Question 1

Economic efficiency is indicated by

Accepted Answer

A)  P = AVC. 
B)  MR = MC. 
C)  P = MR. 
D)  P = MC. 
A)  P = AVC. 
B)  MR = MC. 
C)  P = MR. 
D)  P = MC.

Question 2

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

Accepted Answer

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

Question 3

-Refer to the above figure. In order to stay open in the short run, this firm must

Accepted Answer

A)  earn a positive profit. 
B)  receive a price equal to or greater than the minimum of its average variable cost. 
C)  receive a price exactly equal to its average total cost. 
D)  recover its fixed cost. 
A)  earn a positive profit. 
B)  receive a price equal to or greater than the minimum of its average variable cost. 
C)  receive a price exactly equal to its average total cost. 
D)  recover its fixed cost.

Question 4

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

Accepted Answer

A)  earning positive economic profits. 
B)  earning zero economic profits. 
C)  earning negative economic profits. 
D)  just covering its total variable costs. 
A)  earning positive economic profits. 
B)  earning zero economic profits. 
C)  earning negative economic profits. 
D)  just covering its total variable costs.

Question 5

Suppose a perfectly competitive industry is in long-run equilibrium. If a decrease in demand leads to a higher 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 fall 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 fall to its original level.

Question 6

In a perfectly competitive market, which of the following is the main factor that affects consumers' decisions on which firm to purchase a good from?

Accepted Answer

A)  Quality 
B)  Customer service 
C)  Reputation 
D)  Price 
A)  Quality 
B)  Customer service 
C)  Reputation 
D)  Price

Question 7

If an industry's long-run per-unit costs increase as its output increases then

Accepted Answer

A)  the firm's long-run economic profits must be greater than zero. 
B)  the firm is most likely a decreasing-cost industry. 
C)  the firm is most likely an increasing-cost industry. 
D)  the firm is most likely a constant-cost industry. 
A)  the firm's long-run economic profits must be greater than zero. 
B)  the firm is most likely a decreasing-cost industry. 
C)  the firm is most likely an increasing-cost industry. 
D)  the firm is most likely a constant-cost industry.

Question 8

An industry in which an increase in industry output is accompanied by an increase in long-run per-unit costs is a(n)

Accepted Answer

A)  increasing-cost industry. 
B)  constant-cost industry. 
C)  break-even cost industry. 
D)  decreasing-cost industry. 
A)  increasing-cost industry. 
B)  constant-cost industry. 
C)  break-even cost industry. 
D)  decreasing-cost industry.

Question 9

Consider an industry that is in long-run equilibrium. An increase in demand leads to an increase in the price of the good. We know that this is

Accepted Answer

A)  a decreasing cost industry. 
B)  a constant cost industry. 
C)  an increasing cost industry. 
D)  not a competitive industry. 
A)  a decreasing cost industry. 
B)  a constant cost industry. 
C)  an increasing cost industry. 
D)  not a competitive industry.

Question 10

Under perfect competition, the demand curve facing the firm is determined by

Accepted Answer

A)  the intersection of the industry demand and supply curves. 
B)  the tastes and preferences of consumers. 
C)  utility maximizing behavior on the part of consumers. 
D)  the willingness of the firm to supply the good. 
A)  the intersection of the industry demand and supply curves. 
B)  the tastes and preferences of consumers. 
C)  utility maximizing behavior on the part of consumers. 
D)  the willingness of the firm to supply the good.

Question 11

-Refer to the above figure. A perfectly competitive firm that is in long-run equilibrium will be operating

Accepted Answer

A)  with positive economic profits. 
B)  at a quantity greater than point E. 
C)  at a quantity less than point E. 
D)  at point E. 
A)  with positive economic profits. 
B)  at a quantity greater than point E. 
C)  at a quantity less than point E. 
D)  at point E.

Question 12

In reference to the long-run firm competitive equilibrium diagram, which of the following statements is INCORRECT?

Accepted Answer

A)  In the long run, the firm has no incentive to alter its scale of operations. 
B)  Because profits must be zero in the long run, the firm's short-run average costs (SA
C)  must equal P at   , which occurs at minimum SAC. 
C)  In the long run, the firm operates where price, marginal revenue, marginal cost, short-run minimum average cost, and long-run minimum average cost all are equal. 
D)  In the long run, this firm must be part of a constant-cost industry, because its marginal revenue curve is perfectly elastic. 
A)  In the long run, the firm has no incentive to alter its scale of operations. 
B)  Because profits must be zero in the long run, the firm's short-run average costs (SA
C)  must equal P at   , which occurs at minimum SAC. 
C)  In the long run, the firm operates where price, marginal revenue, marginal cost, short-run minimum average cost, and long-run minimum average cost all are equal. 
D)  In the long run, this firm must be part of a constant-cost industry, because its marginal revenue curve is perfectly elastic.

Question 13

Under what condition are profits maximized?

Accepted Answer

A)  at the rate of output at which marginal revenue equals marginal cost 
B)  at the output rate where marginal cost is greater than marginal revenue 
C)  at the point at which the difference between total revenues and total costs is negative 
D)  at the point at which the difference between price and quantity demanded is greatest 
A)  at the rate of output at which marginal revenue equals marginal cost 
B)  at the output rate where marginal cost is greater than marginal revenue 
C)  at the point at which the difference between total revenues and total costs is negative 
D)  at the point at which the difference between price and quantity demanded is greatest

Question 14

A true signal must

Accepted Answer

A)  convey information only. 
B)  convey information and direct the resource owners to act appropriately. 
C)  convey information about the long-run future. 
D)  explain in detail why something should be done. 
A)  convey information only. 
B)  convey information and direct the resource owners to act appropriately. 
C)  convey information about the long-run future. 
D)  explain in detail why something should be done.

Question 15

"Demand curves slope down, so the demand curve faced by a perfectly competitive firm must also be downward sloping." Do you agree or disagree? Why?

Accepted Answer

Market demand curves slope down. However

Question 16

All firms in a perfect competition industry

Accepted Answer

A)  are price makers. 
B)  produce differentiated products. 
C)  produce identical products. 
D)  lose money. 
A)  are price makers. 
B)  produce differentiated products. 
C)  produce identical products. 
D)  lose money.

Question 17

-In the above figure, what is the profit at the profit-maximizing output level?

Accepted Answer

A)  $70 
B)  $2 
C)  $20 
D)  $10 
A)  $70 
B)  $2 
C)  $20 
D)  $10

Question 18

The change in total revenues resulting from a change in output of one unit 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 19

Suppose that at the current level of output, price = $10, MC = $4, AVC = $7, and ATC = $11. 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 20

If price is below average variable costs at all rates of output, the quantity supplied by a perfectly competitive firm will equal

Accepted Answer

A)  zero. 
B)  the rate of output where price equals marginal cost. 
C)  the rate of output associated with the break-even point. 
D)  the rate of output where marginal revenue equals average fixed costs. 
A)  zero. 
B)  the rate of output where price equals marginal cost. 
C)  the rate of output associated with the break-even point. 
D)  the rate of output where marginal revenue equals average fixed costs.

Exam 23: Perfect Competition

Economic efficiency is indicated by

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

-Refer to the above figure. In order to stay open in the short run, this firm must

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

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

In a perfectly competitive market, which of the following is the main factor that affects consumers' decisions on which firm to purchase a good from?

If an industry's long-run per-unit costs increase as its output increases then

An industry in which an increase in industry output is accompanied by an increase in long-run per-unit costs is a(n)

Consider an industry that is in long-run equilibrium. An increase in demand leads to an increase in the price of the good. We know that this is

Under perfect competition, the demand curve facing the firm is determined by

-Refer to the above figure. A perfectly competitive firm that is in long-run equilibrium will be operating

In reference to the long-run firm competitive equilibrium diagram, which of the following statements is INCORRECT?

Under what condition are profits maximized?

A true signal must

"Demand curves slope down, so the demand curve faced by a perfectly competitive firm must also be downward sloping." Do you agree or disagree? Why?

All firms in a perfect competition industry

-In the above figure, what is the profit at the profit-maximizing output level?

The change in total revenues resulting from a change in output of one unit is

Suppose that at the current level of output, price = $10, MC = $4, AVC = $7, and ATC = $11. Which of the following is true?

If price is below average variable costs at all rates of output, the quantity supplied by a perfectly competitive firm will equal

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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