Question 1

Suppose the market price is $5, marginal cost is $4, and average total cost is $2. The perfectly competitive firm in that market is

Accepted Answer

A)  earning $3 in economic profits per unit of output and is not maximizing profits. 
B)  earning $2 in economic profits per unit of output and is maximizing profits. 
C)  earning $1 in economic profits per unit of output and is not maximizing profits. 
D)  none of the above: Insufficient information is given. 
A)  earning $3 in economic profits per unit of output and is not maximizing profits. 
B)  earning $2 in economic profits per unit of output and is maximizing profits. 
C)  earning $1 in economic profits per unit of output and is not maximizing profits. 
D)  none of the above: Insufficient information is given.

Question 2

When should a firm shut down? When should a firm go out of business?

Accepted Answer

A firm should shut down when the price p

Question 3

The goal of the perfectly competitive firm is to

Accepted Answer

A)  maximize total revenue. 
B)  maximize total profits. 
C)  minimize AFC. 
D)  minimize ATC. 
A)  maximize total revenue. 
B)  maximize total profits. 
C)  minimize AFC. 
D)  minimize ATC.

Question 4

The short-run break-even price is

Accepted Answer

A)  the price at which a firm's total revenues exceed total costs. 
B)  the point at which the firm's total costs are maximized. 
C)  the price at which a firm's total revenues equal its total costs. 
D)  the point at which the firm's implicit costs are maximized. 
A)  the price at which a firm's total revenues exceed total costs. 
B)  the point at which the firm's total costs are maximized. 
C)  the price at which a firm's total revenues equal its total costs. 
D)  the point at which the firm's implicit costs are maximized.

Question 5

A market structure in which the decisions of individual buyers and sellers have no effect on market price is

Accepted Answer

A)  perfect competition. 
B)  a short-run industry. 
C)  a long-run industry. 
D)  a market supply industry. 
A)  perfect competition. 
B)  a short-run industry. 
C)  a long-run industry. 
D)  a market supply industry.

Question 6

The total amount received from the sale of output is

Accepted Answer

A)  average revenue. 
B)  marginal revenue. 
C)  total revenue. 
D)  price revenue. 
A)  average revenue. 
B)  marginal revenue. 
C)  total revenue. 
D)  price revenue.

Question 7

The short-run shutdown price occurs where price equals

Accepted Answer

A)  MC. 
B)  AVC at any point. 
C)  AVC at the minimum point. 
D)  AFC at the minimum point. 
A)  MC. 
B)  AVC at any point. 
C)  AVC at the minimum point. 
D)  AFC at the minimum point.

Question 8

If there is no output for which product price is sufficient to cover variable costs,

Accepted Answer

A)  the firm should stay open in the short-run. 
B)  the firm should shut down in the short run. 
C)  the firm earns economic profits by staying open. 
D)  the firm should increase production. 
A)  the firm should stay open in the short-run. 
B)  the firm should shut down in the short run. 
C)  the firm earns economic profits by staying open. 
D)  the firm should increase production.

Question 9

As long as price exceeds AVC, the firm is better off

Accepted Answer

A)  continuing production. 
B)  closing. 
C)  raising its price. 
D)  cutting price. 
A)  continuing production. 
B)  closing. 
C)  raising its price. 
D)  cutting price.

Question 10

For a perfectly competitive firm, profit maximization occurs when

Accepted Answer

A)  marginal revenue equals average total cost. 
B)  marginal revenue equals marginal cost. 
C)  marginal cost is equal to average total cost. 
D)  average total cost is at its minimum. 
A)  marginal revenue equals average total cost. 
B)  marginal revenue equals marginal cost. 
C)  marginal cost is equal to average total cost. 
D)  average total cost is at its minimum.

Question 11

For a firm in a perfectly competitive market, average revenue equals

Accepted Answer

A)  average cost. 
B)  the change in total revenue. 
C)  the market price. 
D)  price divided by quantity. 
A)  average cost. 
B)  the change in total revenue. 
C)  the market price. 
D)  price divided by quantity.

Question 12

A situation in which the price charged is equal to society's opportunity cost is known as

Accepted Answer

A)  market failure. 
B)  marginal monopoly pricing. 
C)  marginal profits. 
D)  marginal cost pricing. 
A)  market failure. 
B)  marginal monopoly pricing. 
C)  marginal profits. 
D)  marginal cost pricing.

Question 13

A constant-cost industry is one in which

Accepted Answer

A)  output increases lead to productivity gains. 
B)  the marginal product of labor is constant. 
C)  there is no change in long-run per-unit costs, even as output varies. 
D)  each firm has a horizontal long-run average cost curve. 
A)  output increases lead to productivity gains. 
B)  the marginal product of labor is constant. 
C)  there is no change in long-run per-unit costs, even as output varies. 
D)  each firm has a horizontal long-run average cost curve.

Question 14

If marginal revenue is greater than marginal cost, the firm should

Accepted Answer

A)  raise price. 
B)  raise marginal revenue. 
C)  increase its rate of output. 
D)  decrease its rate of output. 
A)  raise price. 
B)  raise marginal revenue. 
C)  increase its rate of output. 
D)  decrease its rate of output.

Question 15

Which of the following would tell us that resources are not flowing to their highest valued uses?

Accepted Answer

A)  Short-run economic profits 
B)  Short-run economic losses 
C)  Long-run economic profits 
D)  Some firms are just breaking even. 
A)  Short-run economic profits 
B)  Short-run economic losses 
C)  Long-run economic profits 
D)  Some firms are just breaking even.

Question 16

-Refer to the above figure. Profits for this firm will be maximized at

Accepted Answer

A)  point B. 
B)  point C. 
C)  a quantity greater than point C. 
D)  a quantity between points B and C. 
A)  point B. 
B)  point C. 
C)  a quantity greater than point C. 
D)  a quantity between points B and C.

Question 17

How is the market clearing price established in a perfectly competitive industry?

Accepted Answer

The market clearing price is established

Question 18

-Refer to the above figure. Which panel represents the long-run supply curve for a decreasing cost industry?

Accepted Answer

A)  Panel A. 
B)  Panel B. 
C)  Panel C. 
D)  Panel D. 
A)  Panel A. 
B)  Panel B. 
C)  Panel C. 
D)  Panel D.

Question 19

-Refer to the above figure. The firm will just be covering all of its variable cost but none of its fixed cost

Accepted Answer

A)  when the price equals $1. 
B)  when the price equals $2. 
C)  when the price equals $4. 
D)  at prices between $1 and $2. 
A)  when the price equals $1. 
B)  when the price equals $2. 
C)  when the price equals $4. 
D)  at prices between $1 and $2.

Question 20

If a perfect competitor faces P = ATC in the long run, the firm will

Accepted Answer

A)  earn economic profits. 
B)  earn economic losses. 
C)  leave the industry. 
D)  remain in the industry. 
A)  earn economic profits. 
B)  earn economic losses. 
C)  leave the industry. 
D)  remain in the industry.

Exam 23: Perfect Competition

Suppose the market price is $5, marginal cost is $4, and average total cost is $2. The perfectly competitive firm in that market is

When should a firm shut down? When should a firm go out of business?

The goal of the perfectly competitive firm is to

The short-run break-even price is

A market structure in which the decisions of individual buyers and sellers have no effect on market price is

The total amount received from the sale of output is

The short-run shutdown price occurs where price equals

If there is no output for which product price is sufficient to cover variable costs,

As long as price exceeds AVC, the firm is better off

For a perfectly competitive firm, profit maximization occurs when

For a firm in a perfectly competitive market, average revenue equals

A situation in which the price charged is equal to society's opportunity cost is known as

A constant-cost industry is one in which

If marginal revenue is greater than marginal cost, the firm should

Which of the following would tell us that resources are not flowing to their highest valued uses?

-Refer to the above figure. Profits for this firm will be maximized at

How is the market clearing price established in a perfectly competitive industry?

-Refer to the above figure. Which panel represents the long-run supply curve for a decreasing cost industry?

-Refer to the above figure. The firm will just be covering all of its variable cost but none of its fixed cost

If a perfect competitor faces P = ATC in the long run, the firm will

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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