Question 1

The perfectly competitive firm faces

Accepted Answer

A)  a downward sloping demand curve. 
B)  a horizontal supply function. 
C)  perfectly elastic demand. 
D)  constant marginal costs. 
A)  a downward sloping demand curve. 
B)  a horizontal supply function. 
C)  perfectly elastic demand. 
D)  constant marginal costs.

Question 2

A perfectly competitive industry's short-run supply curve is best described as

Accepted Answer

A)  the upward sloping portion of the industry's marginal cost curve. 
B)  horizontal. 
C)  perfectly inelastic. 
D)  the horizontal summation of the individual firms' supply curves. 
A)  the upward sloping portion of the industry's marginal cost curve. 
B)  horizontal. 
C)  perfectly inelastic. 
D)  the horizontal summation of the individual firms' supply curves.

Question 3

A firm in a perfectly competitive industry is a

Accepted Answer

A)  price taker. 
B)  quantity taker. 
C)  quality maker. 
D)  price maker. 
A)  price taker. 
B)  quantity taker. 
C)  quality maker. 
D)  price maker.

Question 4

-In the above figure, what happens to the firm's optimal level of output if the price it receives for its product increases from P2 to P3?

Accepted Answer

A)  Output stays the same. 
B)  Output decreases. 
C)  Output increases. 
D)  There is not enough information provided to know what happens to output. 
A)  Output stays the same. 
B)  Output decreases. 
C)  Output increases. 
D)  There is not enough information provided to know what happens to output.

Question 5

A firm will continue to produce in the short run even though economic profits are negative as long as

Accepted Answer

A)  the amount of the loss is no greater than the amount of fixed cost. 
B)  MC = MR. 
C)  it earned positive economic profits last year. 
D)  it has fixed obligations to pay. 
A)  the amount of the loss is no greater than the amount of fixed cost. 
B)  MC = MR. 
C)  it earned positive economic profits last year. 
D)  it has fixed obligations to pay.

Question 6

In a perfectly competitive market, positive economic profits act to

Accepted Answer

A)  attract new entrants into the industry. 
B)  drive potential competitors away from the industry. 
C)  prevent reinvestment on the part of firms within the industry. 
D)  signal resource owners elsewhere not to invest their capital in this industry. 
A)  attract new entrants into the industry. 
B)  drive potential competitors away from the industry. 
C)  prevent reinvestment on the part of firms within the industry. 
D)  signal resource owners elsewhere not to invest their capital in this industry.

Question 7

The market demand curve in perfect competition is found by

Accepted Answer

A)  horizontally summing the supply curves of the individual firms in the industry. 
B)  horizontally summing the demand curves of the individual consumers. 
C)  utility maximizing behavior of the "representative consumer." 
D)  the interaction of supply and demand at the individual firm and consumer levels. 
A)  horizontally summing the supply curves of the individual firms in the industry. 
B)  horizontally summing the demand curves of the individual consumers. 
C)  utility maximizing behavior of the "representative consumer." 
D)  the interaction of supply and demand at the individual firm and consumer levels.

Question 8

The demand curve for a perfectly competitive firm is horizontal because

Accepted Answer

A)  consumers are willing to pay any price to obtain its product. 
B)  its production decisions cannot influence the market price. 
C)  the firm profits from setting its price higher than the market price. 
D)  its product is easy for consumers to differentiate from those of other firms. 
A)  consumers are willing to pay any price to obtain its product. 
B)  its production decisions cannot influence the market price. 
C)  the firm profits from setting its price higher than the market price. 
D)  its product is easy for consumers to differentiate from those of other firms.

Question 9

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

Accepted Answer

A)  the high barriers to entry prevent further competition. 
B)  existing firms exit the industry. 
C)  additional firms enter the industry. 
D)  firms have no incentive to exit or enter the industry. 
A)  the high barriers to entry prevent further competition. 
B)  existing firms exit the industry. 
C)  additional firms enter the industry. 
D)  firms have no incentive to exit or enter the industry.

Question 10

Marginal revenue

Accepted Answer

A)  cannot be used to determine the profit-maximizing rate of production. 
B)  is the change in total revenues resulting from a change in output. 
C)  is a change in revenue that is immeasurable and non-quantifiable. 
D)  cannot be effectively utilized when analyzing the perfect competitor. 
A)  cannot be used to determine the profit-maximizing rate of production. 
B)  is the change in total revenues resulting from a change in output. 
C)  is a change in revenue that is immeasurable and non-quantifiable. 
D)  cannot be effectively utilized when analyzing the perfect competitor.

Question 11

For the perfectly competitive firm, price

Accepted Answer

A)  equals average revenue and marginal revenue. 
B)  equals average total cost. 
C)  changes as output changes. 
D)  depends on the fixed cost for the firm. 
A)  equals average revenue and marginal revenue. 
B)  equals average total cost. 
C)  changes as output changes. 
D)  depends on the fixed cost for the firm.

Question 12

-In the above figure, the firm will shut down if price falls below

Accepted Answer

A)  F. 
B)  I. 
C)  H. 
D)  E. 
A)  F. 
B)  I. 
C)  H. 
D)  E.

Question 13

A perfectly competitive producer faces a demand curve for its own product that is

Accepted Answer

A)  downward sloping. 
B)  upward sloping. 
C)  horizontal. 
D)  vertical. 
A)  downward sloping. 
B)  upward sloping. 
C)  horizontal. 
D)  vertical.

Question 14

Under perfect competition, a firm that sets its price slightly above the market price would

Accepted Answer

A)  make lower profits than the other firms, but the amount would depend on the elasticity of demand. 
B)  make a normal rate of return, but on reduced revenues. 
C)  lose all of its customers. 
D)  earn higher profits as long as the other firms continued to charge the market price. 
A)  make lower profits than the other firms, but the amount would depend on the elasticity of demand. 
B)  make a normal rate of return, but on reduced revenues. 
C)  lose all of its customers. 
D)  earn higher profits as long as the other firms continued to charge the market price.

Question 15

Under the perfectly competitive market structure, the demand curve of an individual firm is

Accepted Answer

A)  perfectly inelastic. 
B)  downward sloping. 
C)  relatively inelastic. 
D)  perfectly elastic. 
A)  perfectly inelastic. 
B)  downward sloping. 
C)  relatively inelastic. 
D)  perfectly elastic.

Question 16

An industry whose total output can be increased without a change in long-run per-unit costs is a(n)

Accepted Answer

A)  increasing-cost industry. 
B)  constant-cost industry. 
C)  break-even cost industry. 
D)  decreasing-cost industry. 
A)  increasing-cost industry. 
B)  constant-cost industry. 
C)  break-even cost industry. 
D)  decreasing-cost industry.

Question 17

Perfect competition is a market structure

Accepted Answer

A)  in which any firm would have serious impediments to entry or exit. 
B)  in which individual buyers and sellers have no effect on the market price. 
C)  resulting from individual firms selling highly differentiated products. 
D)  where there is significant regulation and markets are always efficient. 
A)  in which any firm would have serious impediments to entry or exit. 
B)  in which individual buyers and sellers have no effect on the market price. 
C)  resulting from individual firms selling highly differentiated products. 
D)  where there is significant regulation and markets are always efficient.

Question 18

A perfectly competitive firm is producing zero units of output in the short run. We know that price is

Accepted Answer

A)  below the minimum point of its average fixed cost curve. 
B)  below the minimum point of its average variable cost curve. 
C)  below the minimum point of its average total cost curve. 
D)  between the minimum points of its average total cost curve. 
A)  below the minimum point of its average fixed cost curve. 
B)  below the minimum point of its average variable cost curve. 
C)  below the minimum point of its average total cost curve. 
D)  between the minimum points of its average total cost curve.

Question 19

For a firm in a perfectly competitive industry, the demand curve for its own product is

Accepted Answer

A)  horizontal. 
B)  vertical. 
C)  upward sloping. 
D)  downward sloping. 
A)  horizontal. 
B)  vertical. 
C)  upward sloping. 
D)  downward sloping.

Question 20

A firm that has negative economic profits has accounting profits that are

Accepted Answer

A)  zero. 
B)  positive. 
C)  negative. 
D)  indeterminate without more information. 
A)  zero. 
B)  positive. 
C)  negative. 
D)  indeterminate without more information.

Exam 23: Perfect Competition

The perfectly competitive firm faces

A perfectly competitive industry's short-run supply curve is best described as

A firm in a perfectly competitive industry is a

-In the above figure, what happens to the firm's optimal level of output if the price it receives for its product increases from P2 to P3?

A firm will continue to produce in the short run even though economic profits are negative as long as

In a perfectly competitive market, positive economic profits act to

The market demand curve in perfect competition is found by

The demand curve for a perfectly competitive firm is horizontal because

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

Marginal revenue

For the perfectly competitive firm, price

-In the above figure, the firm will shut down if price falls below

A perfectly competitive producer faces a demand curve for its own product that is

Under perfect competition, a firm that sets its price slightly above the market price would

Under the perfectly competitive market structure, the demand curve of an individual firm is

An industry whose total output can be increased without a change in long-run per-unit costs is a(n)

Perfect competition is a market structure

A perfectly competitive firm is producing zero units of output in the short run. We know that price is

For a firm in a perfectly competitive industry, the demand curve for its own product is

A firm that has negative economic profits has accounting profits that are

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

Filters

-In the above figure, what happens to the firm's optimal level of output if the price it receives for its product increases from P₂ to P₃?