Question 1

Signals are

Accepted Answer

A)  used by economic decision-makers to inform others about their plans. 
B)  the method by which government planners inform economic decision-makers about the types of decisions they should make. 
C)  the method by which firms determine their profit maximizing quantity. 
D)  compact ways of conveying to economic decision makers information needed to identify industries where more resources are needed. 
A)  used by economic decision-makers to inform others about their plans. 
B)  the method by which government planners inform economic decision-makers about the types of decisions they should make. 
C)  the method by which firms determine their profit maximizing quantity. 
D)  compact ways of conveying to economic decision makers information needed to identify industries where more resources are needed.

Question 2

The short-run supply curve for a perfectly competitive firm is the portion of its

Accepted Answer

A)  ATC curve above the MC curve. 
B)  MC curve above the ATC curve. 
C)  ATC curve below the MC curve. 
D)  MC curve above its AVC curve. 
A)  ATC curve above the MC curve. 
B)  MC curve above the ATC curve. 
C)  ATC curve below the MC curve. 
D)  MC curve above its AVC curve.

Question 3

If a perfectly competitive firm is producing at an output at which marginal cost exceeds marginal revenue,

Accepted Answer

A)  price will be at the profit maximizing level. 
B)  sales will be at the profit maximizing level. 
C)  the firm should expand production. 
D)  the firm should reduce production. 
A)  price will be at the profit maximizing level. 
B)  sales will be at the profit maximizing level. 
C)  the firm should expand production. 
D)  the firm should reduce production.

Question 4

Which of the following is NOT a characteristic of perfect competition?

Accepted Answer

A)  There are many buyers and sellers. 
B)  Each firm determines the market price of its product. 
C)  Products are homogeneous. 
D)  Buyers and sellers have equal access to information. 
A)  There are many buyers and sellers. 
B)  Each firm determines the market price of its product. 
C)  Products are homogeneous. 
D)  Buyers and sellers have equal access to information.

Question 5

A company finds that at its present level of production, MC = AVC at $15, MC = ATC at $20, and MC = MR at $17. Your advice to the firm regarding its short-run operations is

Accepted Answer

A)  to continue production, as it is earning an economic profit of $2 per unit. 
B)  to continue production, as it is earning an economic profit of $3 per unit. 
C)  to shut down. 
D)  to continue production at a loss. 
A)  to continue production, as it is earning an economic profit of $2 per unit. 
B)  to continue production, as it is earning an economic profit of $3 per unit. 
C)  to shut down. 
D)  to continue production at a loss.

Question 6

A constant-cost industry will have

Accepted Answer

A)  a perfectly elastic long-run supply curve. 
B)  a perfectly inelastic long-run supply curve. 
C)  an upward sloping demand curve in the long run. 
D)  an upward sloping supply curve in the long run. 
A)  a perfectly elastic long-run supply curve. 
B)  a perfectly inelastic long-run supply curve. 
C)  an upward sloping demand curve in the long run. 
D)  an upward sloping supply curve in the long run.

Question 7

When a firm has economic profits equal to zero,

Accepted Answer

A)  the firm is earning a normal rate of return on investment. 
B)  the firm is not earning a normal rate of return on investment. 
C)  the firm should shut down. 
D)  the firm's accounting profits are also zero. 
A)  the firm is earning a normal rate of return on investment. 
B)  the firm is not earning a normal rate of return on investment. 
C)  the firm should shut down. 
D)  the firm's accounting profits are also zero.

Question 8

A firm's total explicit costs are $1,000. Its total implicit costs are $500, and it has a total revenue of $2000. This firm receives

Accepted Answer

A)  an accounting profit only. 
B)  an economic profit only. 
C)  both an economic profit and an accounting profit. 
D)  neither an economic profit nor an accounting profit. 
A)  an accounting profit only. 
B)  an economic profit only. 
C)  both an economic profit and an accounting profit. 
D)  neither an economic profit nor an accounting profit.

Question 9

Competitive pricing is efficient because

Accepted Answer

A)  the price that consumers pay reflects the opportunity cost to society of producing the good. 
B)  firms make positive economic profits in long-run equilibrium. 
C)  average revenue equals average cost. 
D)  firms produce above the minimum efficient scale. 
A)  the price that consumers pay reflects the opportunity cost to society of producing the good. 
B)  firms make positive economic profits in long-run equilibrium. 
C)  average revenue equals average cost. 
D)  firms produce above the minimum efficient scale.

Question 10

In the long run in a perfectly competitive industry,

Accepted Answer

A)  opportunity costs are negligible. 
B)  economic profits will be zero. 
C)  some firms will be experiencing economic losses. 
D)  only entrepreneurs will earn more than their opportunity costs. 
A)  opportunity costs are negligible. 
B)  economic profits will be zero. 
C)  some firms will be experiencing economic losses. 
D)  only entrepreneurs will earn more than their opportunity costs.

Question 11

A firm that has positive economic profits has accounting profits that are

Accepted Answer

A)  zero. 
B)  positive. 
C)  negative. 
D)  indeterminate without more information. 
A)  zero. 
B)  positive. 
C)  negative. 
D)  indeterminate without more information.

Question 12

The vertical distance between the horizontal axis and any point on a perfect competitor's demand curve measures

Accepted Answer

A)  total cost. 
B)  total revenues. 
C)  product price, marginal revenue, and average revenue. 
D)  supply curve for the product. 
A)  total cost. 
B)  total revenues. 
C)  product price, marginal revenue, and average revenue. 
D)  supply curve for the product.

Question 13

Which of the following statements is not true for a perfectly competitive firm?

Accepted Answer

A)  A firm's demand curve is horizontal. 
B)  The firm can influence its demand curve by advertising its product. 
C)  The firm's demand curve is perfectly elastic. 
D)  The market demand and supply curves determine the market price. 
A)  A firm's demand curve is horizontal. 
B)  The firm can influence its demand curve by advertising its product. 
C)  The firm's demand curve is perfectly elastic. 
D)  The market demand and supply curves determine the market price.

Question 14

Suppose a perfectly competitive firm faces the following short-run cost and revenue conditions: ATC = $12; AVC = $10; MC = $15; MR = $13. The firm should

Accepted Answer

A)  decrease output. 
B)  increase output. 
C)  increase price. 
D)  change nothing. 
A)  decrease output. 
B)  increase output. 
C)  increase price. 
D)  change nothing.

Question 15

-In the above figure, if d1 is the relevant demand curve for this firm, then which level of output will maximize this firm's profits or minimize its losses?

Accepted Answer

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

Question 16

-Using the above figure, the perfectly competitive firm in the diagram will earn an economic profit if the market price is

Accepted Answer

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

Question 17

Which of the following is NOT a characteristic of perfect competition?

Accepted Answer

A)  Firms are "price takers." 
B)  All firms sell identical products. 
C)  There are substantial barriers to entry into the industry. 
D)  There are many buyers and sellers. 
A)  Firms are "price takers." 
B)  All firms sell identical products. 
C)  There are substantial barriers to entry into the industry. 
D)  There are many buyers and sellers.

Question 18

If a constant-cost, perfectly competitive industry experiences an increase in the demand for its product, we would expect

Accepted Answer

A)  only the market price of the good to increase. 
B)  both the market price and quantity supplied to increase. 
C)  decreases in the market price, but increases in quantity supplied. 
D)  only the quantity supplied of the product to increase. 
A)  only the market price of the good to increase. 
B)  both the market price and quantity supplied to increase. 
C)  decreases in the market price, but increases in quantity supplied. 
D)  only the quantity supplied of the product to increase.

Question 19

If a perfectly competitive firm has economic profits greater than zero, then we know that

Accepted Answer

A)  the firm's industry is not in long-run equilibrium. 
B)  the firm's industry is in long-run equilibrium. 
C)  the firm is producing at the bottom of the average total cost curve. 
D)  the firm will reduce output. 
A)  the firm's industry is not in long-run equilibrium. 
B)  the firm's industry is in long-run equilibrium. 
C)  the firm is producing at the bottom of the average total cost curve. 
D)  the firm will reduce output.

Question 20

When price equals marginal cost

Accepted Answer

A)  firms make zero profits. 
B)  firms make positive profits. 
C)  the industry is in long-run equilibrium. 
D)  the marginal benefits of consuming an extra unit of the good exactly equals the marginal cost to society of producing the good. 
A)  firms make zero profits. 
B)  firms make positive profits. 
C)  the industry is in long-run equilibrium. 
D)  the marginal benefits of consuming an extra unit of the good exactly equals the marginal cost to society of producing the good.

Exam 23: Perfect Competition

Signals are

The short-run supply curve for a perfectly competitive firm is the portion of its

If a perfectly competitive firm is producing at an output at which marginal cost exceeds marginal revenue,

Which of the following is NOT a characteristic of perfect competition?

A company finds that at its present level of production, MC = AVC at $15, MC = ATC at $20, and MC = MR at $17. Your advice to the firm regarding its short-run operations is

A constant-cost industry will have

When a firm has economic profits equal to zero,

A firm's total explicit costs are $1,000. Its total implicit costs are $500, and it has a total revenue of $2000. This firm receives

Competitive pricing is efficient because

In the long run in a perfectly competitive industry,

A firm that has positive economic profits has accounting profits that are

The vertical distance between the horizontal axis and any point on a perfect competitor's demand curve measures

Which of the following statements is not true for a perfectly competitive firm?

Suppose a perfectly competitive firm faces the following short-run cost and revenue conditions: ATC = $12; AVC = $10; MC = $15; MR = $13. The firm should

-In the above figure, if d1 is the relevant demand curve for this firm, then which level of output will maximize this firm's profits or minimize its losses?

-Using the above figure, the perfectly competitive firm in the diagram will earn an economic profit if the market price is

Which of the following is NOT a characteristic of perfect competition?

If a constant-cost, perfectly competitive industry experiences an increase in the demand for its product, we would expect

If a perfectly competitive firm has economic profits greater than zero, then we know that

When price equals marginal cost

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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