Question 1

If perfectly competitive industry B is currently realizing economic profits, we would expect that:

Accepted Answer

A) industry output will fall, good B will fall in price, and economic profits will tend to disappear. 
B) industry output will fall, good B will rise in price, and economic profits will tend to disappear. 
C) industry output will rise, good B will fall in price, and economic profits will tend to disappear. 
D) industry output will rise, good B will fall in price, and economic profits will tend to increase. 
A) industry output will fall, good B will fall in price, and economic profits will tend to disappear. 
B) industry output will fall, good B will rise in price, and economic profits will tend to disappear. 
C) industry output will rise, good B will fall in price, and economic profits will tend to disappear. 
D) industry output will rise, good B will fall in price, and economic profits will tend to increase.

Question 2

Firms should shut down in the short run whenever price is less than the average total cost.

Accepted Answer

A) True 
 B)False

Question 3

Figure 7-C  
-Refer to Figure 7-C.Total revenue for the firm in Graph A equals:

Accepted Answer

A) $40. 
B) $80. 
C) $320. 
D) $400. 
E) none of the above. 
A) $40. 
B) $80. 
C) $320. 
D) $400. 
E) none of the above.

Question 4

Figure 7-G  
-Refer to Figure 7-G.Using Graph C (a movement from D0 to D1), which of the following statements is not true?

Accepted Answer

A) There has been an increase in demand in the market. 
B) There has been an increase in supply in the market. 
C) The equilibrium price in the market has increased from P0 to P1. 
D) There has been a change in quantity supplied from Q0 to Q1. 
A) There has been an increase in demand in the market. 
B) There has been an increase in supply in the market. 
C) The equilibrium price in the market has increased from P0 to P1. 
D) There has been a change in quantity supplied from Q0 to Q1.

Question 5

Suppose that a firm in an industry subject to diminishing returns to scale is initially in long run equilibrium.Which of the following will not be part of the industry adjustment process to a permanent increase in demand?

Accepted Answer

A) Some firms will temporarily make economic profits. 
B) Some new firms will enter. 
C) The price will temporarily rise. 
D) The long run equilibrium price will be higher than the initial equilibrium price. 
E) All of the above will be consequences. 
A) Some firms will temporarily make economic profits. 
B) Some new firms will enter. 
C) The price will temporarily rise. 
D) The long run equilibrium price will be higher than the initial equilibrium price. 
E) All of the above will be consequences.

Question 6

If a profit-maximizing firm finds that price exceeds average variable cost and marginal cost is greater than marginal revenue, it should:

Accepted Answer

A) reduce output, but continue producing in the short run. 
B) increase output. 
C) shut down. 
D) not alter its production level since it is earning a profit. 
A) reduce output, but continue producing in the short run. 
B) increase output. 
C) shut down. 
D) not alter its production level since it is earning a profit.

Question 7

Figure 7-C  
-Refer to Figure 7-C.Graph C exhibits a price-taking firm:

Accepted Answer

A) experiencing a loss of $120. 
B) making a profit of $120. 
C) making a profit of $720. 
D) experiencing a loss of $600. 
E) which is breaking even. 
A) experiencing a loss of $120. 
B) making a profit of $120. 
C) making a profit of $720. 
D) experiencing a loss of $600. 
E) which is breaking even.

Question 8

A perfectly competitive firm faces a demand curve that is:

Accepted Answer

A) horizontal and perfectly inelastic. 
B) horizontal and perfectly elastic. 
C) vertical and perfectly inelastic. 
D) vertical and perfectly elastic. 
A) horizontal and perfectly inelastic. 
B) horizontal and perfectly elastic. 
C) vertical and perfectly inelastic. 
D) vertical and perfectly elastic.

Question 9

When economic profits are positive in a perfectly competitive industry,

Accepted Answer

A) we would expect the market supply curve to shift to the left as a result. 
B) we would expect the market supply curve to shift to the right as a result. 
C) we would not expect any change in the market supply curve to result. 
D) we would expect that the market demand curve to shift right as a result 
A) we would expect the market supply curve to shift to the left as a result. 
B) we would expect the market supply curve to shift to the right as a result. 
C) we would not expect any change in the market supply curve to result. 
D) we would expect that the market demand curve to shift right as a result

Question 10

When economic profits are negative in a perfectly competitive industry,

Accepted Answer

A) we would expect the market supply curve to shift to the left as a result. 
B) we would expect the market supply curve to shift to the right as a result. 
C) we would not expect any change in the market supply curve to result. 
D) we would expect that the market demand curve to shift left as a result 
A) we would expect the market supply curve to shift to the left as a result. 
B) we would expect the market supply curve to shift to the right as a result. 
C) we would not expect any change in the market supply curve to result. 
D) we would expect that the market demand curve to shift left as a result

Question 11

Figure 7-C  
-Refer to Figure 7-C.Graph A exhibits a price-taking firm:

Accepted Answer

A) experiencing a loss of $80. 
B) making a profit of $80. 
C) making a profit of $400. 
D) experiencing a loss of $400. 
A) experiencing a loss of $80. 
B) making a profit of $80. 
C) making a profit of $400. 
D) experiencing a loss of $400.

Question 12

If the typical firm in a perfectly competitive market was depicted in the graph below, what would be most likely to occur?

Accepted Answer

A) New firms would be likely to enter, increasing the market price. 
B) New firms would be likely to enter, decreasing the market price. 
C) Existing firms would be likely to exit, increasing the market price. 
D) Existing firms would be likely to exit, decreasing the market price. 
E) Firm would neither enter nor exit and the market price would remain unchanged. 
A) New firms would be likely to enter, increasing the market price. 
B) New firms would be likely to enter, decreasing the market price. 
C) Existing firms would be likely to exit, increasing the market price. 
D) Existing firms would be likely to exit, decreasing the market price. 
E) Firm would neither enter nor exit and the market price would remain unchanged.

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.A firm expanding from producing 1,000 to 2,000 pounds of walnuts in the long run is experiencing:

Accepted Answer

A) diseconomies of scale. 
B) economies of scale. 
C) an increasing average fixed cost. 
D) constant returns to scale. 
A) diseconomies of scale. 
B) economies of scale. 
C) an increasing average fixed cost. 
D) constant returns to scale.

Question 14

A firm that is earning zero economic profits has a strong incentive to exit the industry.

Accepted Answer

A) True 
 B)False

Question 15

If the typical firm in a perfectly competitive market was depicted in the graph below, what would be most likely to occur?

Accepted Answer

A) New firms would be likely to enter, increasing the market price. 
B) New firms would be likely to enter, decreasing the market price. 
C) Existing firms would be likely to exit, increasing the market price. 
D) Existing firms would be likely to exit, decreasing the market price. 
E) Firm would neither enter nor exit and the market price would remain unchanged. 
A) New firms would be likely to enter, increasing the market price. 
B) New firms would be likely to enter, decreasing the market price. 
C) Existing firms would be likely to exit, increasing the market price. 
D) Existing firms would be likely to exit, decreasing the market price. 
E) Firm would neither enter nor exit and the market price would remain unchanged.

Question 16

If the typical firm in a perfectly competitive market was depicted in the graph below, what would be most likely to occur?

Accepted Answer

A) New firms would be likely to enter, increasing the market price. 
B) New firms would be likely to enter, decreasing the market price. 
C) Existing firms would be likely to exit, increasing the market price. 
D) Existing firms would be likely to exit, decreasing the market price. 
E) Firm would neither enter nor exit and the market price would remain unchanged. 
A) New firms would be likely to enter, increasing the market price. 
B) New firms would be likely to enter, decreasing the market price. 
C) Existing firms would be likely to exit, increasing the market price. 
D) Existing firms would be likely to exit, decreasing the market price. 
E) Firm would neither enter nor exit and the market price would remain unchanged.

Question 17

Figure 7-A  
-Refer to Figure 7-B.When the market price equals $105, and the firm sells 675 units of output, the firm:

Accepted Answer

A) is earning a normal profit. 
B) is earning positive economic profits. 
C) is experiencing a loss, but should continue operating temporarily because business conditions may improve. 
D) is experiencing a loss and should shut down. 
A) is earning a normal profit. 
B) is earning positive economic profits. 
C) is experiencing a loss, but should continue operating temporarily because business conditions may improve. 
D) is experiencing a loss and should shut down.

Question 18

A perfectly competitive, increasing cost industry is initially in long run equilibrium.Then, there is an increase in demand.Compared with the initial equilibrium, once the new long run equilibrium is reached:

Accepted Answer

A) price will be higher and total output will be greater than before. 
B) price will be the same and total output will be greater than before. 
C) price will be lower and total output will be greater than before. 
D) price will be higher, and therefore total output will be smaller than before. 
A) price will be higher and total output will be greater than before. 
B) price will be the same and total output will be greater than before. 
C) price will be lower and total output will be greater than before. 
D) price will be higher, and therefore total output will be smaller than before.

Question 19

Assume a perfectly competitive firm sells its output for $150 per unit.It currently produces 6,000 units of output, at which output level it minimizes its average variable cost at $152 per unit.Assuming it wants to maximize its profits, it should:

Accepted Answer

A) increase output. 
B) decrease output, but not shut down. 
C) maintain its current output rate. 
D) shut down. 
E) There is not enough information to determine what the firm should do. 
A) increase output. 
B) decrease output, but not shut down. 
C) maintain its current output rate. 
D) shut down. 
E) There is not enough information to determine what the firm should do.

Question 20

When perfectly competitive firms are earning zero accounting profits,

Accepted Answer

A) we would expect entry into the industry. 
B) we would expect stability in the industry, since it is in long run equilibrium. 
C) we would expect exit from the industry. 
D) we would expect none of the above. 
A) we would expect entry into the industry. 
B) we would expect stability in the industry, since it is in long run equilibrium. 
C) we would expect exit from the industry. 
D) we would expect none of the above.

If perfectly competitive industry B is currently realizing economic profits, we would expect that:

Firms should shut down in the short run whenever price is less than the average total cost.

Figure 7-C -Refer to Figure 7-C.Total revenue for the firm in Graph A equals:

Figure 7-G -Refer to Figure 7-G.Using Graph C (a movement from D₀ to D₁), which of the following statements is not true?

Suppose that a firm in an industry subject to diminishing returns to scale is initially in long run equilibrium.Which of the following will not be part of the industry adjustment process to a permanent increase in demand?

If a profit-maximizing firm finds that price exceeds average variable cost and marginal cost is greater than marginal revenue, it should:

Figure 7-C -Refer to Figure 7-C.Graph C exhibits a price-taking firm:

A perfectly competitive firm faces a demand curve that is:

When economic profits are positive in a perfectly competitive industry,

When economic profits are negative in a perfectly competitive industry,

Figure 7-C -Refer to Figure 7-C.Graph A exhibits a price-taking firm:

If the typical firm in a perfectly competitive market was depicted in the graph below, what would be most likely to occur?

A firm that is earning zero economic profits has a strong incentive to exit the industry.

If the typical firm in a perfectly competitive market was depicted in the graph below, what would be most likely to occur?

If the typical firm in a perfectly competitive market was depicted in the graph below, what would be most likely to occur?

Figure 7-A -Refer to Figure 7-B.When the market price equals $105, and the firm sells 675 units of output, the firm:

A perfectly competitive, increasing cost industry is initially in long run equilibrium.Then, there is an increase in demand.Compared with the initial equilibrium, once the new long run equilibrium is reached:

Assume a perfectly competitive firm sells its output for $150 per unit.It currently produces 6,000 units of output, at which output level it minimizes its average variable cost at $152 per unit.Assuming it wants to maximize its profits, it should:

When perfectly competitive firms are earning zero accounting profits,

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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Exam 7: Firms in Competitive Markets

If perfectly competitive industry B is currently realizing economic profits, we would expect that:

Firms should shut down in the short run whenever price is less than the average total cost.

Figure 7-C -Refer to Figure 7-C.Total revenue for the firm in Graph A equals:

Figure 7-G -Refer to Figure 7-G.Using Graph C (a movement from D0 to D1), which of the following statements is not true?

Suppose that a firm in an industry subject to diminishing returns to scale is initially in long run equilibrium.Which of the following will not be part of the industry adjustment process to a permanent increase in demand?

If a profit-maximizing firm finds that price exceeds average variable cost and marginal cost is greater than marginal revenue, it should:

Figure 7-C -Refer to Figure 7-C.Graph C exhibits a price-taking firm:

A perfectly competitive firm faces a demand curve that is:

When economic profits are positive in a perfectly competitive industry,

When economic profits are negative in a perfectly competitive industry,

Figure 7-C -Refer to Figure 7-C.Graph A exhibits a price-taking firm:

If the typical firm in a perfectly competitive market was depicted in the graph below, what would be most likely to occur?

A firm that is earning zero economic profits has a strong incentive to exit the industry.

If the typical firm in a perfectly competitive market was depicted in the graph below, what would be most likely to occur?

If the typical firm in a perfectly competitive market was depicted in the graph below, what would be most likely to occur?

Figure 7-A -Refer to Figure 7-B.When the market price equals $105, and the firm sells 675 units of output, the firm:

A perfectly competitive, increasing cost industry is initially in long run equilibrium.Then, there is an increase in demand.Compared with the initial equilibrium, once the new long run equilibrium is reached:

Assume a perfectly competitive firm sells its output for $150 per unit.It currently produces 6,000 units of output, at which output level it minimizes its average variable cost at $152 per unit.Assuming it wants to maximize its profits, it should:

When perfectly competitive firms are earning zero accounting profits,

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

Filters

Figure 7-G -Refer to Figure 7-G.Using Graph C (a movement from D₀ to D₁), which of the following statements is not true?