Question 1

In long-run equilibrium under perfect competition:

Accepted Answer

A)  price will equal minimum average fixed cost. 
B)  firms will earn economic profits due to the existence of barriers to entry. 
C)  the demand curve facing individual firms will fall to the level tangent to the minimum average total cost curve. 
D)  firms will produce at the level of output where marginal revenue exceeds marginal cost by the greatest dollar amount. 
A)  price will equal minimum average fixed cost. 
B)  firms will earn economic profits due to the existence of barriers to entry. 
C)  the demand curve facing individual firms will fall to the level tangent to the minimum average total cost curve. 
D)  firms will produce at the level of output where marginal revenue exceeds marginal cost by the greatest dollar amount.

Question 2

The demand curve facing a perfectly competitive firm is:

Accepted Answer

A)  perfectly inelastic. 
B)  perfectly elastic. 
C)  unit elastic. 
D)  downward sloping. 
A)  perfectly inelastic. 
B)  perfectly elastic. 
C)  unit elastic. 
D)  downward sloping.

Question 3

Perfectly competitive firms earn zero economic profit in the long run.

Accepted Answer

A) True 
 B)False

Question 4

In order to maximize profits,a firm should produce the level of output at which total revenue is maximized.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following is true for a constant cost industry?

Accepted Answer

A)  It uses a relatively large share of available resource inputs. 
B)  It uses a relatively small share of available resource inputs. 
C)  Industry expansion will put upward pressure on wages and/or other input prices. 
D)  Both a. and c. 
A)  It uses a relatively large share of available resource inputs. 
B)  It uses a relatively small share of available resource inputs. 
C)  Industry expansion will put upward pressure on wages and/or other input prices. 
D)  Both a. and c.

Question 6

Constant cost industries:

Accepted Answer

A)  use large portions of the total supply of specialized resources. 
B)  significantly increase the demand for inputs when expanding output, and as a result, input prices rise. 
C)  do not use inputs in sufficient quantities that a change in industry output would affect the prices of the inputs. 
D)  are those in which the cost curves of individual firms shift upwards as industry output expands. 
A)  use large portions of the total supply of specialized resources. 
B)  significantly increase the demand for inputs when expanding output, and as a result, input prices rise. 
C)  do not use inputs in sufficient quantities that a change in industry output would affect the prices of the inputs. 
D)  are those in which the cost curves of individual firms shift upwards as industry output expands.

Question 7

A perfectly competitive firm cannot make economic profits in the long run because:

Accepted Answer

A)  it is a price taker. 
B)  there are no barriers to entry into the industry. 
C)  it faces a perfectly elastic demand curve. 
D)  its advertising costs will rise to eliminate any economic profits. 
A)  it is a price taker. 
B)  there are no barriers to entry into the industry. 
C)  it faces a perfectly elastic demand curve. 
D)  its advertising costs will rise to eliminate any economic profits.

Question 8

Assume a perfectly competitive firm sells its output for $150 per unit.At its current 2,000 units of output,marginal cost is $140 and increasing,and average variable cost is $143.Assuming it wants to maximize its profits,it should:

Accepted Answer

A)  increase output. 
B)  decrease output, but not shut down. 
C)  maintain its current output rate. 
D)  shut down. 
A)  increase output. 
B)  decrease output, but not shut down. 
C)  maintain its current output rate. 
D)  shut down.

Question 9

Assume a perfectly competitive firm sells its output for $150 per unit.It currently produces 6,000 units of output,at which output level it minimizes its average variable cost at $152 per unit.Assuming it wants to maximize its profits,it should:

Accepted Answer

A)  increase output. 
B)  decrease output, but not shut down. 
C)  maintain its current output rate. 
D)  shut down. 
A)  increase output. 
B)  decrease output, but not shut down. 
C)  maintain its current output rate. 
D)  shut down.

Question 10

Exhibit 12-3   Refer to Exhibit 12-3.Total revenue for the firm in Graph A equals:

Accepted Answer

A)  $40. 
B)  $80. 
C)  $320. 
D)  $400. 
A)  $40. 
B)  $80. 
C)  $320. 
D)  $400.

Question 11

Exhibit 12-7 The figure shows the price,marginal cost,and average cost curves of a perfectly competitive firm.   Refer to Exhibit 12-7.What is the profit earned each day by a profit-maximizing (loss-minimizing)firm?

Accepted Answer

A)  $0 
B)  -$50 
C)  -$150 
D)  -$200 
E)  +$50 
A)  $0 
B)  -$50 
C)  -$150 
D)  -$200 
E)  +$50

Question 12

A competitive firm facing a perfectly elastic demand curve can:

Accepted Answer

A)  increase price without losing any sales. 
B)  sell all of its output at any price it chooses. 
C)  sell all of its output at the market price. 
D)  sell more output only by reducing its price. 
A)  increase price without losing any sales. 
B)  sell all of its output at any price it chooses. 
C)  sell all of its output at the market price. 
D)  sell more output only by reducing its price.

Question 13

In the short run,if a firm's price is greater than its AVC but less than its ATC,the firm should:

Accepted Answer

A)  shut down immediately because it is generating an economic loss. 
B)  shut down temporarily because it is generating an economic loss. 
C)  continue operating because it is generating an economic profit. 
D)  continue operating even though it is generating an economic loss. 
A)  shut down immediately because it is generating an economic loss. 
B)  shut down temporarily because it is generating an economic loss. 
C)  continue operating because it is generating an economic profit. 
D)  continue operating even though it is generating an economic loss.

Question 14

Extractive industries such as farming,mining,or lumbering typically:

Accepted Answer

A)  are considered to be decreasing cost industries. 
B)  are considered to be constant cost industries. 
C)  use only small portions of the total supply of specialized resources. 
D)  are considered to be increasing cost industries. 
A)  are considered to be decreasing cost industries. 
B)  are considered to be constant cost industries. 
C)  use only small portions of the total supply of specialized resources. 
D)  are considered to be increasing cost industries.

Question 15

Exhibit 12-8 The long-run total cost schedule of a perfectly competitive firm that produces walnuts is as follows:
  Refer to Exhibit 12-8.A firm expanding from producing 1,000 to 2,000 pounds of walnuts in the long run is experiencing:

Accepted Answer

A)  diseconomies of scale. 
B)  economies of scale. 
C)  an increasing average fixed cost. 
D)  constant returns to scale. 
A)  diseconomies of scale. 
B)  economies of scale. 
C)  an increasing average fixed cost. 
D)  constant returns to scale.

Question 16

The fast-food industry is generally considered to be a constant cost industry in regards to its use of labor as an input.Why?

Accepted Answer

A)  Few people prefer to work in the industry. 
B)  Available labor is in short supply. 
C)  Firms use a relatively small share of unskilled labor in most cities. 
D)  The productivity of the workers is relatively low. 
A)  Few people prefer to work in the industry. 
B)  Available labor is in short supply. 
C)  Firms use a relatively small share of unskilled labor in most cities. 
D)  The productivity of the workers is relatively low.

Question 17

A firm that is a price taker:

Accepted Answer

A)  competes with other producers who produce differentiated products. 
B)  must be a relatively large producer compared to other firms in the market. 
C)  can exert a major influence on the overall market. 
D)  will lose all sales if it prices its product in excess of the market equilibrium price. 
A)  competes with other producers who produce differentiated products. 
B)  must be a relatively large producer compared to other firms in the market. 
C)  can exert a major influence on the overall market. 
D)  will lose all sales if it prices its product in excess of the market equilibrium price.

Question 18

Firms should shut down in the short run whenever price is less than the average total cost.

Accepted Answer

A) True 
 B)False

Question 19

In long run equilibrium,a perfectly competitive firm:

Accepted Answer

A)  can earn positive economic profits. 
B)  earns zero economic profits. 
C)  can earn negative economic profits. 
D)  can do any of the above. 
A)  can earn positive economic profits. 
B)  earns zero economic profits. 
C)  can earn negative economic profits. 
D)  can do any of the above.

Question 20

A perfectly competitive firm faces a demand curve that is:

Accepted Answer

A)  horizontal and perfectly inelastic. 
B)  horizontal and perfectly elastic. 
C)  vertical and perfectly inelastic. 
D)  vertical and perfectly elastic. 
A)  horizontal and perfectly inelastic. 
B)  horizontal and perfectly elastic. 
C)  vertical and perfectly inelastic. 
D)  vertical and perfectly elastic.

Exam 12: Firms in Perfectly Competitive Markets

In long-run equilibrium under perfect competition:

The demand curve facing a perfectly competitive firm is:

Perfectly competitive firms earn zero economic profit in the long run.

In order to maximize profits,a firm should produce the level of output at which total revenue is maximized.

Which of the following is true for a constant cost industry?

Constant cost industries:

A perfectly competitive firm cannot make economic profits in the long run because:

Assume a perfectly competitive firm sells its output for $150 per unit.At its current 2,000 units of output,marginal cost is $140 and increasing,and average variable cost is $143.Assuming it wants to maximize its profits,it should:

Assume a perfectly competitive firm sells its output for $150 per unit.It currently produces 6,000 units of output,at which output level it minimizes its average variable cost at $152 per unit.Assuming it wants to maximize its profits,it should:

Exhibit 12-3 Refer to Exhibit 12-3.Total revenue for the firm in Graph A equals:

Exhibit 12-7 The figure shows the price,marginal cost,and average cost curves of a perfectly competitive firm. Refer to Exhibit 12-7.What is the profit earned each day by a profit-maximizing (loss-minimizing)firm?

A competitive firm facing a perfectly elastic demand curve can:

In the short run,if a firm's price is greater than its AVC but less than its ATC,the firm should:

Extractive industries such as farming,mining,or lumbering typically:

Exhibit 12-8 The long-run total cost schedule of a perfectly competitive firm that produces walnuts is as follows: Refer to Exhibit 12-8.A firm expanding from producing 1,000 to 2,000 pounds of walnuts in the long run is experiencing:

The fast-food industry is generally considered to be a constant cost industry in regards to its use of labor as an input.Why?

A firm that is a price taker:

Firms should shut down in the short run whenever price is less than the average total cost.

In long run equilibrium,a perfectly competitive firm:

A perfectly competitive firm faces a demand curve that is:

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

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