Question 1

Normal profits in a competitive industry refer to positive long-run profits.

Accepted Answer

A) True 
 B)False

Question 2

There is a tendency for economic profit in all competitive industries to go to zero.

Accepted Answer

A) True 
 B)False

Question 3

The elimination principle, a general feature of competitive markets, tells us that:

Accepted Answer

A)  below-normal profits may be permanent. 
B)  above-normal profits may be permanent. 
C)  above-normal profits are temporary. 
D)  above-normal profits result in firms exiting the industry. 
A)  below-normal profits may be permanent. 
B)  above-normal profits may be permanent. 
C)  above-normal profits are temporary. 
D)  above-normal profits result in firms exiting the industry.

Question 4

Entrepreneurs have the incentive to:

Accepted Answer

A)  follow the orders of the central planner. 
B)  move resources into those industries with the lowest marginal costs. 
C)  minimize marginal costs. 
D)  move resources out of low-value industries and into high-value industries. 
A)  follow the orders of the central planner. 
B)  move resources into those industries with the lowest marginal costs. 
C)  minimize marginal costs. 
D)  move resources out of low-value industries and into high-value industries.

Question 5

The Invisible Hand Property 2 maintains that:

Accepted Answer

A)  the right mix of resources will be found in each industry, maximizing the total value of production. 
B)  entry barriers prevent profit signals from working in competitive markets. 
C)  resources are allocated by greatest need for the greatest number. 
D)  production costs are minimized. 
A)  the right mix of resources will be found in each industry, maximizing the total value of production. 
B)  entry barriers prevent profit signals from working in competitive markets. 
C)  resources are allocated by greatest need for the greatest number. 
D)  production costs are minimized.

Question 6

Competitive firms want to produce the quantity such that:

Accepted Answer

A) P = MC. B) P > MC. C) P > AC. D) P < AC. A) P = MC. B) P > MC. C) P > AC. D) P < AC.

Question 7

Use the following to answer questions:
Figure: Marginal Costs 1  
-Figure: Marginal Costs 2   This figure shows the production costs of two firms that produce bird feeders. If these two firms represent total production in the industry, how should they allocate the production of 200 bird feeders to minimize costs?

Accepted Answer

A)  Firm 2 should produce all 200 bird feeders. 
B)  Firm 1 should produce all 200 bird feeders. 
C)  Firm 1 should produce 150 bird feeders, and Firm 2 should produce 50 bird feeders. 
D)  Firm 1 should produce 100 bird feeders, and Firm 2 should produce 100 bird feeders. 
A)  Firm 2 should produce all 200 bird feeders. 
B)  Firm 1 should produce all 200 bird feeders. 
C)  Firm 1 should produce 150 bird feeders, and Firm 2 should produce 50 bird feeders. 
D)  Firm 1 should produce 100 bird feeders, and Firm 2 should produce 100 bird feeders.

Question 8

If a firm has revenues of $125, explicit costs of $25, and implicit costs of $50, then its economic profit is:

Accepted Answer

A)  $0. 
B)  $50. 
C)  $100. 
D)  $500. 
A)  $0. 
B)  $50. 
C)  $100. 
D)  $500.

Question 9

Which of the following best help entrepreneurs identify low-value industries versus high-value industries?

Accepted Answer

A)  marginal costs 
B)  price signals 
C)  central planner 
D)  total costs 
A)  marginal costs 
B)  price signals 
C)  central planner 
D)  total costs

Question 10

When resources move from a low-profit industry into a high-profit industry,:

Accepted Answer

A)  supply in the low-profit industry decreases, raising the market price. 
B)  demand in the low-profit industry decreases, lowering the market price. 
C)  supply in the high-profit industry decreases, raising the market price. 
D)  supply in the high-profit industry increases, raising the market price. 
A)  supply in the low-profit industry decreases, raising the market price. 
B)  demand in the low-profit industry decreases, lowering the market price. 
C)  supply in the high-profit industry decreases, raising the market price. 
D)  supply in the high-profit industry increases, raising the market price.

Question 11

In a perfectly competitive market,:

Accepted Answer

A)  marginal costs will be less than average costs. 
B)  all firms will produce an equal amount of output. 
C)  total industry costs of production are minimized. 
D)  market price will equal the total cost of production. 
A)  marginal costs will be less than average costs. 
B)  all firms will produce an equal amount of output. 
C)  total industry costs of production are minimized. 
D)  market price will equal the total cost of production.

Question 12

Perfectly price discriminating monopolists earn ______ profits.

Accepted Answer

A)  normal 
B)  above-normal 
C)  below-normal 
D)  abnormal 
A)  normal 
B)  above-normal 
C)  below-normal 
D)  abnormal

Question 13

In a competitive market, the amount of a good produced is such that social surplus is:

Accepted Answer

A)  minimized. 
B)  zero. 
C)  hidden. 
D)  maximized. 
A)  minimized. 
B)  zero. 
C)  hidden. 
D)  maximized.

Question 14

Which of the following factors cause markets to be dynamic?
I. changes in tastes
II. changes in technology
III. new idea development

Accepted Answer

A)  I and II only 
B)  II only 
C)  I, II, and III 
D)  I only 
A)  I and II only 
B)  II only 
C)  I, II, and III 
D)  I only

Question 15

The invisible hand works best in:

Accepted Answer

A)  monopoly markets. 
B)  oligopoly markets. 
C)  cartels. 
D)  competitive markets. 
A)  monopoly markets. 
B)  oligopoly markets. 
C)  cartels. 
D)  competitive markets.

Question 16

For a competitive firm, which of the following conditions describes the profit maximization condition?
I. P = MC
II. MR = MC
III. TR = TC

Accepted Answer

A)  II only 
B)  I and II only 
C)  II and III only 
D)  I, II, and III 
A)  II only 
B)  I and II only 
C)  II and III only 
D)  I, II, and III

Question 17

Since a competitive firm sets MR = P to determine all quantities in the short run, we can conclude that:

Accepted Answer

A)  each firm in the industry faces very large fixed costs. 
B)  the demand curve faced by each individual competitive firm is perfectly elastic. 
C)  the demand curve faced by each individual competitive firm is downward sloping. 
D)  the industry demand curve is perfectly elastic. 
A)  each firm in the industry faces very large fixed costs. 
B)  the demand curve faced by each individual competitive firm is perfectly elastic. 
C)  the demand curve faced by each individual competitive firm is downward sloping. 
D)  the industry demand curve is perfectly elastic.

Question 18

The following are marginal cost curves for selling chicken in a Mom & Pop (MCM) store and in a Big-Box retailer (MCB).
MCM = 2 + 2QM
MCB = 4 + QB
If there are 6 total chickens being sold, how many chickens does each firm sell?

Accepted Answer

A)  Mom & Pop: 0; Big-Box: 6 
B)  Mom & Pop: 1; Big-Box: 5 
C)  Mom & Pop: 2; Big-Box: 4 
D)  Mom & Pop: 3; Big-Box: 3 
A)  Mom & Pop: 0; Big-Box: 6 
B)  Mom & Pop: 1; Big-Box: 5 
C)  Mom & Pop: 2; Big-Box: 4 
D)  Mom & Pop: 3; Big-Box: 3

Question 19

If a firm has revenues of $100, explicit costs of $50, and implicit costs of $50, then its accounting profit is:

Accepted Answer

A)  $0 
B)  $50 
C)  $100 
D)  $500 
A)  $0 
B)  $50 
C)  $100 
D)  $500

Question 20

In markets lacking competition, the invisible hand concept works in society's best interest.

Accepted Answer

A) True 
 B)False

Exam 12: Competition and the Invisible Hand

Normal profits in a competitive industry refer to positive long-run profits.

There is a tendency for economic profit in all competitive industries to go to zero.

The elimination principle, a general feature of competitive markets, tells us that:

Entrepreneurs have the incentive to:

The Invisible Hand Property 2 maintains that:

Competitive firms want to produce the quantity such that:

If a firm has revenues of $125, explicit costs of $25, and implicit costs of $50, then its economic profit is:

Which of the following best help entrepreneurs identify low-value industries versus high-value industries?

When resources move from a low-profit industry into a high-profit industry,:

In a perfectly competitive market,:

Perfectly price discriminating monopolists earn ______ profits.

In a competitive market, the amount of a good produced is such that social surplus is:

Which of the following factors cause markets to be dynamic? I. changes in tastes II. changes in technology III. new idea development

The invisible hand works best in:

For a competitive firm, which of the following conditions describes the profit maximization condition? I. P = MC II. MR = MC III. TR = TC

Since a competitive firm sets MR = P to determine all quantities in the short run, we can conclude that:

The following are marginal cost curves for selling chicken in a Mom & Pop (MCM) store and in a Big-Box retailer (MCB). MCM = 2 + 2QM MCB = 4 + QB If there are 6 total chickens being sold, how many chickens does each firm sell?

If a firm has revenues of $100, explicit costs of $50, and implicit costs of $50, then its accounting profit is:

In markets lacking competition, the invisible hand concept works in society's best interest.

The Big Ideas

The Power of Trade and Comparative

Supply and Demand

Equilibrium

Elasticity and Its Applications

Taxes and Subsidies

The Price System

Price Ceilings and Floors

International Trade

Externalities- When the Price Is Not Right

Costs and Profit Maximization Under Competition

Monopoly

Price Discrimination

Oligopoly and Game Theory

Competing for Monopoly

Monopolistic Competition and Advertising

Labor Markets

Public Goods and the Tragedy of the Commons

Political Economy and Public Choice

Economics, Ethics, and Public Policy

Managing Incentives

Stock Markets and Personal Finance

Price Discrimination

Consumer Choice

Filters

The following are marginal cost curves for selling chicken in a Mom & Pop (MC_M) store and in a Big-Box retailer (MC_B). MC_M = 2 + 2Q_M MC_B = 4 + Q_B If there are 6 total chickens being sold, how many chickens does each firm sell?