Question 1

In a long-run equilibrium, a perfectly competitive firm's average total cost is

Accepted Answer

A)  minimized. 
B)  maximized. 
C)  zero. 
D)  equal to average fixed cost. 
A)  minimized. 
B)  maximized. 
C)  zero. 
D)  equal to average fixed cost.

Question 2

When a firm is operating at an output rate at which total revenue equal total costs, this is called

Accepted Answer

A)  its shutdown point. 
B)  its breakeven point. 
C)  a short-run profit. 
D)  a loss. 
A)  its shutdown point. 
B)  its breakeven point. 
C)  a short-run profit. 
D)  a loss.

Question 3

Which of the following is NOT a characteristic of a perfectly competitive market?

Accepted Answer

A)  The products sold by the firms in the market are homogeneous. 
B)  There are many buyers and sellers in the market. 
C)  It is difficult for a firm to enter or leave the market. 
D)  Each firm is a price taker. 
A)  The products sold by the firms in the market are homogeneous. 
B)  There are many buyers and sellers in the market. 
C)  It is difficult for a firm to enter or leave the market. 
D)  Each firm is a price taker.

Question 4

-Refer to the above figure. The market supply and demand curves in a perfectly competitive market intersect at $4. Which of the graphs represent the situation for an individual firm?

Accepted Answer

A)  Panel A 
B)  Panel B 
C)  Panel C 
D)  Panel D 
A)  Panel A 
B)  Panel B 
C)  Panel C 
D)  Panel D

Question 5

-Refer to the above figure. When the price in the market is $4, economic profits will equal

Accepted Answer

A)  $100. 
B)  $200. 
C)  $300. 
D)  $400. 
A)  $100. 
B)  $200. 
C)  $300. 
D)  $400.

Question 6

A firm that shuts down in the short run experiences losses equal to its

Accepted Answer

A)  total fixed costs. 
B)  average variable costs. 
C)  total variable costs. 
D)  total variable costs minus its total fixed costs. 
A)  total fixed costs. 
B)  average variable costs. 
C)  total variable costs. 
D)  total variable costs minus its total fixed costs.

Question 7

What does it mean when the products sold by the firms in an industry are homogeneous?

Accepted Answer

A)  The product sold by one firm is a perfect substitute of the product sold by another firm in the same industry. 
B)  Firms in the industry can produce the same product with different inputs. 
C)  All firms in the industry are identical in size. 
D)  The product sold by one firm is a perfect complement of the product sold by another firm in the same industry. 
A)  The product sold by one firm is a perfect substitute of the product sold by another firm in the same industry. 
B)  Firms in the industry can produce the same product with different inputs. 
C)  All firms in the industry are identical in size. 
D)  The product sold by one firm is a perfect complement of the product sold by another firm in the same industry.

Question 8

-Using the above figure, the perfectly competitive firm should shut down if the market price is below

Accepted Answer

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

Question 9

A law that restricts plant closings will

Accepted Answer

A)  make the economy more efficient by slowing down the movement of resources to a more optimal rate. 
B)  make the economy more efficient by reducing poor decisions on the part of entrepreneurs. 
C)  prevent resources from flowing to their highest-valued uses. 
D)  allow profits and losses to provide a signaling function. 
A)  make the economy more efficient by slowing down the movement of resources to a more optimal rate. 
B)  make the economy more efficient by reducing poor decisions on the part of entrepreneurs. 
C)  prevent resources from flowing to their highest-valued uses. 
D)  allow profits and losses to provide a signaling function.

Question 10

A perfectly competitive firm will maximize profits when

Accepted Answer

A)  average cost is greater than marginal revenue. 
B)  marginal cost is greater than marginal revenue. 
C)  marginal cost is equal to marginal revenue. 
D)  average cost is equal to average revenue. 
A)  average cost is greater than marginal revenue. 
B)  marginal cost is greater than marginal revenue. 
C)  marginal cost is equal to marginal revenue. 
D)  average cost is equal to average revenue.

Question 11

For a perfect competitor, the marginal revenue curve will be

Accepted Answer

A)  horizontal. 
B)  vertical. 
C)  positively sloped. 
D)  negatively sloped. 
A)  horizontal. 
B)  vertical. 
C)  positively sloped. 
D)  negatively sloped.

Question 12

Profit per unit is the difference between

Accepted Answer

A)  average revenue and average total cost. 
B)  marginal revenue and marginal cost. 
C)  total revenue and total cost. 
D)  average revenue and marginal cost. 
A)  average revenue and average total cost. 
B)  marginal revenue and marginal cost. 
C)  total revenue and total cost. 
D)  average revenue and marginal cost.

Question 13

The demand curve for a perfectly competitive industry is

Accepted Answer

A)  downward sloping. 
B)  horizontal. 
C)  vertical. 
D)  indeterminate without more information. 
A)  downward sloping. 
B)  horizontal. 
C)  vertical. 
D)  indeterminate without more information.

Question 14

In the short run, a firm should shut down when

Accepted Answer

A)  P  MC. 
C)  MR > MC. 
D)  MR = ATC. 
A)  P  MC. 
C)  MR > MC. 
D)  MR = ATC.

Question 15

The equation TR/Q is used to compute

Accepted Answer

A)  total cost. 
B)  average revenue. 
C)  demand. 
D)  marginal revenue. 
A)  total cost. 
B)  average revenue. 
C)  demand. 
D)  marginal revenue.

Question 16

A firm in a perfectly competitive industry faces the following cost and revenue conditions: ATC = $6; AVC = $3; MR = MC = $5. The firm is

Accepted Answer

A)  earning economic profits. 
B)  experiencing economic losses. 
C)  experiencing zero profits. 
D)  in a position in which it should shut down. 
A)  earning economic profits. 
B)  experiencing economic losses. 
C)  experiencing zero profits. 
D)  in a position in which it should shut down.

Question 17

Clothing retailers have faced greater competition in recent years as more firms have entered the clothing market. Some of the competition has come from foreign competitors, but much of it is domestic competition. As a result there is much competition in markets for many types of clothing and

Accepted Answer

A)  individual buyers and sellers cannot affect the market price because it is determined by the market forces of demand and supply. 
B)  there are no other implications. 
C)  firms have a great degree of flexibility in pricing their products because these products can be sold at a high profit level. 
D)  there are relatively few buyers and sellers in the market, and one individual firm can determine the market price. 
A)  individual buyers and sellers cannot affect the market price because it is determined by the market forces of demand and supply. 
B)  there are no other implications. 
C)  firms have a great degree of flexibility in pricing their products because these products can be sold at a high profit level. 
D)  there are relatively few buyers and sellers in the market, and one individual firm can determine the market price.

Question 18

When economic profits in a perfectly competitive industry are positive,

Accepted Answer

A)  new firms will be attracted to the industry, and economic profits will decline to zero. 
B)  the industry is in equilibrium. 
C)  firms will increase output to earn even higher profits. 
D)  firms will increase prices while they have the opportunity. 
A)  new firms will be attracted to the industry, and economic profits will decline to zero. 
B)  the industry is in equilibrium. 
C)  firms will increase output to earn even higher profits. 
D)  firms will increase prices while they have the opportunity.

Question 19

In the short run, which of the following is FALSE about the shutdown point?

Accepted Answer

A)  Total revenue is equal to total fixed cost. 
B)  Total revenue is equal to total variable cost. 
C)  Product price is equal to the minimum average variable cost. 
D)  Price multiplied by quantity must be equal to minimum average variable cost multiplied by quantity. 
A)  Total revenue is equal to total fixed cost. 
B)  Total revenue is equal to total variable cost. 
C)  Product price is equal to the minimum average variable cost. 
D)  Price multiplied by quantity must be equal to minimum average variable cost multiplied by quantity.

Question 20

For a perfectly competitive firm, any price below its minimum AVC is a

Accepted Answer

A)  market price. 
B)  shutdown price. 
C)  profit maximizing price. 
D)  negative price. 
A)  market price. 
B)  shutdown price. 
C)  profit maximizing price. 
D)  negative price.

Exam 23: Perfect Competition

In a long-run equilibrium, a perfectly competitive firm's average total cost is

When a firm is operating at an output rate at which total revenue equal total costs, this is called

Which of the following is NOT a characteristic of a perfectly competitive market?

-Refer to the above figure. The market supply and demand curves in a perfectly competitive market intersect at $4. Which of the graphs represent the situation for an individual firm?

-Refer to the above figure. When the price in the market is $4, economic profits will equal

A firm that shuts down in the short run experiences losses equal to its

What does it mean when the products sold by the firms in an industry are homogeneous?

-Using the above figure, the perfectly competitive firm should shut down if the market price is below

A law that restricts plant closings will

A perfectly competitive firm will maximize profits when

For a perfect competitor, the marginal revenue curve will be

Profit per unit is the difference between

The demand curve for a perfectly competitive industry is

In the short run, a firm should shut down when

The equation TR/Q is used to compute

A firm in a perfectly competitive industry faces the following cost and revenue conditions: ATC = $6; AVC = $3; MR = MC = $5. The firm is

Clothing retailers have faced greater competition in recent years as more firms have entered the clothing market. Some of the competition has come from foreign competitors, but much of it is domestic competition. As a result there is much competition in markets for many types of clothing and

When economic profits in a perfectly competitive industry are positive,

In the short run, which of the following is FALSE about the shutdown point?

For a perfectly competitive firm, any price below its minimum AVC is a

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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