Question 1

The perfectly competitive model makes a lot of fairly unrealistic assumptions.Why do economics text books still talk a lot about this model?

Accepted Answer

A) Many markets are close to being perfectly competitive. 
B) It is an important model to use as a benchmark to compare other markets structures to. 
C) Perfectly competitive markets maximize societal welfare. 
D) All of the above. 
A) Many markets are close to being perfectly competitive. 
B) It is an important model to use as a benchmark to compare other markets structures to. 
C) Perfectly competitive markets maximize societal welfare. 
D) All of the above.

Question 2

When the production of a good involves several inputs,an increase in the cost of one input will usually cause total costs to

Accepted Answer

A) rise more than in proportion. 
B) rise less than in proportion. 
C) remain unchanged. 
D) rise by the exact amount of the input price increase. 
A) rise more than in proportion. 
B) rise less than in proportion. 
C) remain unchanged. 
D) rise by the exact amount of the input price increase.

Question 3

Suppose a firm has the following total cost function TC = 100 + 2q2.If price equals $20,what is the firm's output decision? What are its short-run profits?

Accepted Answer

MC = 4q.To maximize profit,set 20 = 4q,o

Question 4

If a firm makes zero economic profit,then the firm

Accepted Answer

A) has total revenues greater than its economic costs. 
B) must shut down. 
C) can be earning positive business profit. 
D) must have no fixed costs. 
A) has total revenues greater than its economic costs. 
B) must shut down. 
C) can be earning positive business profit. 
D) must have no fixed costs.

Question 5

If a firm is currently in short-run equilibrium earning a profit,what impact will a lump-sum tax have on its production decision?

Accepted Answer

A) The firm will decrease output to earn a higher profit. 
B) The firm will increase output but earn a lower profit. 
C) The firm will not change output but earn a lower profit. 
D) The firm will not change output and earn a higher profit. 
A) The firm will decrease output to earn a higher profit. 
B) The firm will increase output but earn a lower profit. 
C) The firm will not change output but earn a lower profit. 
D) The firm will not change output and earn a higher profit.

Question 6

If a competitive firm maximizes short-run profits by producing some quantity of output,which of the following must be TRUE at that level of output?

Accepted Answer

A) p = MC. 
B) MR = MC. 
C) p ≥ AVC. 
D) All of the above. 
A) p = MC. 
B) MR = MC. 
C) p ≥ AVC. 
D) All of the above.

Question 7

An increase in the cost of an input will result in

Accepted Answer

A) a leftward shift in the firm's supply curve. 
B) an upward shift of the firm's marginal cost curve. 
C) a leftward shift of the market supply curve. 
D) All of the above. 
A) a leftward shift in the firm's supply curve. 
B) an upward shift of the firm's marginal cost curve. 
C) a leftward shift of the market supply curve. 
D) All of the above.

Question 8

If a competitive firm maximizes short-run profits by producing some quantity of output,which of the following must be TRUE at that level of output?

Accepted Answer

A) p > MC. 
B) MR > MC. 
C) p ≥ AVC. 
D) All of the above. 
A) p > MC. 
B) MR > MC. 
C) p ≥ AVC. 
D) All of the above.

Question 9

Suppose all firms in a competitive market are currently in both short-run and long-run equilibrium.What impact will a lump sum tax have on each firm in the short run? in the long run?

Accepted Answer

In the short run,the lump sum tax repres

Question 10

If a firm makes zero economic profit,then the firm

Accepted Answer

A) has no incentive to stay in the industry. 
B) is better of exiting the industry. 
C) is indifferent between staying and exiting the industry. 
D) will shut down. 
A) has no incentive to stay in the industry. 
B) is better of exiting the industry. 
C) is indifferent between staying and exiting the industry. 
D) will shut down.

Question 11

If all conditions for a perfectly competitive market are met,

Accepted Answer

A) firms face sunk cost when entering the market. 
B) firms demand curves are horizontal. 
C) the market demand curve is horizontal. 
D) the firms' demand curves are downward sloping. 
A) firms face sunk cost when entering the market. 
B) firms demand curves are horizontal. 
C) the market demand curve is horizontal. 
D) the firms' demand curves are downward sloping.

Question 12

A lawyer running his own business earns $18,000 in revenue monthly.He pays $8,000 as explicit costs including staff salary and utilities.He owns the office space so no rent is paid..The lawyer could work for other legal firms and earn $10,000 per month.His business profit is ________ and his economic profit is ________.

Accepted Answer

A) $10,000,$10,000 
B) $28,000,$10,000 
C) $10,000,$0 
D) $8,000,$0 
A) $10,000,$10,000 
B) $28,000,$10,000 
C) $10,000,$0 
D) $8,000,$0

Question 13

In the absence of any government regulation on price,if a firm has no power to set price on its own,one can safely conclude

Accepted Answer

A) the demand curve for the firm's product is horizontal. 
B) there aren't many firms in the industry. 
C) the market is in long-run equilibrium. 
D) the firms in this industry are not profitable. 
A) the demand curve for the firm's product is horizontal. 
B) there aren't many firms in the industry. 
C) the market is in long-run equilibrium. 
D) the firms in this industry are not profitable.

Question 14

Economists define a market to be competitive when the firms

Accepted Answer

A) spend large amounts of money on advertising to lure customers away from the competition. 
B) watch each other's behavior closely. 
C) are price takers. 
D) All of the above. 
A) spend large amounts of money on advertising to lure customers away from the competition. 
B) watch each other's behavior closely. 
C) are price takers. 
D) All of the above.

Question 15

-The above figure shows the cost curves for a typical firm in a competitive market.If there are 200 identical firms,estimate the market quantity supplied when p = 4,8,and 10.

Accepted Answer

When p = 4,p < AVC so no firms

Question 16

Long-run market supply curves are downward sloping if

Accepted Answer

A) firms are identical. 
B) the number of firms is restricted in the long run. 
C) input prices fall as the industry expands. 
D) All of the above. 
A) firms are identical. 
B) the number of firms is restricted in the long run. 
C) input prices fall as the industry expands. 
D) All of the above.

Question 17

A market is perfectly competitive even if firms have the ability to set their own price as long as the price difference reflects differences in the product.

Accepted Answer

A) True 
 B)False

Question 18

Explain why individual firms in competitive markets face more elastic demand curves than the market as a whole.

Accepted Answer

In a competitive market,if an individual

Question 19

A firm that only employs labor (L)has the following production function:
f(L)= 20L - L2
Let the price of output be normalized to one and the price of labor (relative to output price)is w.
a.Write out the profit function for this firm as a function of labor,L.
b.What is the necessary first-order condition for the firm to maximize profit when L > 0?
c.Compute the profit maximizing amount of labor as a function of the wage.What is the effect of an increase in wage on the firm's optimal employment level? Use calculus to solve this.

Accepted Answer

a.Profit is π = pf(L)- wL = 20L - L² - wL

Question 20

-The above figure shows the cost curves for a typical firm in a competitive market.If p = 10,then

Accepted Answer

A) the firm will maximize its profit by producing 5 units. 
B) the firm will maximize its profit by producing 60 units. 
C) producing 5 or 60 units will yield equal profits. 
D) Not enough information. 
A) the firm will maximize its profit by producing 5 units. 
B) the firm will maximize its profit by producing 60 units. 
C) producing 5 or 60 units will yield equal profits. 
D) Not enough information.

The perfectly competitive model makes a lot of fairly unrealistic assumptions.Why do economics text books still talk a lot about this model?

When the production of a good involves several inputs,an increase in the cost of one input will usually cause total costs to

Suppose a firm has the following total cost function TC = 100 + 2q².If price equals $20,what is the firm's output decision? What are its short-run profits?

If a firm makes zero economic profit,then the firm

If a firm is currently in short-run equilibrium earning a profit,what impact will a lump-sum tax have on its production decision?

If a competitive firm maximizes short-run profits by producing some quantity of output,which of the following must be TRUE at that level of output?

An increase in the cost of an input will result in

If a competitive firm maximizes short-run profits by producing some quantity of output,which of the following must be TRUE at that level of output?

Suppose all firms in a competitive market are currently in both short-run and long-run equilibrium.What impact will a lump sum tax have on each firm in the short run? in the long run?

If a firm makes zero economic profit,then the firm

If all conditions for a perfectly competitive market are met,

In the absence of any government regulation on price,if a firm has no power to set price on its own,one can safely conclude

Economists define a market to be competitive when the firms

-The above figure shows the cost curves for a typical firm in a competitive market.If there are 200 identical firms,estimate the market quantity supplied when p = 4,8,and 10.

Long-run market supply curves are downward sloping if

A market is perfectly competitive even if firms have the ability to set their own price as long as the price difference reflects differences in the product.

Explain why individual firms in competitive markets face more elastic demand curves than the market as a whole.

-The above figure shows the cost curves for a typical firm in a competitive market.If p = 10,then

Introduction

Supply and Demand

A Consumers Constrained Choice

Demand

Consumer Welfare and Policy Analysis

Firms and Production

Costs

Properties and Applications of the Competitive Model

General Equilibrium and Economic Welfare

Monopoly and Monopsony

Pricing and Advertising

Game Theory

Oligopoly and Monopolistic Competition

Factor Markets

Uncertainty

Property Rights, Externalities, Rivalry, and Exclusion

Asymmetric Information

Contracts and Moral Hazards

Filters

Exam 8: Competitive Firms and Markets

The perfectly competitive model makes a lot of fairly unrealistic assumptions.Why do economics text books still talk a lot about this model?

When the production of a good involves several inputs,an increase in the cost of one input will usually cause total costs to

Suppose a firm has the following total cost function TC = 100 + 2q2.If price equals $20,what is the firm's output decision? What are its short-run profits?

If a firm makes zero economic profit,then the firm

If a firm is currently in short-run equilibrium earning a profit,what impact will a lump-sum tax have on its production decision?

If a competitive firm maximizes short-run profits by producing some quantity of output,which of the following must be TRUE at that level of output?

An increase in the cost of an input will result in

If a competitive firm maximizes short-run profits by producing some quantity of output,which of the following must be TRUE at that level of output?

Suppose all firms in a competitive market are currently in both short-run and long-run equilibrium.What impact will a lump sum tax have on each firm in the short run? in the long run?

If a firm makes zero economic profit,then the firm

If all conditions for a perfectly competitive market are met,

In the absence of any government regulation on price,if a firm has no power to set price on its own,one can safely conclude

Economists define a market to be competitive when the firms

-The above figure shows the cost curves for a typical firm in a competitive market.If there are 200 identical firms,estimate the market quantity supplied when p = 4,8,and 10.

Long-run market supply curves are downward sloping if

A market is perfectly competitive even if firms have the ability to set their own price as long as the price difference reflects differences in the product.

Explain why individual firms in competitive markets face more elastic demand curves than the market as a whole.

-The above figure shows the cost curves for a typical firm in a competitive market.If p = 10,then

Introduction

Supply and Demand

A Consumers Constrained Choice

Demand

Consumer Welfare and Policy Analysis

Firms and Production

Costs

Properties and Applications of the Competitive Model

General Equilibrium and Economic Welfare

Monopoly and Monopsony

Pricing and Advertising

Game Theory

Oligopoly and Monopolistic Competition

Factor Markets

Uncertainty

Property Rights, Externalities, Rivalry, and Exclusion

Asymmetric Information

Contracts and Moral Hazards

Filters

Suppose a firm has the following total cost function TC = 100 + 2q².If price equals $20,what is the firm's output decision? What are its short-run profits?