Question 1

When economic profits are positive in a perfectly competitive industry,

Accepted Answer

A)  we would expect the market supply curve to shift to the left as a result. 
B)  we would expect the market supply curve to shift to the right as a result. 
C)  we would not expect any change in the market supply curve to result. 
D)  we would expect that the market demand curve to shift right as a result 
A)  we would expect the market supply curve to shift to the left as a result. 
B)  we would expect the market supply curve to shift to the right as a result. 
C)  we would not expect any change in the market supply curve to result. 
D)  we would expect that the market demand curve to shift right as a result

Question 2

A firm receives $10 per unit at an equilibrium level of output of 80 units.The average total cost at 80 units of output is $8.The firm makes a total economic profit of:

Accepted Answer

A)  $120. 
B)  $160. 
C)  $100 
D)  $80 
A)  $120. 
B)  $160. 
C)  $100 
D)  $80

Question 3

A perfectly competitive,increasing cost industry is initially in long run equilibrium.Then,there is an increase in demand.Compared with the initial equilibrium,once the new long run equilibrium is reached:

Accepted Answer

A)  price will be higher and total output will be greater than before. 
B)  price will be the same and total output will be greater than before. 
C)  price will be lower and total output will be greater than before. 
D)  price will be higher, and therefore total output will be smaller than before. 
A)  price will be higher and total output will be greater than before. 
B)  price will be the same and total output will be greater than before. 
C)  price will be lower and total output will be greater than before. 
D)  price will be higher, and therefore total output will be smaller than before.

Question 4

Which of the following is a characteristic of perfect competition?

Accepted Answer

A)  homogeneous products 
B)  many sellers 
C)  many buyers 
D)  all of the above 
A)  homogeneous products 
B)  many sellers 
C)  many buyers 
D)  all of the above

Question 5

If the market demand curve in a perfectly competitive industry shifts right,the demand curve for each existing firm will:

Accepted Answer

A)  shift up. 
B)  shift down. 
C)  shift right. 
D)  shift left. 
A)  shift up. 
B)  shift down. 
C)  shift right. 
D)  shift left.

Question 6

In a perfectly competitive market,marginal revenue is the same as the market price.

Accepted Answer

A) True 
 B)False

Question 7

In a perfectly competitive market,in response to a permanent increase in demand:

Accepted Answer

A)  the short run equilibrium price will be higher than the eventual long run equilibrium price. 
B)  the short run equilibrium price will be lower than the eventual long run equilibrium price. 
C)  the short run equilibrium price will be the same as than the eventual long run equilibrium price. 
D)  we cannot know whether the short run equilibrium price will be above, below or equal to the eventual long run equilibrium price. 
A)  the short run equilibrium price will be higher than the eventual long run equilibrium price. 
B)  the short run equilibrium price will be lower than the eventual long run equilibrium price. 
C)  the short run equilibrium price will be the same as than the eventual long run equilibrium price. 
D)  we cannot know whether the short run equilibrium price will be above, below or equal to the eventual long run equilibrium price.

Question 8

If a price-taking firm selling in a competitive market raises the price of its product above the market-clearing price,it will:

Accepted Answer

A)  increase its profits. 
B)  maintain its profit base since the demand for the product is inelastic. 
C)  be able to increase its sales. 
D)  not be able to sell any output. 
A)  increase its profits. 
B)  maintain its profit base since the demand for the product is inelastic. 
C)  be able to increase its sales. 
D)  not be able to sell any output.

Question 9

In short run equilibrium in a perfectly competitive industry whose firms are earning economic profits,a firm:

Accepted Answer

A)  has no incentive to change its output. 
B)  has no incentive to change its plant size. 
C)  has no incentive to expand its factory. 
D)  has no incentive to leave the industry. 
A)  has no incentive to change its output. 
B)  has no incentive to change its plant size. 
C)  has no incentive to expand its factory. 
D)  has no incentive to leave the industry.

Question 10

Which of the following is true of perfectly competitive firms?

Accepted Answer

A)  For a perfectly competitive firm, as long as the price derived from expanded output exceeds the marginal cost of that output, the expansion of output creates additional economic profits. 
B)  Producing at the profit-maximizing output level means that a firm is actually earning economic profits. 
C)  A competitive firm earning zero economic profit will be unable to continue in operation over time. 
D)  A perfectly competitive firm will operate in the short run only at price levels greater than or equal to average total costs. 
A)  For a perfectly competitive firm, as long as the price derived from expanded output exceeds the marginal cost of that output, the expansion of output creates additional economic profits. 
B)  Producing at the profit-maximizing output level means that a firm is actually earning economic profits. 
C)  A competitive firm earning zero economic profit will be unable to continue in operation over time. 
D)  A perfectly competitive firm will operate in the short run only at price levels greater than or equal to average total costs.

Question 11

If price is less than average fixed costs,

Accepted Answer

A)  the firm should operate, since it is making economic profits. 
B)  the firm should operate in the short run, but it is making economic losses. 
C)  the firm should shut down in the short run. 
D)  We do not know whether a firm should continue operating or not. 
A)  the firm should operate, since it is making economic profits. 
B)  the firm should operate in the short run, but it is making economic losses. 
C)  the firm should shut down in the short run. 
D)  We do not know whether a firm should continue operating or not.

Question 12

What is the maximum amount of profit the perfectly competitive firm depicted below could earn in the short run?

Accepted Answer

A)  $40 
B)  $55 
C)  $200 
D)  $220 
A)  $40 
B)  $55 
C)  $200 
D)  $220

Question 13

Which of the following is most likely a constant cost industry?

Accepted Answer

A)  coal 
B)  ice cream 
C)  lumber 
D)  oil 
A)  coal 
B)  ice cream 
C)  lumber 
D)  oil

Question 14

A perfectly competitive firm seeking to maximize its profits would want to maximize the difference between:

Accepted Answer

A)  its marginal revenue and its marginal cost. 
B)  its total revenue and its total cost. 
C)  its accounting revenue and its accounting cost. 
D)  its price and its marginal cost. 
A)  its marginal revenue and its marginal cost. 
B)  its total revenue and its total cost. 
C)  its accounting revenue and its accounting cost. 
D)  its price and its marginal cost.

Question 15

Exhibit 12-5   Refer to Exhibit 12-5.In the short run,if the market price falls below ____,the firm should shut down.

Accepted Answer

A)  $60 
B)  $45 
C)  $30 
D)  $10 
A)  $60 
B)  $45 
C)  $30 
D)  $10

Question 16

Exhibit 12-4   Refer to Exhibit 12-4.What is the value of the variable Z shown in the table?

Accepted Answer

A)  $0 
B)  -$38 
C)  -$35 
D)  -$40 
A)  $0 
B)  -$38 
C)  -$35 
D)  -$40

Question 17

What is productive efficiency? Does it guarantee that markets are operating efficiently?

Accepted Answer

Productive efficiency requires that firm

Question 18

Firms in perfectly competitive markets:

Accepted Answer

A)  are price takers. 
B)  are price makers. 
C)  influence price by varying the quality of output. 
D)  sell heterogeneous products. 
A)  are price takers. 
B)  are price makers. 
C)  influence price by varying the quality of output. 
D)  sell heterogeneous products.

Question 19

Exhibit 12-5   Refer to Exhibit 12-5.A profit-maximizing firm in a perfectly competitive industry will produce ____ units of output if the market price equals $10.

Accepted Answer

A)  450 
B)  0 
C)  650 
D)  800 
A)  450 
B)  0 
C)  650 
D)  800

Question 20

When would you expect economic profits in an industry to be zero?

Accepted Answer

A)  When firms are entering the industry. 
B)  When firms are leaving the industry. 
C)  When existing firms are growing. 
D)  When firms have no incentives to enter or exit. 
A)  When firms are entering the industry. 
B)  When firms are leaving the industry. 
C)  When existing firms are growing. 
D)  When firms have no incentives to enter or exit.

Exam 12: Firms in Perfectly Competitive Markets

When economic profits are positive in a perfectly competitive industry,

A firm receives $10 per unit at an equilibrium level of output of 80 units.The average total cost at 80 units of output is $8.The firm makes a total economic profit of:

A perfectly competitive,increasing cost industry is initially in long run equilibrium.Then,there is an increase in demand.Compared with the initial equilibrium,once the new long run equilibrium is reached:

Which of the following is a characteristic of perfect competition?

If the market demand curve in a perfectly competitive industry shifts right,the demand curve for each existing firm will:

In a perfectly competitive market,marginal revenue is the same as the market price.

In a perfectly competitive market,in response to a permanent increase in demand:

If a price-taking firm selling in a competitive market raises the price of its product above the market-clearing price,it will:

In short run equilibrium in a perfectly competitive industry whose firms are earning economic profits,a firm:

Which of the following is true of perfectly competitive firms?

If price is less than average fixed costs,

What is the maximum amount of profit the perfectly competitive firm depicted below could earn in the short run?

Which of the following is most likely a constant cost industry?

A perfectly competitive firm seeking to maximize its profits would want to maximize the difference between:

Exhibit 12-5 Refer to Exhibit 12-5.In the short run,if the market price falls below ____,the firm should shut down.

Exhibit 12-4 Refer to Exhibit 12-4.What is the value of the variable Z shown in the table?

What is productive efficiency? Does it guarantee that markets are operating efficiently?

Firms in perfectly competitive markets:

Exhibit 12-5 Refer to Exhibit 12-5.A profit-maximizing firm in a perfectly competitive industry will produce ____ units of output if the market price equals $10.

When would you expect economic profits in an industry to be zero?

The Role and Method of Economics

Economics: Eight Powerful Ideas

Scarcity, Trade-Offs, and Production Possibilities

Demand, Supply, and Market Equilibrium

Markets in Motion and Price Controls

Elasticities

Market Efficiency and Welfare

Market Failure

Public Finance and Public Choice

Consumer Choice Theory

The Firm: Production and Costs

Monopoly and Antitrust

Monopolistic Competition and Product Differentiation

Oligopoly and Strategic Behavior

The Markets for Labor, Capital, and Land

Income, Poverty, and Health Care

Introduction to Macroeconomics: Unemployment, Inflation, and Economic Fluctuations

Measuring Economic Performance

Economic Growth in the Global Economy

Financial Markets, Saving, and Investment

Aggregate Demand and Aggregate Supply

The Aggregate Expenditure Model

Monetary Institutions

The Federal Reserve System and Monetary Policy

Issues in Macroeconomic Theory and Policy

International Trade

International Finance

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