Question 1

The perfectly competitive firm's total revenue curve

Accepted Answer

A)  is linear and upward sloping. 
B)  has a constant slope. 
C)  has a positive slope. 
D)  all of the above. 
A)  is linear and upward sloping. 
B)  has a constant slope. 
C)  has a positive slope. 
D)  all of the above.

Question 2

All of the following are true regarding perfectly competitive price determination EXCEPT

Accepted Answer

A)  the market price is determined by the interactions among all buyers (households) and firms. 
B)  the individual firm takes the market price as given. 
C)  the individual firm is known as a market price maker. 
D)  the individual firm's marginal revenue curve is horizontal at the market price. 
A)  the market price is determined by the interactions among all buyers (households) and firms. 
B)  the individual firm takes the market price as given. 
C)  the individual firm is known as a market price maker. 
D)  the individual firm's marginal revenue curve is horizontal at the market price.

Question 3

A constant-cost industry

Accepted Answer

A)  is one in which an increase in demand is matched by a proportional increases in long-run supply. 
B)  generates increasing profits whenever demand increases because the new long-run equilibrium price is above the old price even though average costs have not changed. 
C)  has a horizontal long-run supply curve. 
D)  has a downward sloping long-run supply curve. 
A)  is one in which an increase in demand is matched by a proportional increases in long-run supply. 
B)  generates increasing profits whenever demand increases because the new long-run equilibrium price is above the old price even though average costs have not changed. 
C)  has a horizontal long-run supply curve. 
D)  has a downward sloping long-run supply curve.

Question 4

Under perfect competition, the demand curve facing the firm is determined by

Accepted Answer

A)  the intersection of the industry demand and supply curves. 
B)  the tastes and preferences of consumers. 
C)  utility maximizing behavior on the part of consumers. 
D)  the willingness of the firm to supply the good. 
A)  the intersection of the industry demand and supply curves. 
B)  the tastes and preferences of consumers. 
C)  utility maximizing behavior on the part of consumers. 
D)  the willingness of the firm to supply the good.

Question 5

A perfectly competitive market has

Accepted Answer

A)  high barriers to entry or exit. 
B)  homogeneous products. 
C)  to do a lot of advertising to attract buyers. 
D)  few firms. 
A)  high barriers to entry or exit. 
B)  homogeneous products. 
C)  to do a lot of advertising to attract buyers. 
D)  few firms.

Question 6

Which of the following is the best example of a decreasing-cost industry?

Accepted Answer

A)  the health care industry 
B)  the personal computer industry 
C)  the college-education industry 
D)  the oil industry 
A)  the health care industry 
B)  the personal computer industry 
C)  the college-education industry 
D)  the oil industry

Question 7

A firm seeking to maximize economic profits should produce at the output at which

Accepted Answer

A)  total revenue equals total cost. 
B)  marginal revenue equals marginal cost. 
C)  average revenue equals average cost. 
D)  marginal revenue equals average revenue. 
A)  total revenue equals total cost. 
B)  marginal revenue equals marginal cost. 
C)  average revenue equals average cost. 
D)  marginal revenue equals average revenue.

Question 8

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

Accepted Answer

A)  market failure. 
B)  marginal monopoly pricing. 
C)  marginal profits. 
D)  marginal cost pricing. 
A)  market failure. 
B)  marginal monopoly pricing. 
C)  marginal profits. 
D)  marginal cost pricing.

Question 9

In a perfectly competitive market, if P > ATC in the short run, there is apt to be

Accepted Answer

A)  entry of new firms into the market. 
B)  an accounting loss for existing firms. 
C)  an inward shift in the industry supply curve. 
D)  an upward pressure on price. 
A)  entry of new firms into the market. 
B)  an accounting loss for existing firms. 
C)  an inward shift in the industry supply curve. 
D)  an upward pressure on price.

Question 10

A firm in a competitive industry faces the following short-run cost and revenue conditions: ATC = $16; AVC = $8; and MR = MC = $12. This firm should

Accepted Answer

A)  expand production and keep price constant. 
B)  decrease production and raise its price. 
C)  shut down. 
D)  continue to operate at the same price and output level in the short run. 
A)  expand production and keep price constant. 
B)  decrease production and raise its price. 
C)  shut down. 
D)  continue to operate at the same price and output level in the short run.

Question 11

Profit per unit is the difference between

Accepted Answer

A)  average revenue and average total cost. 
B)  marginal revenue and marginal cost. 
C)  total revenue and total cost. 
D)  average revenue and marginal cost. 
A)  average revenue and average total cost. 
B)  marginal revenue and marginal cost. 
C)  total revenue and total cost. 
D)  average revenue and marginal cost.

Question 12

-Refer to the above figure. Which panel represents the long-run supply curve for a constant 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 13

The demand curve for the product of a perfectly competitive firm's demand curve indicates that if the firm

Accepted Answer

A)  lowers its price, it can sell more. 
B)  accepts the market-set price, the number of units the firm can sell is limited. 
C)  raises its price, sales will fall to zero. 
D)  changes its price, the quantity demanded will change in the opposite direction. 
A)  lowers its price, it can sell more. 
B)  accepts the market-set price, the number of units the firm can sell is limited. 
C)  raises its price, sales will fall to zero. 
D)  changes its price, the quantity demanded will change in the opposite direction.

Question 14

Which of the following statements is NOT true for a perfectly competitive firm?

Accepted Answer

A)  A firm's demand curve is horizontal. 
B)  The firm can influence its demand curve by advertising its product. 
C)  The firm's demand curve is perfectly elastic. 
D)  The market demand and supply curves determine the market price. 
A)  A firm's demand curve is horizontal. 
B)  The firm can influence its demand curve by advertising its product. 
C)  The firm's demand curve is perfectly elastic. 
D)  The market demand and supply curves determine the market price.

Question 15

With marginal cost pricing

Accepted Answer

A)  marginal benefits are usually less than marginal cost. 
B)  all opportunity costs will be covered in the short run. 
C)  the price charged is equal to the opportunity cost to society of producing one more unit of the good. 
D)  there cannot be any short-run economic profit. 
A)  marginal benefits are usually less than marginal cost. 
B)  all opportunity costs will be covered in the short run. 
C)  the price charged is equal to the opportunity cost to society of producing one more unit of the good. 
D)  there cannot be any short-run economic profit.

Question 16

A perfectly competitive firm faces a market clearing price of $150 per unit. Average total costs are at the minimum value of $120 per unit at an output rate of 70 units. Marginal cost equals $150 per unit at an output rate of 75 units. It can be concluded that the short-run profit-maximizing output rate is

Accepted Answer

A)  75 units, at which the firm earns zero economic profits per unit sold. 
B)  75 units, at which the firm earns negative economic profits per unit sold. 
C)  75 units, at which the firm earns positive economic profits per unit sold. 
D)  70 units, because price is less than average total costs. 
A)  75 units, at which the firm earns zero economic profits per unit sold. 
B)  75 units, at which the firm earns negative economic profits per unit sold. 
C)  75 units, at which the firm earns positive economic profits per unit sold. 
D)  70 units, because price is less than average total costs.

Question 17

-In the above figure, if price is equal to P4, the firm will

Accepted Answer

A)  earn positive economic profits. 
B)  incur an economic loss. 
C)  earn zero economic profits. 
D)  shut down. 
A)  earn positive economic profits. 
B)  incur an economic loss. 
C)  earn zero economic profits. 
D)  shut down.

Question 18

-Refer to the above figure. Which panel represents the long-run supply curve for an increasing-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 19

Perfect competition is a market structure

Accepted Answer

A)  in which any firm would have serious impediments to entry or exit. 
B)  in which individual buyers and sellers have no effect on the market price. 
C)  resulting from individual firms selling highly differentiated products. 
D)  where there is significant regulation and markets are always efficient. 
A)  in which any firm would have serious impediments to entry or exit. 
B)  in which individual buyers and sellers have no effect on the market price. 
C)  resulting from individual firms selling highly differentiated products. 
D)  where there is significant regulation and markets are always efficient.

Question 20

The short-run break-even price is the point at which

Accepted Answer

A)  price is less than marginal cost. 
B)  marginal cost, average total cost and marginal revenue are all equal. 
C)  average variable cost is at a minimum. 
D)  marginal cost, price and average variable cost are all equal. 
A)  price is less than marginal cost. 
B)  marginal cost, average total cost and marginal revenue are all equal. 
C)  average variable cost is at a minimum. 
D)  marginal cost, price and average variable cost are all equal.

Exam 23: Perfect Competition

The perfectly competitive firm's total revenue curve

All of the following are true regarding perfectly competitive price determination EXCEPT

A constant-cost industry

Under perfect competition, the demand curve facing the firm is determined by

A perfectly competitive market has

Which of the following is the best example of a decreasing-cost industry?

A firm seeking to maximize economic profits should produce at the output at which

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

In a perfectly competitive market, if P > ATC in the short run, there is apt to be

A firm in a competitive industry faces the following short-run cost and revenue conditions: ATC = $16; AVC = $8; and MR = MC = $12. This firm should

Profit per unit is the difference between

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

The demand curve for the product of a perfectly competitive firm's demand curve indicates that if the firm

Which of the following statements is NOT true for a perfectly competitive firm?

With marginal cost pricing

-In the above figure, if price is equal to P4, the firm will

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

Perfect competition is a market structure

The short-run break-even price is the point at which

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

Filters