Question 1

The demand curve for a perfectly competitive firm is

Accepted Answer

A)  elastic at relatively high prices and inelastic at relatively low prices. 
B)  perfectly elastic. 
C)  perfectly inelastic. 
D)  unitary elastic. 
A)  elastic at relatively high prices and inelastic at relatively low prices. 
B)  perfectly elastic. 
C)  perfectly inelastic. 
D)  unitary elastic.

Question 2

Which of the following is NOT true for a perfectly competitive firm in the long run?

Accepted Answer

A)  MR = MC 
B)  MC > LAC 
C)  Price = MC 
D)  SAC = LAC 
A)  MR = MC 
B)  MC > LAC 
C)  Price = MC 
D)  SAC = LAC

Question 3

The exiting of firms from a perfectly competitive industry occurs when

Accepted Answer

A)  opportunity costs cannot be covered. 
B)  P = ATC. 
C)  accounting profit is less than economic profit. 
D)  MR equals MC. 
A)  opportunity costs cannot be covered. 
B)  P = ATC. 
C)  accounting profit is less than economic profit. 
D)  MR equals MC.

Question 4

All of the following are characteristics of a perfectly competitive market EXCEPT

Accepted Answer

A)  homogeneous products. 
B)  large number of buyers and sellers. 
C)  buyers and seller have equal access to information. 
D)  high barriers to entry and exit. 
A)  homogeneous products. 
B)  large number of buyers and sellers. 
C)  buyers and seller have equal access to information. 
D)  high barriers to entry and exit.

Question 5

A firm in a perfectly competitive market maximizes profits when it finds

Accepted Answer

A)  the price at which total revenue minus total cost is the greatest. 
B)  the quantity at which total revenue minus total cost is the greatest. 
C)  the quantity at which total revenue equals total cost. 
D)  the quantity at which total revenue is maximized. 
A)  the price at which total revenue minus total cost is the greatest. 
B)  the quantity at which total revenue minus total cost is the greatest. 
C)  the quantity at which total revenue equals total cost. 
D)  the quantity at which total revenue is maximized.

Question 6

Which of the following best describes a situation of economic efficiency?

Accepted Answer

A)  A firm produces to the point at which P = AVC, with MR < MC. 
B)  A firm produces to the point at which P = ATC, with MC < MR. 
C)  A firm produces to the point at which MR = AFC, with P = AVC. 
D)  A firm produces to the point at which MR = MC, with P = MC. 
A)  A firm produces to the point at which P = AVC, with MR < MC. 
B)  A firm produces to the point at which P = ATC, with MC < MR. 
C)  A firm produces to the point at which MR = AFC, with P = AVC. 
D)  A firm produces to the point at which MR = MC, with P = MC.

Question 7

In principle, how do we determine a perfectly competitive firm's profit-maximizing output and maximum profits given information about the market clearing price, and about the marginal cost and average total cost curves of the firm? Explain in words.

Accepted Answer

For a perfectly competitive firm, the ma

Question 8

If markets are perfectly competitive, then the production of goods

Accepted Answer

A)  will use the least costly combination of resources. 
B)  will occur at an average total cost value that is above the minimum. 
C)  will require government intervention. 
D)  will always lead to business failures. 
A)  will use the least costly combination of resources. 
B)  will occur at an average total cost value that is above the minimum. 
C)  will require government intervention. 
D)  will always lead to business failures.

Question 9

If an industry's long-run supply curve slopes downward, then the industry is

Accepted Answer

A)  a fixed-cost industry. 
B)  a constant-cost industry. 
C)  an increasing-cost industry. 
D)  a decreasing-cost industry. 
A)  a fixed-cost industry. 
B)  a constant-cost industry. 
C)  an increasing-cost industry. 
D)  a decreasing-cost industry.

Question 10

At a perfectly competitive firm's short-run break-even price,

Accepted Answer

A) P = ATC. B) TR is more than TC. C) the average cost is below the total revenue line. D) P > AVC, but P < AFC. A) P = ATC. B) TR is more than TC. C) the average cost is below the total revenue line. D) P > AVC, but P < AFC.

Question 11

A situation in which the price charged is greater than society's opportunity cost would lead to

Accepted Answer

A)  too little being produced. 
B)  too much being produced. 
C)  an efficient amount being produced. 
D)  marginal cost pricing. 
A)  too little being produced. 
B)  too much being produced. 
C)  an efficient amount being produced. 
D)  marginal cost pricing.

Question 12

Suppose a perfectly competitive firm faces the following short-run cost and revenue conditions: ATC = $6.00; AVC = $4.00; MC = $3.50; MR = $3.50. The firm should

Accepted Answer

A)  increase output. 
B)  increase price. 
C)  remain at the same position. 
D)  shut down. 
A)  increase output. 
B)  increase price. 
C)  remain at the same position. 
D)  shut down.

Question 13

In the long run, all firms in a perfectly competitive industry

Accepted Answer

A)  earn economic profits. 
B)  break even. 
C)  suffer economic losses. 
D)  sell differentiated products to earn economic profits. 
A)  earn economic profits. 
B)  break even. 
C)  suffer economic losses. 
D)  sell differentiated products to earn economic profits.

Question 14

What is the shape of the long-run supply curve in a decreasing-cost industry?

Accepted Answer

A)  Horizontal 
B)  Increasing 
C)  Downward sloping 
D)  Upward sloping 
A)  Horizontal 
B)  Increasing 
C)  Downward sloping 
D)  Upward sloping

Question 15

Why is the pricing outcome of a perfectly competitive firm efficient in economic sense?

Accepted Answer

A perfectly competitive firm sells its p

Question 16

If the costs of production do not increase as output increases in the long run in a perfectly competitive industry, then this is a

Accepted Answer

A)  constant-return-to-scale industry. 
B)  constant-competitive industry. 
C)  constant-cost industry. 
D)  constant-price industry. 
A)  constant-return-to-scale industry. 
B)  constant-competitive industry. 
C)  constant-cost industry. 
D)  constant-price industry.

Question 17

All of the following are characteristics of perfect competition EXCEPT

Accepted Answer

A)  homogenous products. 
B)  each firm is a price taker. 
C)  product differentiation. 
D)  a lack of barriers. 
A)  homogenous products. 
B)  each firm is a price taker. 
C)  product differentiation. 
D)  a lack of barriers.

Question 18

When a perfectly competitive firm is in long-run equilibrium, economic profits

Accepted Answer

A)  are positive. 
B)  are zero. 
C)  are negative. 
D)  may be positive, zero or negative depending upon costs. 
A)  are positive. 
B)  are zero. 
C)  are negative. 
D)  may be positive, zero or negative depending upon costs.

Question 19

Perfect competition is characterized by

Accepted Answer

A)  many buyers and sellers. 
B)  a small number of firms. 
C)  differentiated products of firms in the industry. 
D)  high barriers to entry. 
A)  many buyers and sellers. 
B)  a small number of firms. 
C)  differentiated products of firms in the industry. 
D)  high barriers to entry.

Question 20

For a perfectly competitive firm at its long-run equilibrium,

Accepted Answer

A)  P = MR = MC = AC. 
B)  P = MR > MC. 
C)  accounting profit must be zero. 
D)  there are no opportunity costs to be concerned with. 
A)  P = MR = MC = AC. 
B)  P = MR > MC. 
C)  accounting profit must be zero. 
D)  there are no opportunity costs to be concerned with.

Exam 23: Perfect Competition

The demand curve for a perfectly competitive firm is

Which of the following is NOT true for a perfectly competitive firm in the long run?

The exiting of firms from a perfectly competitive industry occurs when

All of the following are characteristics of a perfectly competitive market EXCEPT

A firm in a perfectly competitive market maximizes profits when it finds

Which of the following best describes a situation of economic efficiency?

In principle, how do we determine a perfectly competitive firm's profit-maximizing output and maximum profits given information about the market clearing price, and about the marginal cost and average total cost curves of the firm? Explain in words.

If markets are perfectly competitive, then the production of goods

If an industry's long-run supply curve slopes downward, then the industry is

At a perfectly competitive firm's short-run break-even price,

A situation in which the price charged is greater than society's opportunity cost would lead to

Suppose a perfectly competitive firm faces the following short-run cost and revenue conditions: ATC = $6.00; AVC = $4.00; MC = $3.50; MR = $3.50. The firm should

In the long run, all firms in a perfectly competitive industry

What is the shape of the long-run supply curve in a decreasing-cost industry?

Why is the pricing outcome of a perfectly competitive firm efficient in economic sense?

If the costs of production do not increase as output increases in the long run in a perfectly competitive industry, then this is a

All of the following are characteristics of perfect competition EXCEPT

When a perfectly competitive firm is in long-run equilibrium, economic profits

Perfect competition is characterized by

For a perfectly competitive firm at its long-run equilibrium,

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