Question 1

In a decreasing-cost industry, an increase in output will lead to

Accepted Answer

A)  an upward shift in the ATC curve. 
B)  an upward shift in the MC curve. 
C)  a reduction in long-run per-unit costs. 
D)  an increase in long-run per-unit costs. 
A)  an upward shift in the ATC curve. 
B)  an upward shift in the MC curve. 
C)  a reduction in long-run per-unit costs. 
D)  an increase in long-run per-unit costs.

Question 2

If an industry's long-run supply curve slopes downward, then the industry is

Accepted Answer

A)  a fixed-cost industry. 
B)  a constant-cost industry. 
C)  an increasing-cost industry. 
D)  a decreasing-cost industry. 
A)  a fixed-cost industry. 
B)  a constant-cost industry. 
C)  an increasing-cost industry. 
D)  a decreasing-cost industry.

Question 3

An increase in the productivity of labor causes

Accepted Answer

A)  quantity supplied by each firm in a competitive industry to decrease. 
B)  supply in a competitive industry to increase. 
C)  the market price to increase in a competitive industry. 
D)  the firm's supply curve to shift but has no effect on the industry supply curve. 
A)  quantity supplied by each firm in a competitive industry to decrease. 
B)  supply in a competitive industry to increase. 
C)  the market price to increase in a competitive industry. 
D)  the firm's supply curve to shift but has no effect on the industry supply curve.

Question 4

When price and marginal cost are equal for a perfectly competitive firm, the firm is

Accepted Answer

A)  minimizing average total cost. 
B)  maximizing total revenue. 
C)  maximizing economic profit. 
D)  earning negative economic profit. 
A)  minimizing average total cost. 
B)  maximizing total revenue. 
C)  maximizing economic profit. 
D)  earning negative economic profit.

Question 5

The perfectly competitive firm faces

Accepted Answer

A)  a downward sloping demand curve. 
B)  a horizontal supply function. 
C)  perfectly elastic demand. 
D)  constant marginal costs. 
A)  a downward sloping demand curve. 
B)  a horizontal supply function. 
C)  perfectly elastic demand. 
D)  constant marginal costs.

Question 6

Which of the following is TRUE in perfect competition at long-run equilibrium?

Accepted Answer

A)  P = ATC = MC = MR 
B)  ATC is minimized. 
C)  Economic profit is $0. 
D)  all of the above 
A)  P = ATC = MC = MR 
B)  ATC is minimized. 
C)  Economic profit is $0. 
D)  all of the above

Question 7

Which of the following is TRUE for the perfectly competitive firm?

Accepted Answer

A)  Price and MR are always equal. 
B)  AR is less than price. 
C)  AR is more than price. 
D)  Price elasticity of demand is equal to 1. 
A)  Price and MR are always equal. 
B)  AR is less than price. 
C)  AR is more than price. 
D)  Price elasticity of demand is equal to 1.

Question 8

Which of the following is always TRUE for a perfectly competitive firm?

Accepted Answer

A)  P = d = MR 
B)  P = d = AVC 
C)  MC = MR = AVC 
D)  AVC = ATC = P 
A)  P = d = MR 
B)  P = d = AVC 
C)  MC = MR = AVC 
D)  AVC = ATC = P

Question 9

The demand curve for a perfectly competitive industry is

Accepted Answer

A)  perfectly inelastic. 
B)  downward sloping. 
C)  perfectly elastic. 
D)  unit elastic. 
A)  perfectly inelastic. 
B)  downward sloping. 
C)  perfectly elastic. 
D)  unit elastic.

Question 10

Which of the following statements is correct about the demand curve of the perfectly competitive industry?

Accepted Answer

A)  The demand curve of the perfectly competitive industry is horizontal as are the demand curves facing the individual firms. 
B)  The market demand curve of perfect competition is vertical because the individual consumers are buying a homogeneous product. 
C)  The market demand curve of the perfectly competitive industry is downward sloping while the demand curve facing an individual firm is horizontal. 
D)  The market demand curve of the perfectly competitive industry is downward sloping, so the demand curves of the individual firms are also downward sloping. 
A)  The demand curve of the perfectly competitive industry is horizontal as are the demand curves facing the individual firms. 
B)  The market demand curve of perfect competition is vertical because the individual consumers are buying a homogeneous product. 
C)  The market demand curve of the perfectly competitive industry is downward sloping while the demand curve facing an individual firm is horizontal. 
D)  The market demand curve of the perfectly competitive industry is downward sloping, so the demand curves of the individual firms are also downward sloping.

Question 11

Perfect competition is characterized by

Accepted Answer

A)  many buyers and sellers. 
B)  a small number of firms. 
C)  differentiated products of firms in the industry. 
D)  high barriers to entry. 
A)  many buyers and sellers. 
B)  a small number of firms. 
C)  differentiated products of firms in the industry. 
D)  high barriers to entry.

Question 12

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

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 13

-In the above figure, if d4 is the relevant demand curve for this firm, then which level of output will maximize this firm's profits or minimize its losses?

Accepted Answer

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

Question 14

A farmer has many competitors and exists in a market structure known as perfect competition. This means that price is determined outside of the individual farmer's ability to charge a price higher than the going market for a bushel of wheat, hence the farmer is

Accepted Answer

A)  a price maker and can therefore charge different customers different prices. 
B)  always able to price produce above the competition and earn a larger profit. 
C)  never able to determine any prices he charges for anything, such as soybeans. 
D)  a price taker and cannot affect the market price of wheat. 
A)  a price maker and can therefore charge different customers different prices. 
B)  always able to price produce above the competition and earn a larger profit. 
C)  never able to determine any prices he charges for anything, such as soybeans. 
D)  a price taker and cannot affect the market price of wheat.

Question 15

If the long-run supply curve slopes downward, 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 no 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 no input prices change as firms enter and exit the industry.

Question 16

A company finds that at its present level of production, MC = AVC at $15, MC = ATC at $20, and MC = MR at $17. Your advice to the firm regarding its short-run operations is

Accepted Answer

A)  to continue production, as it is earning an economic profit of $2 per unit. 
B)  to continue production, as it is earning an economic profit of $3 per unit. 
C)  to shut down. 
D)  to continue production at a loss. 
A)  to continue production, as it is earning an economic profit of $2 per unit. 
B)  to continue production, as it is earning an economic profit of $3 per unit. 
C)  to shut down. 
D)  to continue production at a loss.

Question 17

What is the shape of the long-run supply curve in a constant-cost industry?

Accepted Answer

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

Question 18

-Refer to the above table. This firm operates in a perfectly competitive market in which the market price is $10/unit. What is TRUE when the firm produces 103 units?

Accepted Answer

A)  Total revenue equals $5,060. 
B)  Total costs exceed total revenue by $403. 
C)  Marginal revenue is less than marginal cost. 
D)  Its total profit is $524. 
A)  Total revenue equals $5,060. 
B)  Total costs exceed total revenue by $403. 
C)  Marginal revenue is less than marginal cost. 
D)  Its total profit is $524.

Question 19

-Refer to the above figure. When the price in the market is $4, economic profits will equal

Accepted Answer

A)  $100. 
B)  $200. 
C)  $300. 
D)  $400. 
A)  $100. 
B)  $200. 
C)  $300. 
D)  $400.

Question 20

Market signals

Accepted Answer

A)  are ways of conveying information. 
B)  are market noise that confuses buyers and sellers. 
C)  are best ignored by investors. 
D)  always lead to economic losses. 
A)  are ways of conveying information. 
B)  are market noise that confuses buyers and sellers. 
C)  are best ignored by investors. 
D)  always lead to economic losses.

Exam 23: Perfect Competition

In a decreasing-cost industry, an increase in output will lead to

If an industry's long-run supply curve slopes downward, then the industry is

An increase in the productivity of labor causes

When price and marginal cost are equal for a perfectly competitive firm, the firm is

The perfectly competitive firm faces

Which of the following is TRUE in perfect competition at long-run equilibrium?

Which of the following is TRUE for the perfectly competitive firm?

Which of the following is always TRUE for a perfectly competitive firm?

The demand curve for a perfectly competitive industry is

Which of the following statements is correct about the demand curve of the perfectly competitive industry?

Perfect competition is characterized by

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

-In the above figure, if d4 is the relevant demand curve for this firm, then which level of output will maximize this firm's profits or minimize its losses?

A farmer has many competitors and exists in a market structure known as perfect competition. This means that price is determined outside of the individual farmer's ability to charge a price higher than the going market for a bushel of wheat, hence the farmer is

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

A company finds that at its present level of production, MC = AVC at $15, MC = ATC at $20, and MC = MR at $17. Your advice to the firm regarding its short-run operations is

What is the shape of the long-run supply curve in a constant-cost industry?

-Refer to the above table. This firm operates in a perfectly competitive market in which the market price is $10/unit. What is TRUE when the firm produces 103 units?

-Refer to the above figure. When the price in the market is $4, economic profits will equal

Market signals

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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