Question 1

-Refer to the above figure. Profits will be positive

Accepted Answer

A)  when the price equals $1. 
B)  when the price equals $2. 
C)  at prices between $1 and $2. 
D)  when the price is above $2. 
A)  when the price equals $1. 
B)  when the price equals $2. 
C)  at prices between $1 and $2. 
D)  when the price is above $2.

Question 2

Why does the industry short-run supply curve slope upward?

Accepted Answer

The industry short-run supply curve slop

Question 3

A firm in a perfectly competitive market maximizes profits when it finds

Accepted Answer

A)  the price at which total revenue minus total cost is the greatest. 
B)  the quantity at which total revenue minus total cost is the greatest. 
C)  the quantity at which total revenue equals total cost. 
D)  the quantity at which total revenue is maximized. 
A)  the price at which total revenue minus total cost is the greatest. 
B)  the quantity at which total revenue minus total cost is the greatest. 
C)  the quantity at which total revenue equals total cost. 
D)  the quantity at which total revenue is maximized.

Question 4

If an industry's long-run per-unit costs decrease as its output increases then

Accepted Answer

A)  the firm's long-run economic profits must be less than zero. 
B)  the firm is most likely a decreasing-cost industry. 
C)  the firm is most likely an increasing-cost industry. 
D)  the firm is most likely a constant-cost industry. 
A)  the firm's long-run economic profits must be less than zero. 
B)  the firm is most likely a decreasing-cost industry. 
C)  the firm is most likely an increasing-cost industry. 
D)  the firm is most likely a constant-cost industry.

Question 5

-Refer to the above figure. The firm's short-run shutdown price is

Accepted Answer

A)  at $1. 
B)  at $2. 
C)  at $4. 
D)  above $4. 
A)  at $1. 
B)  at $2. 
C)  at $4. 
D)  above $4.

Question 6

A situation in which the price charged is equal to society's opportunity cost is known as

Accepted Answer

A)  market failure. 
B)  marginal monopoly pricing. 
C)  marginal profits. 
D)  marginal cost pricing. 
A)  market failure. 
B)  marginal monopoly pricing. 
C)  marginal profits. 
D)  marginal cost pricing.

Question 7

What is the shape of the long-run supply curve in a decreasing-cost industry?

Accepted Answer

A)  horizontal 
B)  increasing 
C)  downward sloping 
D)  upward sloping 
A)  horizontal 
B)  increasing 
C)  downward sloping 
D)  upward sloping

Question 8

"A market is said to be perfectly competitive when consumers can tell that some products are of better quality than others." Do you agree or disagree? Why?

Accepted Answer

Disagree. A market is perfectl

Question 9

A perfectly competitive firm faces a market clearing price of $150 per unit. Average total costs are at the minimum value of $200 per unit at an output rate of 100 units. Average variable costs are at the minimum value of $100 per unit at an output rate of 50 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 negative economic profits per unit sold. 
C)  75 units, at which the firm earns positive economic profits per unit sold. 
D)  50 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 negative economic profits per unit sold. 
C)  75 units, at which the firm earns positive economic profits per unit sold. 
D)  50 units, because price is less than average variable costs.

Question 10

-Refer to the above figure for the individual firm in a perfectly competitive market. If the firm's average costs are given by AC2, 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 11

-In the above figure, assume d1 is the demand curve faced by this firm. Which is TRUE?

Accepted Answer

A)  This firm is earning an economic profit. 
B)  This firm is experiencing an economic loss. 
C)  This firm is breaking even. 
D)  This firm's total costs equal EJA0. 
A)  This firm is earning an economic profit. 
B)  This firm is experiencing an economic loss. 
C)  This firm is breaking even. 
D)  This firm's total costs equal EJA0.

Question 12

If a firm is producing an output rate at which marginal cost is equal price, the firm

Accepted Answer

A)  is maximizing profits. 
B)  should increase its output level. 
C)  should reduce its output level. 
D)  will not be covering its fixed cost. 
A)  is maximizing profits. 
B)  should increase its output level. 
C)  should reduce its output level. 
D)  will not be covering its fixed cost.

Question 13

We assume that firms, when they are deciding the best rate of output at which to produce

Accepted Answer

A)  try to get the highest price possible. 
B)  want to maximize sales. 
C)  want to minimize costs. 
D)  want to maximize profits. 
A)  try to get the highest price possible. 
B)  want to maximize sales. 
C)  want to minimize costs. 
D)  want to maximize profits.

Question 14

A firm will shut down in the short run when

Accepted Answer

A)  price is below average total costs at all possible rates of output. 
B)  price is below average variable costs at all possible rates of output. 
C)  price is below marginal cost at all possible rates of output. 
D)  it is making a loss. 
A)  price is below average total costs at all possible rates of output. 
B)  price is below average variable costs at all possible rates of output. 
C)  price is below marginal cost at all possible rates of output. 
D)  it is making a loss.

Question 15

A perfectly competitive industry's market or "going" price is established by

Accepted Answer

A)  the largest firm in the industry. 
B)  the largest purchaser of this industry's output. 
C)  each individual producing firm and reflects that firm's costs. 
D)  the forces of supply and demand. 
A)  the largest firm in the industry. 
B)  the largest purchaser of this industry's output. 
C)  each individual producing firm and reflects that firm's costs. 
D)  the forces of supply and demand.

Question 16

-If price is $5, marginal cost is $5, average total cost is $3, and the quantity produced is 150 units, then the perfectly competitive firm is

Accepted Answer

A)  not maximizing economic profit. 
B)  earning $2 in economic profits and is maximizing economic profits. 
C)  earning $150 in economic profits and is not maximizing economic profits. 
D)  earning $300 in economic profits and is maximizing economic profits. 
A)  not maximizing economic profit. 
B)  earning $2 in economic profits and is maximizing economic profits. 
C)  earning $150 in economic profits and is not maximizing economic profits. 
D)  earning $300 in economic profits and is maximizing economic profits.

Question 17

The difference between price and average total cost is

Accepted Answer

A)  total costs. 
B)  marginal costs. 
C)  average profit. 
D)  an irrelevant quantity. 
A)  total costs. 
B)  marginal costs. 
C)  average profit. 
D)  an irrelevant quantity.

Question 18

A constant-cost industry will have

Accepted Answer

A)  a perfectly elastic long-run supply curve. 
B)  a perfectly inelastic long-run supply curve. 
C)  an upward sloping demand curve in the long run. 
D)  an upward sloping supply curve in the long run. 
A)  a perfectly elastic long-run supply curve. 
B)  a perfectly inelastic long-run supply curve. 
C)  an upward sloping demand curve in the long run. 
D)  an upward sloping supply curve in the long run.

Question 19

For a perfectly competitive firm, any price below its minimum AVC is a

Accepted Answer

A)  market price. 
B)  shutdown price. 
C)  profit maximizing price. 
D)  negative price. 
A)  market price. 
B)  shutdown price. 
C)  profit maximizing price. 
D)  negative price.

Question 20

The profit-maximizing output for the perfectly competitive firm occurs at the point at which

Accepted Answer

A)  TR - MR is at a maximum. 
B)  TR - TC is at a minimum. 
C)  MR = MC. 
D)  TR - ATC is at a maximum. 
A)  TR - MR is at a maximum. 
B)  TR - TC is at a minimum. 
C)  MR = MC. 
D)  TR - ATC is at a maximum.

Exam 23: Perfect Competition

-Refer to the above figure. Profits will be positive

Why does the industry short-run supply curve slope upward?

A firm in a perfectly competitive market maximizes profits when it finds

If an industry's long-run per-unit costs decrease as its output increases then

-Refer to the above figure. The firm's short-run shutdown price is

A situation in which the price charged is equal to society's opportunity cost is known as

What is the shape of the long-run supply curve in a decreasing-cost industry?

"A market is said to be perfectly competitive when consumers can tell that some products are of better quality than others." Do you agree or disagree? Why?

-Refer to the above figure for the individual firm in a perfectly competitive market. If the firm's average costs are given by AC2, then

-In the above figure, assume d1 is the demand curve faced by this firm. Which is TRUE?

If a firm is producing an output rate at which marginal cost is equal price, the firm

We assume that firms, when they are deciding the best rate of output at which to produce

A firm will shut down in the short run when

A perfectly competitive industry's market or "going" price is established by

-If price is $5, marginal cost is $5, average total cost is $3, and the quantity produced is 150 units, then the perfectly competitive firm is

The difference between price and average total cost is

A constant-cost industry will have

For a perfectly competitive firm, any price below its minimum AVC is a

The profit-maximizing output for the perfectly competitive firm occurs at the point at which

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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