Question 1

At the short-run break-even point, the firm is

Accepted Answer

A)  earning zero accounting profit. 
B)  losing money. 
C)  earning zero economic profit. 
D)  ready to shutdown. 
A)  earning zero accounting profit. 
B)  losing money. 
C)  earning zero economic profit. 
D)  ready to shutdown.

Question 2

The loss-minimizing output for the perfectly competitive firm occurs at the point at which

Accepted Answer

A)  TR - MR = minimum. 
B)  TR - TC = maximum. 
C)  MR = MC. 
D)  TC - ATC = maximum. 
A)  TR - MR = minimum. 
B)  TR - TC = maximum. 
C)  MR = MC. 
D)  TC - ATC = maximum.

Question 3

If AVC is $6 when P = MC, a firm

Accepted Answer

A)  will have positive economic profits if price is greater than $6. 
B)  is producing too little output. 
C)  should shut down if price is less than $6. 
D)  is experiencing economies of scale. 
A)  will have positive economic profits if price is greater than $6. 
B)  is producing too little output. 
C)  should shut down if price is less than $6. 
D)  is experiencing economies of scale.

Question 4

What are signals? How do profits function as signals?

Accepted Answer

Signals are compact ways of conveying to

Question 5

If price is above average total costs, the firm

Accepted Answer

A)  is earning positive profits. 
B)  is earning negative profits. 
C)  is making a normal rate of return on its capital investment. 
D)  may be earning a positive or negative profit depending upon costs. 
A)  is earning positive profits. 
B)  is earning negative profits. 
C)  is making a normal rate of return on its capital investment. 
D)  may be earning a positive or negative profit depending upon costs.

Question 6

The owner of a perfectly competitive firm is currently earning an economic profit of zero. This owner

Accepted Answer

A)  should shut down since profits of zero are not good. 
B)  should raise the price of the product to increase profits. 
C)  is covering all of his fixed costs. 
D)  will continue producing in the short-run but will shut down in the long run if profits do not increase. 
A)  should shut down since profits of zero are not good. 
B)  should raise the price of the product to increase profits. 
C)  is covering all of his fixed costs. 
D)  will continue producing in the short-run but will shut down in the long run if profits do not increase.

Question 7

A company finds that at its present level of production, MR = MC at $14, MC = AVC at $15, and MC = ATC at $20. Your advice to the firm regarding its short-run operations is

Accepted Answer

A)  to continue production, as it is earning an economic profit of $1 per unit. 
B)  to continue production, as it is earning an economic profit of $6 per unit. 
C)  to shut down. 
D)  to continue production at a loss. 
A)  to continue production, as it is earning an economic profit of $1 per unit. 
B)  to continue production, as it is earning an economic profit of $6 per unit. 
C)  to shut down. 
D)  to continue production at a loss.

Question 8

Economic efficiency means

Accepted Answer

A)  the same as technical efficiency. 
B)  that all firms within a single competitive industry are producing at the same level of output. 
C)  that it is impossible to increase the output of any good without lowering the total value of the output of the economy. 
D)  that high-tech methods of production are the most efficient. 
A)  the same as technical efficiency. 
B)  that all firms within a single competitive industry are producing at the same level of output. 
C)  that it is impossible to increase the output of any good without lowering the total value of the output of the economy. 
D)  that high-tech methods of production are the most efficient.

Question 9

Describe and explain how a perfectly competitive firm's demand curve is found.

Accepted Answer

The interaction of supply and demand in

Question 10

A perfectly competitive firm faces a horizontal demand curve because it is

Accepted Answer

A)  a price taker. 
B)  a price maker. 
C)  a large firm in a small industry. 
D)  one of few firms in the market. 
A)  a price taker. 
B)  a price maker. 
C)  a large firm in a small industry. 
D)  one of few firms in the market.

Question 11

A market failure is a situation in which

Accepted Answer

A)  resources are being efficiently allocated, but some companies are forced to shut down. 
B)  the market equilibrium leads to either too many or too few resources going towards producing the good or service. 
C)  the government must take actions to correct the failures of the market in a particular industry. 
D)  there is no free entry or exit into an industry. 
A)  resources are being efficiently allocated, but some companies are forced to shut down. 
B)  the market equilibrium leads to either too many or too few resources going towards producing the good or service. 
C)  the government must take actions to correct the failures of the market in a particular industry. 
D)  there is no free entry or exit into an industry.

Question 12

Why should a perfect competitor produce at which price equals marginal cost?

Accepted Answer

For a perfect competitor, its market pri

Question 13

Malfeasance at Enron, a Houston-based energy firm, led to overstatement of revenues by almost $92 billion. As Enron closed its operations, U.S. energy prices remained stable. This may have been evidence that

Accepted Answer

A)  Enron could charge whatever price it wanted to for energy. 
B)  there was lack of any competition, so Enron was the winner. 
C)  there is a competitive market in energy distribution in the United States. 
D)  the accounting profession needs to review its policies quickly. 
A)  Enron could charge whatever price it wanted to for energy. 
B)  there was lack of any competition, so Enron was the winner. 
C)  there is a competitive market in energy distribution in the United States. 
D)  the accounting profession needs to review its policies quickly.

Question 14

-Refer to the above figure. If the market price is equal to A, which statement can be made about profits?

Accepted Answer

A)  Profits are positive and equal to BCEA. 
B)  Profits are positive and equal to BCFG. 
C)  Profits are negative and equal to BCEA. 
D)  Profits are negative and equal to GFQ   0. 
A)  Profits are positive and equal to BCEA. 
B)  Profits are positive and equal to BCFG. 
C)  Profits are negative and equal to BCEA. 
D)  Profits are negative and equal to GFQ   0.

Question 15

The short-run break-even price

Accepted Answer

A)  is the price at which the firm's current liabilities are paid off. 
B)  is the price at which a firm's total revenues equal total costs. 
C)  occurs at the output at which the firm yields a below normal rate of return. 
D)  occurs at the output at which the firm yields a positive economic profit. 
A)  is the price at which the firm's current liabilities are paid off. 
B)  is the price at which a firm's total revenues equal total costs. 
C)  occurs at the output at which the firm yields a below normal rate of return. 
D)  occurs at the output at which the firm yields a positive economic profit.

Question 16

-Refer to the above table. If the price is $5, the perfectly competitive firm should produce

Accepted Answer

A)  104 units. 
B)  105 units. 
C)  106 units. 
D)  107 units. 
A)  104 units. 
B)  105 units. 
C)  106 units. 
D)  107 units.

Question 17

Which of the following is true for the perfectly competitive firm?

Accepted Answer

A)  Price and MR are always equal. 
B)  AR is less than price. 
C)  AR is more than price. 
D)  Price elasticity of demand is equal to 1. 
A)  Price and MR are always equal. 
B)  AR is less than price. 
C)  AR is more than price. 
D)  Price elasticity of demand is equal to 1.

Question 18

-Refer to the above figure. The competitive firm's short run supply curve

Accepted Answer

A)  starts at A and goes along the MC curve as quantity increases. 
B)  starts at B and goes along the MC curve as quantity increases. 
C)  starts at A and goes along the AVC curve as quantity increases. 
D)  starts at B and goes along the ATC curve as quantity increases. 
A)  starts at A and goes along the MC curve as quantity increases. 
B)  starts at B and goes along the MC curve as quantity increases. 
C)  starts at A and goes along the AVC curve as quantity increases. 
D)  starts at B and goes along the ATC curve as quantity increases.

Question 19

-The firm in the above figure breaks even when market price is

Accepted Answer

A)  H. 
B)  E. 
C)  I. 
D)  G. 
A)  H. 
B)  E. 
C)  I. 
D)  G.

Question 20

Suppose a perfectly competitive asparagus farm can produce six containers of asparagus at an output at which marginal cost equals marginal revenue. The price per container of asparagus is $100 and the average total cost is $75. What is the profit or loss that this asparagus farm is earning?

Accepted Answer

A)  $450.00 
B)  $600.00 
C)  $150.00 
D)  -$450.00 
A)  $450.00 
B)  $600.00 
C)  $150.00 
D)  -$450.00

Exam 23: Perfect Competition

At the short-run break-even point, the firm is

The loss-minimizing output for the perfectly competitive firm occurs at the point at which

If AVC is $6 when P = MC, a firm

What are signals? How do profits function as signals?

If price is above average total costs, the firm

The owner of a perfectly competitive firm is currently earning an economic profit of zero. This owner

A company finds that at its present level of production, MR = MC at $14, MC = AVC at $15, and MC = ATC at $20. Your advice to the firm regarding its short-run operations is

Economic efficiency means

Describe and explain how a perfectly competitive firm's demand curve is found.

A perfectly competitive firm faces a horizontal demand curve because it is

A market failure is a situation in which

Why should a perfect competitor produce at which price equals marginal cost?

Malfeasance at Enron, a Houston-based energy firm, led to overstatement of revenues by almost $92 billion. As Enron closed its operations, U.S. energy prices remained stable. This may have been evidence that

-Refer to the above figure. If the market price is equal to A, which statement can be made about profits?

The short-run break-even price

-Refer to the above table. If the price is $5, the perfectly competitive firm should produce

Which of the following is true for the perfectly competitive firm?

-Refer to the above figure. The competitive firm's short run supply curve

-The firm in the above figure breaks even when market price is

Suppose a perfectly competitive asparagus farm can produce six containers of asparagus at an output at which marginal cost equals marginal revenue. The price per container of asparagus is $100 and the average total cost is $75. What is the profit or loss that this asparagus farm is earning?

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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