Question 1

When a perfectly competitive firm experiences zero 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 2

A firm is currently producing at the point where MC = MR. The situation for the firm at this point is P = $5, Q = 100, ATC = $6, AVC = $4.50. What do you recommend this firm do?

Accepted Answer

A)  Increase production above the current output rate, because MC = MR at this rate of output. 
B)  Continue to produce the current output rate, because P > AVC. 
C)  Shut down, because AVC > P. 
D)  Shut down, because ATC > P. 
A)  Increase production above the current output rate, because MC = MR at this rate of output. 
B)  Continue to produce the current output rate, because P > AVC. 
C)  Shut down, because AVC > P. 
D)  Shut down, because ATC > P.

Question 3

In a perfectly competitive industry, which of the following is a market signal to resource owners?

Accepted Answer

A)  Economic profits 
B)  Quality of goods 
C)  The level of exports in the country 
D)  The level of subsidies the industry receives 
A)  Economic profits 
B)  Quality of goods 
C)  The level of exports in the country 
D)  The level of subsidies the industry receives

Question 4

The demand curve faced by a perfectly competitive industry

Accepted Answer

A)  slopes upward. 
B)  slopes downward. 
C)  has no slope. 
D)  is perfectly inelastic. 
A)  slopes upward. 
B)  slopes downward. 
C)  has no slope. 
D)  is perfectly inelastic.

Question 5

Suppose the perfectly competitive equilibrium occurs such that too many units of the good are produced. This is an example of

Accepted Answer

A)  marginal cost pricing. 
B)  market failure. 
C)  firms have not yet exited the industry. 
D)  greedy business people behaving in an inappropriate manner. 
A)  marginal cost pricing. 
B)  market failure. 
C)  firms have not yet exited the industry. 
D)  greedy business people behaving in an inappropriate manner.

Question 6

A firm's long-run position under perfect competition is often said to be efficient because

Accepted Answer

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

Question 7

What determines whether the industry long-run supply curve is upward sloping or horizontal?

Accepted Answer

When firms enter and exit the industry,

Question 8

Which of the following is NOT a characteristic of perfect competition?

Accepted Answer

A)  There are large numbers of buyers and sellers. 
B)  The firms in an industry produce goods that are different from each other. 
C)  Any firm can easily enter or leave the industry. 
D)  Both buyers and sellers have equally good information. 
A)  There are large numbers of buyers and sellers. 
B)  The firms in an industry produce goods that are different from each other. 
C)  Any firm can easily enter or leave the industry. 
D)  Both buyers and sellers have equally good information.

Question 9

-In the above figure, what happens to the firm's optimal level of output if the price it receives for its product decreases from P4 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 10

All of the following are characteristics of a perfectly competitive industry EXCEPT

Accepted Answer

A)  the product sold is homogeneous. 
B)  firms in the industry are price takers. 
C)  buyers and sellers have equal access to information. 
D)  there are a large number of buyers and sellers with only a few being able to influence the market price. 
A)  the product sold is homogeneous. 
B)  firms in the industry are price takers. 
C)  buyers and sellers have equal access to information. 
D)  there are a large number of buyers and sellers with only a few being able to influence the market price.

Question 11

Consider an industry that is in long-run equilibrium. An increase in demand leads to a decrease in the price of the good. We know that this is

Accepted Answer

A)  a decreasing cost industry. 
B)  a constant cost industry. 
C)  an increasing cost industry. 
D)  not a competitive industry. 
A)  a decreasing cost industry. 
B)  a constant cost industry. 
C)  an increasing cost industry. 
D)  not a competitive industry.

Question 12

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

Accepted Answer

A)  the firm's long-run economic profits must be less 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 less 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 13

A situation in which the price charged is greater than society's opportunity cost would lead to

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 14

-In the above figure, at the profit-maximizing rate of production for the perfectly competitive firm profit is

Accepted Answer

A)  $100. 
B)  $70. 
C)  $30. 
D)  $130. 
A)  $100. 
B)  $70. 
C)  $30. 
D)  $130.

Question 15

Which of the following is always true in the short run for a perfectly competitive firm that is maximizing economic profits?

Accepted Answer

A)  P = d = MR = MC = AVC 
B)  P = d = MR = MC 
C)  P = d = MR = Q 
D)  MR = MC = Q 
A)  P = d = MR = MC = AVC 
B)  P = d = MR = MC 
C)  P = d = MR = Q 
D)  MR = MC = Q

Question 16

The shutdown rule for a firm in a perfectly competitive industry is that the firm should cease production if

Accepted Answer

A)  P < MC. 
B)  P < ATC. 
C)  P < AVC. 
D)  P < AFC. 
A)  P < MC. 
B)  P < ATC. 
C)  P < AVC. 
D)  P < AFC.

Question 17

In a perfectly competitive market structure both buyers and sellers have equal access to information. 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 18

The perfectly competitive firm cannot influence the market price because

Accepted Answer

A)  it has market power. 
B)  its production is too small to affect the market. 
C)  it is a price maker. 
D)  its costs are too high. 
A)  it has market power. 
B)  its production is too small to affect the market. 
C)  it is a price maker. 
D)  its costs are too high.

Question 19

Which of the following is NOT correct for a perfectly competitive firm in long-run equilibrium?

Accepted Answer

A)  SAC = LAC 
B)  MR = P = AR 
C)  MC = MR > LAC 
D)  LAC = P 
A)  SAC = LAC 
B)  MR = P = AR 
C)  MC = MR > LAC 
D)  LAC = P

Question 20

A perfectly competitive firm faces a market clearing price of $150 per unit. Average total costs are at the minimum value of $200 per unit at an output rate of 100 units. Average variable costs are at the minimum value of $100 per unit at an output rate of 50 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 negative economic profits per unit sold. 
C)  75 units, at which the firm earns positive economic profits per unit sold. 
D)  50 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 negative economic profits per unit sold. 
C)  75 units, at which the firm earns positive economic profits per unit sold. 
D)  50 units, because price is less than average variable costs.

Exam 23: Perfect Competition

When a perfectly competitive firm experiences zero economic profits,

A firm is currently producing at the point where MC = MR. The situation for the firm at this point is P = $5, Q = 100, ATC = $6, AVC = $4.50. What do you recommend this firm do?

In a perfectly competitive industry, which of the following is a market signal to resource owners?

The demand curve faced by a perfectly competitive industry

Suppose the perfectly competitive equilibrium occurs such that too many units of the good are produced. This is an example of

A firm's long-run position under perfect competition is often said to be efficient because

What determines whether the industry long-run supply curve is upward sloping or horizontal?

Which of the following is NOT a characteristic of perfect competition?

-In the above figure, what happens to the firm's optimal level of output if the price it receives for its product decreases from P4 to P3?

All of the following are characteristics of a perfectly competitive industry EXCEPT

Consider an industry that is in long-run equilibrium. An increase in demand leads to a decrease in the price of the good. We know that this is

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

A situation in which the price charged is greater than society's opportunity cost would lead to

-In the above figure, at the profit-maximizing rate of production for the perfectly competitive firm profit is

Which of the following is always true in the short run for a perfectly competitive firm that is maximizing economic profits?

The shutdown rule for a firm in a perfectly competitive industry is that the firm should cease production if

In a perfectly competitive market structure both buyers and sellers have equal access to information. This implies

The perfectly competitive firm cannot influence the market price because

Which of the following is NOT correct for a perfectly competitive firm in long-run equilibrium?

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 decreases from P₄ to P₃?