Question 1

The motive that drives firms to enter or exit an industry is

Accepted Answer

A)  opportunity costs. 
B)  diseconomies of scale. 
C)  economic profit. 
D)  accounting costs. 
A)  opportunity costs. 
B)  diseconomies of scale. 
C)  economic profit. 
D)  accounting costs.

Question 2

-Refer to the above figure for the individual firm in a perfectly competitive market. If the firm's average costs are given by AC1, then

Accepted Answer

A)  the industry supply curve will shift leftward. 
B)  the industry supply curve will shift rightward. 
C)  the industry demand curve will shift rightward. 
D)  none of the above. 
A)  the industry supply curve will shift leftward. 
B)  the industry supply curve will shift rightward. 
C)  the industry demand curve will shift rightward. 
D)  none of the above.

Question 3

"A perfect competitor should maximize total revenues." Do you agree or disagree? Explain.

Accepted Answer

Disagree. A perfect competitor should ma

Question 4

In the long run, a perfect competitor

Accepted Answer

A)  earns positive profits but will not make losses. 
B)  earns positive economic profits. 
C)  earns zero economic profits. 
D)  produces at its shutdown point. 
A)  earns positive profits but will not make losses. 
B)  earns positive economic profits. 
C)  earns zero economic profits. 
D)  produces at its shutdown point.

Question 5

When a firm has economic profits equal to zero

Accepted Answer

A)  the firm is earning a normal rate of return on investment. 
B)  the firm is not earning a normal rate of return on investment. 
C)  the firm should shut down. 
D)  the firm's accounting profits are also zero. 
A)  the firm is earning a normal rate of return on investment. 
B)  the firm is not earning a normal rate of return on investment. 
C)  the firm should shut down. 
D)  the firm's accounting profits are also zero.

Question 6

-In the above figure, at the profit-maximizing rate of production for the perfectly competitive firm average total cost is

Accepted Answer

A)  $10. 
B)  $3. 
C)  $7. 
D)  $70. 
A)  $10. 
B)  $3. 
C)  $7. 
D)  $70.

Question 7

-The firm in the above figure breaks even when quantity is

Accepted Answer

A)  A. 
B)  B. 
C)  C. 
D)  D. 
A)  A. 
B)  B. 
C)  C. 
D)  D.

Question 8

For a firm in a perfectly competitive industry, which of the following is TRUE?

Accepted Answer

A)  MR = P 
B)  MR  P 
A)  MR = P 
B)  MR  P

Question 9

Marginal revenue is

Accepted Answer

A)  change in total revenue/change in output. 
B)  total revenue/output. 
C)  change in total revenue/output. 
D)  total revenue/change in output. 
A)  change in total revenue/change in output. 
B)  total revenue/output. 
C)  change in total revenue/output. 
D)  total revenue/change in output.

Question 10

-Refer to the above table. The table represents information on the costs for Ajax Corporation. Ajax operates in a perfectly competitive market and the price of the product is $10. What does profit equal when quantity equals 4?

Accepted Answer

A)  $4 
B)  $10 
C)  $8 
D)  $40 
A)  $4 
B)  $10 
C)  $8 
D)  $40

Question 11

A perfectly elastic long-run supply curve indicates

Accepted Answer

A)  a decreasing-cost industry. 
B)  a constant-cost industry. 
C)  an increasing-cost industry. 
D)  that some input prices change as firms enter and exit the industry. 
A)  a decreasing-cost industry. 
B)  a constant-cost industry. 
C)  an increasing-cost industry. 
D)  that some input prices change as firms enter and exit the industry.

Question 12

-In the above figure, at output levels between 5 units and 13 units

Accepted Answer

A)  the firm's accounting profits are negative. 
B)  total revenue equals total costs. 
C)  the firm's economic profits are positive. 
D)  the firm is breaking even. 
A)  the firm's accounting profits are negative. 
B)  total revenue equals total costs. 
C)  the firm's economic profits are positive. 
D)  the firm is breaking even.

Question 13

If there is no output for which product price is sufficient to cover variable costs

Accepted Answer

A)  the firm should stay open in the short-run. 
B)  the firm should shut down in the short run. 
C)  the firm earns economic profits by staying open. 
D)  the firm should increase production. 
A)  the firm should stay open in the short-run. 
B)  the firm should shut down in the short run. 
C)  the firm earns economic profits by staying open. 
D)  the firm should increase production.

Question 14

-In the above figure, at the profit-maximizing rate of production for the perfectly competitive firm total revenue is

Accepted Answer

A)  $100. 
B)  $70. 
C)  $30. 
D)  $130. 
A)  $100. 
B)  $70. 
C)  $30. 
D)  $130.

Question 15

Suppose a perfectly competitive firm faces the following short-run cost and revenue conditions: ATC = $12; AVC = $10; MC = $15; MR = $16. The firm should

Accepted Answer

A)  increase output. 
B)  decrease output. 
C)  increase price. 
D)  change nothing. 
A)  increase output. 
B)  decrease output. 
C)  increase price. 
D)  change nothing.

Question 16

If a constant-cost, perfectly competitive industry experiences an increase in the demand for its product, we would expect

Accepted Answer

A)  only the market price of the good to increase. 
B)  both the market price and quantity supplied to increase. 
C)  decreases in the market price, but increases in quantity supplied. 
D)  only the quantity supplied of the product to increase. 
A)  only the market price of the good to increase. 
B)  both the market price and quantity supplied to increase. 
C)  decreases in the market price, but increases in quantity supplied. 
D)  only the quantity supplied of the product to increase.

Question 17

-In the above figure, the long-run equilibrium price and output are

Accepted Answer

A)  $10 and 10. 
B)  $10 and 12. 
C)  $7 and 8. 
D)  $8 and 10. 
A)  $10 and 10. 
B)  $10 and 12. 
C)  $7 and 8. 
D)  $8 and 10.

Question 18

For the perfectly competitive firm, price

Accepted Answer

A)  equals average revenue and marginal revenue. 
B)  equals average total cost. 
C)  changes as output changes. 
D)  depends on the fixed cost for the firm. 
A)  equals average revenue and marginal revenue. 
B)  equals average total cost. 
C)  changes as output changes. 
D)  depends on the fixed cost for the firm.

Question 19

A law that restricts plant closings will

Accepted Answer

A)  make the economy more efficient by slowing down the movement of resources to a more optimal rate. 
B)  make the economy more efficient by reducing poor decisions on the part of entrepreneurs. 
C)  prevent resources from flowing to their highest-valued uses. 
D)  provide useful market signals to all parties in the industry. 
A)  make the economy more efficient by slowing down the movement of resources to a more optimal rate. 
B)  make the economy more efficient by reducing poor decisions on the part of entrepreneurs. 
C)  prevent resources from flowing to their highest-valued uses. 
D)  provide useful market signals to all parties in the industry.

Question 20

-In the above figure, the profit-maximizing rate of production for the perfectly competitive firm is

Accepted Answer

A)  5. 
B)  10. 
C)  13. 
D)  none of the above. 
A)  5. 
B)  10. 
C)  13. 
D)  none of the above.

Exam 23: Perfect Competition

The motive that drives firms to enter or exit an industry is

-Refer to the above figure for the individual firm in a perfectly competitive market. If the firm's average costs are given by AC1, then

"A perfect competitor should maximize total revenues." Do you agree or disagree? Explain.

In the long run, a perfect competitor

When a firm has economic profits equal to zero

-In the above figure, at the profit-maximizing rate of production for the perfectly competitive firm average total cost is

-The firm in the above figure breaks even when quantity is

For a firm in a perfectly competitive industry, which of the following is TRUE?

Marginal revenue is

-Refer to the above table. The table represents information on the costs for Ajax Corporation. Ajax operates in a perfectly competitive market and the price of the product is $10. What does profit equal when quantity equals 4?

A perfectly elastic long-run supply curve indicates

-In the above figure, at output levels between 5 units and 13 units

If there is no output for which product price is sufficient to cover variable costs

-In the above figure, at the profit-maximizing rate of production for the perfectly competitive firm total revenue is

Suppose a perfectly competitive firm faces the following short-run cost and revenue conditions: ATC = $12; AVC = $10; MC = $15; MR = $16. The firm should

If a constant-cost, perfectly competitive industry experiences an increase in the demand for its product, we would expect

-In the above figure, the long-run equilibrium price and output are

For the perfectly competitive firm, price

A law that restricts plant closings will

-In the above figure, the profit-maximizing rate of production for the perfectly competitive firm is

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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