Question 1

The rate of production that maximizes the positive difference between total revenues and total costs is the

Accepted Answer

A)  profit-maximizing rate of production. 
B)  rate of production at which marginal revenue equals marginal product. 
C)  rate of production at which marginal revenue equals average revenue. 
D)  rate of production at which average revenue equals average total cost. 
A)  profit-maximizing rate of production. 
B)  rate of production at which marginal revenue equals marginal product. 
C)  rate of production at which marginal revenue equals average revenue. 
D)  rate of production at which average revenue equals average total cost.

Question 2

Which of the following is NOT a characteristic of a perfectly competitive market?

Accepted Answer

A)  The products sold by the firms in the market are homogeneous. 
B)  There are many buyers and sellers in the market. 
C)  It is difficult for a firm to enter or leave the market. 
D)  Each firm is a price taker. 
A)  The products sold by the firms in the market are homogeneous. 
B)  There are many buyers and sellers in the market. 
C)  It is difficult for a firm to enter or leave the market. 
D)  Each firm is a price taker.

Question 3

"Because a firm's supply curve slopes upward, the long-run supply curve of an industry must also slope upward." Do you agree or disagree? Explain.

Accepted Answer

Disagree. Even though a firm's supply cu

Question 4

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

Accepted Answer

A)  the firm's long-run economic profits must be greater 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 greater 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

The change in total revenues resulting from a change in output of one unit is

Accepted Answer

A)  average revenue. 
B)  marginal revenue. 
C)  economic revenue. 
D)  diminishing revenue. 
A)  average revenue. 
B)  marginal revenue. 
C)  economic revenue. 
D)  diminishing revenue.

Question 6

Why is the pricing outcome of a perfectly competitive firm efficient in economic sense?

Accepted Answer

A perfectly competitive firm sells its p

Question 7

The firm in a perfectly competitive industry is a

Accepted Answer

A)  price taker. 
B)  price maker. 
C)  price seeker. 
D)  price dealer. 
A)  price taker. 
B)  price maker. 
C)  price seeker. 
D)  price dealer.

Question 8

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 = $4.50. 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 9

-In the above figure, assuming Firm 1 and Firm 2 are the sole producers in the industry, the industry quantity supplied at price P2 is equal to

Accepted Answer

A)  Q1 + Q2. 
B)  Q1 + Q3. 
C)  Q2 + Q4. 
D)  Q4 - Q2. 
A)  Q1 + Q2. 
B)  Q1 + Q3. 
C)  Q2 + Q4. 
D)  Q4 - Q2.

Question 10

For a perfect competitor, the marginal revenue curve will be

Accepted Answer

A)  horizontal. 
B)  vertical. 
C)  positively sloped. 
D)  negatively sloped. 
A)  horizontal. 
B)  vertical. 
C)  positively sloped. 
D)  negatively sloped.

Question 11

If markets are perfectly competitive, then the production of goods

Accepted Answer

A)  will use the least costly combination of resources. 
B)  will occur at an average total cost value that is above the minimum. 
C)  will require government intervention. 
D)  will always lead to business failures. 
A)  will use the least costly combination of resources. 
B)  will occur at an average total cost value that is above the minimum. 
C)  will require government intervention. 
D)  will always lead to business failures.

Question 12

Which of the following best describes a situation of economic efficiency?

Accepted Answer

A)  A firm produces to the point at which P = AVC, with MR < MC. 
B)  A firm produces to the point at which P = ATC, with MC < MR. 
C)  A firm produces to the point at which MR = AFC, with P = AVC. 
D)  A firm produces to the point at which MR = MC, with P = MC. 
A)  A firm produces to the point at which P = AVC, with MR < MC. 
B)  A firm produces to the point at which P = ATC, with MC < MR. 
C)  A firm produces to the point at which MR = AFC, with P = AVC. 
D)  A firm produces to the point at which MR = MC, with P = MC.

Question 13

Under perfect competition, a firm that sets its price slightly above the market price would

Accepted Answer

A)  make lower profits than the other firms, but the amount would depend on the elasticity of demand. 
B)  make a normal rate of return, but on reduced revenues. 
C)  lose all of its customers. 
D)  earn higher profits as long as the other firms continued to charge the market price. 
A)  make lower profits than the other firms, but the amount would depend on the elasticity of demand. 
B)  make a normal rate of return, but on reduced revenues. 
C)  lose all of its customers. 
D)  earn higher profits as long as the other firms continued to charge the market price.

Question 14

If the long-run supply curve is horizontal, we know that this is

Accepted Answer

A)  a decreasing-cost industry. 
B)  a constant-cost industry. 
C)  an increasing-cost industry. 
D)  a situation in which some input prices change as firms enter and exit the industry. 
A)  a decreasing-cost industry. 
B)  a constant-cost industry. 
C)  an increasing-cost industry. 
D)  a situation in which some input prices change as firms enter and exit the industry.

Question 15

Consider an industry that is in long-run equilibrium. An increase in demand leads to a decrease 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 16

A firm is currently producing at the rate of output at which total revenues just cover its total variable costs. If demand falls, the firm should

Accepted Answer

A)  lower both price and its rate of output. 
B)  shut down. 
C)  increase its rate of output to make up for the lower price. 
D)  not change its rate of output because it is still covering its variable costs. 
A)  lower both price and its rate of output. 
B)  shut down. 
C)  increase its rate of output to make up for the lower price. 
D)  not change its rate of output because it is still covering its variable costs.

Question 17

In the long run when a perfectly competitive firm experiences negative 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 18

The value of total output decreases when labor leaves one industry and goes to another and capital leaves the second industry and goes to the first. This indicates that

Accepted Answer

A)  the first situation was not efficient. 
B)  the second situation is efficient. 
C)  price is greater than marginal cost. 
D)  it would be efficient to return to the first situation. 
A)  the first situation was not efficient. 
B)  the second situation is efficient. 
C)  price is greater than marginal cost. 
D)  it would be efficient to return to the first situation.

Question 19

For a perfectly competitive firm facing the short-run break-even price

Accepted Answer

A)  it has a negative accounting profit. 
B)  it has an economic profit of zero. 
C)  it should shut down. 
D)  it should expand production. 
A)  it has a negative accounting profit. 
B)  it has an economic profit of zero. 
C)  it should shut down. 
D)  it should expand production.

Question 20

If price is above average total costs, the firm

Accepted Answer

A)  is earning positive profits. 
B)  is earning negative profits. 
C)  is making a normal rate of return on its capital investment. 
D)  may be earning a positive or negative profit depending upon costs. 
A)  is earning positive profits. 
B)  is earning negative profits. 
C)  is making a normal rate of return on its capital investment. 
D)  may be earning a positive or negative profit depending upon costs.

Exam 23: Perfect Competition

The rate of production that maximizes the positive difference between total revenues and total costs is the

Which of the following is NOT a characteristic of a perfectly competitive market?

"Because a firm's supply curve slopes upward, the long-run supply curve of an industry must also slope upward." Do you agree or disagree? Explain.

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

The change in total revenues resulting from a change in output of one unit is

Why is the pricing outcome of a perfectly competitive firm efficient in economic sense?

The firm in a perfectly competitive industry is a

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 = $4.50. What do you recommend this firm do?

-In the above figure, assuming Firm 1 and Firm 2 are the sole producers in the industry, the industry quantity supplied at price P2 is equal to

For a perfect competitor, the marginal revenue curve will be

If markets are perfectly competitive, then the production of goods

Which of the following best describes a situation of economic efficiency?

Under perfect competition, a firm that sets its price slightly above the market price would

If the long-run supply curve is horizontal, we know that this is

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

A firm is currently producing at the rate of output at which total revenues just cover its total variable costs. If demand falls, the firm should

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

The value of total output decreases when labor leaves one industry and goes to another and capital leaves the second industry and goes to the first. This indicates that

For a perfectly competitive firm facing the short-run break-even price

If price is above average total costs, the 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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