Question 1

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

Accepted Answer

A) which will lose money when the market price equals $4.90. 
B) which will make an economic profit when the market price equals $4.90. 
C) which will break even when the market price equals $4.90. 
D) which will shut down when the market price equals $4.90. 
A) which will lose money when the market price equals $4.90. 
B) which will make an economic profit when the market price equals $4.90. 
C) which will break even when the market price equals $4.90. 
D) which will shut down when the market price equals $4.90.

Question 2

Perfectly competitive firms earn zero economic profit in the long run.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following most closely resembles a perfectly competitive market?

Accepted Answer

A) the airline industry 
B) the soft drink industry 
C) the wheat market 
D) long-distance telephone service 
A) the airline industry 
B) the soft drink industry 
C) the wheat market 
D) long-distance telephone service

Question 4

Assuming a price was $2.00, how many units should this perfectly competitive firm produce and sell in order to maximize profits? $$\begin{array} { c c } 
\text { Quantity } & \text { Total Cost } \
\hline 24 & \$ 24.00 \
25 & \$ 25.00 \
26 & \$ 26.50 \
27 & \$ 29.00 \
28 & \$ 33.50
\end{array}$$

Accepted Answer

A) 24 
B) 25 
C) 26 
D) 27 
E) 28 
A) 24 
B) 25 
C) 26 
D) 27 
E) 28

Question 5

Darlene runs a fruit and vegetable stand in a medium-sized community where there are many such stands.Her weekly total revenue equals $2,000.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 in order to minimize her losses. 
B) keep the stand open because it is generating an economic 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. 
A) shut down as quickly as possible in order to minimize her losses. 
B) keep the stand open because it is generating an economic 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.

Question 6

Figure 7-H  
-What would be the long-run equilibrium result of output expansion in a decreasing-cost industry?

Accepted Answer

An expansion in the output of a decreasi

Question 7

Figure 7-H  
-In the short run, if a perfectly competitive firm produced at the quantity of productive efficiency, would it generate the highest profit level possible? Why or why not?

Accepted Answer

In the short run, a firm producing with

Question 8

When perfectly competitive firms in an industry are earning positive economic 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 do not know whether there would tend to be entry, exit, or stability in the industry. 
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 do not know whether there would tend to be entry, exit, or stability in the industry.

Question 9

Perfectly competition is characterized by a large number of buyers and sellers with identical products and no significant barriers to entry.

Accepted Answer

A) True 
 B)False

Question 10

In the short run, if a firm's price is greater than its AVC but less than its ATC, the firm should:

Accepted Answer

A) shut down immediately because it is generating an economic loss. 
B) shut down temporarily because it is generating an economic loss. 
C) continue operating because it is generating an economic profit. 
D) continue operating even though it is generating an economic loss. 
E) none of the above 
A) shut down immediately because it is generating an economic loss. 
B) shut down temporarily because it is generating an economic loss. 
C) continue operating because it is generating an economic profit. 
D) continue operating even though it is generating an economic loss. 
E) none of the above

Question 11

A perfectly competitive firm is a:

Accepted Answer

A) price giver. 
B) price taker. 
C) price maker. 
D) price leader. 
A) price giver. 
B) price taker. 
C) price maker. 
D) price leader.

Question 12

Economic profits in a perfectly competitive industry will encourage entry of new firms, which will shift the market supply curve to the right.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following is most likely a constant cost industry?

Accepted Answer

A) coal 
B) ice cream 
C) lumber 
D) oil 
A) coal 
B) ice cream 
C) lumber 
D) oil

Question 14

Figure 7-D  
-Refer to Figure 7-D.In the short run, if the market price falls below ____, the firm should shut down.

Accepted Answer

A) $60 
B) $45 
C) $30 
D) $10 
E) None of the above. 
A) $60 
B) $45 
C) $30 
D) $10 
E) None of the above.

Question 15

If price is less than the average variable cost, firms that seek to maximize profit should shut down.

Accepted Answer

A) True 
 B)False

Question 16

Allocative efficiency requires production at a quantity such that:

Accepted Answer

A) MC = MR 
B) MC = ATC 
C) MC = D 
D) ATC = D 
A) MC = MR 
B) MC = ATC 
C) MC = D 
D) ATC = D

Question 17

Productive efficiency occurs in perfect competition because the firm produces at the minimum of the:

Accepted Answer

A) average fixed cost curve. 
B) average variable cost curve 
C) average total cost curve 
D) marginal revenue curve. 
A) average fixed cost curve. 
B) average variable cost curve 
C) average total cost curve 
D) marginal revenue curve.

Question 18

Which of the following is true of perfectly competitive firms?

Accepted Answer

A) For a perfectly competitive firm, as long as the price derived from expanded output exceeds the marginal cost of that output, the expansion of output creates additional economic profits. 
B) Producing at the profit-maximizing output level means that a firm is actually earning economic profits. 
C) A competitive firm earning zero economic profit will be unable to continue in operation over time. 
D) A perfectly competitive firm will operate in the short run only at price levels greater than or equal to average total costs. 
E) As new firms enter an industry where sellers are earning economic profits, the result will include an increase in the equilibrium price. 
A) For a perfectly competitive firm, as long as the price derived from expanded output exceeds the marginal cost of that output, the expansion of output creates additional economic profits. 
B) Producing at the profit-maximizing output level means that a firm is actually earning economic profits. 
C) A competitive firm earning zero economic profit will be unable to continue in operation over time. 
D) A perfectly competitive firm will operate in the short run only at price levels greater than or equal to average total costs. 
E) As new firms enter an industry where sellers are earning economic profits, the result will include an increase in the equilibrium price.

Question 19

Figure 7-E  
-Refer to Figure 7-E.The short run ____ for this firm is represented by the area of ____.

Accepted Answer

A) profit; OP1Bq 
B) loss; OP1Bq 
C) profit; PABP1 
D) loss; PABP1 
E) profit; OqAP 
A) profit; OP1Bq 
B) loss; OP1Bq 
C) profit; PABP1 
D) loss; PABP1 
E) profit; OqAP

Question 20

Which of the following is a characteristic of perfect competition?

Accepted Answer

A) substantial barriers to entry 
B) differentiated products 
C) few sellers 
D) each firm has significant control over the market 
E) none of the above 
A) substantial barriers to entry 
B) differentiated products 
C) few sellers 
D) each firm has significant control over the market 
E) none of the above

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

Perfectly competitive firms earn zero economic profit in the long run.

Which of the following most closely resembles a perfectly competitive market?

Assuming a price was $2.00, how many units should this perfectly competitive firm produce and sell in order to maximize profits? Quantity Total Cost 24 \ 24.00 25 \ 25.00 26 \ 26.50 27 \ 29.00 28 \ 33.50

Figure 7-H -What would be the long-run equilibrium result of output expansion in a decreasing-cost industry?

Figure 7-H -In the short run, if a perfectly competitive firm produced at the quantity of productive efficiency, would it generate the highest profit level possible? Why or why not?

When perfectly competitive firms in an industry are earning positive economic profits,

Perfectly competition is characterized by a large number of buyers and sellers with identical products and no significant barriers to entry.

In the short run, if a firm's price is greater than its AVC but less than its ATC, the firm should:

A perfectly competitive firm is a:

Economic profits in a perfectly competitive industry will encourage entry of new firms, which will shift the market supply curve to the right.

Which of the following is most likely a constant cost industry?

Figure 7-D -Refer to Figure 7-D.In the short run, if the market price falls below ____, the firm should shut down.

If price is less than the average variable cost, firms that seek to maximize profit should shut down.

Allocative efficiency requires production at a quantity such that:

Productive efficiency occurs in perfect competition because the firm produces at the minimum of the:

Which of the following is true of perfectly competitive firms?

Figure 7-E -Refer to Figure 7-E.The short run for this firm is represented by the area of .

Which of the following is a characteristic of perfect competition?

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

Exam 7: Firms in Competitive Markets

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

Perfectly competitive firms earn zero economic profit in the long run.

Which of the following most closely resembles a perfectly competitive market?

Assuming a price was $2.00, how many units should this perfectly competitive firm produce and sell in order to maximize profits? Quantity Total Cost 24 \ 24.00 25 \ 25.00 26 \ 26.50 27 \ 29.00 28 \ 33.50

Figure 7-H -What would be the long-run equilibrium result of output expansion in a decreasing-cost industry?

Figure 7-H -In the short run, if a perfectly competitive firm produced at the quantity of productive efficiency, would it generate the highest profit level possible? Why or why not?

When perfectly competitive firms in an industry are earning positive economic profits,

Perfectly competition is characterized by a large number of buyers and sellers with identical products and no significant barriers to entry.

In the short run, if a firm's price is greater than its AVC but less than its ATC, the firm should:

A perfectly competitive firm is a:

Economic profits in a perfectly competitive industry will encourage entry of new firms, which will shift the market supply curve to the right.

Which of the following is most likely a constant cost industry?

Figure 7-D -Refer to Figure 7-D.In the short run, if the market price falls below ____, the firm should shut down.

If price is less than the average variable cost, firms that seek to maximize profit should shut down.

Allocative efficiency requires production at a quantity such that:

Productive efficiency occurs in perfect competition because the firm produces at the minimum of the:

Which of the following is true of perfectly competitive firms?

Figure 7-E -Refer to Figure 7-E.The short run ____ for this firm is represented by the area of ____.

Which of the following is a characteristic of perfect competition?

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-E -Refer to Figure 7-E.The short run for this firm is represented by the area of .