Question 1

Which of the following is NOT a characteristic of perfect competition?

Accepted Answer

A)  Firms are "price takers." 
B)  All firms sell identical products. 
C)  There are substantial barriers to entry into the industry. 
D)  There are many buyers and sellers. 
A)  Firms are "price takers." 
B)  All firms sell identical products. 
C)  There are substantial barriers to entry into the industry. 
D)  There are many buyers and sellers.

Question 2

In a perfectly competitive market structure any firm can enter or leave the industry without serious impediments. 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 3

As long as price exceeds AVC, the firm is better off

Accepted Answer

A)  continuing production. 
B)  closing. 
C)  raising its price. 
D)  cutting price. 
A)  continuing production. 
B)  closing. 
C)  raising its price. 
D)  cutting price.

Question 4

Signals are

Accepted Answer

A)  used by economic decision-makers to inform others about their plans. 
B)  the method by which government planners inform economic decision-makers about the types of decisions they should make. 
C)  the method by which firms determine their profit maximizing quantity. 
D)  compact ways of conveying to economic decision makers information needed to identify industries where more resources are needed. 
A)  used by economic decision-makers to inform others about their plans. 
B)  the method by which government planners inform economic decision-makers about the types of decisions they should make. 
C)  the method by which firms determine their profit maximizing quantity. 
D)  compact ways of conveying to economic decision makers information needed to identify industries where more resources are needed.

Question 5

For a perfect competitor, price equals

Accepted Answer

A)  marginal revenue only. 
B)  average revenue only. 
C)  both average revenue and marginal revenue. 
D)  neither marginal revenue nor average revenue. 
A)  marginal revenue only. 
B)  average revenue only. 
C)  both average revenue and marginal revenue. 
D)  neither marginal revenue nor average revenue.

Question 6

The loss-minimizing output for the perfectly competitive firm occurs at the point at which

Accepted Answer

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

Question 7

Economic efficiency means

Accepted Answer

A)  the same as technical efficiency. 
B)  that all firms within a single competitive industry are producing at the same level of output. 
C)  that it is impossible to increase the output of any good without lowering the total value of the output of the economy. 
D)  that high-tech methods of production are the most efficient. 
A)  the same as technical efficiency. 
B)  that all firms within a single competitive industry are producing at the same level of output. 
C)  that it is impossible to increase the output of any good without lowering the total value of the output of the economy. 
D)  that high-tech methods of production are the most efficient.

Question 8

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

Accepted Answer

A)  monopoly. 
B)  monopolistic competition. 
C)  perfect competition. 
D)  oligopoly. 
A)  monopoly. 
B)  monopolistic competition. 
C)  perfect competition. 
D)  oligopoly.

Question 9

The shutdown rule for a firm in a perfectly competitive industry is that the firm should cease production if

Accepted Answer

A)  P < MC. 
B)  P < ATC. 
C)  P < AVC. 
D)  P < AFC. 
A)  P < MC. 
B)  P < ATC. 
C)  P < AVC. 
D)  P < AFC.

Question 10

Profits and losses are TRUE signals because they

Accepted Answer

A)  convey information about true long-run profits. 
B)  cannot be misinterpreted by entrepreneurs. 
C)  convey information about where to place resources and reward people who act on the information. 
D)  reward people who make profits with even more profits and punish those who make losses with even more losses. 
A)  convey information about true long-run profits. 
B)  cannot be misinterpreted by entrepreneurs. 
C)  convey information about where to place resources and reward people who act on the information. 
D)  reward people who make profits with even more profits and punish those who make losses with even more losses.

Question 11

Which of the following is NOT a characteristic of a perfectly competitive long-run equilibrium?

Accepted Answer

A)  Firms are earning zero profits. 
B)  Price equals marginal cost. 
C)  Price equals long-run minimum average cost. 
D)  Firms are producing on the downward sloping portions of their short-run average cost curves. 
A)  Firms are earning zero profits. 
B)  Price equals marginal cost. 
C)  Price equals long-run minimum average cost. 
D)  Firms are producing on the downward sloping portions of their short-run average cost curves.

Question 12

A firm is currently producing at the point where MC = MR. The situation for the firm at this point is P = $5, Q = 100, ATC = $6, AVC = $5.50. What do you recommend this firm do?

Accepted Answer

A)  Increase production above the current output rate, because MC = MR at this rate of output. 
B)  Continue to produce the current output rate, because P > AVC. 
C)  Shut down, because AVC > P. 
D)  Shut down, because ATC > P. 
A)  Increase production above the current output rate, because MC = MR at this rate of output. 
B)  Continue to produce the current output rate, because P > AVC. 
C)  Shut down, because AVC > P. 
D)  Shut down, because ATC > P.

Question 13

-Suppose the market price is $5, marginal cost is $4, and average total cost is $2. The perfectly competitive firm in that market is

Accepted Answer

A)  earning $3 in economic profits per unit of output and is not maximizing profits. 
B)  earning $2 in economic profits per unit of output and is maximizing profits. 
C)  earning $1 in economic profits per unit of output and is not maximizing profits. 
D)  none of the above: Insufficient information is given. 
A)  earning $3 in economic profits per unit of output and is not maximizing profits. 
B)  earning $2 in economic profits per unit of output and is maximizing profits. 
C)  earning $1 in economic profits per unit of output and is not maximizing profits. 
D)  none of the above: Insufficient information is given.

Question 14

The total revenue of a perfectly competitive firm is calculated by

Accepted Answer

A)  multiplying average revenue by price. 
B)  dividing price by quantity. 
C)  multiplying price by quantity. 
D)  multiplying quantity by average total cost. 
A)  multiplying average revenue by price. 
B)  dividing price by quantity. 
C)  multiplying price by quantity. 
D)  multiplying quantity by average total cost.

Question 15

If an industry has constant marginal and average costs, any shift in demand will eventually

Accepted Answer

A)  result in a higher equilibrium price. 
B)  be met by a smaller change in quantity supplied. 
C)  be met by an equal change in quantity supplied, and equilibrium price will not change. 
D)  make economic profits zero in the short run. 
A)  result in a higher equilibrium price. 
B)  be met by a smaller change in quantity supplied. 
C)  be met by an equal change in quantity supplied, and equilibrium price will not change. 
D)  make economic profits zero in the short run.

Question 16

Which of the following is NOT correct for a perfectly competitive firm in long-run equilibrium?

Accepted Answer

A)  SAC = LAC 
B)  MR = P = AR 
C)  MC = MR > LAC 
D)  LAC = P 
A)  SAC = LAC 
B)  MR = P = AR 
C)  MC = MR > LAC 
D)  LAC = P

Question 17

Total revenues

Accepted Answer

A)  are defined as the quantity sold divided by price. 
B)  are not the same as total receipts from the sale of output. 
C)  equal gross revenues minus all expenses of the firm. 
D)  equal the price per unit times the total quantity sold. 
A)  are defined as the quantity sold divided by price. 
B)  are not the same as total receipts from the sale of output. 
C)  equal gross revenues minus all expenses of the firm. 
D)  equal the price per unit times the total quantity sold.

Question 18

Suppose a perfectly competitive firm faces the following cost and revenue conditions: ATC = $25.50; AVC = $20.50; MC = $25.50; MR = $28.50. The firm should

Accepted Answer

A)  decrease output. 
B)  increase output. 
C)  shut down. 
D)  continue to produce its current output. 
A)  decrease output. 
B)  increase output. 
C)  shut down. 
D)  continue to produce its current output.

Question 19

-At the short-run break-even point, the perfectly competitive firm is

Accepted Answer

A)  earning positive economic profits. 
B)  earning zero economic profits. 
C)  earning negative economic profits. 
D)  just covering its total variable costs. 
A)  earning positive economic profits. 
B)  earning zero economic profits. 
C)  earning negative economic profits. 
D)  just covering its total variable costs.

Question 20

Being a price taker essentially means

Accepted Answer

A)  a firm can influence the market price. 
B)  a firm cannot influence the market price. 
C)  the firm cannot legally set its price above the market price. 
D)  the firm cannot legally set its price below the market price. 
A)  a firm can influence the market price. 
B)  a firm cannot influence the market price. 
C)  the firm cannot legally set its price above the market price. 
D)  the firm cannot legally set its price below the market price.

Exam 23: Perfect Competition

Which of the following is NOT a characteristic of perfect competition?

In a perfectly competitive market structure any firm can enter or leave the industry without serious impediments. This implies

As long as price exceeds AVC, the firm is better off

Signals are

For a perfect competitor, price equals

The loss-minimizing output for the perfectly competitive firm occurs at the point at which

Economic efficiency means

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

The shutdown rule for a firm in a perfectly competitive industry is that the firm should cease production if

Profits and losses are TRUE signals because they

Which of the following is NOT a characteristic of a perfectly competitive long-run equilibrium?

A firm is currently producing at the point where MC = MR. The situation for the firm at this point is P = $5, Q = 100, ATC = $6, AVC = $5.50. What do you recommend this firm do?

-Suppose the market price is $5, marginal cost is $4, and average total cost is $2. The perfectly competitive firm in that market is

The total revenue of a perfectly competitive firm is calculated by

If an industry has constant marginal and average costs, any shift in demand will eventually

Which of the following is NOT correct for a perfectly competitive firm in long-run equilibrium?

Total revenues

Suppose a perfectly competitive firm faces the following cost and revenue conditions: ATC = $25.50; AVC = $20.50; MC = $25.50; MR = $28.50. The firm should

-At the short-run break-even point, the perfectly competitive firm is

Being a price taker essentially means

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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