Question 1

In a perfectly competitive market structure any firm can enter or leave the industry without serious impediments. This implies

Accepted Answer

A)  the products sold will be alike. 
B)  firms will move labor and capital in pursuit of profit-making opportunities to whatever business venture gives them the highest return on their investment. 
C)  no one buyer or seller has any influence on price. 
D)  consumers are able to find out about lower prices charged by other firms. 
A)  the products sold will be alike. 
B)  firms will move labor and capital in pursuit of profit-making opportunities to whatever business venture gives them the highest return on their investment. 
C)  no one buyer or seller has any influence on price. 
D)  consumers are able to find out about lower prices charged by other firms.

Question 2

-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 does profit equal when quantity equals 2?

Accepted Answer

A)  $14 
B)  -$2 
C)  $16 
D)  $2 
A)  $14 
B)  -$2 
C)  $16 
D)  $2

Question 3

Which of the following is NOT a characteristic of a perfectly competitive industry?

Accepted Answer

A)  There is free entry and exit in the long run. 
B)  The industry demand curve is downward sloping. 
C)  Each firm produces the same homogeneous product. 
D)  Economic profits must be positive in the short run. 
A)  There is free entry and exit in the long run. 
B)  The industry demand curve is downward sloping. 
C)  Each firm produces the same homogeneous product. 
D)  Economic profits must be positive in the short run.

Question 4

-In the above figure, if the market price is less than $7, the firm

Accepted Answer

A)  produces 10 units. 
B)  produces 8 units. 
C)  produces 0 units. 
D)  produces 11 units. 
A)  produces 10 units. 
B)  produces 8 units. 
C)  produces 0 units. 
D)  produces 11 units.

Question 5

All of the following are true regarding perfectly competitive price determination EXCEPT

Accepted Answer

A)  the market price is determined by the interactions among all buyers (households) and firms. 
B)  the individual firm takes the market price as given. 
C)  the individual firm is known as a market price maker. 
D)  the individual firm's marginal revenue curve is horizontal at the market price. 
A)  the market price is determined by the interactions among all buyers (households) and firms. 
B)  the individual firm takes the market price as given. 
C)  the individual firm is known as a market price maker. 
D)  the individual firm's marginal revenue curve is horizontal at the market price.

Question 6

If a firm shuts down in the short run,

Accepted Answer

A)  it will lose its operating costs. 
B)  its losses will be equal to zero. 
C)  it will incur its fixed costs. 
D)  it will incur only its explicit costs. 
A)  it will lose its operating costs. 
B)  its losses will be equal to zero. 
C)  it will incur its fixed costs. 
D)  it will incur only its explicit costs.

Question 7

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

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

The perfectly competitive firm's demand curve has

Accepted Answer

A)  a negative slope. 
B)  a positive slope. 
C)  an undefined slope. 
D)  a slope of 0. 
A)  a negative slope. 
B)  a positive slope. 
C)  an undefined slope. 
D)  a slope of 0.

Question 9

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

Accepted Answer

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

Question 10

The marginal revenue curve of a perfectly competitive firm

Accepted Answer

A)  has a vertical intercept equal to exactly one-half of the vertical intercept for the demand curve. 
B)  lies below the demand curve and above the average revenue curve. 
C)  intersects the average revenue curve from above at the maximum point of the average revenue curve. 
D)  is also the demand curve faced by the firm. 
A)  has a vertical intercept equal to exactly one-half of the vertical intercept for the demand curve. 
B)  lies below the demand curve and above the average revenue curve. 
C)  intersects the average revenue curve from above at the maximum point of the average revenue curve. 
D)  is also the demand curve faced by the firm.

Question 11

-In the above figure, assuming Firm 1 and Firm 2 are the sole producers in the industry, the industry quantity supplied at price P1 is equal to

Accepted Answer

A)  Q1 + Q2. 
B)  Q1 + Q3. 
C)  Q2 + Q4. 
D)  Q4 - Q2. 
A)  Q1 + Q2. 
B)  Q1 + Q3. 
C)  Q2 + Q4. 
D)  Q4 - Q2.

Question 12

In the short run, in a perfectly competitive market, a firm will shut down if

Accepted Answer

A)  P  P > AVC for all levels of output. 
D)  P > AFC for all levels of output. 
A)  P  P > AVC for all levels of output. 
D)  P > AFC for all levels of output.

Question 13

Factors that cause the short-run supply curve to change are factors that affect

Accepted Answer

A)  demand. 
B)  fixed costs. 
C)  variable costs. 
D)  the market but not the individual firm. 
A)  demand. 
B)  fixed costs. 
C)  variable costs. 
D)  the market but not the individual firm.

Question 14

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

Accepted Answer

A)  the pizza market 
B)  the market for breakfast cereal 
C)  the market for corn 
D)  the market for automobiles 
A)  the pizza market 
B)  the market for breakfast cereal 
C)  the market for corn 
D)  the market for automobiles

Question 15

A firm should never produce any output if

Accepted Answer

A)  P < AVC. 
B)  P < ATC. 
C)  AR < ATC. 
D)  MR < MC. 
A)  P < AVC. 
B)  P < ATC. 
C)  AR < ATC. 
D)  MR < MC.

Question 16

The short-run supply curve for the perfectly competitive firm is the portion of its

Accepted Answer

A)  MC curve above the AVC curve. 
B)  MC curve above the AFC curve. 
C)  MC curve above the ATC curve. 
D)  MC curve above the MR curve. 
A)  MC curve above the AVC curve. 
B)  MC curve above the AFC curve. 
C)  MC curve above the ATC curve. 
D)  MC curve above the MR curve.

Question 17

-In the above figure, what is the profit-maximizing output and price?

Accepted Answer

A)  8, $7 
B)  10, $8 
C)  12, $10 
D)  10, $10 
A)  8, $7 
B)  10, $8 
C)  12, $10 
D)  10, $10

Question 18

If a firm is a perfect competitor, then

Accepted Answer

A)  the demand curve for its product is perfectly elastic. 
B)  it can independently set the price of the product it sells without regard to what other firms in the market are doing. 
C)  it is impossible for the firm to earn short-run economic profits. 
D)  its marginal cost will exceed marginal revenue at the optimal level of output. 
A)  the demand curve for its product is perfectly elastic. 
B)  it can independently set the price of the product it sells without regard to what other firms in the market are doing. 
C)  it is impossible for the firm to earn short-run economic profits. 
D)  its marginal cost will exceed marginal revenue at the optimal level of output.

Question 19

The firm will shut down in the short run if

Accepted Answer

A)  the price falls below its minimum AVC. 
B)  the market price rises unexpectedly. 
C)  P = MC. 
D)  P = ATC at its minimum. 
A)  the price falls below its minimum AVC. 
B)  the market price rises unexpectedly. 
C)  P = MC. 
D)  P = ATC at its minimum.

Question 20

When a perfectly competitive firm experiences positive 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.

Exam 23: Perfect Competition

In a perfectly competitive market structure any firm can enter or leave the industry without serious impediments. This implies

-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 does profit equal when quantity equals 2?

Which of the following is NOT a characteristic of a perfectly competitive industry?

-In the above figure, if the market price is less than $7, the firm

All of the following are true regarding perfectly competitive price determination EXCEPT

If a firm shuts down in the short run,

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

The perfectly competitive firm's demand curve has

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

The marginal revenue curve of a perfectly competitive firm

-In the above figure, assuming Firm 1 and Firm 2 are the sole producers in the industry, the industry quantity supplied at price P1 is equal to

In the short run, in a perfectly competitive market, a firm will shut down if

Factors that cause the short-run supply curve to change are factors that affect

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

A firm should never produce any output if

The short-run supply curve for the perfectly competitive firm is the portion of its

-In the above figure, what is the profit-maximizing output and price?

If a firm is a perfect competitor, then

The firm will shut down in the short run if

When a perfectly competitive firm experiences positive economic profits,

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, assuming Firm 1 and Firm 2 are the sole producers in the industry, the industry quantity supplied at price P₁ is equal to