Question 1

A firm should never produce any output if

Accepted Answer

A)  P < AVC. 
B)  P < ATC. 
C)  AR < ATC. 
D)  MR < MC. 
A)  P < AVC. 
B)  P < ATC. 
C)  AR < ATC. 
D)  MR < MC.

Question 2

-In the above figure, assume d3 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 revenues equal HRD0. 
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 revenues equal HRD0.

Question 3

Economic profits and losses are TRUE market signals because they

Accepted Answer

A)  convey information in an asymmetrical fashion. 
B)  convey information about rewards people should anticipate experiencing by shifting resources from one activity to another. 
C)  convey information to public officials about where to encourage people to invest and what skills people should develop. 
D)  cause people to move into careers in both undesirable and desirable industries with equal ease. 
A)  convey information in an asymmetrical fashion. 
B)  convey information about rewards people should anticipate experiencing by shifting resources from one activity to another. 
C)  convey information to public officials about where to encourage people to invest and what skills people should develop. 
D)  cause people to move into careers in both undesirable and desirable industries with equal ease.

Question 4

In a perfectly competitive industry, the firm's marginal revenue curve is

Accepted Answer

A)  downward sloping. 
B)  upward sloping. 
C)  vertical. 
D)  horizontal. 
A)  downward sloping. 
B)  upward sloping. 
C)  vertical. 
D)  horizontal.

Question 5

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

Accepted Answer

A)  MR = MC 
B)  MC > LAC 
C)  Price = MC 
D)  SAC = LAC 
A)  MR = MC 
B)  MC > LAC 
C)  Price = MC 
D)  SAC = LAC

Question 6

When economic profits in a perfectly competitive industry are positive

Accepted Answer

A)  new firms will be attracted to the industry, and economic profits will decline to zero. 
B)  the industry is in equilibrium. 
C)  firms will increase output to earn even higher profits. 
D)  firms will increase prices while they have the opportunity. 
A)  new firms will be attracted to the industry, and economic profits will decline to zero. 
B)  the industry is in equilibrium. 
C)  firms will increase output to earn even higher profits. 
D)  firms will increase prices while they have the opportunity.

Question 7

Each firm in a perfectly competitive industry is

Accepted Answer

A)  producing a unique product. 
B)  relatively large. 
C)  a price taker. 
D)  a price maker. 
A)  producing a unique product. 
B)  relatively large. 
C)  a price taker. 
D)  a price maker.

Question 8

-In the above figure, what happens to the firm's optimal level of output if the price it receives for its product decreases from P4 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 9

-In the above figure, if the firm is facing demand curve d2, then to maximize profits it will produce at output level

Accepted Answer

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

Question 10

-Refer to the above figure. The competitive firm's short run supply curve

Accepted Answer

A)  starts at A and goes along the MC curve as quantity increases. 
B)  starts at B and goes along the MC curve as quantity increases. 
C)  starts at A and goes along the AVC curve as quantity increases. 
D)  starts at B and goes along the ATC curve as quantity increases. 
A)  starts at A and goes along the MC curve as quantity increases. 
B)  starts at B and goes along the MC curve as quantity increases. 
C)  starts at A and goes along the AVC curve as quantity increases. 
D)  starts at B and goes along the ATC curve as quantity increases.

Question 11

-Refer to the above figure. Which of the graphs represent the situation for a perfectly competitive industry?

Accepted Answer

A)  Panel A 
B)  Panel B 
C)  Panel C 
D)  Panel D 
A)  Panel A 
B)  Panel B 
C)  Panel C 
D)  Panel D

Question 12

A situation in which the price charged is greater than society's opportunity cost would lead to

Accepted Answer

A)  too little being produced. 
B)  too much being produced. 
C)  an efficient amount being produced. 
D)  marginal cost pricing. 
A)  too little being produced. 
B)  too much being produced. 
C)  an efficient amount being produced. 
D)  marginal cost pricing.

Question 13

For a perfectly competitive firm

Accepted Answer

A)  price is greater than marginal revenue. 
B)  price equals marginal revenue. 
C)  price is less than marginal revenue. 
D)  there is no relationship between price and marginal revenue. 
A)  price is greater than marginal revenue. 
B)  price equals marginal revenue. 
C)  price is less than marginal revenue. 
D)  there is no relationship between price and marginal revenue.

Question 14

All of the following are characteristics of a perfectly competitive market EXCEPT

Accepted Answer

A)  homogeneous products. 
B)  large number of buyers and sellers. 
C)  buyers and seller have equal access to information. 
D)  high barriers to entry and exit. 
A)  homogeneous products. 
B)  large number of buyers and sellers. 
C)  buyers and seller have equal access to information. 
D)  high barriers to entry and exit.

Question 15

In a perfectly competitive industry, which of the following is a market signal to resource owners?

Accepted Answer

A)  economic profits 
B)  quality of goods 
C)  the level of exports in the country 
D)  the level of subsidies the industry receives 
A)  economic profits 
B)  quality of goods 
C)  the level of exports in the country 
D)  the level of subsidies the industry receives

Question 16

-In the above figure, at which output level is this firm earning negative economic profits?

Accepted Answer

A)  2 
B)  5 
C)  10 
D)  12 
A)  2 
B)  5 
C)  10 
D)  12

Question 17

In a perfectly competitive market, which of the following is the main factor that affects consumers' decisions on which firm to purchase a good from?

Accepted Answer

A)  quality 
B)  customer service 
C)  reputation 
D)  price 
A)  quality 
B)  customer service 
C)  reputation 
D)  price

Question 18

When should a firm shut down? When should a firm go out of business?

Accepted Answer

A firm should shut down when the price p

Question 19

Price equals the minimum of long-run average cost

Accepted Answer

A)  in a long-run equilibrium. 
B)  in a short-run equilibrium as well as in a long-run equilibrium. 
C)  whenever average revenue equals marginal cost. 
D)  along a horizontal long-run supply curve, but not along an upward sloping long-run supply curve. 
A)  in a long-run equilibrium. 
B)  in a short-run equilibrium as well as in a long-run equilibrium. 
C)  whenever average revenue equals marginal cost. 
D)  along a horizontal long-run supply curve, but not along an upward sloping long-run supply curve.

Question 20

-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 $7. What does profit equal when quantity equals 2?

Accepted Answer

A)  $14 
B)  -$2 
C)  $16 
D)  $2 
A)  $14 
B)  -$2 
C)  $16 
D)  $2

Exam 23: Perfect Competition

A firm should never produce any output if

-In the above figure, assume d3 is the demand curve faced by this firm. Which is TRUE?

Economic profits and losses are TRUE market signals because they

In a perfectly competitive industry, the firm's marginal revenue curve is

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

When economic profits in a perfectly competitive industry are positive

Each firm in a perfectly competitive industry is

-In the above figure, what happens to the firm's optimal level of output if the price it receives for its product decreases from P4 to P3?

-In the above figure, if the firm is facing demand curve d2, then to maximize profits it will produce at output level

-Refer to the above figure. The competitive firm's short run supply curve

-Refer to the above figure. Which of the graphs represent the situation for a perfectly competitive industry?

A situation in which the price charged is greater than society's opportunity cost would lead to

For a perfectly competitive firm

All of the following are characteristics of a perfectly competitive market EXCEPT

In a perfectly competitive industry, which of the following is a market signal to resource owners?

-In the above figure, at which output level is this firm earning negative economic profits?

In a perfectly competitive market, which of the following is the main factor that affects consumers' decisions on which firm to purchase a good from?

When should a firm shut down? When should a firm go out of business?

Price equals the minimum of long-run average cost

-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 $7. What does profit equal when quantity equals 2?

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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