Question 1

The short-run industry supply curve slopes up because

Accepted Answer

A)  the firms eventually experience diseconomies of scale. 
B)  the law of diminishing marginal product applies in the short run. 
C)  wages increase as the industry increases output. 
D)  the higher price is needed to get more firms to enter the industry. 
A)  the firms eventually experience diseconomies of scale. 
B)  the law of diminishing marginal product applies in the short run. 
C)  wages increase as the industry increases output. 
D)  the higher price is needed to get more firms to enter the industry.

Question 2

A price taker is a firm that

Accepted Answer

A)  seeks to maximize revenue rather than profit. 
B)  cannot influence the market price. 
C)  searches for the best price and then takes the highest profits possible. 
D)  buys inputs for firms. 
A)  seeks to maximize revenue rather than profit. 
B)  cannot influence the market price. 
C)  searches for the best price and then takes the highest profits possible. 
D)  buys inputs for firms.

Question 3

A firm will shut down in the short run when

Accepted Answer

A)  price is below average total costs at all possible rates of output. 
B)  price is below average variable costs at all possible rates of output. 
C)  price is below marginal cost at all possible rates of output. 
D)  it is making a loss. 
A)  price is below average total costs at all possible rates of output. 
B)  price is below average variable costs at all possible rates of output. 
C)  price is below marginal cost at all possible rates of output. 
D)  it is making a loss.

Question 4

A perfectly competitive industry's market price is found by

Accepted Answer

A)  finding the point on the market demand curve where the largest number of units will be purchased. 
B)  locating the intersection of the market demand and market supply curves. 
C)  the horizontal summation of all the industry firms' individual supply curves. 
D)  identifying the price at which each firm realizes its largest economic profit. 
A)  finding the point on the market demand curve where the largest number of units will be purchased. 
B)  locating the intersection of the market demand and market supply curves. 
C)  the horizontal summation of all the industry firms' individual supply curves. 
D)  identifying the price at which each firm realizes its largest economic profit.

Question 5

Suppose a perfectly competitive ukulele factory can produce 35 ukuleles at an output at which marginal cost equals marginal revenue. The price per ukulele is $1300 and the average total cost is $1500. What is the profit or loss that this furniture factory is earning?

Accepted Answer

A)  $700.00 
B)  -$7,000.00 
C)  -$1,050.00 
D)  -$450.00 
A)  $700.00 
B)  -$7,000.00 
C)  -$1,050.00 
D)  -$450.00

Question 6

When a firm earns zero economic profits,

Accepted Answer

A)  it cannot continue to produce. 
B)  it has not covered its opportunity costs. 
C)  it has a positive accounting profit. 
D)  it has average revenue that is less than average cost. 
A)  it cannot continue to produce. 
B)  it has not covered its opportunity costs. 
C)  it has a positive accounting profit. 
D)  it has average revenue that is less than average cost.

Question 7

-In the above figure, if price is equal to P4, the firm will

Accepted Answer

A)  earn positive economic profits. 
B)  incur an economic loss. 
C)  earn zero economic profits. 
D)  shut down. 
A)  earn positive economic profits. 
B)  incur an economic loss. 
C)  earn zero economic profits. 
D)  shut down.

Question 8

A firm is currently producing an output at which price equals the minimum point on the average variable cost curve. If wage rates increase, the firm will

Accepted Answer

A)  increase its rate of output to make up for the higher variable costs. 
B)  shut down since it would no longer be covering its variable costs. 
C)  decrease its rate of output to offset the higher variable costs. 
D)  not make any changes since its current rate of output is still minimizing its losses. 
A)  increase its rate of output to make up for the higher variable costs. 
B)  shut down since it would no longer be covering its variable costs. 
C)  decrease its rate of output to offset the higher variable costs. 
D)  not make any changes since its current rate of output is still minimizing its losses.

Question 9

Which of the following statements is correct?

Accepted Answer

A)  The demand curve of the perfectly competitive industry is elastic as are the demand curves facing the individual firms. 
B)  The market demand curve of perfect competition is inelastic because the individual consumers are buying a homogeneous product. 
C)  The market demand curve of the perfectly competitive industry is downward sloping while the demand curve of an individual firm is horizontal with a height equal to the product price. 
D)  The market demand curve of the perfectly competitive industry is downward sloping, so the demand curves of the individual firms are also downward sloping. 
A)  The demand curve of the perfectly competitive industry is elastic as are the demand curves facing the individual firms. 
B)  The market demand curve of perfect competition is inelastic because the individual consumers are buying a homogeneous product. 
C)  The market demand curve of the perfectly competitive industry is downward sloping while the demand curve of an individual firm is horizontal with a height equal to the product price. 
D)  The market demand curve of the perfectly competitive industry is downward sloping, so the demand curves of the individual firms are also downward sloping.

Question 10

-Refer to the above figure. Profits will equal zero

Accepted Answer

A)  when the price equals $1. 
B)  when the price equals $2. 
C)  when the price equals $4. 
D)  at prices between $1 and $2. 
A)  when the price equals $1. 
B)  when the price equals $2. 
C)  when the price equals $4. 
D)  at prices between $1 and $2.

Question 11

For a firm in a perfectly competitive industry

Accepted Answer

A)  the demand curve is unitary elastic throughout. 
B)  marginal revenue and product price are equal at every level of output. 
C)  the price elasticity of demand is zero. 
D)  more output can be sold only if the firm unilaterally lowers its product price. 
A)  the demand curve is unitary elastic throughout. 
B)  marginal revenue and product price are equal at every level of output. 
C)  the price elasticity of demand is zero. 
D)  more output can be sold only if the firm unilaterally lowers its product price.

Question 12

A perfectly elastic long-run supply curve indicates

Accepted Answer

A)  a decreasing-cost industry. 
B)  a constant-cost industry. 
C)  an increasing-cost industry. 
D)  that some input prices change as firms enter and exit the industry. 
A)  a decreasing-cost industry. 
B)  a constant-cost industry. 
C)  an increasing-cost industry. 
D)  that some input prices change as firms enter and exit the industry.

Question 13

-Refer to the above figure. If an individual firm wants to maximize economic profits, it should

Accepted Answer

A)  charge $5 for its product. 
B)  charge more than $5 for its product since increasing the price will increase revenues. 
C)  charge less than $5 for its product since a lower price will attract more customers. 
D)  withdraw its product from the market forcing the market price up. 
A)  charge $5 for its product. 
B)  charge more than $5 for its product since increasing the price will increase revenues. 
C)  charge less than $5 for its product since a lower price will attract more customers. 
D)  withdraw its product from the market forcing the market price up.

Question 14

-In the above figure, if the market price is $10, the firm

Accepted Answer

A)  produces 10 units. 
B)  produces 12 units. 
C)  shuts down operations. 
D)  produces 11 units. 
A)  produces 10 units. 
B)  produces 12 units. 
C)  shuts down operations. 
D)  produces 11 units.

Question 15

Which of the following could generate economic profits for perfectly competitive firms in the short run, if they initially earn zero economic profits?

Accepted Answer

A)  A fall in demand 
B)  A unit tax on output 
C)  An increase in total fixed costs 
D)  A decrease in input prices 
A)  A fall in demand 
B)  A unit tax on output 
C)  An increase in total fixed costs 
D)  A decrease in input prices

Question 16

Can a firm make losses by producing the rate of output at which marginal revenue equals marginal cost? Why?

Accepted Answer

Even when a firm is producing the output

Question 17

The perfectly competitive seller's short-run supply curve is

Accepted Answer

A)  its entire marginal cost curve. 
B)  its marginal revenue curve. 
C)  the part of its marginal cost curve above the average variable cost curve. 
D)  the part of its marginal cost curve above the average total cost curve. 
A)  its entire marginal cost curve. 
B)  its marginal revenue curve. 
C)  the part of its marginal cost curve above the average variable cost curve. 
D)  the part of its marginal cost curve above the average total cost curve.

Question 18

The short-run supply curve of a perfect competitor is

Accepted Answer

A)  its average variable cost curve. 
B)  its marginal revenue curve. 
C)  its entire marginal cost curve. 
D)  its marginal cost curve equal to or above the minimum point on its average variable cost curve. 
A)  its average variable cost curve. 
B)  its marginal revenue curve. 
C)  its entire marginal cost curve. 
D)  its marginal cost curve equal to or above the minimum point on its average variable cost curve.

Question 19

Suppose a perfectly competitive industry is in long-run equilibrium. If a decrease in demand leads to a lower long-run price, we know that

Accepted Answer

A)  this is a decreasing-cost industry. 
B)  this is an increasing-cost industry. 
C)  some firms will be losing money in the long run. 
D)  after further adjustments, price will rise to its original level. 
A)  this is a decreasing-cost industry. 
B)  this is an increasing-cost industry. 
C)  some firms will be losing money in the long run. 
D)  after further adjustments, price will rise to its original level.

Question 20

Which of the following statements is correct about the demand curve of the perfectly competitive industry?

Accepted Answer

A)  The demand curve of the perfectly competitive industry is horizontal as are the demand curves facing the individual firms. 
B)  The market demand curve of perfect competition is vertical because the individual consumers are buying a homogeneous product. 
C)  The market demand curve of the perfectly competitive industry is downward sloping while the demand curve facing an individual firm is horizontal. 
D)  The market demand curve of the perfectly competitive industry is downward sloping, so the demand curves of the individual firms are also downward sloping. 
A)  The demand curve of the perfectly competitive industry is horizontal as are the demand curves facing the individual firms. 
B)  The market demand curve of perfect competition is vertical because the individual consumers are buying a homogeneous product. 
C)  The market demand curve of the perfectly competitive industry is downward sloping while the demand curve facing an individual firm is horizontal. 
D)  The market demand curve of the perfectly competitive industry is downward sloping, so the demand curves of the individual firms are also downward sloping.

Exam 23: Perfect Competition

The short-run industry supply curve slopes up because

A price taker is a firm that

A firm will shut down in the short run when

A perfectly competitive industry's market price is found by

Suppose a perfectly competitive ukulele factory can produce 35 ukuleles at an output at which marginal cost equals marginal revenue. The price per ukulele is $1300 and the average total cost is $1500. What is the profit or loss that this furniture factory is earning?

When a firm earns zero economic profits,

-In the above figure, if price is equal to P4, the firm will

A firm is currently producing an output at which price equals the minimum point on the average variable cost curve. If wage rates increase, the firm will

Which of the following statements is correct?

-Refer to the above figure. Profits will equal zero

For a firm in a perfectly competitive industry

A perfectly elastic long-run supply curve indicates

-Refer to the above figure. If an individual firm wants to maximize economic profits, it should

-In the above figure, if the market price is $10, the firm

Which of the following could generate economic profits for perfectly competitive firms in the short run, if they initially earn zero economic profits?

Can a firm make losses by producing the rate of output at which marginal revenue equals marginal cost? Why?

The perfectly competitive seller's short-run supply curve is

The short-run supply curve of a perfect competitor is

Suppose a perfectly competitive industry is in long-run equilibrium. If a decrease in demand leads to a lower long-run price, we know that

Which of the following statements is correct about the demand curve of the perfectly competitive industry?

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, if price is equal to P₄, the firm will