Question 1

Below the short-run shutdown price, the firm

Accepted Answer

A)  is earning positive economic profits. 
B)  is earning negative economic profits. 
C)  is making a normal rate of return on its capital investment. 
D)  may be earning a positive or negative economic profits depending upon costs. 
A)  is earning positive economic profits. 
B)  is earning negative economic profits. 
C)  is making a normal rate of return on its capital investment. 
D)  may be earning a positive or negative economic profits depending upon costs.

Question 2

Perfectly competitive markets are efficient because

Accepted Answer

A)  they always reach equilibrium. 
B)  firms in the market are price takers. 
C)  the cost to society for producing the goods is exactly equal to the value that society places on the good. 
D)  the long run equilibrium assures that the prices of resources will not increase. 
A)  they always reach equilibrium. 
B)  firms in the market are price takers. 
C)  the cost to society for producing the goods is exactly equal to the value that society places on the good. 
D)  the long run equilibrium assures that the prices of resources will not increase.

Question 3

A perfectly competitive producer faces a demand curve for its own product that is

Accepted Answer

A)  downward sloping. 
B)  upward sloping. 
C)  horizontal. 
D)  vertical. 
A)  downward sloping. 
B)  upward sloping. 
C)  horizontal. 
D)  vertical.

Question 4

In an increasing-cost industry, an increase in output will lead to

Accepted Answer

A)  an downward shift in the ATC curve. 
B)  an downward shift in the MC curve. 
C)  a reduction in long-run per-unit costs. 
D)  an increase in long-run per-unit costs. 
A)  an downward shift in the ATC curve. 
B)  an downward shift in the MC curve. 
C)  a reduction in long-run per-unit costs. 
D)  an increase in long-run per-unit costs.

Question 5

-Refer to the above table. If the price is $3, the perfectly competitive firm should produce

Accepted Answer

A)  102 units. 
B)  105 units. 
C)  103 units. 
D)  104 units. 
A)  102 units. 
B)  105 units. 
C)  103 units. 
D)  104 units.

Question 6

Clothing retailers have faced greater competition in recent years as more firms have entered the clothing market. Some of the competition has come from foreign competitors, but much of it is domestic competition. As a result there is much competition in markets for many types of clothing and

Accepted Answer

A)  individual buyers and sellers cannot affect the market price because it is determined by the market forces of demand and supply. 
B)  there are no other implications. 
C)  firms have a great degree of flexibility in pricing their products because these products can be sold at a high profit level. 
D)  there are relatively few buyers and sellers in the market, and one individual firm can determine the market price. 
A)  individual buyers and sellers cannot affect the market price because it is determined by the market forces of demand and supply. 
B)  there are no other implications. 
C)  firms have a great degree of flexibility in pricing their products because these products can be sold at a high profit level. 
D)  there are relatively few buyers and sellers in the market, and one individual firm can determine the market price.

Question 7

Competitive pricing is efficient because

Accepted Answer

A)  the price that consumers pay reflects the opportunity cost to society of producing the good. 
B)  firms make positive economic profits in long-run equilibrium. 
C)  average revenue equals average cost. 
D)  firms produce above the minimum efficient scale. 
A)  the price that consumers pay reflects the opportunity cost to society of producing the good. 
B)  firms make positive economic profits in long-run equilibrium. 
C)  average revenue equals average cost. 
D)  firms produce above the minimum efficient scale.

Question 8

A firm that has negative economic profits has accounting profits that are

Accepted Answer

A)  zero. 
B)  positive. 
C)  negative. 
D)  indeterminate without more information. 
A)  zero. 
B)  positive. 
C)  negative. 
D)  indeterminate without more information.

Question 9

If a perfectly competitive firm has economic profits greater than zero, then we know that

Accepted Answer

A)  the firm's industry is not in long-run equilibrium. 
B)  the firm's industry is in long-run equilibrium. 
C)  the firm is producing at the bottom of the average total cost curve. 
D)  the firm will reduce output. 
A)  the firm's industry is not in long-run equilibrium. 
B)  the firm's industry is in long-run equilibrium. 
C)  the firm is producing at the bottom of the average total cost curve. 
D)  the firm will reduce output.

Question 10

A perfectly competitive firm faces a market clearing price of $150 per unit. Average variable costs are at the minimum value of $200 per unit at an output rate of 100 units. Marginal cost equals $150 per unit at an output rate of 75 units. It can be concluded that the short-run profit-maximizing output rate is

Accepted Answer

A)  75 units, at which the firm earns zero economic profits per unit sold. 
B)  75 units, at which the firm earns $50 in economic profits per unit sold. 
C)  100 units, because marginal cost equals average variable costs. 
D)  0 units, because price is less than average variable costs. 
A)  75 units, at which the firm earns zero economic profits per unit sold. 
B)  75 units, at which the firm earns $50 in economic profits per unit sold. 
C)  100 units, because marginal cost equals average variable costs. 
D)  0 units, because price is less than average variable costs.

Question 11

A market structure in which the decisions of individual buyers and sellers have no effect on market price is

Accepted Answer

A)  perfect competition. 
B)  a short-run industry. 
C)  a long-run industry. 
D)  a market supply industry. 
A)  perfect competition. 
B)  a short-run industry. 
C)  a long-run industry. 
D)  a market supply industry.

Question 12

The owner of a perfectly competitive firm that is earning economic losses in the short run

Accepted Answer

A)  should alter the rate of output in order to increase profitability. 
B)  should cut his own salary in order to reach the break-even point. 
C)  is actually losing more than he thinks because not all of the implicit costs have been considered. 
D)  is earning less than he would if he worked for someone else. 
A)  should alter the rate of output in order to increase profitability. 
B)  should cut his own salary in order to reach the break-even point. 
C)  is actually losing more than he thinks because not all of the implicit costs have been considered. 
D)  is earning less than he would if he worked for someone else.

Question 13

In the short run, in a perfectly competitive market, a firm will shut down if

Accepted Answer

A)  P  P > AVC for all levels of output. 
D)  P > AFC for all levels of output. 
A)  P  P > AVC for all levels of output. 
D)  P > AFC for all levels of output.

Question 14

In a long-run perfectly competitive equilibrium

Accepted Answer

A)  P = MR = MC > ATC. 
B)  P = MR > MC = ATC. 
C)  P = MR = MC = ATC. 
D)  P > MR > MC = ATC. 
A)  P = MR = MC > ATC. 
B)  P = MR > MC = ATC. 
C)  P = MR = MC = ATC. 
D)  P > MR > MC = ATC.

Question 15

"By producing at an output rate at which marginal revenue equals marginal cost, a firm is definitely making positive economic profits." Do you agree or disagree? Why?

Accepted Answer

Disagree. When it produces at an output

Question 16

The exiting of firms from a perfectly competitive industry occurs when

Accepted Answer

A)  opportunity costs cannot be covered. 
B)  P = ATC. 
C)  accounting profit is less than economic profit. 
D)  MR equals MC. 
A)  opportunity costs cannot be covered. 
B)  P = ATC. 
C)  accounting profit is less than economic profit. 
D)  MR equals MC.

Question 17

Suppose the perfectly competitive equilibrium occurs such that too many units of the good are produced. This is an example of

Accepted Answer

A)  marginal cost pricing. 
B)  market failure. 
C)  firms have not yet exited the industry. 
D)  greedy business people behaving in an inappropriate manner. 
A)  marginal cost pricing. 
B)  market failure. 
C)  firms have not yet exited the industry. 
D)  greedy business people behaving in an inappropriate manner.

Question 18

How do we determine whether a firm has maximized profits?

Accepted Answer

A firm maximizes profits only when it pr

Question 19

The short-run supply curve for a perfectly competitive firm is the portion of its

Accepted Answer

A)  ATC curve above the MC curve. 
B)  MC curve above the ATC curve. 
C)  ATC curve below the MC curve. 
D)  MC curve above its AVC curve. 
A)  ATC curve above the MC curve. 
B)  MC curve above the ATC curve. 
C)  ATC curve below the MC curve. 
D)  MC curve above its AVC curve.

Question 20

In the long run, the perfectly competitive firm

Accepted Answer

A)  does not have a shut down price. 
B)  earns only a normal profit. 
C)  may produce even if it suffers a loss. 
D)  earns an economic profit. 
A)  does not have a shut down price. 
B)  earns only a normal profit. 
C)  may produce even if it suffers a loss. 
D)  earns an economic profit.

Exam 23: Perfect Competition

Below the short-run shutdown price, the firm

Perfectly competitive markets are efficient because

A perfectly competitive producer faces a demand curve for its own product that is

In an increasing-cost industry, an increase in output will lead to

-Refer to the above table. If the price is $3, the perfectly competitive firm should produce

Clothing retailers have faced greater competition in recent years as more firms have entered the clothing market. Some of the competition has come from foreign competitors, but much of it is domestic competition. As a result there is much competition in markets for many types of clothing and

Competitive pricing is efficient because

A firm that has negative economic profits has accounting profits that are

If a perfectly competitive firm has economic profits greater than zero, then we know that

A market structure in which the decisions of individual buyers and sellers have no effect on market price is

The owner of a perfectly competitive firm that is earning economic losses in the short run

In the short run, in a perfectly competitive market, a firm will shut down if

In a long-run perfectly competitive equilibrium

"By producing at an output rate at which marginal revenue equals marginal cost, a firm is definitely making positive economic profits." Do you agree or disagree? Why?

The exiting of firms from a perfectly competitive industry occurs when

Suppose the perfectly competitive equilibrium occurs such that too many units of the good are produced. This is an example of

How do we determine whether a firm has maximized profits?

The short-run supply curve for a perfectly competitive firm is the portion of its

In the long run, the perfectly competitive firm

The Nature of Economics

Scarcity and the World of Trade-Offs

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Public Spending and Public Choice

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