Question 1

Under perfect competition, the per unit revenue of the firm is equal to its marginal revenue.

Accepted Answer

A) True 
 B)False

Question 2

If the market price falls below the average-variable-cost, the firm will suspend production.

Accepted Answer

A) True 
 B)False

Question 3

In which of the following situations will a perfectly competitive firm's profit always increase when it increases its output?

Accepted Answer

A) When price is greater than marginal revenue 
B) When price is less than marginal revenue 
C) When price is greater than marginal cost 
D) When price is less than marginal cost 
E) When price is equal to marginal cost 
A) When price is greater than marginal revenue 
B) When price is less than marginal revenue 
C) When price is greater than marginal cost 
D) When price is less than marginal cost 
E) When price is equal to marginal cost

Question 4

The table given below shows the total revenue and total cost of a firm at different levels of output. Table 23.2
  What is the equilibrium price for the perfectly competitive firm described in Table 23.2?

Accepted Answer

A) $2 
B) $4 
C) $6 
D) $8 
E) $10 
A) $2 
B) $4 
C) $6 
D) $8 
E) $10

Question 5

Suppose Atlas Publishing, a perfectly competitive firm, currently produces 2, 000 maps per day at a total cost of $1, 600.At its current level of output, Atlas is producing where the marginal revenue curve intersects a rising marginal-cost curve.Which of the following can be concluded about Atlas Publishing?

Accepted Answer

A) It is maximizing profit. 
B) It should produce more to maximize profit. 
C) It is maximizing losses. 
D) It should produce less to maximize profit. 
E) It should produce more to break-even. 
A) It is maximizing profit. 
B) It should produce more to maximize profit. 
C) It is maximizing losses. 
D) It should produce less to maximize profit. 
E) It should produce more to break-even.

Question 6

When revenue is less than total cost but more than variable cost it implies:

Accepted Answer

A) the firm is enjoying positive economic profits. 
B) the firm is earning normal profits. 
C) the firm can cover its variable cost and a part of its fixed costs. 
D) the firm is unable to cover its costs and should shut down. 
E) the firm is able to cover all its fixed and variable costs. 
A) the firm is enjoying positive economic profits. 
B) the firm is earning normal profits. 
C) the firm can cover its variable cost and a part of its fixed costs. 
D) the firm is unable to cover its costs and should shut down. 
E) the firm is able to cover all its fixed and variable costs.

Question 7

If market demand increases, a perfectly competitive firm will find:

Accepted Answer

A) its cost curves shifting up. 
B) its profit-maximizing output level increasing. 
C) the demand curve facing the firm shifting down. 
D) its marginal cost falling. 
E) its profits decreasing. 
A) its cost curves shifting up. 
B) its profit-maximizing output level increasing. 
C) the demand curve facing the firm shifting down. 
D) its marginal cost falling. 
E) its profits decreasing.

Question 8

Suppose a perfectly competitive firm's total revenue equals $210 and its output is 70 units when the firm's marginal-cost curve intersects its marginal-revenue curve.Since the firm is a profit-maximizing firm, what is marginal revenue equal to?

Accepted Answer

A) $15 
B) $3 
C) $30 
D) $7 
E) $70 
A) $15 
B) $3 
C) $30 
D) $7 
E) $70

Question 9

When the perfectly competitive firm's demand curve lies above its average total cost curve, the firm incurs an economic loss at that level of output.

Accepted Answer

A) True 
 B)False

Question 10

If a profit-maximizing, perfectly competitive firm is making only a normal profit in the short run, then the firm is in:

Accepted Answer

A) disequilibrium. 
B) equilibrium where MR exceeds minimum ATC. 
C) equilibrium where MR equals minimum AVC. 
D) equilibrium where P = AFC. 
E) equilibrium where P = ATC 
A) disequilibrium. 
B) equilibrium where MR exceeds minimum ATC. 
C) equilibrium where MR equals minimum AVC. 
D) equilibrium where P = AFC. 
E) equilibrium where P = ATC

Question 11

The theory of the long run in perfect competition helps to provide a rationale for the belief in a limited role for government in society.

Accepted Answer

A) True 
 B)False

Question 12

The figure given below shows the revenue and cost curves of a perfectly competitive firm. Figure 23.2   MC: Marginal cost curve
MR: Marginal revenue curve
ATC: Average-total-cost curve
AVC: Average-variable-cost curve
Refer to Figure 23.2.If the marginal-revenue curve would have intersected the average-total-cost curve at the latter's lowest point and the firm maximized profit, then total profit would have been equal to:

Accepted Answer

A) $30. 
B) zero. 
C) -$10. 
D) $20. 
E) -$20. 
A) $30. 
B) zero. 
C) -$10. 
D) $20. 
E) -$20.

Question 13

Suppose that in a perfectly competitive market, the market supply of a good increases.As a result, the individual firm's:

Accepted Answer

A) supply curve would shift outward and the firm would increase output. 
B) supply curve would shift inward and the firm would decrease output. 
C) average-total-cost curve would shift upward and the firm would increase output. 
D) marginal-revenue curve would shift upward and the firm would increase output. 
E) marginal-revenue curve would shift downward and the firm would decrease output. 
A) supply curve would shift outward and the firm would increase output. 
B) supply curve would shift inward and the firm would decrease output. 
C) average-total-cost curve would shift upward and the firm would increase output. 
D) marginal-revenue curve would shift upward and the firm would increase output. 
E) marginal-revenue curve would shift downward and the firm would decrease output.

Question 14

The figure given below shows the revenue and the cost curves of a perfectly competitive firm. Figure 23.3   Refer to Figure 23.3 and identify the price level at which the firm earns only normal profit.

Accepted Answer

A) $4 
B) $8 
C) $10 
D) $2 
E) $14 
A) $4 
B) $8 
C) $10 
D) $2 
E) $14

Question 15

An individual firm in perfect competition can exercise a significant control over the market price of the good.

Accepted Answer

A) True 
 B)False

Question 16

In the short run a perfectly competitive firm can earn normal profits or above normal profit but it cannot incur losses.

Accepted Answer

A) True 
 B)False

Question 17

One assumption of the model of perfect competition is that entry into the market is easy.This implies that:

Accepted Answer

A) there are government licensing requirements for a firm to enter the market. 
B) there are not significant economies of scale relative to the size of the market. 
C) one firm has gained a patent in the industry. 
D) significant economies of scale do exist in the industry. 
E) there is no government intervention. 
A) there are government licensing requirements for a firm to enter the market. 
B) there are not significant economies of scale relative to the size of the market. 
C) one firm has gained a patent in the industry. 
D) significant economies of scale do exist in the industry. 
E) there is no government intervention.

Question 18

Some competitive firms are willing to operate at a loss in the short run because:

Accepted Answer

A) their average variable cost is less than the price. 
B) their fixed costs are less than their current losses. 
C) their average total cost is less than the price. 
D) they do not attempt to maximize profits or minimize losses. 
E) their revenues are at least able to cover their fixed costs. 
A) their average variable cost is less than the price. 
B) their fixed costs are less than their current losses. 
C) their average total cost is less than the price. 
D) they do not attempt to maximize profits or minimize losses. 
E) their revenues are at least able to cover their fixed costs.

Question 19

The figure given below shows the revenue and the cost curves of a perfectly competitive firm. Figure 23.3   In Figure 23.3, the profit maximizing output of the firm is _____ units.

Accepted Answer

A) 4 
B) 16 
C) 11 
D) 7 
E) 14 
A) 4 
B) 16 
C) 11 
D) 7 
E) 14

Question 20

For which of the following types of firms does the average revenue curve coincide with the marginal revenue curve?

Accepted Answer

A) A monopolist 
B) An oligopoly firm 
C) A monopolistically competitive firm 
D) A perfectly competitive firm 
E) A monopsonist 
A) A monopolist 
B) An oligopoly firm 
C) A monopolistically competitive firm 
D) A perfectly competitive firm 
E) A monopsonist

Exam 44: Perfect Competition

Under perfect competition, the per unit revenue of the firm is equal to its marginal revenue.

If the market price falls below the average-variable-cost, the firm will suspend production.

In which of the following situations will a perfectly competitive firm's profit always increase when it increases its output?

The table given below shows the total revenue and total cost of a firm at different levels of output. Table 23.2 What is the equilibrium price for the perfectly competitive firm described in Table 23.2?

When revenue is less than total cost but more than variable cost it implies:

If market demand increases, a perfectly competitive firm will find:

Suppose a perfectly competitive firm's total revenue equals $210 and its output is 70 units when the firm's marginal-cost curve intersects its marginal-revenue curve.Since the firm is a profit-maximizing firm, what is marginal revenue equal to?

When the perfectly competitive firm's demand curve lies above its average total cost curve, the firm incurs an economic loss at that level of output.

If a profit-maximizing, perfectly competitive firm is making only a normal profit in the short run, then the firm is in:

The theory of the long run in perfect competition helps to provide a rationale for the belief in a limited role for government in society.

Suppose that in a perfectly competitive market, the market supply of a good increases.As a result, the individual firm's:

The figure given below shows the revenue and the cost curves of a perfectly competitive firm. Figure 23.3 Refer to Figure 23.3 and identify the price level at which the firm earns only normal profit.

An individual firm in perfect competition can exercise a significant control over the market price of the good.

In the short run a perfectly competitive firm can earn normal profits or above normal profit but it cannot incur losses.

One assumption of the model of perfect competition is that entry into the market is easy.This implies that:

Some competitive firms are willing to operate at a loss in the short run because:

The figure given below shows the revenue and the cost curves of a perfectly competitive firm. Figure 23.3 In Figure 23.3, the profit maximizing output of the firm is _____ units.

For which of the following types of firms does the average revenue curve coincide with the marginal revenue curve?

Economics: The World Around You

Choice, Opportunity Costs, and Specialization

Markets, Demand and Supply, and the Price System

The Market System and the Private and Public Sector

Elasticity: Demand and Supply

National Income Accounting

an Introduction to the Foreign Exchange Market and the Balance of Payments

Consumer Choice

Supply: The Costs of Doing Business

Unemployment and Inflation

Macroeconomic Equilibrium: Aggregate Demand and Supply

Profit Maximization

Aggregate Expenditures

Perfect Competition

Income and Expenditures Equilibrium

Monopoly

Fiscal Policy

Monopolistic Competition and Oligopoly

Antitrust and Regulation

Money and Banking

Market Failures, Government Failures, and Rent Seeking

Monetary Policy

Macroeconomic Policy: Tradeoffs, Expectations, Credibility, and Sources of Business Cycles

Resource Markets

Macroeconomic Viewpoints: New Keynesian, Monetarist, and New Classical

The Labor Market

Capital Markets

Economic Growth

Development Economics

the Land Market and Natural Resources

Aging, Social Security and Health Care

Globalization

Elasticity: Demand and Supply

Income Distribution, Poverty and Government Policy

World Trade Equilibrium

Consumer Choice

International Trade Restrictions

World Trade Equilibrium

Exchange Rates and Financial Links Between Countries

International Trade Restrictions

Supply: the Costs of Doing Business

Exchange Rates and Financial Links Between Countries

Profit Maximization

Monopoly

Monopolistic Competition and Oligopoly

Antitrust and Regulation

Market Failures, Government Failures, and Rent Seeking

Resource Markets

The Labor Market

Capital Markets

The Land Market and Natural Resources

Aging, Social Security and Health Care

Income Distribution, Poverty and Government Policy

World Trade Equilibrium

International Trade Restrictions

Exchange Rates and Financial Links Between Countries

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