Question 1

A perfectly competitive firm is maximizing profits in the short run. This implies that the firm is earning the most economic profits possible, which

Accepted Answer

A)  must be positive. 
B)  must be either zero or positive. 
C)  can be positive, negative, or zero. 
D)  exist at the point at which price equals total cost. 
A)  must be positive. 
B)  must be either zero or positive. 
C)  can be positive, negative, or zero. 
D)  exist at the point at which price equals total cost.

Question 2

In a perfectly competitive industry, any restrictions that prevent new firms from entering

Accepted Answer

A)  lead to negative profits. 
B)  guarantee that all existing firms will earn exactly a zero profit. 
C)  hinder economic efficiency. 
D)  reduce the average cost of production. 
A)  lead to negative profits. 
B)  guarantee that all existing firms will earn exactly a zero profit. 
C)  hinder economic efficiency. 
D)  reduce the average cost of production.

Question 3

The long-run supply curve in a constant-cost, perfectly competitive industry is

Accepted Answer

A)  perfectly inelastic. 
B)  upward sloping. 
C)  downward sloping. 
D)  perfectly elastic. 
A)  perfectly inelastic. 
B)  upward sloping. 
C)  downward sloping. 
D)  perfectly elastic.

Question 4

If the long-run supply curve slopes downward, we know that this is

Accepted Answer

A)  a decreasing-cost industry. 
B)  a constant-cost industry. 
C)  an increasing-cost industry. 
D)  a situation in which no 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)  a situation in which no input prices change as firms enter and exit the industry.

Question 5

-Using the above figure, the short-run break-even price for the perfectly competitive firm will be

Accepted Answer

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

Question 6

A firm earning economic losses should operate in the short run as long as

Accepted Answer

A)  the price per unit sold is greater than the average fixed cost per unit produced. 
B)  the price per unit sold is greater than the average variable cost per unit produced. 
C)  marginal revenue is at least the price per unit sold. 
D)  the price per unit sold is equal to or greater than the marginal cost of production. 
A)  the price per unit sold is greater than the average fixed cost per unit produced. 
B)  the price per unit sold is greater than the average variable cost per unit produced. 
C)  marginal revenue is at least the price per unit sold. 
D)  the price per unit sold is equal to or greater than the marginal cost of production.

Question 7

Total revenues

Accepted Answer

A)  are defined as the quantity sold divided by price. 
B)  are not the same as total receipts from the sale of output. 
C)  equal gross revenues minus all expenses of the firm. 
D)  equal the price per unit times the total quantity sold. 
A)  are defined as the quantity sold divided by price. 
B)  are not the same as total receipts from the sale of output. 
C)  equal gross revenues minus all expenses of the firm. 
D)  equal the price per unit times the total quantity sold.

Question 8

A firm in a competitive industry faces the following short-run cost and revenue conditions: ATC = $16; AVC = $8; and MR = MC = $12. This firm should

Accepted Answer

A)  expand production and keep price constant. 
B)  decrease production and raise its price. 
C)  shut down. 
D)  continue to operate at the same price and output level in the short run. 
A)  expand production and keep price constant. 
B)  decrease production and raise its price. 
C)  shut down. 
D)  continue to operate at the same price and output level in the short run.

Question 9

For a perfectly competitive firm facing the short-run break-even price,

Accepted Answer

A)  it has a negative accounting profit. 
B)  it has an economic profit of zero. 
C)  it should shut down. 
D)  it should expand production. 
A)  it has a negative accounting profit. 
B)  it has an economic profit of zero. 
C)  it should shut down. 
D)  it should expand production.

Question 10

When price is greater than both marginal cost and average variable cost, the perfectly competitive firm

Accepted Answer

A)  is maximizing economic profit. 
B)  should increase its level of output. 
C)  should reduce its level of output. 
D)  should stop production. 
A)  is maximizing economic profit. 
B)  should increase its level of output. 
C)  should reduce its level of output. 
D)  should stop production.

Question 11

For a perfect competitor, price equals

Accepted Answer

A)  marginal revenue only. 
B)  average revenue only. 
C)  both average revenue and marginal revenue. 
D)  neither marginal revenue nor average revenue. 
A)  marginal revenue only. 
B)  average revenue only. 
C)  both average revenue and marginal revenue. 
D)  neither marginal revenue nor average revenue.

Question 12

Economic profits are maximized at the point at which

Accepted Answer

A)  marginal revenues equal marginal costs. 
B)  accounting profit exceeds economic profit. 
C)  total revenues are greater than total costs. 
D)  accounting profits are equal to zero. 
A)  marginal revenues equal marginal costs. 
B)  accounting profit exceeds economic profit. 
C)  total revenues are greater than total costs. 
D)  accounting profits are equal to zero.

Question 13

The value of total output decreases when labor leaves one industry and goes to another and capital leaves the second industry and goes to the first. This indicates that

Accepted Answer

A)  the first situation was not efficient. 
B)  the second situation is efficient. 
C)  price is greater than marginal cost. 
D)  it would be efficient to return to the first situation. 
A)  the first situation was not efficient. 
B)  the second situation is efficient. 
C)  price is greater than marginal cost. 
D)  it would be efficient to return to the first situation.

Question 14

-Refer to the above figure. Profits will be positive

Accepted Answer

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

Question 15

How do we determine whether a firm has maximized profits?

Accepted Answer

A firm maximizes profits only when it pr

Question 16

In the model of perfect competition, the market demand curve is found by

Accepted Answer

A)  a marketing analysis. 
B)  taking the demand curve of a "representative consumer" and expanding it by the number of consumers of the good. 
C)  horizontally summing the demand curves of individual consumers. 
D)  horizontally summing the supply curves of individual firms. 
A)  a marketing analysis. 
B)  taking the demand curve of a "representative consumer" and expanding it by the number of consumers of the good. 
C)  horizontally summing the demand curves of individual consumers. 
D)  horizontally summing the supply curves of individual firms.

Question 17

In the long run, a perfect competitor

Accepted Answer

A)  earns positive profits but will not make losses. 
B)  earns positive economic profits. 
C)  earns zero economic profits. 
D)  produces at its shutdown point. 
A)  earns positive profits but will not make losses. 
B)  earns positive economic profits. 
C)  earns zero economic profits. 
D)  produces at its shutdown point.

Question 18

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

Accepted Answer

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

Question 19

Assuming fixed factor prices, the short-run industry supply curve for a perfectly competitive industry is equal to the sum of the

Accepted Answer

A)  AVC curves above minimum AVC. 
B)  ATC curves above minimum ATC. 
C)  MC curves above minimum AVC. 
D)  MC curves above minimum ATC. 
A)  AVC curves above minimum AVC. 
B)  ATC curves above minimum ATC. 
C)  MC curves above minimum AVC. 
D)  MC curves above minimum ATC.

Question 20

Suppose that at the current level of output, price = $10, MC = $14, AVC = $7, and ATC = $9. 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.

Exam 23: Perfect Competition

A perfectly competitive firm is maximizing profits in the short run. This implies that the firm is earning the most economic profits possible, which

In a perfectly competitive industry, any restrictions that prevent new firms from entering

The long-run supply curve in a constant-cost, perfectly competitive industry is

If the long-run supply curve slopes downward, we know that this is

-Using the above figure, the short-run break-even price for the perfectly competitive firm will be

A firm earning economic losses should operate in the short run as long as

Total revenues

A firm in a competitive industry faces the following short-run cost and revenue conditions: ATC = $16; AVC = $8; and MR = MC = $12. This firm should

For a perfectly competitive firm facing the short-run break-even price,

When price is greater than both marginal cost and average variable cost, the perfectly competitive firm

For a perfect competitor, price equals

Economic profits are maximized at the point at which

The value of total output decreases when labor leaves one industry and goes to another and capital leaves the second industry and goes to the first. This indicates that

-Refer to the above figure. Profits will be positive

How do we determine whether a firm has maximized profits?

In the model of perfect competition, the market demand curve is found by

In the long run, a perfect competitor

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

Assuming fixed factor prices, the short-run industry supply curve for a perfectly competitive industry is equal to the sum of the

Suppose that at the current level of output, price = $10, MC = $14, AVC = $7, and ATC = $9. Which of the following is true?

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