Question 1

A market failure is a situation in which

Accepted Answer

A)  resources are being efficiently allocated, but some companies are forced to shut down. 
B)  the market equilibrium leads to either too many or too few resources going towards producing the good or service. 
C)  the government must take actions to correct the failures of the market in a particular industry. 
D)  there is no free entry or exit into an industry. 
A)  resources are being efficiently allocated, but some companies are forced to shut down. 
B)  the market equilibrium leads to either too many or too few resources going towards producing the good or service. 
C)  the government must take actions to correct the failures of the market in a particular industry. 
D)  there is no free entry or exit into an industry.

Question 2

Which of the following is NOT true for a perfectly competitive firm?

Accepted Answer

A)  P = MR 
B)  AR = MR 
C)  MR = TR 
D)  P = AR 
A)  P = MR 
B)  AR = MR 
C)  MR = TR 
D)  P = AR

Question 3

What is always TRUE about the short-run equilibrium position for a firm in perfect competition?

Accepted Answer

A)  MR = MC = P = ATC = AR 
B)  TR = TC 
C)  MR = MC = P = AR 
D)  MC = ATC 
A)  MR = MC = P = ATC = AR 
B)  TR = TC 
C)  MR = MC = P = AR 
D)  MC = ATC

Question 4

The demand curve for the product of a perfectly competitive firm is

Accepted Answer

A)  downward sloping. 
B)  upward sloping. 
C)  perfectly inelastic. 
D)  perfectly elastic. 
A)  downward sloping. 
B)  upward sloping. 
C)  perfectly inelastic. 
D)  perfectly elastic.

Question 5

The short-run break-even price is

Accepted Answer

A)  the price at which a firm's total revenues exceed total costs. 
B)  the point at which the firm's total costs are maximized. 
C)  the price at which a firm's total revenues equal its total costs. 
D)  the point at which the firm's implicit costs are maximized. 
A)  the price at which a firm's total revenues exceed total costs. 
B)  the point at which the firm's total costs are maximized. 
C)  the price at which a firm's total revenues equal its total costs. 
D)  the point at which the firm's implicit costs are maximized.

Question 6

The short-run industry supply curve slopes up because

Accepted Answer

A)  the firms eventually experience diseconomies of scale. 
B)  the law of diminishing marginal product applies in the short run. 
C)  wages increase as the industry increases output. 
D)  the higher price is needed to get more firms to enter the industry. 
A)  the firms eventually experience diseconomies of scale. 
B)  the law of diminishing marginal product applies in the short run. 
C)  wages increase as the industry increases output. 
D)  the higher price is needed to get more firms to enter the industry.

Question 7

In the short run, which of the following is FALSE about the shutdown point?

Accepted Answer

A)  Total revenue is equal to total fixed cost. 
B)  Total revenue is equal to total variable cost. 
C)  Product price is equal to the minimum average variable cost. 
D)  Price multiplied by quantity must be equal to minimum average variable cost multiplied by quantity. 
A)  Total revenue is equal to total fixed cost. 
B)  Total revenue is equal to total variable cost. 
C)  Product price is equal to the minimum average variable cost. 
D)  Price multiplied by quantity must be equal to minimum average variable cost multiplied by quantity.

Question 8

If firms in a perfectly competitive industry are earning positive economic profits, then what will happen in the long run?

Accepted Answer

Economic profits provide incentives for

Question 9

The demand curve for a perfectly competitive firm is horizontal because

Accepted Answer

A)  consumers are willing to pay any price to obtain its product. 
B)  its production decisions cannot influence the market price. 
C)  the firm profits from setting its price higher than the market price. 
D)  its product is easy for consumers to differentiate from those of other firms. 
A)  consumers are willing to pay any price to obtain its product. 
B)  its production decisions cannot influence the market price. 
C)  the firm profits from setting its price higher than the market price. 
D)  its product is easy for consumers to differentiate from those of other firms.

Question 10

-Refer to the above figure. In order to stay open in the short run, this firm must

Accepted Answer

A)  earn a positive profit. 
B)  receive a price equal to or greater than the minimum of its average variable cost. 
C)  receive a price exactly equal to its average total cost. 
D)  recover its fixed cost. 
A)  earn a positive profit. 
B)  receive a price equal to or greater than the minimum of its average variable cost. 
C)  receive a price exactly equal to its average total cost. 
D)  recover its fixed cost.

Question 11

A perfectly competitive industry's short-run supply curve is best described as

Accepted Answer

A)  the upward sloping portion of the industry's marginal cost curve. 
B)  horizontal. 
C)  perfectly inelastic. 
D)  the horizontal summation of the individual firms' supply curves. 
A)  the upward sloping portion of the industry's marginal cost curve. 
B)  horizontal. 
C)  perfectly inelastic. 
D)  the horizontal summation of the individual firms' supply curves.

Question 12

The total amount received from the sale of output is

Accepted Answer

A)  average revenue. 
B)  marginal revenue. 
C)  total revenue. 
D)  price revenue. 
A)  average revenue. 
B)  marginal revenue. 
C)  total revenue. 
D)  price revenue.

Question 13

Total revenue divided by quantity is

Accepted Answer

A)  average revenue. 
B)  marginal revenue. 
C)  quantity revenue. 
D)  price revenue. 
A)  average revenue. 
B)  marginal revenue. 
C)  quantity revenue. 
D)  price revenue.

Question 14

In a long-run equilibrium, a perfectly competitive firm's average total cost is

Accepted Answer

A)  minimized. 
B)  higher than the market price. 
C)  zero. 
D)  equal to average fixed cost. 
A)  minimized. 
B)  higher than the market price. 
C)  zero. 
D)  equal to average fixed cost.

Question 15

-In the above figure, if the market price is $10, the firm

Accepted Answer

A)  produces 10 units. 
B)  produces 12 units. 
C)  shuts down operations. 
D)  produces 11 units. 
A)  produces 10 units. 
B)  produces 12 units. 
C)  shuts down operations. 
D)  produces 11 units.

Question 16

A firm is currently producing an output at which price equals the minimum point on the average variable cost curve. If wage rates increase, the firm will

Accepted Answer

A)  increase its rate of output to make up for the higher variable costs. 
B)  shut down since it would no longer be covering its variable costs. 
C)  decrease its rate of output to offset the higher variable costs. 
D)  not make any changes since its current rate of output is still minimizing its losses. 
A)  increase its rate of output to make up for the higher variable costs. 
B)  shut down since it would no longer be covering its variable costs. 
C)  decrease its rate of output to offset the higher variable costs. 
D)  not make any changes since its current rate of output is still minimizing its losses.

Question 17

A TRUE signal must

Accepted Answer

A)  convey information only. 
B)  convey information and direct the resource owners to act appropriately. 
C)  convey information about the long-run future. 
D)  explain in detail why something should be done. 
A)  convey information only. 
B)  convey information and direct the resource owners to act appropriately. 
C)  convey information about the long-run future. 
D)  explain in detail why something should be done.

Question 18

Suppose a perfectly competitive firm can produce 20,000 bushels of corn a year at an output at which marginal cost equals marginal revenue. The market price of corn per bushel is $1.00. The firm's total costs per year are $50,000 and fixed costs per year are $25,000. In the short run, this firm should

Accepted Answer

A)  shut down. 
B)  continue producing until the price of corn increases. 
C)  produce 20,000 bushels of corn because, although they are losing money, they are losing less than if they shut down. 
D)  produce 40,000 bushels to try to increase economic profit. 
A)  shut down. 
B)  continue producing until the price of corn increases. 
C)  produce 20,000 bushels of corn because, although they are losing money, they are losing less than if they shut down. 
D)  produce 40,000 bushels to try to increase economic profit.

Question 19

The short-run shutdown price for a perfectly competitive firm is where price equals

Accepted Answer

A)  minimum ATC. 
B)  AR. 
C)  MR. 
D)  minimum AVC. 
A)  minimum ATC. 
B)  AR. 
C)  MR. 
D)  minimum AVC.

Question 20

In the long run, all firms in a perfectly competitive industry

Accepted Answer

A)  earn economic profits. 
B)  break even. 
C)  suffer economic losses. 
D)  sell differentiated products to earn economic profits. 
A)  earn economic profits. 
B)  break even. 
C)  suffer economic losses. 
D)  sell differentiated products to earn economic profits.

Exam 23: Perfect Competition

A market failure is a situation in which

Which of the following is NOT true for a perfectly competitive firm?

What is always TRUE about the short-run equilibrium position for a firm in perfect competition?

The demand curve for the product of a perfectly competitive firm is

The short-run break-even price is

The short-run industry supply curve slopes up because

In the short run, which of the following is FALSE about the shutdown point?

If firms in a perfectly competitive industry are earning positive economic profits, then what will happen in the long run?

The demand curve for a perfectly competitive firm is horizontal because

-Refer to the above figure. In order to stay open in the short run, this firm must

A perfectly competitive industry's short-run supply curve is best described as

The total amount received from the sale of output is

Total revenue divided by quantity is

In a long-run equilibrium, a perfectly competitive firm's average total cost is

-In the above figure, if the market price is $10, the firm

A firm is currently producing an output at which price equals the minimum point on the average variable cost curve. If wage rates increase, the firm will

A TRUE signal must

The short-run shutdown price for a perfectly competitive firm is where price equals

In the long run, all firms in a perfectly competitive industry

The Nature of Economics

Scarcity and the World of Trade-Offs

Demand and Supply

Extensions of Demand and Supply Analysis

Public Spending and Public Choice

Funding the Public Sector

The Macroeconomy: Unemployment, Inflation, and Deflation

Measuring the Economys Performance

Global Economic Growth and Development

Real GDP and the Price Level in the Long Run

Classical and Keynesian Macro Analyses

Consumption, Real GDP, and the Multiplier

Fiscal Policy

Deficit Spending and the Public Debt

Money, Banking, and Central Banking

Domestic and International Dimensions of Monetary Policy

Stabilization in an Integrated World Economy

Policies and Prospects for Global Economic Growth

Demand and Supply Elasticity

Consumer Choice

Rents, Profits, and the Financial Environment of Business

The Firm: Cost and Output Determination

Monopoly

Monopolistic Competition

Oligopoly and Strategic Behavior

Regulation and Antitrust Policy in a Globalized Economy

The Labor Market: Demand, Supply and Outsourcing

Unions and Labor Market Monopoly Power

Income, Poverty, and Health Care

Environmental Economics

Comparative Advantage and the Open Economy

Exchange Rates and the Balance of Payments

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