Question 1

When a firm has an accounting profit that is negative, it

Accepted Answer

A)  will never produce output, even in the short run. 
B)  may still have economic profit. 
C)  has total revenue that is less than total cost. 
D)  cannot be producing where price equals marginal cost. 
A)  will never produce output, even in the short run. 
B)  may still have economic profit. 
C)  has total revenue that is less than total cost. 
D)  cannot be producing where price equals marginal cost.

Question 2

A firm that has positive economic profits has accounting profits that are

Accepted Answer

A)  zero. 
B)  positive. 
C)  negative. 
D)  indeterminate without more information. 
A)  zero. 
B)  positive. 
C)  negative. 
D)  indeterminate without more information.

Question 3

Consider an industry that is in long-run equilibrium. An increase in demand leads to no change 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 4

In a perfectly competitive market in which all firms are maximizing their economic profits, the demand and supply curves intersect at a price of $8. From this we know that each

Accepted Answer

A)  firm's average total cost of producing the good is $8. 
B)  firm's average variable cost of producing the good is $8. 
C)  firm's marginal cost of producing the good is $8. 
D)  firm is earning positive economic profits at a price of $8 or more. 
A)  firm's average total cost of producing the good is $8. 
B)  firm's average variable cost of producing the good is $8. 
C)  firm's marginal cost of producing the good is $8. 
D)  firm is earning positive economic profits at a price of $8 or more.

Question 5

Economic efficiency is indicated by

Accepted Answer

A)  P = AVC. 
B)  MR = MC. 
C)  P = MR. 
D)  P = MC. 
A)  P = AVC. 
B)  MR = MC. 
C)  P = MR. 
D)  P = MC.

Question 6

-Refer to the above figure. Profits for this firm are positive

Accepted Answer

A)  only for all points less than B. 
B)  only at points B and C. 
C)  for points between B and C. 
D)  for all points less than B and greater than C. 
A)  only for all points less than B. 
B)  only at points B and C. 
C)  for points between B and C. 
D)  for all points less than B and greater than C.

Question 7

"Demand curves slope down, so the demand curve faced by a perfectly competitive firm must also be downward sloping." Do you agree or disagree? Why?

Accepted Answer

Disagree. Market demand curves slope dow

Question 8

A company finds that at the output level at which marginal cost equals marginal revenue, TC = $500, TVC = $400, and TR = $450. Your advice to the firm is

Accepted Answer

A)  shut down, as TC > TR. 
B)  reduce output to reduce the cost of production. 
C)  increase output to reduce the per unit cost of production. 
D)  continue to produce because loss is less than TFC. 
A)  shut down, as TC > TR. 
B)  reduce output to reduce the cost of production. 
C)  increase output to reduce the per unit cost of production. 
D)  continue to produce because loss is less than TFC.

Question 9

The perfectly competitive firm maximizes profits when

Accepted Answer

A)  it produces and sells the quantity at which the difference between marginal revenue and marginal cost is the greatest. 
B)  it produces and sells the quantity at which marginal revenue and marginal cost are equal. 
C)  it produces and sells the quantity at which the difference between average revenue and average cost is the greatest. 
D)  it produces and sells the quantity at which the difference between price and average cost is the greatest. 
A)  it produces and sells the quantity at which the difference between marginal revenue and marginal cost is the greatest. 
B)  it produces and sells the quantity at which marginal revenue and marginal cost are equal. 
C)  it produces and sells the quantity at which the difference between average revenue and average cost is the greatest. 
D)  it produces and sells the quantity at which the difference between price and average cost is the greatest.

Question 10

What are the main characteristics of a perfectly competitive market?

Accepted Answer

In a perfectly competitive market, there

Question 11

When a perfectly competitive firm is in long-run equilibrium, economic profits

Accepted Answer

A)  are positive. 
B)  are zero. 
C)  are negative. 
D)  may be positive, zero or negative depending upon costs. 
A)  are positive. 
B)  are zero. 
C)  are negative. 
D)  may be positive, zero or negative depending upon costs.

Question 12

-Refer to the above figure. The market supply and demand curves in a perfectly competitive market intersect at $4. Which of the graphs represent the situation for an individual firm?

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

Exam 23: Perfect Competition

When a firm has an accounting profit that is negative, it

A firm that has positive economic profits has accounting profits that are

Consider an industry that is in long-run equilibrium. An increase in demand leads to no change in the price of the good. We know that this is

In a perfectly competitive market in which all firms are maximizing their economic profits, the demand and supply curves intersect at a price of $8. From this we know that each

Economic efficiency is indicated by

-Refer to the above figure. Profits for this firm are positive

"Demand curves slope down, so the demand curve faced by a perfectly competitive firm must also be downward sloping." Do you agree or disagree? Why?

A company finds that at the output level at which marginal cost equals marginal revenue, TC = $500, TVC = $400, and TR = $450. Your advice to the firm is

The perfectly competitive firm maximizes profits when

What are the main characteristics of a perfectly competitive market?

When a perfectly competitive firm is in long-run equilibrium, economic profits

-Refer to the above figure. The market supply and demand curves in a perfectly competitive market intersect at $4. Which of the graphs represent the situation for an individual firm?

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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