Question 1

Exhibit 12-1   Refer to Exhibit 12-1.In Graph B,the market demand has decreased from d0 to d1,and as a result:

Accepted Answer

A)  both the market price and the price of the price-taking firm have increased to $5. 
B)  both the market price and the price of the price-taking firm have fallen to $4. 
C)  the quantity of goods transacted in the market has fallen from Q1 to Q0. 
D)  at the new equilibrium price, the firm will be unable to sell any of its output. 
A)  both the market price and the price of the price-taking firm have increased to $5. 
B)  both the market price and the price of the price-taking firm have fallen to $4. 
C)  the quantity of goods transacted in the market has fallen from Q1 to Q0. 
D)  at the new equilibrium price, the firm will be unable to sell any of its output.

Question 2

If the typical firm in a perfectly competitive market was depicted in the graph below,what would be most likely to occur?

Accepted Answer

A)  New firms would be likely to enter, increasing the market price. 
B)  New firms would be likely to enter, decreasing the market price. 
C)  Existing firms would be likely to exit, increasing the market price. 
D)  Existing firms would be likely to exit, decreasing the market price. 
A)  New firms would be likely to enter, increasing the market price. 
B)  New firms would be likely to enter, decreasing the market price. 
C)  Existing firms would be likely to exit, increasing the market price. 
D)  Existing firms would be likely to exit, decreasing the market price.

Question 3

Which of the following is true?

Accepted Answer

A)  The long run supply curve for a competitive increasing cost industry will be upward sloping. 
B)  The long run supply curve for a competitive increasing cost industry will be more elastic than the industry's short run supply curve. 
C)  The long run supply curve for a competitive increasing cost industry will be horizontal. 
D)  Both (a) and (b) are true. 
A)  The long run supply curve for a competitive increasing cost industry will be upward sloping. 
B)  The long run supply curve for a competitive increasing cost industry will be more elastic than the industry's short run supply curve. 
C)  The long run supply curve for a competitive increasing cost industry will be horizontal. 
D)  Both (a) and (b) are true.

Question 4

Which of the following is true about perfect competition?

Accepted Answer

A)  Since a perfectly competitive seller can sell all he wants at the market price, her demand curve is horizontal at the market price over the entire range of output that she could possibly produce. 
B)  Because perfectly competitive markets have many buyers and sellers, each firm is so small in relation to the industry that its production decisions have no impact on the market. 
C)  Perfectly competitive markets have easy entry and exit. 
D)  All of the above are true about perfect competition. 
A)  Since a perfectly competitive seller can sell all he wants at the market price, her demand curve is horizontal at the market price over the entire range of output that she could possibly produce. 
B)  Because perfectly competitive markets have many buyers and sellers, each firm is so small in relation to the industry that its production decisions have no impact on the market. 
C)  Perfectly competitive markets have easy entry and exit. 
D)  All of the above are true about perfect competition.

Question 5

Which of the following is a characteristic of a perfectly competitive market?

Accepted Answer

A)  Homogeneous products. 
B)  Barriers to entry. 
C)  Substantial expenditures on advertising. 
D)  All of the above. 
A)  Homogeneous products. 
B)  Barriers to entry. 
C)  Substantial expenditures on advertising. 
D)  All of the above.

Question 6

In short-run equilibrium in a perfectly competitive market,firms always make zero economic profit.

Accepted Answer

A) True 
 B)False

Question 7

Which one of the following is not a characteristic of a perfectly competitive market?

Accepted Answer

A)  Firms advertise in order to distinguish their products and increase market share. 
B)  Firms earn zero economic profit in the long run. 
C)  Competing products are virtually identical. 
D)  Firms are price takers. 
A)  Firms advertise in order to distinguish their products and increase market share. 
B)  Firms earn zero economic profit in the long run. 
C)  Competing products are virtually identical. 
D)  Firms are price takers.

Question 8

At the level of output where marginal revenue equals marginal cost,price is less than average total cost but greater than average variable cost.In this instance,a profit-maximizing firm should:

Accepted Answer

A)  cease production as it is incurring an economic loss. 
B)  continue operating at that output level in the short term, since total revenue will cover all of the firm's variable costs and some of its fixed costs. 
C)  continue operating at that output level in the short term, since total revenue will cover all of the firm's fixed costs and a portion of its variable costs. 
D)  decrease output to where marginal revenue exceeds marginal cost by the greatest dollar amount. 
A)  cease production as it is incurring an economic loss. 
B)  continue operating at that output level in the short term, since total revenue will cover all of the firm's variable costs and some of its fixed costs. 
C)  continue operating at that output level in the short term, since total revenue will cover all of the firm's fixed costs and a portion of its variable costs. 
D)  decrease output to where marginal revenue exceeds marginal cost by the greatest dollar amount.

Question 9

Which of the following is false of perfectly competitive firms?

Accepted Answer

A)  As new firms enter an industry where sellers are earning economic profits, the result will include a reduction in the equilibrium price. 
B)  In a constant-cost industry, the industry does not use inputs in sufficient quantities to affect input prices. 
C)  In a constant-cost competitive industry, the long-run effect of an increase in demand is an increase in industry output but no change in the industry price. 
D)  All are true. 
A)  As new firms enter an industry where sellers are earning economic profits, the result will include a reduction in the equilibrium price. 
B)  In a constant-cost industry, the industry does not use inputs in sufficient quantities to affect input prices. 
C)  In a constant-cost competitive industry, the long-run effect of an increase in demand is an increase in industry output but no change in the industry price. 
D)  All are true.

Question 10

A profit-maximizing,price-taking firm should cease production whenever:

Accepted Answer

A)  the firm is making a loss. 
B)  the firm is earning zero economic profit. 
C)  the price is less than minimum average fixed cost. 
D)  the price is less than minimum average variable cost. 
A)  the firm is making a loss. 
B)  the firm is earning zero economic profit. 
C)  the price is less than minimum average fixed cost. 
D)  the price is less than minimum average variable cost.

Question 11

Exhibit 12-5   Refer to Exhibit 12-5.In the short run,if the market price falls to $40 per unit,the firm should:

Accepted Answer

A)  shut down temporarily. 
B)  shut down permanently. 
C)  continue to operate, because it is earning an economic profit. 
D)  continue to operate temporarily, because it is minimizing losses by doing so. 
A)  shut down temporarily. 
B)  shut down permanently. 
C)  continue to operate, because it is earning an economic profit. 
D)  continue to operate temporarily, because it is minimizing losses by doing so.

Question 12

Darlene runs a fruit and vegetable stand in a medium-sized community where there are many such stands.Her weekly total revenue equals $2,000.Her weekly total cost of running the stand equals $3,500,consisting of $2,500 of variable costs and $1,000 of fixed costs.An economist would likely advise Darlene to:

Accepted Answer

A)  shut down as quickly as possible in order to minimize her losses. 
B)  keep the stand open because it is generating an economic profit. 
C)  keep the stand open for a while longer because she is covering all of her variable costs and some of her fixed costs. 
D)  keep the stand open for a while longer because she is covering all of her fixed costs and some of her variable costs. 
A)  shut down as quickly as possible in order to minimize her losses. 
B)  keep the stand open because it is generating an economic profit. 
C)  keep the stand open for a while longer because she is covering all of her variable costs and some of her fixed costs. 
D)  keep the stand open for a while longer because she is covering all of her fixed costs and some of her variable costs.

Question 13

The horizontal demand curve facing an individual firm in a perfectly competitive market:

Accepted Answer

A)  violates the law of demand, which states that demand curves slope downward. 
B)  is a reflection of the firm's small size relative to the total market. 
C)  is maintained only with the help of high barriers to entry. 
D)  is a reflection of the inelastic demand for its product. 
A)  violates the law of demand, which states that demand curves slope downward. 
B)  is a reflection of the firm's small size relative to the total market. 
C)  is maintained only with the help of high barriers to entry. 
D)  is a reflection of the inelastic demand for its product.

Question 14

Exhibit 12-1   Refer to Exhibit 12-1.Graphs A and B together demonstrate the effect that a change in market demand has on the demand curve faced by a firm that is:

Accepted Answer

A)  producing a homogeneous product. 
B)  very small relative to the market output as a whole. 
C)  a price taker. 
D)  all of the above. 
A)  producing a homogeneous product. 
B)  very small relative to the market output as a whole. 
C)  a price taker. 
D)  all of the above.

Question 15

Economic profits in a perfectly competitive industry will encourage entry of new firms,which will shift the market supply curve to the right.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following is characteristic of a perfectly competitive market?

Accepted Answer

A)  There is free entry into and exit from the market. 
B)  Individual firms can exert a perceptible influence on the market price. 
C)  Firms in the market produce a differentiated product. 
D)  All of the above are true. 
A)  There is free entry into and exit from the market. 
B)  Individual firms can exert a perceptible influence on the market price. 
C)  Firms in the market produce a differentiated product. 
D)  All of the above are true.

Question 17

What would be the long-run equilibrium result of output expansion in a decreasing-cost industry?

Accepted Answer

An expansion in the output of a decreasi

Question 18

Exhibit 12-9   Refer to Exhibit 12-9.The firm is now able to sell more of its lawn care services at a higher price and as a result will be able to earn economic profits:

Accepted Answer

A)  in the short run only. 
B)  in the long run. 
C)  as long as it keeps its costs constant. 
D)  at no time. Perfectly competitive firms always earn zero economic profits. 
A)  in the short run only. 
B)  in the long run. 
C)  as long as it keeps its costs constant. 
D)  at no time. Perfectly competitive firms always earn zero economic profits.

Question 19

Beginning from a long run equilibrium in an increasing cost industry,if there is a substantial,permanent fall in demand for industry output:

Accepted Answer

A)  firms will leave the industry, the quantity produced will fall, and prices will end up lower than their initial long run equilibrium level. 
B)  firms will leave the industry, the quantity produced will fall, and prices will end up higher than their initial long run equilibrium level. 
C)  firms will leave the industry, the quantity produced will fall, and prices will end up at the same level as their initial long run equilibrium level. 
D)  firms will enter the industry, the quantity produced will rise, and prices will end up lower than their initial long run equilibrium level. 
A)  firms will leave the industry, the quantity produced will fall, and prices will end up lower than their initial long run equilibrium level. 
B)  firms will leave the industry, the quantity produced will fall, and prices will end up higher than their initial long run equilibrium level. 
C)  firms will leave the industry, the quantity produced will fall, and prices will end up at the same level as their initial long run equilibrium level. 
D)  firms will enter the industry, the quantity produced will rise, and prices will end up lower than their initial long run equilibrium level.

Question 20

A profit maximizing perfectly competitive firm would never operate at an output level where

Accepted Answer

A)  it would not cover all of its variable costs. 
B)  it was not earning a positive economic profit. 
C)  it was not earning a zero economic profit. 
D)  it was not earning an accounting profit. 
A)  it would not cover all of its variable costs. 
B)  it was not earning a positive economic profit. 
C)  it was not earning a zero economic profit. 
D)  it was not earning an accounting profit.

Exam 12: Firms in Perfectly Competitive Markets

Exhibit 12-1 Refer to Exhibit 12-1.In Graph B,the market demand has decreased from d0 to d1,and as a result:

If the typical firm in a perfectly competitive market was depicted in the graph below,what would be most likely to occur?

Which of the following is true?

Which of the following is true about perfect competition?

Which of the following is a characteristic of a perfectly competitive market?

In short-run equilibrium in a perfectly competitive market,firms always make zero economic profit.

Which one of the following is not a characteristic of a perfectly competitive market?

At the level of output where marginal revenue equals marginal cost,price is less than average total cost but greater than average variable cost.In this instance,a profit-maximizing firm should:

Which of the following is false of perfectly competitive firms?

A profit-maximizing,price-taking firm should cease production whenever:

Exhibit 12-5 Refer to Exhibit 12-5.In the short run,if the market price falls to $40 per unit,the firm should:

The horizontal demand curve facing an individual firm in a perfectly competitive market:

Exhibit 12-1 Refer to Exhibit 12-1.Graphs A and B together demonstrate the effect that a change in market demand has on the demand curve faced by a firm that is:

Economic profits in a perfectly competitive industry will encourage entry of new firms,which will shift the market supply curve to the right.

Which of the following is characteristic of a perfectly competitive market?

What would be the long-run equilibrium result of output expansion in a decreasing-cost industry?

Exhibit 12-9 Refer to Exhibit 12-9.The firm is now able to sell more of its lawn care services at a higher price and as a result will be able to earn economic profits:

Beginning from a long run equilibrium in an increasing cost industry,if there is a substantial,permanent fall in demand for industry output:

A profit maximizing perfectly competitive firm would never operate at an output level where

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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Exhibit 12-1 Refer to Exhibit 12-1.In Graph B,the market demand has decreased from d₀ to d₁,and as a result: