Question 1

In a perfectly competitive industry, the firm's marginal revenue curve is

Accepted Answer

A)  downward sloping. 
B)  upward sloping. 
C)  vertical. 
D)  horizontal. 
A)  downward sloping. 
B)  upward sloping. 
C)  vertical. 
D)  horizontal.

Question 2

-In the above figure, what is the price the firm receives if the output is 8?

Accepted Answer

A)  $10 
B)  $2 
C)  $7 
D)  $8 
A)  $10 
B)  $2 
C)  $7 
D)  $8

Question 3

For a firm in a perfectly competitive industry, the demand curve for its own product is

Accepted Answer

A)  downward sloping. 
B)  vertical. 
C)  always above the marginal revenue curve. 
D)  the same as the marginal revenue curve. 
A)  downward sloping. 
B)  vertical. 
C)  always above the marginal revenue curve. 
D)  the same as the marginal revenue curve.

Question 4

"Because a firm's supply curve slopes upward, the long-run supply curve of an industry must also slope upward." Do you agree or disagree? Explain.

Accepted Answer

Disagree. Even though a firm's supply cu

Question 5

If a firm is producing an output rate at which marginal cost is greater than price, the firm

Accepted Answer

A)  is sustaining economic loss. 
B)  should increase its output level. 
C)  should reduce its output level. 
D)  will not be covering its fixed cost. 
A)  is sustaining economic loss. 
B)  should increase its output level. 
C)  should reduce its output level. 
D)  will not be covering its fixed cost.

Question 6

-Using the above figure, the price facing the perfectly competitive firm in the long run will be

Accepted Answer

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

Question 7

-Refer to the above figure. Profits will be negative

Accepted Answer

A)  when the price equals $2. 
B)  when the price is above $2. 
C)  when the price is below $2. 
D)  only when the price equals $1. 
A)  when the price equals $2. 
B)  when the price is above $2. 
C)  when the price is below $2. 
D)  only when the price equals $1.

Question 8

Suppose a perfectly competitive firm can produce 20,000 bushels of corn a year at an output at which marginal cost equals marginal revenue. The market price of corn per bushel is $2.00. The firm's total costs per year are $50,000 and fixed costs per year are $25,000. In the short run, this firm should

Accepted Answer

A)  shut down. 
B)  continue producing until the price of corn increases. 
C)  produce 20,000 bushels of corn because, although they are losing money, they are losing less than if they shut down. 
D)  produce 40,000 bushels to try to increase economic profit. 
A)  shut down. 
B)  continue producing until the price of corn increases. 
C)  produce 20,000 bushels of corn because, although they are losing money, they are losing less than if they shut down. 
D)  produce 40,000 bushels to try to increase economic profit.

Question 9

"By producing at an output rate at which marginal revenue equals marginal cost, a firm is definitely making positive economic profits." Do you agree or disagree? Why?

Accepted Answer

When it produces at an output rate at wh

Question 10

When price and marginal cost are equal for a perfectly competitive firm, the firm is

Accepted Answer

A)  minimizing average total cost. 
B)  maximizing total revenue. 
C)  maximizing economic profit. 
D)  earning negative economic profit. 
A)  minimizing average total cost. 
B)  maximizing total revenue. 
C)  maximizing economic profit. 
D)  earning negative economic profit.

Question 11

When MR < MC for a firm, the firm should

Accepted Answer

A)  reduce its level of output. 
B)  stay at the same level of output. 
C)  stop producing. 
D)  increase output, unless P < AVC. 
A)  reduce its level of output. 
B)  stay at the same level of output. 
C)  stop producing. 
D)  increase output, unless P < AVC.

Question 12

The rate of production at which marginal revenue equals marginal cost is

Accepted Answer

A)  a point of negative profits for the firm. 
B)  what determines the equilibrium price in the market. 
C)  the firm's shutdown point. 
D)  the point where profits are maximized. 
A)  a point of negative profits for the firm. 
B)  what determines the equilibrium price in the market. 
C)  the firm's shutdown point. 
D)  the point where profits are maximized.

Question 13

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

Accepted Answer

A)  negatively sloped. 
B)  perfectly elastic. 
C)  positively sloped. 
D)  perfectly inelastic. 
A)  negatively sloped. 
B)  perfectly elastic. 
C)  positively sloped. 
D)  perfectly inelastic.

Question 14

-Refer to the above figure. Profits for this firm are equal to zero

Accepted Answer

A)  only for all points less than B. 
B)  only at points B and C. 
C)  for points between B and C. 
D)  for all points less than B and greater than C. 
A)  only for all points less than B. 
B)  only at points B and C. 
C)  for points between B and C. 
D)  for all points less than B and greater than C.

Question 15

-Refer to the above table. If the price is $6 the maximum profit this firm could earn is

Accepted Answer

A)  $210. 
B)  $414. 
C)  $420. 
D)  $630. 
A)  $210. 
B)  $414. 
C)  $420. 
D)  $630.

Question 16

Being a price taker essentially means

Accepted Answer

A)  a firm can influence the market price. 
B)  a firm cannot influence the market price. 
C)  the firm cannot legally set its price above the market price. 
D)  the firm cannot legally set its price below the market price. 
A)  a firm can influence the market price. 
B)  a firm cannot influence the market price. 
C)  the firm cannot legally set its price above the market price. 
D)  the firm cannot legally set its price below the market price.

Question 17

What does a perfectly competitive firm do to maximize profits?

Accepted Answer

The perfect competitor cannot influence

Question 18

A company finds that at the output level at which marginal cost equals marginal revenue, TC = $500, TVC = $400, and TR = $450. Your advice to the firm is

Accepted Answer

A)  shut down, as TC > TR. 
B)  reduce output to reduce the cost of production. 
C)  increase output to reduce the per unit cost of production. 
D)  continue to produce because loss is less than TFC. 
A)  shut down, as TC > TR. 
B)  reduce output to reduce the cost of production. 
C)  increase output to reduce the per unit cost of production. 
D)  continue to produce because loss is less than TFC.

Question 19

What is marginal cost pricing? Why is marginal cost pricing important?

Accepted Answer

Marginal cost pricing is a situation in

Question 20

-In the above figure, at which output level is this firm earning negative economic profits?

Accepted Answer

A)  2 
B)  5 
C)  10 
D)  12 
A)  2 
B)  5 
C)  10 
D)  12

Exam 23: Perfect Competition

In a perfectly competitive industry, the firm's marginal revenue curve is

-In the above figure, what is the price the firm receives if the output is 8?

For a firm in a perfectly competitive industry, the demand curve for its own product is

"Because a firm's supply curve slopes upward, the long-run supply curve of an industry must also slope upward." Do you agree or disagree? Explain.

If a firm is producing an output rate at which marginal cost is greater than price, the firm

-Using the above figure, the price facing the perfectly competitive firm in the long run will be

-Refer to the above figure. Profits will be negative

"By producing at an output rate at which marginal revenue equals marginal cost, a firm is definitely making positive economic profits." Do you agree or disagree? Why?

When price and marginal cost are equal for a perfectly competitive firm, the firm is

When MR < MC for a firm, the firm should

The rate of production at which marginal revenue equals marginal cost is

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

-Refer to the above figure. Profits for this firm are equal to zero

-Refer to the above table. If the price is $6 the maximum profit this firm could earn is

Being a price taker essentially means

What does a perfectly competitive firm do to maximize profits?

A company finds that at the output level at which marginal cost equals marginal revenue, TC = $500, TVC = $400, and TR = $450. Your advice to the firm is

What is marginal cost pricing? Why is marginal cost pricing important?

-In the above figure, at which output level is this firm earning negative economic profits?

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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