Question 1

A constant-cost industry

Accepted Answer

A)  is one in which an increase in demand is matched by a proportional increases in long-run supply. 
B)  generates increasing profits whenever demand increases because the new long-run equilibrium price is above the old price even though average costs have not changed. 
C)  has a horizontal long-run supply curve. 
D)  has a downward sloping long-run supply curve. 
A)  is one in which an increase in demand is matched by a proportional increases in long-run supply. 
B)  generates increasing profits whenever demand increases because the new long-run equilibrium price is above the old price even though average costs have not changed. 
C)  has a horizontal long-run supply curve. 
D)  has a downward sloping long-run supply curve.

Question 2

The perfectly competitive firm maximizes profits when

Accepted Answer

A)  it produces and sells the quantity at which the difference between marginal revenue and marginal cost is the greatest. 
B)  it produces and sells the quantity at which marginal revenue and marginal cost are equal. 
C)  it produces and sells the quantity at which the difference between average revenue and average cost is the greatest. 
D)  it produces and sells the quantity at which the difference between price and average cost is the greatest. 
A)  it produces and sells the quantity at which the difference between marginal revenue and marginal cost is the greatest. 
B)  it produces and sells the quantity at which marginal revenue and marginal cost are equal. 
C)  it produces and sells the quantity at which the difference between average revenue and average cost is the greatest. 
D)  it produces and sells the quantity at which the difference between price and average cost is the greatest.

Question 3

The demand curve for a perfectly competitive industry is

Accepted Answer

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

Question 4

The profit-maximizing level of output for a firm occurs at the point at which

Accepted Answer

A)  P = ATC. 
B)  P = AVC. 
C)  MR = MC. 
D)  MR = ATC. 
A)  P = ATC. 
B)  P = AVC. 
C)  MR = MC. 
D)  MR = ATC.

Question 5

Each firm in a perfectly competitive industry is

Accepted Answer

A)  producing a unique product. 
B)  relatively large. 
C)  a price taker. 
D)  a price setter. 
A)  producing a unique product. 
B)  relatively large. 
C)  a price taker. 
D)  a price setter.

Question 6

In a perfectly competitive market, a firm's short-run supply curve is

Accepted Answer

A)  its total cost curve. 
B)  its marginal cost curve equal to or above the point of intersection with its average variable cost curve. 
C)  its average variable cost curve below the point of intersection with its total cost curve. 
D)  its total cost curve between the shutdown point and the break-even point. 
A)  its total cost curve. 
B)  its marginal cost curve equal to or above the point of intersection with its average variable cost curve. 
C)  its average variable cost curve below the point of intersection with its total cost curve. 
D)  its total cost curve between the shutdown point and the break-even point.

Question 7

A perfectly competitive industry's market or "going" price is established by

Accepted Answer

A)  the largest firm in the industry. 
B)  the largest purchaser of this industry's output. 
C)  each individual producing firm and reflects that firm's costs. 
D)  the forces of supply and demand. 
A)  the largest firm in the industry. 
B)  the largest purchaser of this industry's output. 
C)  each individual producing firm and reflects that firm's costs. 
D)  the forces of supply and demand.

Question 8

A decreasing-cost industry will have

Accepted Answer

A)  a perfectly elastic long-run supply curve. 
B)  a perfectly inelastic long-run supply curve. 
C)  an upward sloping demand curve in the long run. 
D)  a downward sloping supply curve in the long run. 
A)  a perfectly elastic long-run supply curve. 
B)  a perfectly inelastic long-run supply curve. 
C)  an upward sloping demand curve in the long run. 
D)  a downward sloping supply curve in the long run.

Question 9

The price per unit times the total quantity sold 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 10

Why should a firm not produce more than the rate of output at which marginal revenue equals marginal cost?

Accepted Answer

A firm maximizes its total profits when

Question 11

Suppose the price of an item in a perfectly competitive market is $3. For a firm in this market, MC = MR at an output of 100 units. The average total cost at this output level is $4 per unit, and TVC is $80. We may conclude that

Accepted Answer

A)  the firm should shut down because TC > TR. 
B)  the firm should continue to produce because P>AVC. 
C)  the firm should shut down because its TFC is $320 and its TC is $400. 
D)  the firm should shut down because other firms will enter the industry as the market is perfectly competitive. 
A)  the firm should shut down because TC > TR. 
B)  the firm should continue to produce because P>AVC. 
C)  the firm should shut down because its TFC is $320 and its TC is $400. 
D)  the firm should shut down because other firms will enter the industry as the market is perfectly competitive.

Question 12

The short-run shutdown price for a perfectly competitive firm is where price equals

Accepted Answer

A)  minimum ATC. 
B)  AR. 
C)  MR. 
D)  minimum AVC. 
A)  minimum ATC. 
B)  AR. 
C)  MR. 
D)  minimum AVC.

Question 13

-Refer to the above table. The table represents information on the costs for Ajax Corporation. Ajax operates in a perfectly competitive market and the price of the product is $7. What will be the value of total revenue when quantity sold equals 2?

Accepted Answer

A)  $7 
B)  $14 
C)  $21 
D)  $16 
A)  $7 
B)  $14 
C)  $21 
D)  $16

Question 14

What are the main characteristics of a perfectly competitive market?

Accepted Answer

In a perfectly competitive market, there

Question 15

If marginal revenue is less 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 16

For a firm in a perfectly competitive industry,

Accepted Answer

A)  short-run economic profits must be zero. 
B)  short-run and long-run economic profits must be zero. 
C)  short-run economic profits may be positive, but long-run economic profits must be zero. 
D)  both short-run and long-run economic profits may be negative. 
A)  short-run economic profits must be zero. 
B)  short-run and long-run economic profits must be zero. 
C)  short-run economic profits may be positive, but long-run economic profits must be zero. 
D)  both short-run and long-run economic profits may be negative.

Question 17

In the long run when a perfectly competitive firm experiences positive 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 18

A firm's total explicit costs are $1,000. Its total implicit costs are $500, and it has a total revenue of $1500. This firm receives

Accepted Answer

A)  an accounting profit only. 
B)  an economic profit only. 
C)  both an economic profit and an accounting profit. 
D)  neither an economic profit nor an accounting profit. 
A)  an accounting profit only. 
B)  an economic profit only. 
C)  both an economic profit and an accounting profit. 
D)  neither an economic profit nor an accounting profit.

Question 19

In the long run, the perfectly competitive firm

Accepted Answer

A)  does not have a shut down price. 
B)  earns only a normal profit. 
C)  may produce even if it suffers a loss. 
D)  earns an economic profit. 
A)  does not have a shut down price. 
B)  earns only a normal profit. 
C)  may produce even if it suffers a loss. 
D)  earns an economic profit.

Question 20

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

Accepted Answer

A)  it will sell more products. 
B)  it will sell fewer products. 
C)  its sales will remain unchanged. 
D)  it will sell nothing. 
A)  it will sell more products. 
B)  it will sell fewer products. 
C)  its sales will remain unchanged. 
D)  it will sell nothing.

Exam 23: Perfect Competition

A constant-cost industry

The perfectly competitive firm maximizes profits when

The demand curve for a perfectly competitive industry is

The profit-maximizing level of output for a firm occurs at the point at which

Each firm in a perfectly competitive industry is

In a perfectly competitive market, a firm's short-run supply curve is

A perfectly competitive industry's market or "going" price is established by

A decreasing-cost industry will have

The price per unit times the total quantity sold is

Why should a firm not produce more than the rate of output at which marginal revenue equals marginal cost?

Suppose the price of an item in a perfectly competitive market is $3. For a firm in this market, MC = MR at an output of 100 units. The average total cost at this output level is $4 per unit, and TVC is $80. We may conclude that

The short-run shutdown price for a perfectly competitive firm is where price equals

-Refer to the above table. The table represents information on the costs for Ajax Corporation. Ajax operates in a perfectly competitive market and the price of the product is $7. What will be the value of total revenue when quantity sold equals 2?

What are the main characteristics of a perfectly competitive market?

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

For a firm in a perfectly competitive industry,

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

A firm's total explicit costs are $1,000. Its total implicit costs are $500, and it has a total revenue of $1500. This firm receives

In the long run, the perfectly competitive firm

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

The Nature of Economics

Scarcity and the World of Trade-Offs

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Extensions of Demand and Supply Analysis

Public Spending and Public Choice

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