C. 
D)  for all points less than B and greater than C.

Question 8

Why is the demand curve horizontal for a perfectly competitive firm?

Accepted Answer

The demand curve for a perfect

Question 9

In a decreasing-cost industry, an increase in industry output will

Accepted Answer

A)  lead to a higher market price. 
B)  lead to a lower market price. 
C)  shift each firm's average fixed cost curve up. 
D)  shift each firm's short run supply curve up. 
A)  lead to a higher market price. 
B)  lead to a lower market price. 
C)  shift each firm's average fixed cost curve up. 
D)  shift each firm's short run supply curve up.

Question 10

-In the above figure, the market price charged by this profit-maximizing, perfectly competitive firm is

Accepted Answer

A)  $5 per unit of output. 
B)  $10 per unit of output. 
C)  $8 per unit of output. 
D)  $14 per unit of output. 
A)  $5 per unit of output. 
B)  $10 per unit of output. 
C)  $8 per unit of output. 
D)  $14 per unit of output.

Question 11

A firm is currently producing at the point where MC = MR. The situation for the firm at this point is P = $5, Q = 100, ATC = $6, AVC = $5.50. What do you recommend this firm do?

Accepted Answer

A)  Increase production above the current output rate, because MC = MR at this rate of output. 
B)  Continue to produce the current output rate, because P > AVC. 
C)  Shut down, because AVC > P. 
D)  Shut down, because ATC > P. 
A)  Increase production above the current output rate, because MC = MR at this rate of output. 
B)  Continue to produce the current output rate, because P > AVC. 
C)  Shut down, because AVC > P. 
D)  Shut down, because ATC > P.

Question 12

When a firm is earning zero economic profits,

Accepted Answer

A)  accounting profit is zero. 
B)  total revenue is greater than total cost. 
C)  P = ATC. 
D)  P is greater than ATC. 
A)  accounting profit is zero. 
B)  total revenue is greater than total cost. 
C)  P = ATC. 
D)  P is greater than ATC.

Question 13

Below the short-run shutdown price, the firm

Accepted Answer

A)  is earning positive economic profits. 
B)  is earning negative economic profits. 
C)  is making a normal rate of return on its capital investment. 
D)  may be earning a positive or negative economic profits depending upon costs. 
A)  is earning positive economic profits. 
B)  is earning negative economic profits. 
C)  is making a normal rate of return on its capital investment. 
D)  may be earning a positive or negative economic profits depending upon costs.

Question 14

Which of the following equals the ratio of the change in total revenues over the change in output?

Accepted Answer

A)  Total cost 
B)  Average revenue 
C)  Demand 
D)  Marginal revenue 
A)  Total cost 
B)  Average revenue 
C)  Demand 
D)  Marginal revenue

Question 15

Referring to the diagram, which of the following statements is INCORRECT?

Accepted Answer

A)  The equilibrium market price is $5, at which the industry demand and supply curves intersect. 
B)  If the individual firm raises its price, it will capture all sales in the market. 
C)  The individual firm takes as given the market price along the perfectly elastic demand curve "d." 
D)  The individual firm faces the going market price as determined by the industry. 
A)  The equilibrium market price is $5, at which the industry demand and supply curves intersect. 
B)  If the individual firm raises its price, it will capture all sales in the market. 
C)  The individual firm takes as given the market price along the perfectly elastic demand curve "d." 
D)  The individual firm faces the going market price as determined by the industry.

Question 16

-Refer to the above table. If the price is $6, the perfectly competitive firm should produce

Accepted Answer

A)  104 units. 
B)  105 units. 
C)  106 units. 
D)  107 units. 
A)  104 units. 
B)  105 units. 
C)  106 units. 
D)  107 units.

Question 17

Profits and losses are true signals because they

Accepted Answer

A)  convey information about true long-run profits. 
B)  cannot be misinterpreted by entrepreneurs. 
C)  convey information about where to place resources and reward people who act on the information. 
D)  reward people who make profits with even more profits and punish those who make losses with even more losses. 
A)  convey information about true long-run profits. 
B)  cannot be misinterpreted by entrepreneurs. 
C)  convey information about where to place resources and reward people who act on the information. 
D)  reward people who make profits with even more profits and punish those who make losses with even more losses.

Question 18

What determines the perfect competitor's supply curve? How is the industry supply curve found?

Accepted Answer

Question 19

For a perfectly competitive firm, the short-run break-even point occurs at the level of output where

Accepted Answer

A) P > MR = MC. B) MR = P > MC. C) MR < P = MC. D) P = MC = ATC. A) P > MR = MC. B) MR = P > MC. C) MR < P = MC. D) P = MC = ATC.

Question 20

If firms in a perfectly competitive industry are earning positive economic profits, then what will happen in the long run?

Accepted Answer

Economic profits provide incentives for

Exam 23: Perfect Competition

-In the above figure, at the profit-maximizing rate of production for the perfectly competitive firm average total cost is

Which of the following is closest to a perfectly competitive market?

Which of the following is NOT a characteristic of a perfectly competitive long-run equilibrium?

-In the above figure, if the market price is $8, the firm

In the long run when a perfectly competitive firm experiences negative economic profits,

-Refer to the above table. This firm operates in a perfectly competitive market in which the market price is $10/unit. What is true when the firm produces 103 units?

-Refer to the above figure. Profits for this firm are negative

Why is the demand curve horizontal for a perfectly competitive firm?

In a decreasing-cost industry, an increase in industry output will

-In the above figure, the market price charged by this profit-maximizing, perfectly competitive firm is

A firm is currently producing at the point where MC = MR. The situation for the firm at this point is P = $5, Q = 100, ATC = $6, AVC = $5.50. What do you recommend this firm do?

When a firm is earning zero economic profits,

Below the short-run shutdown price, the firm

Which of the following equals the ratio of the change in total revenues over the change in output?

Referring to the diagram, which of the following statements is INCORRECT?

-Refer to the above table. If the price is $6, the perfectly competitive firm should produce

Profits and losses are true signals because they

What determines the perfect competitor's supply curve? How is the industry supply curve found?

For a perfectly competitive firm, the short-run break-even point occurs at the level of output where

If firms in a perfectly competitive industry are earning positive economic profits, then what will happen in the long run?

The Nature of Economics

Scarcity and the World of Trade-Offs

Demand and Supply

Extensions of Demand and Supply Analysis

Public Spending and Public Choice

Funding the Public Sector

The Macroeconomy: Unemployment, Inflation, and Deflation

Measuring the Economys Performance

Global Economic Growth and Development

Real GDP and the Price Level in the Long Run

Classical and Keynesian Macro Analyses

Consumption, Real GDP, and the Multiplier

Fiscal Policy

Deficit Spending and the Public Debt

Money, Banking, and Central Banking

Domestic and International Dimensions of Monetary Policy

Stabilization in an Integrated World Economy

Policies and Prospects for Global Economic Growth

Demand and Supply Elasticity

Consumer Choice

Rents, Profits, and the Financial Environment of Business

The Firm: Cost and Output Determination

Monopoly

Monopolistic Competition

Oligopoly and Strategic Behavior

Regulation and Antitrust Policy in a Globalized Economy

The Labor Market: Demand, Supply and Outsourcing

Unions and Labor Market Monopoly Power

Income, Poverty, and Health Care

Environmental Economics

Comparative Advantage and the Open Economy

Exchange Rates and the Balance of Payments

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