Question 1

What is allocative efficiency?

Accepted Answer

A)  It refers to a situation in which resources are allocated to their highest profit use. 
B)  It refers to a situation in which resources are allocated such that goods can be produced at their lowest possible average cost. 
C)  It refers to a situation in which resources are allocated such that the last unit of output produced provides a marginal benefit to consumers equal to the marginal cost of producing it. 
D)  It refers to a situation in which resources are allocated fairly to all consumers in a society. 
A)  It refers to a situation in which resources are allocated to their highest profit use. 
B)  It refers to a situation in which resources are allocated such that goods can be produced at their lowest possible average cost. 
C)  It refers to a situation in which resources are allocated such that the last unit of output produced provides a marginal benefit to consumers equal to the marginal cost of producing it. 
D)  It refers to a situation in which resources are allocated fairly to all consumers in a society.

Question 2

Which of the following describes the difference between the market demand curve for a perfectly competitive industry and the demand curve for a firm in this industry?

Accepted Answer

A)  The market demand curve is a horizontal line; the firm's demand curve is downward sloping. 
B)  The market demand curve is downward sloping; the firm's demand curve is a vertical line. 
C)  The market demand curve cannot have a constant slope; the firm's demand curve has a slope equal to zero. 
D)  The market demand curve is downward sloping; the firm's demand curve is a horizontal line. 
A)  The market demand curve is a horizontal line; the firm's demand curve is downward sloping. 
B)  The market demand curve is downward sloping; the firm's demand curve is a vertical line. 
C)  The market demand curve cannot have a constant slope; the firm's demand curve has a slope equal to zero. 
D)  The market demand curve is downward sloping; the firm's demand curve is a horizontal line.

Question 3

The minimum point on the average variable cost curve is called the loss-minimising point.

Accepted Answer

A) True 
 B)False

Question 4

-Refer to Figure 8-4. If the market price is $30, the firm's profit-maximising output level is

Accepted Answer

A)  0. 
B)  130. 
C)  180. 
D)  240. 
A)  0. 
B)  130. 
C)  180. 
D)  240.

Question 5

-Refer to Figure 8-6. Suppose the market price is $120. Which of the following is true?

Accepted Answer

A)  The firm earns a profit equal to the area A. 
B)  The firm earns a profit equal to the area A + B. 
C)  The firm suffers a loss equal to the area A. 
D)  The firm will break even. 
A)  The firm earns a profit equal to the area A. 
B)  The firm earns a profit equal to the area A + B. 
C)  The firm suffers a loss equal to the area A. 
D)  The firm will break even.

Question 6

If a typical firm in a perfectly competitive industry is earning profits, then

Accepted Answer

A)  all firms will continue to earn profits. 
B)  new firms will enter in the long run causing market supply to decrease, market price to rise and profits to increase. 
C)  new firms will enter in the long run causing market supply to increase, market price to fall and profits to decrease. 
D)  the number of firms in the industry will remain constant in the long run. 
A)  all firms will continue to earn profits. 
B)  new firms will enter in the long run causing market supply to decrease, market price to rise and profits to increase. 
C)  new firms will enter in the long run causing market supply to increase, market price to fall and profits to decrease. 
D)  the number of firms in the industry will remain constant in the long run.

Question 7

If a firm in a perfectly competitive industry experiences persistent losses, in the long run it should

Accepted Answer

A)  shut down temporarily and wait for market conditions to change. 
B)  exit the industry. 
C)  raise its price to cover average total cost. 
D)  continue to operate if it can raise the demand for its product through advertising and quality improvements. 
A)  shut down temporarily and wait for market conditions to change. 
B)  exit the industry. 
C)  raise its price to cover average total cost. 
D)  continue to operate if it can raise the demand for its product through advertising and quality improvements.

Question 8

Which of the following is the best example of a perfectly competitive industry?

Accepted Answer

A)  wheat production 
B)  steel production 
C)  electricity production 
D)  airplane production 
A)  wheat production 
B)  steel production 
C)  electricity production 
D)  airplane production

Question 9

Assume that the personal computer industry is perfectly competitive. The fact that the price of personal computers over the last decade has fallen despite increases in demand signifies that the industry is a decreasing-cost industry.

Accepted Answer

A) True 
 B)False

Question 10

Under what conditions should a competitive firm shut down in the short run?

Accepted Answer

When market price is below ave

Question 11

Perfectly competitive industries tend to produce low-priced, low-technology products.

Accepted Answer

A) True 
 B)False

Question 12

-In a graph with output on the horizontal axis and total revenue on the vertical axis, what is the shape of the total revenue curve for a perfectly competitive seller?

Accepted Answer

A)  U-shaped 
B)  inverted U-shaped 
C)  a horizontal line 
D)  a ray from the origin 
A)  U-shaped 
B)  inverted U-shaped 
C)  a horizontal line 
D)  a ray from the origin

Question 13

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

Accepted Answer

A)  The firm cannot make a profit in the short run because it is too small a part of the total market. 
B)  The firm can make a profit in the long run but not in the short run. 
C)  The firm can sell as much as it wants without having to lower its price. 
D)  The firm must lower its price in order to increase quantity demanded. 
A)  The firm cannot make a profit in the short run because it is too small a part of the total market. 
B)  The firm can make a profit in the long run but not in the short run. 
C)  The firm can sell as much as it wants without having to lower its price. 
D)  The firm must lower its price in order to increase quantity demanded.

Question 14

Letters are used to represent the terms used to answer this question: price (P), quantity of output (Q), total cost (TC) and average total cost (ATC). Which of the following equations is equal to a firm's average profit?

Accepted Answer

A)  P - ATC 
B)  (P - AT
C)  × Q 
C)  (P × Q) - TC 
D)  P - TC 
A)  P - ATC 
B)  (P - AT
C)  × Q 
C)  (P × Q) - TC 
D)  P - TC

Question 15

A perfectly competitive wheat farmer in a constant-cost industry produces 3000 bushels of wheat at a total cost of $36 000. The prevailing market price is $15. What will happen to the market price of wheat in the long run?

Accepted Answer

A)  The price remains constant at $15. 
B)  The price falls to $12. 
C)  The price rises above $15. 
D)  There is insufficient information to answer the question. 
A)  The price remains constant at $15. 
B)  The price falls to $12. 
C)  The price rises above $15. 
D)  There is insufficient information to answer the question.

Question 16

In early 2007, Pioneer and JVC, two Japanese electronics firms, each announced that their profits were going to be lower than expected because they both had to cut prices for LCD and plasma television sets. Which of the following could explain why these firms did not simply raise their prices and increase their profits?

Accepted Answer

A)  The move to cut prices is probably just a temporary one to gain market share. In the long run the firms will raise prices and be able to increase their profits. 
B)  Most likely, intense competition between these two major producers probably pushed prices down. Thereafter, each feared that it would lose its customers to the other if it raised its prices. 
C)  In perfect competition, prices are determined by the market, and firms will keep lowering prices until there are no profits to be earned. 
D)  The firms are still making profits, just not as high as expected, so there is room to lower prices until one can force the other out of business. 
A)  The move to cut prices is probably just a temporary one to gain market share. In the long run the firms will raise prices and be able to increase their profits. 
B)  Most likely, intense competition between these two major producers probably pushed prices down. Thereafter, each feared that it would lose its customers to the other if it raised its prices. 
C)  In perfect competition, prices are determined by the market, and firms will keep lowering prices until there are no profits to be earned. 
D)  The firms are still making profits, just not as high as expected, so there is room to lower prices until one can force the other out of business.

Question 17

Why are individual buyers and sellers in perfect competition called price takers?

Accepted Answer

They are called price takers b

Question 18

If price = marginal cost at the output produced by a perfectly competitive firm and the firm is earning an economic profit, then

Accepted Answer

A)  marginal revenue is less than price. 
B)  average total cost is at a minimum. 
C)  total revenue equals total cost. 
D)  price exceeds average total cost. 
A)  marginal revenue is less than price. 
B)  average total cost is at a minimum. 
C)  total revenue equals total cost. 
D)  price exceeds average total cost.

Question 19

-Refer to Figure 8-14. Which panel best represents the perfectly competitive organic produce market's transition to the long run when some firms in the market are earning economic profits?

Accepted Answer

A)  Panel A 
B)  Panel B 
C)  Panel C 
D)  Panel D 
A)  Panel A 
B)  Panel B 
C)  Panel C 
D)  Panel D

Question 20

Which of the following is not a characteristic of a monopolistically competitive market structure?

Accepted Answer

A)  There is a large number of independently acting small sellers. 
B)  All sellers sell products that are differentiated. 
C)  There are low barriers to entry of new firms. 
D)  Each firm must react to actions of other firms. 
A)  There is a large number of independently acting small sellers. 
B)  All sellers sell products that are differentiated. 
C)  There are low barriers to entry of new firms. 
D)  Each firm must react to actions of other firms.

What is allocative efficiency?

Which of the following describes the difference between the market demand curve for a perfectly competitive industry and the demand curve for a firm in this industry?

The minimum point on the average variable cost curve is called the loss-minimising point.

-Refer to Figure 8-4. If the market price is $30, the firm's profit-maximising output level is

-Refer to Figure 8-6. Suppose the market price is $120. Which of the following is true?

If a typical firm in a perfectly competitive industry is earning profits, then

If a firm in a perfectly competitive industry experiences persistent losses, in the long run it should

Which of the following is the best example of a perfectly competitive industry?

Assume that the personal computer industry is perfectly competitive. The fact that the price of personal computers over the last decade has fallen despite increases in demand signifies that the industry is a decreasing-cost industry.

Under what conditions should a competitive firm shut down in the short run?

Perfectly competitive industries tend to produce low-priced, low-technology products.

-In a graph with output on the horizontal axis and total revenue on the vertical axis, what is the shape of the total revenue curve for a perfectly competitive seller?

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

Letters are used to represent the terms used to answer this question: price (P), quantity of output (Q), total cost (TC) and average total cost (ATC). Which of the following equations is equal to a firm's average profit?

A perfectly competitive wheat farmer in a constant-cost industry produces 3000 bushels of wheat at a total cost of $36 000. The prevailing market price is $15. What will happen to the market price of wheat in the long run?

Why are individual buyers and sellers in perfect competition called price takers?

If price = marginal cost at the output produced by a perfectly competitive firm and the firm is earning an economic profit, then

-Refer to Figure 8-14. Which panel best represents the perfectly competitive organic produce market's transition to the long run when some firms in the market are earning economic profits?

Which of the following is not a characteristic of a monopolistically competitive market structure?

Economics Foundations and Models

Choices and Trade - Offs in the Market

Where Prices Come Frome : The Interaction of Demand and Supply

Elasticity: The Responsiveness of Demand and Supply

Economic Efficiency , Government Price Setting and Taxes

Concumer Choice and Behavioural Economics

Technology , Production and Costs

Monopoly Markets

Monopolistic Competition : The Competitive Model in More Realistic Setting

Oligopoly : Firms in Less Competitve Markets

The Market for Labour and Other Factors of Production

International Trade

Government Intervention in the Market

Externalities , Environmental Policy and Public Goods

The Distribution of Income and Social Policy

Filters

Exam 8: Firms in Perfectly Compitive Markets

What is allocative efficiency?

Which of the following describes the difference between the market demand curve for a perfectly competitive industry and the demand curve for a firm in this industry?

The minimum point on the average variable cost curve is called the loss-minimising point.

-Refer to Figure 8-4. If the market price is $30, the firm's profit-maximising output level is

-Refer to Figure 8-6. Suppose the market price is $120. Which of the following is true?

If a typical firm in a perfectly competitive industry is earning profits, then

If a firm in a perfectly competitive industry experiences persistent losses, in the long run it should

Which of the following is the best example of a perfectly competitive industry?

Assume that the personal computer industry is perfectly competitive. The fact that the price of personal computers over the last decade has fallen despite increases in demand signifies that the industry is a decreasing-cost industry.

Under what conditions should a competitive firm shut down in the short run?

Perfectly competitive industries tend to produce low-priced, low-technology products.

-In a graph with output on the horizontal axis and total revenue on the vertical axis, what is the shape of the total revenue curve for a perfectly competitive seller?

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

Letters are used to represent the terms used to answer this question: price (P), quantity of output (Q), total cost (TC) and average total cost (ATC). Which of the following equations is equal to a firm's average profit?

A perfectly competitive wheat farmer in a constant-cost industry produces 3000 bushels of wheat at a total cost of $36 000. The prevailing market price is $15. What will happen to the market price of wheat in the long run?

Why are individual buyers and sellers in perfect competition called price takers?

If price = marginal cost at the output produced by a perfectly competitive firm and the firm is earning an economic profit, then

-Refer to Figure 8-14. Which panel best represents the perfectly competitive organic produce market's transition to the long run when some firms in the market are earning economic profits?

Which of the following is not a characteristic of a monopolistically competitive market structure?

Economics Foundations and Models

Choices and Trade - Offs in the Market

Where Prices Come Frome : The Interaction of Demand and Supply

Elasticity: The Responsiveness of Demand and Supply

Economic Efficiency , Government Price Setting and Taxes

Concumer Choice and Behavioural Economics

Technology , Production and Costs

Monopoly Markets

Monopolistic Competition : The Competitive Model in More Realistic Setting

Oligopoly : Firms in Less Competitve Markets

The Market for Labour and Other Factors of Production

International Trade

Government Intervention in the Market

Externalities , Environmental Policy and Public Goods

The Distribution of Income and Social Policy

Filters