Question 1

The firm will shut down in the short run if

Accepted Answer

A)  the price falls below its minimum AVC. 
B)  the market price rises unexpectedly. 
C)  P = MC. 
D)  P = ATC at its minimum. 
A)  the price falls below its minimum AVC. 
B)  the market price rises unexpectedly. 
C)  P = MC. 
D)  P = ATC at its minimum.

Question 2

Marginal revenue equals

Accepted Answer

A)  total revenue divided by output. 
B)  price times quantity, divided by average revenue. 
C)  total revenue divided by average revenue. 
D)  the change in total revenue from selling one more unit. 
A)  total revenue divided by output. 
B)  price times quantity, divided by average revenue. 
C)  total revenue divided by average revenue. 
D)  the change in total revenue from selling one more unit.

Question 3

-In the above figure, if the market price is $8, the firm

Accepted Answer

A)  continues to produce but at an economic loss. 
B)  continues to produce but at an economic profit. 
C)  shuts down operations. 
D)  produces 10 units. 
A)  continues to produce but at an economic loss. 
B)  continues to produce but at an economic profit. 
C)  shuts down operations. 
D)  produces 10 units.

Question 4

In a perfectly competitive market, a firm's short-run supply curve is

Accepted Answer

A)  its total cost curve. 
B)  its marginal cost curve equal to or above the point of intersection with its average variable cost curve. 
C)  its average variable cost curve below the point of intersection with its total cost curve. 
D)  its total cost curve between the shutdown point and the break-even point. 
A)  its total cost curve. 
B)  its marginal cost curve equal to or above the point of intersection with its average variable cost curve. 
C)  its average variable cost curve below the point of intersection with its total cost curve. 
D)  its total cost curve between the shutdown point and the break-even point.

Question 5

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

Accepted Answer

A)  MC curve above the AVC curve. 
B)  MC curve above the AFC curve. 
C)  MC curve above the ATC curve. 
D)  MC curve above the MR curve. 
A)  MC curve above the AVC curve. 
B)  MC curve above the AFC curve. 
C)  MC curve above the ATC curve. 
D)  MC curve above the MR curve.

Question 6

Consider an industry that is in long-run equilibrium. An increase in demand leads to an increase in the price of the good. We know that this is

Accepted Answer

A)  a decreasing-cost industry. 
B)  a constant cost industry. 
C)  an increasing-cost industry. 
D)  not a competitive industry. 
A)  a decreasing-cost industry. 
B)  a constant cost industry. 
C)  an increasing-cost industry. 
D)  not a competitive industry.

Question 7

Which of the following statements about the perfect competitor is INCORRECT?

Accepted Answer

A)  The perfectly competitive firm is always a price taker. 
B)  The perfect competitor sells a homogeneous commodity. 
C)  If an individual firm raises price, it will lose business. 
D)  The products made by a perfectly competitive firm have no close substitutes. 
A)  The perfectly competitive firm is always a price taker. 
B)  The perfect competitor sells a homogeneous commodity. 
C)  If an individual firm raises price, it will lose business. 
D)  The products made by a perfectly competitive firm have no close substitutes.

Question 8

Suppose a perfectly competitive cotton farmer can produce 10 containers of cotton at an output at which marginal cost equals marginal revenue. The price per container of cotton is $100 and the average total cost is $75. What is the profit or loss that this cotton farmer is earning?

Accepted Answer

A)  $750 
B)  $150 
C)  $250 
D)  -$25 
A)  $750 
B)  $150 
C)  $250 
D)  -$25

Question 9

When considering perfect competition the absence of entry barriers implies that

Accepted Answer

A)  no firm can enter the industry. 
B)  firms can enter but cannot get out of the industry easily. 
C)  all firms will earn economic profit. 
D)  firms can enter and leave the industry without serious impediments. 
A)  no firm can enter the industry. 
B)  firms can enter but cannot get out of the industry easily. 
C)  all firms will earn economic profit. 
D)  firms can enter and leave the industry without serious impediments.

Question 10

In a perfectly competitive market structure both buyers and sellers have equal access to information. This implies

Accepted Answer

A)  the products sold will be alike. 
B)  firms will move labor and capital in pursuit of profit-making opportunities to whatever business venture gives them the highest return on their investment. 
C)  no one buyer or seller has any influence on price. 
D)  consumers are able to find out about lower prices charged by other firms. 
A)  the products sold will be alike. 
B)  firms will move labor and capital in pursuit of profit-making opportunities to whatever business venture gives them the highest return on their investment. 
C)  no one buyer or seller has any influence on price. 
D)  consumers are able to find out about lower prices charged by other firms.

Question 11

-In the above figure, what happens to the firm's optimal level of output if the price it receives for its product increases from P2 to P3?

Accepted Answer

A)  Output stays the same. 
B)  Output decreases. 
C)  Output increases. 
D)  There is not enough information provided to know what happens to output. 
A)  Output stays the same. 
B)  Output decreases. 
C)  Output increases. 
D)  There is not enough information provided to know what happens to output.

Question 12

In the long run when a perfectly competitive firm experiences positive economic profits

Accepted Answer

A)  firms exit the industry, the market supply curve shifts rightward, and the market price falls. 
B)  firms enter the industry, the market supply curve shifts rightward, and the market price falls. 
C)  firms exit the industry, the market supply curve shifts leftward, and the market price rises. 
D)  firms enter the industry, the market supply curve shifts rightward, and the market price rises. 
A)  firms exit the industry, the market supply curve shifts rightward, and the market price falls. 
B)  firms enter the industry, the market supply curve shifts rightward, and the market price falls. 
C)  firms exit the industry, the market supply curve shifts leftward, and the market price rises. 
D)  firms enter the industry, the market supply curve shifts rightward, and the market price rises.

Question 13

When a perfectly competitive firm experiences zero economic profits

Accepted Answer

A)  the high barriers to entry prevent further competition. 
B)  existing firms exit the industry. 
C)  additional firms enter the industry. 
D)  firms have no incentive to exit or enter the industry. 
A)  the high barriers to entry prevent further competition. 
B)  existing firms exit the industry. 
C)  additional firms enter the industry. 
D)  firms have no incentive to exit or enter the industry.

Question 14

-Refer to the above figure for the individual firm in a perfectly competitive market. If the firm's average costs are given by AC3, 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 15

A constant-cost industry is one in which

Accepted Answer

A)  output increases lead to productivity gains. 
B)  the marginal product of labor is constant. 
C)  there is no change in long-run per-unit costs, even as output varies. 
D)  each firm has a horizontal long-run average cost curve. 
A)  output increases lead to productivity gains. 
B)  the marginal product of labor is constant. 
C)  there is no change in long-run per-unit costs, even as output varies. 
D)  each firm has a horizontal long-run average cost curve.

Question 16

If the costs of production do NOT change as output increases in the long run in a perfectly competitive industry, then this is a

Accepted Answer

A)  constant-return-to-scale industry. 
B)  constant-competitive industry. 
C)  constant-cost industry. 
D)  constant-price industry. 
A)  constant-return-to-scale industry. 
B)  constant-competitive industry. 
C)  constant-cost industry. 
D)  constant-price industry.

Question 17

Which of the following is closest to a perfectly competitive market?

Accepted Answer

A)  the soda pop market 
B)  the market for bread 
C)  the market for sugar 
D)  the market for fast food 
A)  the soda pop market 
B)  the market for bread 
C)  the market for sugar 
D)  the market for fast food

Question 18

What is a price taker? Discuss the assumptions used to obtain the perfectly competitive model.

Accepted Answer

A price taker, or perfectly competitive

Question 19

Suppose a perfectly competitive ukulele factory can produce 35 ukuleles at an output at which marginal cost equals marginal revenue. The price per ukulele is $1300 and the average total cost is $1500. What is the profit or loss that this furniture factory is earning?

Accepted Answer

A)  $700.00 
B)  -$7,000.00 
C)  -$1,050.00 
D)  -$450.00 
A)  $700.00 
B)  -$7,000.00 
C)  -$1,050.00 
D)  -$450.00

Question 20

-Refer to the above figure. The firm will just be covering all of its variable cost but none of its fixed cost

Accepted Answer

A)  when the price equals $1. 
B)  when the price equals $2. 
C)  when the price equals $4. 
D)  at prices between $1 and $2. 
A)  when the price equals $1. 
B)  when the price equals $2. 
C)  when the price equals $4. 
D)  at prices between $1 and $2.

Exam 23: Perfect Competition

The firm will shut down in the short run if

Marginal revenue equals

-In the above figure, if the market price is $8, the firm

In a perfectly competitive market, a firm's short-run supply curve is

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

Consider an industry that is in long-run equilibrium. An increase in demand leads to an increase in the price of the good. We know that this is

Which of the following statements about the perfect competitor is INCORRECT?

Suppose a perfectly competitive cotton farmer can produce 10 containers of cotton at an output at which marginal cost equals marginal revenue. The price per container of cotton is $100 and the average total cost is $75. What is the profit or loss that this cotton farmer is earning?

When considering perfect competition the absence of entry barriers implies that

In a perfectly competitive market structure both buyers and sellers have equal access to information. This implies

-In the above figure, what happens to the firm's optimal level of output if the price it receives for its product increases from P2 to P3?

In the long run when a perfectly competitive firm experiences positive economic profits

When a perfectly competitive firm experiences zero economic profits

-Refer to the above figure for the individual firm in a perfectly competitive market. If the firm's average costs are given by AC3, then

A constant-cost industry is one in which

If the costs of production do NOT change as output increases in the long run in a perfectly competitive industry, then this is a

Which of the following is closest to a perfectly competitive market?

What is a price taker? Discuss the assumptions used to obtain the perfectly competitive model.

Suppose a perfectly competitive ukulele factory can produce 35 ukuleles at an output at which marginal cost equals marginal revenue. The price per ukulele is $1300 and the average total cost is $1500. What is the profit or loss that this furniture factory is earning?

-Refer to the above figure. The firm will just be covering all of its variable cost but none of its fixed cost

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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