Question 1

Which of the following is true about increasing cost industries?

Accepted Answer

A) They use a large portion of available specialized input resources in production. 
B) In order for industry output to expand, the prices of the specialized inputs will increase. 
C) Expansion of industry output leads to a higher equilibrium price in the long run. 
D) All of the above are generally true of increasing cost industries. 
A) They use a large portion of available specialized input resources in production. 
B) In order for industry output to expand, the prices of the specialized inputs will increase. 
C) Expansion of industry output leads to a higher equilibrium price in the long run. 
D) All of the above are generally true of increasing cost industries.

Question 2

Perfect competition is the term used to describe:

Accepted Answer

A) an industry in which a few price-taking firms produce identical products. 
B) an industry in which numerous price-taking firms produce identical products. 
C) an industry in which firms are price takers and compete for market share by varying the qualitative characteristics of products. 
D) an industry in which numerous firms are price makers and produce identical products. 
A) an industry in which a few price-taking firms produce identical products. 
B) an industry in which numerous price-taking firms produce identical products. 
C) an industry in which firms are price takers and compete for market share by varying the qualitative characteristics of products. 
D) an industry in which numerous firms are price makers and produce identical products.

Question 3

Figure 7-C  
-Refer to Figure 7-C.If the market price increased to $5 in Graph B, this firm should:

Accepted Answer

A) immediately shut down. 
B) increase output. 
C) decrease output. 
D) continue producing the same level of output. 
A) immediately shut down. 
B) increase output. 
C) decrease output. 
D) continue producing the same level of output.

Question 4

The market demand curve in a perfectly competitive industry is downward sloping, while the demand curve faced by an individual perfectly competitive firm is horizontal.

Accepted Answer

A) True 
 B)False

Question 5

Firms will continue to enter a competitive industry until:

Accepted Answer

A) the supply curve is vertical. 
B) the market price falls below average variable cost. 
C) any economic profits have been competed away. 
D) all resources are fully employed. 
A) the supply curve is vertical. 
B) the market price falls below average variable cost. 
C) any economic profits have been competed away. 
D) all resources are fully employed.

Question 6

Darlene runs a fruit and vegetable stand in a medium-sized community where there are many such stands.Her weekly total revenue equals $3,500.Her weekly total cost of running the stand equals $3,500, consisting of $2,500 of variable costs and $1,000 of fixed costs.An economist would likely advise Darlene to:

Accepted Answer

A) shut down as quickly as possible because the stand is generating losses. 
B) keep the stand open because it is generating a normal profit. 
C) keep the stand open for a while longer because she is covering all of her variable costs and some of her fixed costs. 
D) keep the stand open for a while longer because she is covering all of her fixed costs and some of her variable costs. 
E) shut down as quickly as possible because the stand is generating no economic profit. 
A) shut down as quickly as possible because the stand is generating losses. 
B) keep the stand open because it is generating a normal profit. 
C) keep the stand open for a while longer because she is covering all of her variable costs and some of her fixed costs. 
D) keep the stand open for a while longer because she is covering all of her fixed costs and some of her variable costs. 
E) shut down as quickly as possible because the stand is generating no economic profit.

Question 7

The horizontal demand curve facing an individual firm in a perfectly competitive market:

Accepted Answer

A) violates the law of demand, which states that demand curves slope downward. 
B) is a reflection of the firm's small size relative to the total market. 
C) is maintained only with the help of high barriers to entry. 
D) is a reflection of the inelastic demand for its product. 
A) violates the law of demand, which states that demand curves slope downward. 
B) is a reflection of the firm's small size relative to the total market. 
C) is maintained only with the help of high barriers to entry. 
D) is a reflection of the inelastic demand for its product.

Question 8

A price-taking firm will tend to expand its output as long as price exceeds average variable cost and:

Accepted Answer

A) its marginal revenue is positive. 
B) its marginal revenue is greater than the market price. 
C) its marginal revenue is less than the market price. 
D) its marginal cost is less than the market price. 
A) its marginal revenue is positive. 
B) its marginal revenue is greater than the market price. 
C) its marginal revenue is less than the market price. 
D) its marginal cost is less than the market price.

Question 9

If the long-run industry supply curve in a perfectly competitive market slopes upward, then very likely input prices will ____ as industry output expands.

Accepted Answer

A) increase 
B) decrease 
C) remain constant 
D) first increase and then decrease 
E) None of the above. 
A) increase 
B) decrease 
C) remain constant 
D) first increase and then decrease 
E) None of the above.

Question 10

The shape of the long-run industry supply curve in a perfectly competitive industry is largely determined by:

Accepted Answer

A) the shape of the short-run industry supply curve. 
B) the price of inputs as the industry expands. 
C) the price elasticity of market demand. 
D) the shape of the average fixed cost curve. 
A) the shape of the short-run industry supply curve. 
B) the price of inputs as the industry expands. 
C) the price elasticity of market demand. 
D) the shape of the average fixed cost curve.

Question 11

If input costs remain the same as industry output expands, what would you expect to be the long-run impact of an increase in demand on an industry currently in long-run equilibrium?

Accepted Answer

A) There will be more firms but the price will remain the same. 
B) There will be fewer firms but the price will remain the same. 
C) There will be more firms and the price will increase. 
D) There will be fewer firms and the price will decrease. 
E) There will be more firms and the price will decrease. 
A) There will be more firms but the price will remain the same. 
B) There will be fewer firms but the price will remain the same. 
C) There will be more firms and the price will increase. 
D) There will be fewer firms and the price will decrease. 
E) There will be more firms and the price will decrease.

Question 12

A perfectly competitive firm seeking to maximize its profits would want to maximize the difference between:

Accepted Answer

A) its marginal revenue and its marginal cost. 
B) its total revenue and its total cost. 
C) its accounting revenue and its accounting cost. 
D) its price and its marginal cost. 
A) its marginal revenue and its marginal cost. 
B) its total revenue and its total cost. 
C) its accounting revenue and its accounting cost. 
D) its price and its marginal cost.

Question 13

Table 7-B
The long-run total cost schedule of a perfectly competitive firm that produces walnuts is as follows:
 $\begin{array}{llcc}
  \text {  Pounds of} & 1,000&2,000&3,000&4,000&5,000&6,000 \
 \text {  Walnuts } &\
 \text {   Total Cost} &\$3,000&\$5,500&\$7,500&\$8,000&\$11,000&\$15,000\
\end{array}$

-Refer to Table 7-B.If input costs are constant and there are no barriers to entry, the long-run equilibrium price of a pound of walnuts will be about:

Accepted Answer

A) $2.00 
B) $2.20. 
C) $2.50. 
D) $2.75. 
E) $3.00 
A) $2.00 
B) $2.20. 
C) $2.50. 
D) $2.75. 
E) $3.00

Question 14

Figure 7-G  
-Refer to Figure 7-G.The firm is now able to sell more of its lawn care services at a higher price and as a result will be able to earn economic profits:

Accepted Answer

A) in the short run only. 
B) in the long run. 
C) as long as it keeps its costs constant. 
D) at no time. Perfectly competitive firms always earn zero economic profits. 
A) in the short run only. 
B) in the long run. 
C) as long as it keeps its costs constant. 
D) at no time. Perfectly competitive firms always earn zero economic profits.

Question 15

If the market price was $9.50, how many units should the perfectly competitive firm depicted below produce in order to maximize profits? $$\begin{array} { l l } 
\text { Quantity } & \text { Total Cost } \
\hline 10 & \$ 50.00 \
11 & \$ 57.00 \
12 & \$ 66.00 \
13 & \$ 7.00 \
14 & \$ 90.00
\end{array}$$

Accepted Answer

A) 10 
B) 11 
C) 12 
D) 13 
E) 14 
A) 10 
B) 11 
C) 12 
D) 13 
E) 14

Question 16

Table 7-A
Revenue and Cost Data for a Perfectly Competitive Firm
 $$\begin{array} { c c c c c c c } 
\text { Daily } & \text { Price } & \text { Total } & \text { TFC } & \text { TVC } & \text { TC } & \text { Profit } \
\text { Output } && \text { Revenue } & & & & \
0 & \$ 20 & \$0 & V&\$0& \$ 50 & - \$ 50 \
1 & \$ 20 & \$ 20 & \$ 50 & \$ 12 & \$ W & - \$ 42 \
2 & \mathbf { X } & \$ 40 & \$ 50 & Y & \$ 78 & - \$ 38 \
3 & \$ 20 & \$ 60 & \$ 50 & \$ 45 & \$ 95 & Z
\end{array}$$
-Refer to Table 7-A.What is the value of the variable W shown in the table?

Accepted Answer

A) $0 
B) $50 
C) $62 
D) $64 
E) The value of W cannot be determined from the information provided. 
A) $0 
B) $50 
C) $62 
D) $64 
E) The value of W cannot be determined from the information provided.

Question 17

The perfectly competitive model assumes that:

Accepted Answer

A) individual sellers can influence the market price. 
B) sellers can increase their total revenue by raising prices. 
C) firms can enter and exit the industry with relative ease. 
D) firms compete by varying a product's quality rather than a product's price. 
A) individual sellers can influence the market price. 
B) sellers can increase their total revenue by raising prices. 
C) firms can enter and exit the industry with relative ease. 
D) firms compete by varying a product's quality rather than a product's price.

Question 18

Figure 7-H  
-Refer to Table 7-C.If firms can freely enter or exit the industry and face the cost structures specified, what is the likely long-run price of a canister of peanuts?

Accepted Answer

Price would be 70 cents per ca

Question 19

William's Widget Works, sells in a perfectly competitive market, with an equilibrium price of $12.Its marginal revenue:

Accepted Answer

A) is greater than $12. 
B) is $12. 
C) is less than $12. 
D) cannot be determined from the above information. 
A) is greater than $12. 
B) is $12. 
C) is less than $12. 
D) cannot be determined from the above information.

Question 20

Table 7-A
Revenue and Cost Data for a Perfectly Competitive Firm
 $$\begin{array} { c c c c c c c } 
\text { Daily } & \text { Price } & \text { Total } & \text { TFC } & \text { TVC } & \text { TC } & \text { Profit } \
\text { Output } && \text { Revenue } & & & & \
0 & \$ 20 & \$0 & V&\$0& \$ 50 & - \$ 50 \
1 & \$ 20 & \$ 20 & \$ 50 & \$ 12 & \$ W & - \$ 42 \
2 & \mathbf { X } & \$ 40 & \$ 50 & Y & \$ 78 & - \$ 38 \
3 & \$ 20 & \$ 60 & \$ 50 & \$ 45 & \$ 95 & Z
\end{array}$$
-Refer to Table 7-A.What is the value of the variable V shown in the table?

Accepted Answer

A) $0 
B) $50 
C) $20 
D) The value of V cannot be determined from the information provided. 
A) $0 
B) $50 
C) $20 
D) The value of V cannot be determined from the information provided.

Which of the following is true about increasing cost industries?

Perfect competition is the term used to describe:

Figure 7-C -Refer to Figure 7-C.If the market price increased to $5 in Graph B, this firm should:

The market demand curve in a perfectly competitive industry is downward sloping, while the demand curve faced by an individual perfectly competitive firm is horizontal.

Firms will continue to enter a competitive industry until:

The horizontal demand curve facing an individual firm in a perfectly competitive market:

A price-taking firm will tend to expand its output as long as price exceeds average variable cost and:

If the long-run industry supply curve in a perfectly competitive market slopes upward, then very likely input prices will ____ as industry output expands.

The shape of the long-run industry supply curve in a perfectly competitive industry is largely determined by:

If input costs remain the same as industry output expands, what would you expect to be the long-run impact of an increase in demand on an industry currently in long-run equilibrium?

A perfectly competitive firm seeking to maximize its profits would want to maximize the difference between:

Figure 7-G -Refer to Figure 7-G.The firm is now able to sell more of its lawn care services at a higher price and as a result will be able to earn economic profits:

If the market price was $9.50, how many units should the perfectly competitive firm depicted below produce in order to maximize profits? Quantity Total Cost 10 \ 50.00 11 \ 57.00 12 \ 66.00 13 \ 7.00 14 \ 90.00

The perfectly competitive model assumes that:

Figure 7-H -Refer to Table 7-C.If firms can freely enter or exit the industry and face the cost structures specified, what is the likely long-run price of a canister of peanuts?

William's Widget Works, sells in a perfectly competitive market, with an equilibrium price of $12.Its marginal revenue:

The Role and Method of Economics

The Economic Way of Thinking

Supply and Demand

Using Supply and Demand

Market Failure and Public Choice

Production and Costs

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets, Income Distribution, and Poverty

Introduction to Macroeconomics: Unemployment, Inflation, and Economic Fluctuations

Economic Growth

Aggregate Demand and Aggregate Supply

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Exam 7: Firms in Competitive Markets

Which of the following is true about increasing cost industries?

Perfect competition is the term used to describe:

Figure 7-C -Refer to Figure 7-C.If the market price increased to $5 in Graph B, this firm should:

The market demand curve in a perfectly competitive industry is downward sloping, while the demand curve faced by an individual perfectly competitive firm is horizontal.

Firms will continue to enter a competitive industry until:

The horizontal demand curve facing an individual firm in a perfectly competitive market:

A price-taking firm will tend to expand its output as long as price exceeds average variable cost and:

If the long-run industry supply curve in a perfectly competitive market slopes upward, then very likely input prices will ____ as industry output expands.

The shape of the long-run industry supply curve in a perfectly competitive industry is largely determined by:

If input costs remain the same as industry output expands, what would you expect to be the long-run impact of an increase in demand on an industry currently in long-run equilibrium?

A perfectly competitive firm seeking to maximize its profits would want to maximize the difference between:

Figure 7-G -Refer to Figure 7-G.The firm is now able to sell more of its lawn care services at a higher price and as a result will be able to earn economic profits:

If the market price was $9.50, how many units should the perfectly competitive firm depicted below produce in order to maximize profits? Quantity Total Cost 10 \ 50.00 11 \ 57.00 12 \ 66.00 13 \ 7.00 14 \ 90.00

The perfectly competitive model assumes that:

Figure 7-H -Refer to Table 7-C.If firms can freely enter or exit the industry and face the cost structures specified, what is the likely long-run price of a canister of peanuts?

William's Widget Works, sells in a perfectly competitive market, with an equilibrium price of $12.Its marginal revenue:

The Role and Method of Economics

The Economic Way of Thinking

Supply and Demand

Using Supply and Demand

Market Failure and Public Choice

Production and Costs

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets, Income Distribution, and Poverty

Introduction to Macroeconomics: Unemployment, Inflation, and Economic Fluctuations

Economic Growth

Aggregate Demand and Aggregate Supply

Fiscal Policy

Monetary Institutions

The Federal Reserve System and Monetary Policy

Issues in Macroeconomic Theory and Policy

International Economics

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