Question 1

The profit-maximizing output for the perfectly competitive firm occurs at the point at which

Accepted Answer

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

Question 2

If an industry has constant marginal and average costs, any shift in demand will eventually

Accepted Answer

A)  result in a higher equilibrium price. 
B)  be met by a smaller change in quantity supplied. 
C)  be met by an equal change in quantity supplied, and equilibrium price will not change. 
D)  make economic profits zero in the short run. 
A)  result in a higher equilibrium price. 
B)  be met by a smaller change in quantity supplied. 
C)  be met by an equal change in quantity supplied, and equilibrium price will not change. 
D)  make economic profits zero in the short run.

Question 3

When demand is perfectly elastic, marginal revenue is

Accepted Answer

A)  zero. 
B)  equal to price. 
C)  declining. 
D)  increasing. 
A)  zero. 
B)  equal to price. 
C)  declining. 
D)  increasing.

Question 4

The perfectly competitive, profit-maximizing rate of production

Accepted Answer

A)  occurs at the point at which marginal revenue is equal to marginal cost. 
B)  occurs at the point at which the difference between marginal revenue and marginal cost is maximized. 
C)  is not measurable for a perfectly competitive firm. 
D)  ignores the relation of total revenues and total costs. 
A)  occurs at the point at which marginal revenue is equal to marginal cost. 
B)  occurs at the point at which the difference between marginal revenue and marginal cost is maximized. 
C)  is not measurable for a perfectly competitive firm. 
D)  ignores the relation of total revenues and total costs.

Question 5

Market signals

Accepted Answer

A)  are ways of conveying information. 
B)  do not involve economic profits. 
C)  are best ignored by investors. 
D)  do not involve economic losses. 
A)  are ways of conveying information. 
B)  do not involve economic profits. 
C)  are best ignored by investors. 
D)  do not involve economic losses.

Question 6

Why would it be economically inefficient for a firm to charge the price of a good greater than its marginal cost?

Accepted Answer

When price equals marginal cost, the mar

Question 7

-The firm in the above figure breaks even when quantity is

Accepted Answer

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

Question 8

Economists generally assume that firms attempt to maximize

Accepted Answer

A)  total revenue. 
B)  sales. 
C)  marginal revenue. 
D)  total economic profits. 
A)  total revenue. 
B)  sales. 
C)  marginal revenue. 
D)  total economic profits.

Question 9

A perfectly competitive firm's short-run break-even output occurs

Accepted Answer

A)  at the minimum point of its average variable cost curve. 
B)  at the minimum point of its average total cost curve. 
C)  at the minimum point of its marginal cost curve. 
D)  at the intersection of its total cost curve and its marginal revenue curve. 
A)  at the minimum point of its average variable cost curve. 
B)  at the minimum point of its average total cost curve. 
C)  at the minimum point of its marginal cost curve. 
D)  at the intersection of its total cost curve and its marginal revenue curve.

Question 10

Suppose that at the current level of output, price = $100, MC = $100, AVC = $80, and ATC = $90. Which of the following is true?

Accepted Answer

A)  The firm should decrease output. 
B)  The firm should shut down. 
C)  The firm should increase output. 
D)  The firm should maintain the current level of output. 
A)  The firm should decrease output. 
B)  The firm should shut down. 
C)  The firm should increase output. 
D)  The firm should maintain the current level of output.

Question 11

-In the above figure, the long-run equilibrium price and output are

Accepted Answer

A)  $10 and 10. 
B)  $10 and 12. 
C)  $7 and 8. 
D)  $8 and 10. 
A)  $10 and 10. 
B)  $10 and 12. 
C)  $7 and 8. 
D)  $8 and 10.

Question 12

A perfectly competitive firm faces a market clearing price of $150 per unit. Average total costs are at the minimum value of $120 per unit at an output rate of 70 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)  70 units, because price is less than average total 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)  70 units, because price is less than average total costs.

Question 13

Firms in a perfectly competitive industry are earning economic losses. This is

Accepted Answer

A)  a signal to entrepreneurs that some of the firms in the industry should exit and the resources of these firms should move into production of other goods. 
B)  a signal to entrepreneurs that additional resources should be brought into this industry in order to make it profitable. 
C)  a signal that the entrepreneurs are doing a poor job and should become workers for someone else. 
D)  a signal to government officials that a subsidy is needed for the firms in the industry. 
A)  a signal to entrepreneurs that some of the firms in the industry should exit and the resources of these firms should move into production of other goods. 
B)  a signal to entrepreneurs that additional resources should be brought into this industry in order to make it profitable. 
C)  a signal that the entrepreneurs are doing a poor job and should become workers for someone else. 
D)  a signal to government officials that a subsidy is needed for the firms in the industry.

Question 14

In a perfectly competitive market, if P > ATC in the short run, there is apt to be

Accepted Answer

A)  entry of new firms into the market. 
B)  an accounting loss for existing firms. 
C)  an inward shift in the industry supply curve. 
D)  an upward pressure on price. 
A)  entry of new firms into the market. 
B)  an accounting loss for existing firms. 
C)  an inward shift in the industry supply curve. 
D)  an upward pressure on price.

Question 15

In an increasing-cost industry, an increase in industry output will

Accepted Answer

A)  lead to a higher market price. 
B)  lead to a lower market price. 
C)  shift each firm's average fixed cost curve down. 
D)  shift each firm's short run supply curve down. 
A)  lead to a higher market price. 
B)  lead to a lower market price. 
C)  shift each firm's average fixed cost curve down. 
D)  shift each firm's short run supply curve down.

Question 16

-Refer to the above table. This firm operates in a perfectly competitive market in which the market price is $5/unit. What is true when the firm produces 110 units?

Accepted Answer

A)  Total revenue equals $3,075. 
B)  Total costs exceed total revenue by $65. 
C)  Marginal revenue is more than marginal cost. 
D)  Its total profit is $65. 
A)  Total revenue equals $3,075. 
B)  Total costs exceed total revenue by $65. 
C)  Marginal revenue is more than marginal cost. 
D)  Its total profit is $65.

Question 17

Marginal revenue is

Accepted Answer

A)  change in total revenue/change in output. 
B)  total revenue/output. 
C)  change in total revenue/output. 
D)  total revenue/change in output. 
A)  change in total revenue/change in output. 
B)  total revenue/output. 
C)  change in total revenue/output. 
D)  total revenue/change in output.

Question 18

When there are large numbers of buyers and sellers, then

Accepted Answer

A)  the products sold must look identical. 
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 must look identical. 
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 19

The demand curve for the product of a perfectly competitive firm's demand curve indicates that if the firm

Accepted Answer

A)  lowers its price, it can sell more. 
B)  accepts the market-set price, the number of units the firm can sell is limited. 
C)  raises its price, sales will fall to zero. 
D)  changes its price, the quantity demanded will change in the opposite direction. 
A)  lowers its price, it can sell more. 
B)  accepts the market-set price, the number of units the firm can sell is limited. 
C)  raises its price, sales will fall to zero. 
D)  changes its price, the quantity demanded will change in the opposite direction.

Question 20

When considering perfect competition the absence of entry barriers implies that

Accepted Answer

A)  no firm can enter the industry. 
B)  firms can enter but cannot get out of the industry easily. 
C)  all firms will earn economic profit. 
D)  firms can enter and leave the industry without serious impediments. 
A)  no firm can enter the industry. 
B)  firms can enter but cannot get out of the industry easily. 
C)  all firms will earn economic profit. 
D)  firms can enter and leave the industry without serious impediments.

Exam 23: Perfect Competition

The profit-maximizing output for the perfectly competitive firm occurs at the point at which

If an industry has constant marginal and average costs, any shift in demand will eventually

When demand is perfectly elastic, marginal revenue is

The perfectly competitive, profit-maximizing rate of production

Market signals

Why would it be economically inefficient for a firm to charge the price of a good greater than its marginal cost?

-The firm in the above figure breaks even when quantity is

Economists generally assume that firms attempt to maximize

A perfectly competitive firm's short-run break-even output occurs

Suppose that at the current level of output, price = $100, MC = $100, AVC = $80, and ATC = $90. Which of the following is true?

-In the above figure, the long-run equilibrium price and output are

Firms in a perfectly competitive industry are earning economic losses. This is

In a perfectly competitive market, if P > ATC in the short run, there is apt to be

In an increasing-cost industry, an increase in industry output will

-Refer to the above table. This firm operates in a perfectly competitive market in which the market price is $5/unit. What is true when the firm produces 110 units?

Marginal revenue is

When there are large numbers of buyers and sellers, then

The demand curve for the product of a perfectly competitive firm's demand curve indicates that if the firm

When considering perfect competition the absence of entry barriers implies that

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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