Question 1

Which of the following is true of a long-run competitive equilibrium?

Accepted Answer

A) The market has a horizontal long-run supply curve. 
B) Inputs employed in the industry cannot earn more in other industries. 
C) Firms in the market earn high abnormal profits. 
D) Firms face constant input costs irrespective of the output level. 
A) The market has a horizontal long-run supply curve. 
B) Inputs employed in the industry cannot earn more in other industries. 
C) Firms in the market earn high abnormal profits. 
D) Firms face constant input costs irrespective of the output level.

Question 2

Resources are not free to move into and out of an industry when:

Accepted Answer

A) there are no differential impediments across firms in the mobility of resources. 
B) a firm experiences economies of scale. 
C) an incumbent firm has an exclusive government patent. 
D) firms are price takers. 
A) there are no differential impediments across firms in the mobility of resources. 
B) a firm experiences economies of scale. 
C) an incumbent firm has an exclusive government patent. 
D) firms are price takers.

Question 3

Which of the following will reduce the competitive nature of the agricultural industry?

Accepted Answer

A) There are restrictions on price volatility in the agricultural market. 
B) The output of the agricultural industry is more or less homogeneous. 
C) The number of farms across the country is relatively large. 
D) There are no import and export restrictions on agricultural products. 
A) There are restrictions on price volatility in the agricultural market. 
B) The output of the agricultural industry is more or less homogeneous. 
C) The number of farms across the country is relatively large. 
D) There are no import and export restrictions on agricultural products.

Question 4

In the long-run,firms in a competitive industry earn only a normal rate of return because:

Accepted Answer

A) decreasing returns to scale causes per unit costs to rise. 
B) input prices will rise in the long-run and eliminate abnormal profits. 
C) entry of new firms will eliminate abnormal profits. 
D) profit per unit declines in the long-run. 
A) decreasing returns to scale causes per unit costs to rise. 
B) input prices will rise in the long-run and eliminate abnormal profits. 
C) entry of new firms will eliminate abnormal profits. 
D) profit per unit declines in the long-run.

Question 5

The following figure shows the total cost and total revenue for a firm when it prices its products at $8 and $10.
Figure 9-1  
-Refer to Figure 9-1.When the firm is producing the profit-maximizing level of output at a price of $10:

Accepted Answer

A) total fixed costs are OA. 
B) economic profits equal BH. 
C) average cost equals DG divided by OG. 
D) total cost is minimized at B. 
A) total fixed costs are OA. 
B) economic profits equal BH. 
C) average cost equals DG divided by OG. 
D) total cost is minimized at B.

Question 6

Which of the following correctly explains the effect of a price ceiling in a market?

Accepted Answer

A) The sales of the product will increase. 
B) The demand for the product will exceed supply resulting in a shortage. 
C) The number of new firms in the market will increase. 
D) The output produced in the market will increase. 
A) The sales of the product will increase. 
B) The demand for the product will exceed supply resulting in a shortage. 
C) The number of new firms in the market will increase. 
D) The output produced in the market will increase.

Question 7

Assume that labor is the variable input for a firm.Which of the following will occur if the wage rate increases?

Accepted Answer

A) Its average variable cost,average fixed cost,average total cost,and marginal costs will increase. 
B) Its average variable cost and average total costs will increase and profits will decrease. 
C) Its marginal cost,average total costs,and output will increase. 
D) Its marginal cost and average variable costs will increase. 
A) Its average variable cost,average fixed cost,average total cost,and marginal costs will increase. 
B) Its average variable cost and average total costs will increase and profits will decrease. 
C) Its marginal cost,average total costs,and output will increase. 
D) Its marginal cost and average variable costs will increase.

Question 8

If market price is below a competitive firm's average total cost,the firm should:

Accepted Answer

A) shut down only if the price is above its average variable cost. 
B) shut down immediately. 
C) remain open as long as its average revenue is greater than its average variable cost. 
D) expand output in the short-run and expand its production capacity. 
A) shut down only if the price is above its average variable cost. 
B) shut down immediately. 
C) remain open as long as its average revenue is greater than its average variable cost. 
D) expand output in the short-run and expand its production capacity.

Question 9

Explain the difference between diminishing marginal returns to factor and a decreasing-cost industry.

Accepted Answer

The upward slope of the short-run indust

Question 10

The short-run supply curve for a perfectly competitive industry is:

Accepted Answer

A) downward sloping because of the law of diminishing marginal returns. 
B) derived by summing the individual firms' marginal cost curves horizontally. 
C) perfectly elastic in the case of homogeneous products. 
D) the negatively sloped portion of the marginal cost curve. 
A) downward sloping because of the law of diminishing marginal returns. 
B) derived by summing the individual firms' marginal cost curves horizontally. 
C) perfectly elastic in the case of homogeneous products. 
D) the negatively sloped portion of the marginal cost curve.

Question 11

The following figure shows the marginal cost curve,the average cost curve,the average variable cost curve,and the demand curve for a firm over different levels of output.The market price is $P.
Figure 9-4  
-Refer to Figure 9-4.Given that the market price is $P,the firm will be operating at a loss of _____.

Accepted Answer

A) TBOV 
B) RZOA 
C) KTVP 
D) GKPS 
A) TBOV 
B) RZOA 
C) KTVP 
D) GKPS

Question 12

Assume that coffee shops operate in a perfectly competitive industry.A single coffee shop,Brick & Mortar,decides to charge an entrance fee in addition to charges for its coffee and pastry.Which of the following is most likely to happen?

Accepted Answer

A) Brick & Mortar can continue to charge the entrance fee in the long-run since there is free entry into the coffee shop industry. 
B) As long as the coffee shop industry is perfectly competitive,customers will be willing to pay the extra charges. 
C) Brick & Mortar will not be able to sustain the extra charges as customers will move to coffee shops that are cheaper. 
D) Brick & Mortar can charge their customers extra because there are a large number of buyers and sellers in the coffee shop industry. 
A) Brick & Mortar can continue to charge the entrance fee in the long-run since there is free entry into the coffee shop industry. 
B) As long as the coffee shop industry is perfectly competitive,customers will be willing to pay the extra charges. 
C) Brick & Mortar will not be able to sustain the extra charges as customers will move to coffee shops that are cheaper. 
D) Brick & Mortar can charge their customers extra because there are a large number of buyers and sellers in the coffee shop industry.

Question 13

Abe's Taxi Company operates in a perfectly competitive market.Gasoline is a variable input in the taxi services industry.As the price of gasoline decreases,the short-run marginal cost curve for Abe's Taxi Company:

Accepted Answer

A) shifts up and to the left. 
B) shifts down and to the right. 
C) remains unchanged. 
D) becomes flatter. 
A) shifts up and to the left. 
B) shifts down and to the right. 
C) remains unchanged. 
D) becomes flatter.

Question 14

The following figure shows the marginal cost curve,average total cost curve,average variable cost curve,and marginal revenue curve for a firm for different levels of output.
Figure 9-3  
-At the output level of OC in Figure 9-3,average profit per unit of output is equal to _____.

Accepted Answer

A) GZ 
B) MG 
C) ZM 
D) GC 
A) GZ 
B) MG 
C) ZM 
D) GC

Question 15

Which one of the following is not an assumption of the competitive model?

Accepted Answer

A) Homogenous products 
B) Unrestricted mobility of resources 
C) Economies of scale 
D) Perfect information 
A) Homogenous products 
B) Unrestricted mobility of resources 
C) Economies of scale 
D) Perfect information

Question 16

Firms in an industry are unlikely to have pricing power if:

Accepted Answer

A) elasticity of demand for the product is high. 
B) the product is not homogeneous. 
C) the firms' elasticity of supply is high. 
D) there are barriers to entry in the market. 
A) elasticity of demand for the product is high. 
B) the product is not homogeneous. 
C) the firms' elasticity of supply is high. 
D) there are barriers to entry in the market.

Question 17

During the 1970s,oil prices reached historical highs,causing many competitive industries to reduce the supply of goods and services.Which of the following is the most likely explanation for this reduction in supply?

Accepted Answer

A) The total fixed cost of the firms would have increased due to the higher price of oil. 
B) The marginal cost curves of the firms most likely shifted upward. 
C) The supply curves of firms may have shifted downward. 
D) The average total cost of these firms mostly likely shifted downward due to the high inflation. 
A) The total fixed cost of the firms would have increased due to the higher price of oil. 
B) The marginal cost curves of the firms most likely shifted upward. 
C) The supply curves of firms may have shifted downward. 
D) The average total cost of these firms mostly likely shifted downward due to the high inflation.

Question 18

In the short-run,if the price falls,the firm will respond by:

Accepted Answer

A) liquidating its assets and shutting down. 
B) producing at the output level where average variable cost is equal to marginal revenue. 
C) reducing output along its marginal cost curve as long as marginal revenue exceeds average variable cost. 
D) increasing its output in order to sell higher quantities. 
A) liquidating its assets and shutting down. 
B) producing at the output level where average variable cost is equal to marginal revenue. 
C) reducing output along its marginal cost curve as long as marginal revenue exceeds average variable cost. 
D) increasing its output in order to sell higher quantities.

Question 19

The long-run cost function faced by each producer in a perfectly competitive industry is given by: MC(Q)= 20 - 6Q + Q2.The corresponding long-run average cost function is AC(Q)= 20 - 3Q + Q2/3.The market demand curve for the product is D(P)= 1100 - 50P.
A)What is the long-run equilibrium price in this industry? At this price,how much would an individual firm produce?

Accepted Answer

In the long-run all firms earn zero econ

Question 20

In the short-run,if a competitive firm finds itself operating at a loss,it will:

Accepted Answer

A) have to shut down and exit the market. 
B) continue to operate as long as price is greater than average variable cost. 
C) liquidate all its assets to ensure cash flow. 
D) reduce the size of its plant to lower fixed costs. 
A) have to shut down and exit the market. 
B) continue to operate as long as price is greater than average variable cost. 
C) liquidate all its assets to ensure cash flow. 
D) reduce the size of its plant to lower fixed costs.

Which of the following is true of a long-run competitive equilibrium?

Resources are not free to move into and out of an industry when:

Which of the following will reduce the competitive nature of the agricultural industry?

In the long-run,firms in a competitive industry earn only a normal rate of return because:

The following figure shows the total cost and total revenue for a firm when it prices its products at $8 and $10. Figure 9-1 -Refer to Figure 9-1.When the firm is producing the profit-maximizing level of output at a price of $10:

Which of the following correctly explains the effect of a price ceiling in a market?

Assume that labor is the variable input for a firm.Which of the following will occur if the wage rate increases?

If market price is below a competitive firm's average total cost,the firm should:

Explain the difference between diminishing marginal returns to factor and a decreasing-cost industry.

The short-run supply curve for a perfectly competitive industry is:

Assume that coffee shops operate in a perfectly competitive industry.A single coffee shop,Brick & Mortar,decides to charge an entrance fee in addition to charges for its coffee and pastry.Which of the following is most likely to happen?

Abe's Taxi Company operates in a perfectly competitive market.Gasoline is a variable input in the taxi services industry.As the price of gasoline decreases,the short-run marginal cost curve for Abe's Taxi Company:

The following figure shows the marginal cost curve,average total cost curve,average variable cost curve,and marginal revenue curve for a firm for different levels of output. Figure 9-3 -At the output level of OC in Figure 9-3,average profit per unit of output is equal to _____.

Which one of the following is not an assumption of the competitive model?

Firms in an industry are unlikely to have pricing power if:

During the 1970s,oil prices reached historical highs,causing many competitive industries to reduce the supply of goods and services.Which of the following is the most likely explanation for this reduction in supply?

In the short-run,if the price falls,the firm will respond by:

In the short-run,if a competitive firm finds itself operating at a loss,it will:

An Introduction to Microeconomics

Supply and Demand

The Theory of Consumer Choice

Individual and Market Demand

Using Consumer Choice Theory

Exchange, Efficiency, and Prices

Production

The Cost of Production

Using the Competitive Model

Monopoly

Product Pricing With Monopoly Power

Monopolistic Competition and Oligopoly

Game Theory and the Economics of Information

Using Noncompetitive Market Models

Employment and Pricing of Inputs

Wages, Rent, Interest, and Profit

Using Input Market Analysis

General Equilibrium Analysis and Economic Efficiency

Public Goods and Externalities

Filters

Exam 9: Profit Maximization in Perfectly Competitive Markets

Which of the following is true of a long-run competitive equilibrium?

Resources are not free to move into and out of an industry when:

Which of the following will reduce the competitive nature of the agricultural industry?

In the long-run,firms in a competitive industry earn only a normal rate of return because:

The following figure shows the total cost and total revenue for a firm when it prices its products at $8 and $10. Figure 9-1 -Refer to Figure 9-1.When the firm is producing the profit-maximizing level of output at a price of $10:

Which of the following correctly explains the effect of a price ceiling in a market?

Assume that labor is the variable input for a firm.Which of the following will occur if the wage rate increases?

If market price is below a competitive firm's average total cost,the firm should:

Explain the difference between diminishing marginal returns to factor and a decreasing-cost industry.

The short-run supply curve for a perfectly competitive industry is:

Assume that coffee shops operate in a perfectly competitive industry.A single coffee shop,Brick & Mortar,decides to charge an entrance fee in addition to charges for its coffee and pastry.Which of the following is most likely to happen?

Abe's Taxi Company operates in a perfectly competitive market.Gasoline is a variable input in the taxi services industry.As the price of gasoline decreases,the short-run marginal cost curve for Abe's Taxi Company:

The following figure shows the marginal cost curve,average total cost curve,average variable cost curve,and marginal revenue curve for a firm for different levels of output. Figure 9-3 -At the output level of OC in Figure 9-3,average profit per unit of output is equal to _____.

Which one of the following is not an assumption of the competitive model?

Firms in an industry are unlikely to have pricing power if:

During the 1970s,oil prices reached historical highs,causing many competitive industries to reduce the supply of goods and services.Which of the following is the most likely explanation for this reduction in supply?

In the short-run,if the price falls,the firm will respond by:

In the short-run,if a competitive firm finds itself operating at a loss,it will:

An Introduction to Microeconomics

Supply and Demand

The Theory of Consumer Choice

Individual and Market Demand

Using Consumer Choice Theory

Exchange, Efficiency, and Prices

Production

The Cost of Production

Using the Competitive Model

Monopoly

Product Pricing With Monopoly Power

Monopolistic Competition and Oligopoly

Game Theory and the Economics of Information

Using Noncompetitive Market Models

Employment and Pricing of Inputs

Wages, Rent, Interest, and Profit

Using Input Market Analysis

General Equilibrium Analysis and Economic Efficiency

Public Goods and Externalities

Filters