Question 1

-If the firm in the above figure produces output level D, it incurs an average fixed cost of production equal to the distance

Accepted Answer

A)  DK. 
B)  RN. 
C)  JL. 
D)  KR. 
A)  DK. 
B)  RN. 
C)  JL. 
D)  KR.

Question 2

Economic profits and losses are true market signals because they

Accepted Answer

A)  convey information in an asymmetrical fashion. 
B)  convey information about rewards people should anticipate experiencing by shifting resources from one activity to another. 
C)  convey information to public officials about where to encourage people to invest and what skills people should develop. 
D)  cause people to move into careers in both undesirable and desirable industries with equal ease. 
A)  convey information in an asymmetrical fashion. 
B)  convey information about rewards people should anticipate experiencing by shifting resources from one activity to another. 
C)  convey information to public officials about where to encourage people to invest and what skills people should develop. 
D)  cause people to move into careers in both undesirable and desirable industries with equal ease.

Question 3

In the short run, the price at which a firm's total revenues equal its total costs is

Accepted Answer

A)  a point of positive profits. 
B)  a no return price. 
C)  the short-run shutdown point. 
D)  the short-run break-even point. 
A)  a point of positive profits. 
B)  a no return price. 
C)  the short-run shutdown point. 
D)  the short-run break-even point.

Question 4

An increase in the productivity of labor causes

Accepted Answer

A)  quantity supplied by each firm in a competitive industry to decrease. 
B)  supply in a competitive industry to increase. 
C)  the market price to increase in a competitive industry. 
D)  the firm's supply curve to shift but has no effect on the industry supply curve. 
A)  quantity supplied by each firm in a competitive industry to decrease. 
B)  supply in a competitive industry to increase. 
C)  the market price to increase in a competitive industry. 
D)  the firm's supply curve to shift but has no effect on the industry supply curve.

Question 5

If a perfectly competitive industry is in long-run equilibrium, then

Accepted Answer

A)  price equals average cost. 
B)  price is greater than average cost and equal to marginal cost. 
C)  all firms earn the same accounting profits. 
D)  marginal cost is less than average cost. 
A)  price equals average cost. 
B)  price is greater than average cost and equal to marginal cost. 
C)  all firms earn the same accounting profits. 
D)  marginal cost is less than average cost.

Question 6

Suppose a perfectly competitive firm can produce 20,000 bushels of corn a year at an output at which marginal cost equals marginal revenue. The market price of corn per bushel is $1.00. The firm's total costs per year are $50,000 and fixed costs per year are $25,000. In the short run, this firm should

Accepted Answer

A)  shut down. 
B)  continue producing until the price of corn increases. 
C)  produce 20,000 bushels of corn because, although they are losing money, they are losing less than if they shut down. 
D)  produce 40,000 bushels to try to increase economic profit. 
A)  shut down. 
B)  continue producing until the price of corn increases. 
C)  produce 20,000 bushels of corn because, although they are losing money, they are losing less than if they shut down. 
D)  produce 40,000 bushels to try to increase economic profit.

Question 7

What is a price taker? Discuss the assumptions used to obtain the perfectly competitive model.

Accepted Answer

Question 8

-Refer to the above figure. Which panel represents the long-run supply curve for a constant 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 9

A perfectly competitive firm faces a market clearing price of $150 per unit. Average variable costs are at the minimum value of $200 per unit at an output rate of 100 units. Marginal cost equals $150 per unit at an output rate of 75 units. It can be concluded that the short-run profit-maximizing output rate is

Accepted Answer

A)  75 units, at which the firm earns zero economic profits per unit sold. 
B)  75 units, at which the firm earns $50 in economic profits per unit sold. 
C)  100 units, because marginal cost equals average variable costs. 
D)  0 units, because price is less than average variable costs. 
A)  75 units, at which the firm earns zero economic profits per unit sold. 
B)  75 units, at which the firm earns $50 in economic profits per unit sold. 
C)  100 units, because marginal cost equals average variable costs. 
D)  0 units, because price is less than average variable costs.

Question 10

If an industry's long-run per-unit costs are constant as its output increases then

Accepted Answer

A)  the firm's long-run economic profits must be greater than zero. 
B)  the firm is most likely a decreasing-cost industry. 
C)  the firm is most likely an increasing-cost industry. 
D)  the firm is most likely a constant-cost industry. 
A)  the firm's long-run economic profits must be greater than zero. 
B)  the firm is most likely a decreasing-cost industry. 
C)  the firm is most likely an increasing-cost industry. 
D)  the firm is most likely a constant-cost industry.

Question 11

"An industry's short-run supply curve is constructed by adding horizontally all the average variable cost curves of firms in that industry." Do you agree or disagree? Why?

Accepted Answer

Disagree. An industry's short-run supply

Question 12

When a firm is at its short-run break-even point,

Accepted Answer

A)  economic profits are positive. 
B)  economic profits equal zero and the firm should shut down. 
C)  economic profits equal zero and the firm is earning a nominal rate of return on investment. 
D)  economic profits are negative but the firm should continue to produce because accounting profits are positive. 
A)  economic profits are positive. 
B)  economic profits equal zero and the firm should shut down. 
C)  economic profits equal zero and the firm is earning a nominal rate of return on investment. 
D)  economic profits are negative but the firm should continue to produce because accounting profits are positive.

Question 13

Firms in a perfectly competitive industry are producing goods efficiently in the long run if each is producing at the minimum point of the

Accepted Answer

A)  AVC curve. 
B)  MC curve. 
C)  LAC curve. 
D)  AFC curve. 
A)  AVC curve. 
B)  MC curve. 
C)  LAC curve. 
D)  AFC curve.

Question 14

-Refer to the above figure. Line C in Panel B does not represent

Accepted Answer

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

Question 15

A perfectly elastic demand function

Accepted Answer

A)  shows that a consumer is willing to pay any amount for the product. 
B)  is characteristic of an individual firm operating in a perfectly competitive market. 
C)  shows that the individual firm can increase sales by lowering the price of output. 
D)  has a marginal revenue that is always decreasing. 
A)  shows that a consumer is willing to pay any amount for the product. 
B)  is characteristic of an individual firm operating in a perfectly competitive market. 
C)  shows that the individual firm can increase sales by lowering the price of output. 
D)  has a marginal revenue that is always decreasing.

Question 16

"A perfect competitor should maximize total revenues." Do you agree or disagree? Explain.

Accepted Answer

Disagree. A perfect competitor should ma

Question 17

The rising portion of a perfectly competitive firm's marginal cost curve, above the intersection with AVC, is its

Accepted Answer

A)  demand curve. 
B)  economic profit. 
C)  supply curve. 
D)  accounting profit. 
A)  demand curve. 
B)  economic profit. 
C)  supply curve. 
D)  accounting profit.

Question 18

-In the above figure, if d4 is the relevant demand curve for this firm, then which level of output will maximize this firm's profits or minimize its losses?

Accepted Answer

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

Question 19

In a perfectly competitive market, the average revenue curve of a firm is

Accepted Answer

A)  the same as its total revenue curve. 
B)  the same as its demand curve. 
C)  the same its economic profits. 
D)  the difference between its total revenue curve and its marginal revenue curve. 
A)  the same as its total revenue curve. 
B)  the same as its demand curve. 
C)  the same its economic profits. 
D)  the difference between its total revenue curve and its marginal revenue curve.

Question 20

In a perfectly competitive industry, the industry demand curve

Accepted Answer

A)  must be horizontal. 
B)  must be vertical. 
C)  is upward sloping. 
D)  is downward sloping. 
A)  must be horizontal. 
B)  must be vertical. 
C)  is upward sloping. 
D)  is downward sloping.

Exam 23: Perfect Competition

-If the firm in the above figure produces output level D, it incurs an average fixed cost of production equal to the distance

Economic profits and losses are true market signals because they

In the short run, the price at which a firm's total revenues equal its total costs is

An increase in the productivity of labor causes

If a perfectly competitive industry is in long-run equilibrium, then

What is a price taker? Discuss the assumptions used to obtain the perfectly competitive model.

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

If an industry's long-run per-unit costs are constant as its output increases then

"An industry's short-run supply curve is constructed by adding horizontally all the average variable cost curves of firms in that industry." Do you agree or disagree? Why?

When a firm is at its short-run break-even point,

Firms in a perfectly competitive industry are producing goods efficiently in the long run if each is producing at the minimum point of the

-Refer to the above figure. Line C in Panel B does not represent

A perfectly elastic demand function

"A perfect competitor should maximize total revenues." Do you agree or disagree? Explain.

The rising portion of a perfectly competitive firm's marginal cost curve, above the intersection with AVC, is its

-In the above figure, if d4 is the relevant demand curve for this firm, then which level of output will maximize this firm's profits or minimize its losses?

In a perfectly competitive market, the average revenue curve of a firm is

In a perfectly competitive industry, the industry demand curve

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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