Question 1

If a perfectly competitive firm is producing a quantity that generates P < MC, then profit:

Accepted Answer

A)  is maximized. 
B)  can be increased by increasing the price. 
C)  can be increased by increasing production. 
D)  can be increased by decreasing production. 
A)  is maximized. 
B)  can be increased by increasing the price. 
C)  can be increased by increasing production. 
D)  can be increased by decreasing production.

Question 2

Suppose that pasta is produced under conditions of perfect competition and that the constant-cost industry is initially in long-run equilibrium. Now suppose there is an increase in the price of wheat, which is a key ingredient in producing pasta. Further assume that the price elasticity of demand for pasta is -1.8. After all long-run adjustments have occurred, we would expect total consumer spending on pasta to have:

Accepted Answer

A)  risen. 
B)  fallen. 
C)  remained the same. 
D)  first fallen, then risen, then returned to the original level of expenditures. 
A)  risen. 
B)  fallen. 
C)  remained the same. 
D)  first fallen, then risen, then returned to the original level of expenditures.

Question 3

Economic profit cannot exist under perfect competition.

Accepted Answer

A) True 
 B)False

Question 4

Suppose that the market for candy canes operates under conditions of perfect competition, that it is initially in long-run equilibrium, and that the price of each candy cane is $0.10. Based on the information given, we can conclude that a typical producer of candy canes is experiencing:

Accepted Answer

A)  diminishing marginal returns to its variable factors of production. 
B)  increasing marginal returns to its variable factors of production. 
C)  negative economic profits 
D)  It is not possible to answer based on the information given. 
A)  diminishing marginal returns to its variable factors of production. 
B)  increasing marginal returns to its variable factors of production. 
C)  negative economic profits 
D)  It is not possible to answer based on the information given.

Question 5

A perfectly competitive firm's short-run supply curve is its:

Accepted Answer

A)  average variable cost curve above the marginal cost curve. 
B)  marginal cost curve above the average fixed cost curve. 
C)  marginal cost curve above the average total cost curve. 
D)  marginal cost curve above the average variable cost curve. 
A)  average variable cost curve above the marginal cost curve. 
B)  marginal cost curve above the average fixed cost curve. 
C)  marginal cost curve above the average total cost curve. 
D)  marginal cost curve above the average variable cost curve.

Question 6

A reduction in variable production costs shifts the firm's _______ and _______ curves _______ in the short run.

Accepted Answer

A)  ATC; MC; upward 
B)  ATC; MC; downward 
C)  MR; AR; upward 
D)  total cost curve; total revenue; upward 
A)  ATC; MC; upward 
B)  ATC; MC; downward 
C)  MR; AR; upward 
D)  total cost curve; total revenue; upward

Question 7

If price is less than average variable cost at the profit-maximizing quantity of output in the short run, a perfectly competitive firm will:

Accepted Answer

A)  produce at a loss. 
B)  produce at a profit. 
C)  shut down production. 
D)  produce more than the profit-maximizing quantity. 
A)  produce at a loss. 
B)  produce at a profit. 
C)  shut down production. 
D)  produce more than the profit-maximizing quantity.

Question 8

Use the following to answer question(s): 
Exhibit: The Market for Carrots
  
-(Exhibit: The Market for Carrots) If demand is D1, the price of carrots will be _______ cents, the quantity demanded will be _______ , and the quantity supplied will be _______ .

Accepted Answer

A)  20; 100; 90 
B)  20; 100; 100 
C)  30; 160;160 
D)  30; 100; 160 
A)  20; 100; 90 
B)  20; 100; 100 
C)  30; 160;160 
D)  30; 100; 160

Question 9

If a perfectly competitive firm is producing a quantity that generates P = MC, then profit:

Accepted Answer

A)  is maximized. 
B)  can be increased by increasing the price. 
C)  can be increased by decreasing the price. 
D)  can be increased by increasing production. 
A)  is maximized. 
B)  can be increased by increasing the price. 
C)  can be increased by decreasing the price. 
D)  can be increased by increasing production.

Question 10

If an industry experiences constant costs as industry output expands, the long-run industry supply curve will be:

Accepted Answer

A)  downward sloping. 
B)  upward sloping. 
C)  horizontal 
D)  vertical. 
A)  downward sloping. 
B)  upward sloping. 
C)  horizontal 
D)  vertical.

Question 11

In the short run, a perfectly competitive firm produces output and incurs an economic loss if:

Accepted Answer

A) P > ATC. B) P P > ATC. D) AVC < P < ATC. A) P > ATC. B) P P > ATC. D) AVC < P < ATC.

Question 12

Use the following to answer question(s): 
Exhibit: Profit Maximizing
  
-(Exhibit: Profit Maximizing) The exhibit shows cost curves for a firm operating in a perfectly competitive market. If the market price is P4, the firm will produce quantity _______ and _______ in the short run.

Accepted Answer

A)  q1; break even 
B)  q3; make a profit 
C)  q4; break even 
D)  None of the above is true. 
A)  q1; break even 
B)  q3; make a profit 
C)  q4; break even 
D)  None of the above is true.

Question 13

The primary application of the model of perfect competition is to predict how firms will respond to changes in demand and production costs.

Accepted Answer

A) True 
 B)False

Question 14

If a firm in perfect competition sells 500 units of a product at $10 per unit, its marginal revenue per unit is $10.

Accepted Answer

A) True 
 B)False

Question 15

Discuss and explain how the marginal decision rule, MR = MC, will result in profit maximization for the firm in perfect competition. Why can economic profit exist in the short run but not in the long run?

Accepted Answer

The marginal decision rule, MR = MC, is

Question 16

Provided that there are no external benefits or costs, in the long run, perfect competition will result in an efficient allocation of resources because P = MC.

Accepted Answer

A) True 
 B)False

Question 17

The firm's supply curve in perfect competition is the MC curve.

Accepted Answer

A) True 
 B)False

Question 18

Use the following to answer question(s): 
Exhibit: Supply: Short and Long Run
  
-(Exhibit: Supply: Short and Long Run) If industry expansion tends to increase production costs, then the relevant long-run supply curve is:

Accepted Answer

A)  the horizontal axis. 
B)  S2. 
C)  S3. 
D)  S4. 
A)  the horizontal axis. 
B)  S2. 
C)  S3. 
D)  S4.

Question 19

Economic profit exists when total revenue exceeds total cost.

Accepted Answer

A) True 
 B)False

Question 20

If a perfectly competitive industry is characterized by increasing cost in the long run, its long-run:

Accepted Answer

A)  industry supply curve is upward sloping. 
B)  marginal revenue curve is upward sloping. 
C)  marginal cost curve is downward sloping. 
D)  average fixed cost curve is downward sloping. 
A)  industry supply curve is upward sloping. 
B)  marginal revenue curve is upward sloping. 
C)  marginal cost curve is downward sloping. 
D)  average fixed cost curve is downward sloping.

If a perfectly competitive firm is producing a quantity that generates P < MC, then profit:

Economic profit cannot exist under perfect competition.

Suppose that the market for candy canes operates under conditions of perfect competition, that it is initially in long-run equilibrium, and that the price of each candy cane is $0.10. Based on the information given, we can conclude that a typical producer of candy canes is experiencing:

A perfectly competitive firm's short-run supply curve is its:

A reduction in variable production costs shifts the firm's ___ and _ curves _____ in the short run.

If price is less than average variable cost at the profit-maximizing quantity of output in the short run, a perfectly competitive firm will:

Use the following to answer question(s): Exhibit: The Market for Carrots -(Exhibit: The Market for Carrots) If demand is D₁, the price of carrots will be ___ cents, the quantity demanded will be _ , and the quantity supplied will be _____ .

If a perfectly competitive firm is producing a quantity that generates P = MC, then profit:

If an industry experiences constant costs as industry output expands, the long-run industry supply curve will be:

In the short run, a perfectly competitive firm produces output and incurs an economic loss if:

Use the following to answer question(s): Exhibit: Profit Maximizing -(Exhibit: Profit Maximizing) The exhibit shows cost curves for a firm operating in a perfectly competitive market. If the market price is P₄, the firm will produce quantity _ and _ in the short run.

The primary application of the model of perfect competition is to predict how firms will respond to changes in demand and production costs.

If a firm in perfect competition sells 500 units of a product at $10 per unit, its marginal revenue per unit is $10.

Discuss and explain how the marginal decision rule, MR = MC, will result in profit maximization for the firm in perfect competition. Why can economic profit exist in the short run but not in the long run?

Provided that there are no external benefits or costs, in the long run, perfect competition will result in an efficient allocation of resources because P = MC.

The firm's supply curve in perfect competition is the MC curve.

Use the following to answer question(s): Exhibit: Supply: Short and Long Run -(Exhibit: Supply: Short and Long Run) If industry expansion tends to increase production costs, then the relevant long-run supply curve is:

Economic profit exists when total revenue exceeds total cost.

If a perfectly competitive industry is characterized by increasing cost in the long run, its long-run:

Economics: The Study of Choice

Confronting Scarcity: Choices in Production

Demand and Supply

Applications of Supply and Demand

Elasticity: a Measure of Response

Markets, Maximizers, and Efficiency

The Analysis of Consumer Choice

Production and Cost

Monopoly

The World of Imperfect Competition

Wages and Employment in Perfect Competition

Interest Rates and the Markets for Capital and Natural Resources

Imperfectly Competitive Markets for Factors of Production

Public Finance and Public Choice

Antitrust Policy and Business Regulation

International Trade

The Economics of the Environment

Inequality, Poverty, and Discrimination

Filters

Exam 9: Competitive Markets for Goods and Services

If a perfectly competitive firm is producing a quantity that generates P < MC, then profit:

Economic profit cannot exist under perfect competition.

Suppose that the market for candy canes operates under conditions of perfect competition, that it is initially in long-run equilibrium, and that the price of each candy cane is $0.10. Based on the information given, we can conclude that a typical producer of candy canes is experiencing:

A perfectly competitive firm's short-run supply curve is its:

A reduction in variable production costs shifts the firm's _______ and _______ curves _______ in the short run.

If price is less than average variable cost at the profit-maximizing quantity of output in the short run, a perfectly competitive firm will:

Use the following to answer question(s): Exhibit: The Market for Carrots -(Exhibit: The Market for Carrots) If demand is D1, the price of carrots will be _______ cents, the quantity demanded will be _______ , and the quantity supplied will be _______ .

If a perfectly competitive firm is producing a quantity that generates P = MC, then profit:

If an industry experiences constant costs as industry output expands, the long-run industry supply curve will be:

In the short run, a perfectly competitive firm produces output and incurs an economic loss if:

Use the following to answer question(s): Exhibit: Profit Maximizing -(Exhibit: Profit Maximizing) The exhibit shows cost curves for a firm operating in a perfectly competitive market. If the market price is P4, the firm will produce quantity _______ and _______ in the short run.

The primary application of the model of perfect competition is to predict how firms will respond to changes in demand and production costs.

If a firm in perfect competition sells 500 units of a product at $10 per unit, its marginal revenue per unit is $10.

Discuss and explain how the marginal decision rule, MR = MC, will result in profit maximization for the firm in perfect competition. Why can economic profit exist in the short run but not in the long run?

Provided that there are no external benefits or costs, in the long run, perfect competition will result in an efficient allocation of resources because P = MC.

The firm's supply curve in perfect competition is the MC curve.

Use the following to answer question(s): Exhibit: Supply: Short and Long Run -(Exhibit: Supply: Short and Long Run) If industry expansion tends to increase production costs, then the relevant long-run supply curve is:

Economic profit exists when total revenue exceeds total cost.

If a perfectly competitive industry is characterized by increasing cost in the long run, its long-run:

Economics: The Study of Choice

Confronting Scarcity: Choices in Production

Demand and Supply

Applications of Supply and Demand

Elasticity: a Measure of Response

Markets, Maximizers, and Efficiency

The Analysis of Consumer Choice

Production and Cost

Monopoly

The World of Imperfect Competition

Wages and Employment in Perfect Competition

Interest Rates and the Markets for Capital and Natural Resources

Imperfectly Competitive Markets for Factors of Production

Public Finance and Public Choice

Antitrust Policy and Business Regulation

International Trade

The Economics of the Environment

Inequality, Poverty, and Discrimination

Filters

A reduction in variable production costs shifts the firm's ___ and _ curves _____ in the short run.

Use the following to answer question(s): Exhibit: The Market for Carrots -(Exhibit: The Market for Carrots) If demand is D₁, the price of carrots will be ___ cents, the quantity demanded will be _ , and the quantity supplied will be _____ .

Use the following to answer question(s): Exhibit: Profit Maximizing -(Exhibit: Profit Maximizing) The exhibit shows cost curves for a firm operating in a perfectly competitive market. If the market price is P₄, the firm will produce quantity _ and _ in the short run.