Question 1

If a perfectly competitive firm is producing at an output at which marginal cost exceeds marginal revenue

Accepted Answer

A)  price will be at the profit maximizing level. 
B)  sales will be at the profit maximizing level. 
C)  the firm should expand production. 
D)  the firm should reduce production. 
A)  price will be at the profit maximizing level. 
B)  sales will be at the profit maximizing level. 
C)  the firm should expand production. 
D)  the firm should reduce production.

Question 2

In an increasing-cost industry, an increase in industry output will

Accepted Answer

A)  lead to a higher market price. 
B)  lead to a lower market price. 
C)  shift each firm's average fixed cost curve down. 
D)  shift each firm's short run supply curve down. 
A)  lead to a higher market price. 
B)  lead to a lower market price. 
C)  shift each firm's average fixed cost curve down. 
D)  shift each firm's short run supply curve down.

Question 3

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

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 4

For a perfectly competitive firm at its long-run competitive equilibrium point

Accepted Answer

A)  P = AR = MR = LATC = ATC = MC. 
B)  P = AR = MR = LATC > ATC = MC. 
C)  P = AR = MR = MC = LATC = AVC. 
D)  P > MR > AR > MC > LATC > ATC. 
A)  P = AR = MR = LATC = ATC = MC. 
B)  P = AR = MR = LATC > ATC = MC. 
C)  P = AR = MR = MC = LATC = AVC. 
D)  P > MR > AR > MC > LATC > ATC.

Question 5

Suppose that at the current level of output, price = $100, MC = $100, AVC = $80, and ATC = $90. Which of the following is TRUE?

Accepted Answer

A)  The firm should decrease output. 
B)  The firm should shut down. 
C)  The firm should increase output. 
D)  The firm should maintain the current level of output. 
A)  The firm should decrease output. 
B)  The firm should shut down. 
C)  The firm should increase output. 
D)  The firm should maintain the current level of output.

Question 6

If marginal revenue is less than marginal cost, the firm should

Accepted Answer

A)  raise price. 
B)  raise marginal revenue. 
C)  increase its rate of output. 
D)  decrease its rate of output. 
A)  raise price. 
B)  raise marginal revenue. 
C)  increase its rate of output. 
D)  decrease its rate of output.

Question 7

Which of the following is NOT correct concerning perfectly competitive firms in the long run?

Accepted Answer

A)  Long-run economic profits are zero. 
B)  Price equals minimum long-run average cost. 
C)  Entrepreneurs earn the opportunity cost of their investment. 
D)  The opportunity cost of capital is zero. 
A)  Long-run economic profits are zero. 
B)  Price equals minimum long-run average cost. 
C)  Entrepreneurs earn the opportunity cost of their investment. 
D)  The opportunity cost of capital is zero.

Question 8

-Using the above figure, the perfectly competitive firm in the diagram will earn an economic profit if the market price is

Accepted Answer

A)  P1. 
B)  P2. 
C)  P3. 
D)  P4. 
A)  P1. 
B)  P2. 
C)  P3. 
D)  P4.

Question 9

-Refer to the above figure. A perfectly competitive firm that is in long-run equilibrium will be operating

Accepted Answer

A)  with positive economic profits. 
B)  at a quantity greater than point E. 
C)  at a quantity less than point E. 
D)  at point E. 
A)  with positive economic profits. 
B)  at a quantity greater than point E. 
C)  at a quantity less than point E. 
D)  at point E.

Question 10

What determines the perfect competitor's supply curve? How is the industry supply curve found?

Accepted Answer

A supply curve shows the quantity suppli

Question 11

A perfectly competitive firm is maximizing profits in the short run. This implies that the firm is earning the most economic profits possible, which

Accepted Answer

A)  must be positive. 
B)  must be either zero or positive. 
C)  can be positive, negative, or zero. 
D)  exist at the point at which price equals total cost. 
A)  must be positive. 
B)  must be either zero or positive. 
C)  can be positive, negative, or zero. 
D)  exist at the point at which price equals total cost.

Question 12

If a firm is a perfect competitor, then

Accepted Answer

A)  the demand curve for its product is perfectly elastic. 
B)  it can independently set the price of the product it sells without regard to what other firms in the market are doing. 
C)  it is impossible for the firm to earn short-run economic profits. 
D)  its marginal cost will exceed marginal revenue at the optimal level of output. 
A)  the demand curve for its product is perfectly elastic. 
B)  it can independently set the price of the product it sells without regard to what other firms in the market are doing. 
C)  it is impossible for the firm to earn short-run economic profits. 
D)  its marginal cost will exceed marginal revenue at the optimal level of output.

Question 13

How is the market clearing price established in a perfectly competitive industry?

Accepted Answer

The market clearing price is established

Question 14

-Refer to the above table. This firm operates in a perfectly competitive market in which the market price is $5/unit. What is TRUE when the firm produces 110 units?

Accepted Answer

A)  Total revenue equals $3,075. 
B)  Total costs exceed total revenue by $65. 
C)  Marginal revenue is more than marginal cost. 
D)  Its total profit is $65. 
A)  Total revenue equals $3,075. 
B)  Total costs exceed total revenue by $65. 
C)  Marginal revenue is more than marginal cost. 
D)  Its total profit is $65.

Question 15

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

Accepted Answer

A)  differentiated products 
B)  large number of buyers and sellers 
C)  price taking by each firm 
D)  easy entry and exit into the market 
A)  differentiated products 
B)  large number of buyers and sellers 
C)  price taking by each firm 
D)  easy entry and exit into the market

Question 16

-Using the above figure, the short-run break-even price for the perfectly competitive firm will be

Accepted Answer

A)  P1. 
B)  P2. 
C)  P3. 
D)  P4. 
A)  P1. 
B)  P2. 
C)  P3. 
D)  P4.

Question 17

When price equals marginal cost

Accepted Answer

A)  firms make zero profits. 
B)  firms make positive profits. 
C)  the industry is in long-run equilibrium. 
D)  the marginal benefits of consuming an extra unit of the good exactly equals the marginal cost to society of producing the good. 
A)  firms make zero profits. 
B)  firms make positive profits. 
C)  the industry is in long-run equilibrium. 
D)  the marginal benefits of consuming an extra unit of the good exactly equals the marginal cost to society of producing the good.

Question 18

The short-run supply curve of a perfect competitor is

Accepted Answer

A)  its average variable cost curve. 
B)  its marginal revenue curve. 
C)  its entire marginal cost curve. 
D)  its marginal cost curve equal to or above the minimum point on its average variable cost curve. 
A)  its average variable cost curve. 
B)  its marginal revenue curve. 
C)  its entire marginal cost curve. 
D)  its marginal cost curve equal to or above the minimum point on its average variable cost curve.

Question 19

-Refer to the above figure. Which panel represents the long-run supply curve for a decreasing-cost 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 20

In the model of perfect competition, the market demand curve is found by

Accepted Answer

A)  a marketing analysis. 
B)  taking the demand curve of a "representative consumer" and expanding it by the number of consumers of the good. 
C)  horizontally summing the demand curves of individual consumers. 
D)  horizontally summing the supply curves of individual firms. 
A)  a marketing analysis. 
B)  taking the demand curve of a "representative consumer" and expanding it by the number of consumers of the good. 
C)  horizontally summing the demand curves of individual consumers. 
D)  horizontally summing the supply curves of individual firms.

Exam 23: Perfect Competition

If a perfectly competitive firm is producing at an output at which marginal cost exceeds marginal revenue

In an increasing-cost industry, an increase in industry output will

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

For a perfectly competitive firm at its long-run competitive equilibrium point

Suppose that at the current level of output, price = $100, MC = $100, AVC = $80, and ATC = $90. Which of the following is TRUE?

If marginal revenue is less than marginal cost, the firm should

Which of the following is NOT correct concerning perfectly competitive firms in the long run?

-Using the above figure, the perfectly competitive firm in the diagram will earn an economic profit if the market price is

-Refer to the above figure. A perfectly competitive firm that is in long-run equilibrium will be operating

What determines the perfect competitor's supply curve? How is the industry supply curve found?

A perfectly competitive firm is maximizing profits in the short run. This implies that the firm is earning the most economic profits possible, which

If a firm is a perfect competitor, then

How is the market clearing price established in a perfectly competitive industry?

-Refer to the above table. This firm operates in a perfectly competitive market in which the market price is $5/unit. What is TRUE when the firm produces 110 units?

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

-Using the above figure, the short-run break-even price for the perfectly competitive firm will be

When price equals marginal cost

The short-run supply curve of a perfect competitor is

-Refer to the above figure. Which panel represents the long-run supply curve for a decreasing-cost industry?

In the model of perfect competition, the market demand curve is found by

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