Question 1

Which of the following is not true for a perfectly competitive firm?

Accepted Answer

A)  P = MR 
B)  AR = MR 
C)  MR = TR 
D)  P = AR 
A)  P = MR 
B)  AR = MR 
C)  MR = TR 
D)  P = AR

Question 2

-Refer to the above figure. Which panel represents the long-run supply curve for an increasing 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 3

A perfectly competitive firm will not earn an economic profit in the long run, because

Accepted Answer

A)  it is a "price-maker." 
B)  it faces a perfectly inelastic demand curve. 
C)  there are no barriers to entry into the industry. 
D)  it produces differentiated products. 
A)  it is a "price-maker." 
B)  it faces a perfectly inelastic demand curve. 
C)  there are no barriers to entry into the industry. 
D)  it produces differentiated products.

Question 4

The break-even price for a perfectly competitive firm is the price that is equal to

Accepted Answer

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

Question 5

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

Accepted Answer

A)  monopoly. 
B)  monopolistic competition. 
C)  perfect competition. 
D)  oligopoly. 
A)  monopoly. 
B)  monopolistic competition. 
C)  perfect competition. 
D)  oligopoly.

Question 6

-According to the above figure, if the firm is earning zero economic profits, what quantity is the firm selling and at what price?

Accepted Answer

A)  Q = 200; P = $4 
B)  Q = 1,000; P = $5 
C)  Q = 800; P = $4 
D)  Q = 1,200; P = $7 
A)  Q = 200; P = $4 
B)  Q = 1,000; P = $5 
C)  Q = 800; P = $4 
D)  Q = 1,200; P = $7

Question 7

In long-run equilibrium, the perfectly competitive firm will

Accepted Answer

A)  go out of business. 
B)  produce to the point at which marginal cost is at its minimum. 
C)  produce to the point at which marginal cost equals average total cost. 
D)  produce on the upward sloping portion of its ATC curve. 
A)  go out of business. 
B)  produce to the point at which marginal cost is at its minimum. 
C)  produce to the point at which marginal cost equals average total cost. 
D)  produce on the upward sloping portion of its ATC curve.

Question 8

In a perfectly competitive market, if P < MC, then

Accepted Answer

A)  too little output is being produced. 
B)  too much output is being produced. 
C)  production is efficient, as the firm is earning profits. 
D)  the firm is paying a price for resources that is too high. 
A)  too little output is being produced. 
B)  too much output is being produced. 
C)  production is efficient, as the firm is earning profits. 
D)  the firm is paying a price for resources that is too high.

Question 9

Which of the following is true in perfect competition at long-run equilibrium?

Accepted Answer

A)  P = ATC = MC = MR 
B)  ATC is minimized 
C)  economic profit is $0 
D)  all of the above 
A)  P = ATC = MC = MR 
B)  ATC is minimized 
C)  economic profit is $0 
D)  all of the above

Question 10

Total revenue divided by quantity is

Accepted Answer

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

Question 11

Which of the following statements about the perfect competitor is INCORRECT?

Accepted Answer

A)  The perfectly competitive firm is always a price taker. 
B)  The perfect competitor sells a homogeneous commodity. 
C)  If an individual firm raises price, it will lose business. 
D)  The products made by a perfectly competitive firm have no close substitutes. 
A)  The perfectly competitive firm is always a price taker. 
B)  The perfect competitor sells a homogeneous commodity. 
C)  If an individual firm raises price, it will lose business. 
D)  The products made by a perfectly competitive firm have no close substitutes.

Question 12

-Refer to the above figure. Which of the graphs represent the situation for a perfectly competitive 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 13

In a long-run perfectly competitive equilibrium,

Accepted Answer

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

Question 14

The demand curve for the product of a perfectly competitive firm is

Accepted Answer

A)  perfectly elastic. 
B)  perfectly inelastic. 
C)  elastic at high prices and inelastic at low prices. 
D)  identical to the elasticity of demand on the market demand curve. 
A)  perfectly elastic. 
B)  perfectly inelastic. 
C)  elastic at high prices and inelastic at low prices. 
D)  identical to the elasticity of demand on the market demand curve.

Question 15

Which of the following is NOT correct concerning perfectly competitive firms in the long run?

Accepted Answer

A)  Long-run economic profits are zero. 
B)  Price equals minimum long-run average cost. 
C)  Entrepreneurs earn the opportunity cost of their investment. 
D)  The opportunity cost of capital is zero. 
A)  Long-run economic profits are zero. 
B)  Price equals minimum long-run average cost. 
C)  Entrepreneurs earn the opportunity cost of their investment. 
D)  The opportunity cost of capital is zero.

Question 16

-If a firm is earning short-run economic profits shown in the above figure, in the long run

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 falls. 
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 falls. 
D)  firms enter the industry, the market supply curve shifts rightward, and the market price rises.

Question 17

-Refer to the above table. If the price is $3, the perfectly competitive firm should produce

Accepted Answer

A)  102 units. 
B)  105 units. 
C)  103 units. 
D)  104 units. 
A)  102 units. 
B)  105 units. 
C)  103 units. 
D)  104 units.

Question 18

Accounting profits at a firm's break-even point are

Accepted Answer

A)  positive. 
B)  negative. 
C)  zero. 
D)  indeterminate since we need to know what demand is. 
A)  positive. 
B)  negative. 
C)  zero. 
D)  indeterminate since we need to know what demand is.

Question 19

Your local farmer has many competitors and exists in a market structure known as perfect competition. This means that price is determined outside of the individual farmer's ability to charge a price higher than the going market for a bushel of wheat, hence the farmer is

Accepted Answer

A)  a price maker and can therefore charge different customers different prices. 
B)  always able to price produce above the competition and earn a larger profit. 
C)  never able to determine any prices he charges for anything, such as soybeans. 
D)  a price taker and cannot affect the market price of wheat. 
A)  a price maker and can therefore charge different customers different prices. 
B)  always able to price produce above the competition and earn a larger profit. 
C)  never able to determine any prices he charges for anything, such as soybeans. 
D)  a price taker and cannot affect the market price of wheat.

Question 20

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

Accepted Answer

A)  differentiated products 
B)  large number of buyers and sellers 
C)  price taking by each firm 
D)  easy entry and exit into the market 
A)  differentiated products 
B)  large number of buyers and sellers 
C)  price taking by each firm 
D)  easy entry and exit into the market

Exam 23: Perfect Competition

Which of the following is not true for a perfectly competitive firm?

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

A perfectly competitive firm will not earn an economic profit in the long run, because

The break-even price for a perfectly competitive firm is the price that is equal to

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

-According to the above figure, if the firm is earning zero economic profits, what quantity is the firm selling and at what price?

In long-run equilibrium, the perfectly competitive firm will

In a perfectly competitive market, if P < MC, then

Which of the following is true in perfect competition at long-run equilibrium?

Total revenue divided by quantity is

Which of the following statements about the perfect competitor is INCORRECT?

-Refer to the above figure. Which of the graphs represent the situation for a perfectly competitive industry?

In a long-run perfectly competitive equilibrium,

The demand curve for the product of a perfectly competitive firm is

Which of the following is NOT correct concerning perfectly competitive firms in the long run?

-If a firm is earning short-run economic profits shown in the above figure, in the long run

-Refer to the above table. If the price is $3, the perfectly competitive firm should produce

Accounting profits at a firm's break-even point are

Your local farmer has many competitors and exists in a market structure known as perfect competition. This means that price is determined outside of the individual farmer's ability to charge a price higher than the going market for a bushel of wheat, hence the farmer is

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

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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