Question 1

Perfect competition describes firm behavior when:

Accepted Answer

A) there are few firms producing identical products. 
B) there are few firms producing highly differentiated products. 
C) there are many firms producing identical products and entry is easy. 
D) there are many firms producing highly differentiated products. 
E) there are so few firms operating that government intervention is required to ensure fairness. 
A) there are few firms producing identical products. 
B) there are few firms producing highly differentiated products. 
C) there are many firms producing identical products and entry is easy. 
D) there are many firms producing highly differentiated products. 
E) there are so few firms operating that government intervention is required to ensure fairness.

Question 2

A firm's total revenue is $400 for 8 units of output, $600 for 12 units of output, and $1, 100 for 22 units of output.Evidently this firm is operating in a(n):

Accepted Answer

A) perfectly competitive market. 
B) monopolistic market. 
C) duopolistic market. 
D) monopolistically competitive market. 
E) oligopolistic market. 
A) perfectly competitive market. 
B) monopolistic market. 
C) duopolistic market. 
D) monopolistically competitive market. 
E) oligopolistic market.

Question 3

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 calculate the firm's total revenue at the profit maximizing level of output.

Accepted Answer

A) $200. 
B) $169. 
C) $196. 
D) $225. 
E) $154. 
A) $200. 
B) $169. 
C) $196. 
D) $225. 
E) $154.

Question 4

At long run equilibrium of a perfectly competitive firm the following condition holds good: Long Run Average-Total-Cost = Long Run Marginal Cost = Average Revenue = Marginal Revenue = Price.

Accepted Answer

A) True 
 B)False

Question 5

Under long-run equilibrium in perfect competition, each firm operates at the minimum point of its average-variable-cost curve.

Accepted Answer

A) True 
 B)False

Question 6

At the profit-maximizing output level for a perfectly competitive firm, if the firm increases its price, it will:

Accepted Answer

A) increase profits. 
B) reduce total cost more than total revenue. 
C) increase total revenue more than total cost. 
D) increase total cost more than total revenue. 
E) cause the firm to lose all of its sales. 
A) increase profits. 
B) reduce total cost more than total revenue. 
C) increase total revenue more than total cost. 
D) increase total cost more than total revenue. 
E) cause the firm to lose all of its sales.

Question 7

The figure given below shows the revenue and the cost curves of a perfectly competitive firm. Figure 23.3   In Figure 23.3, the firm will have to suspend its operations if the price falls below _____.

Accepted Answer

A) $2 
B) $4 
C) $10 
D) $11 
E) $14 
A) $2 
B) $4 
C) $10 
D) $11 
E) $14

Question 8

A firm's break-even price is the price that is just equal to the minimum point of the AVC curve in the short run.

Accepted Answer

A) True 
 B)False

Question 9

The market-demand curve for a product in a perfectly competitive market:

Accepted Answer

A) is horizontal. 
B) is downward sloping. 
C) is vertical. 
D) has elasticity equal to 1. 
E) is positively sloped. 
A) is horizontal. 
B) is downward sloping. 
C) is vertical. 
D) has elasticity equal to 1. 
E) is positively sloped.

Question 10

In the long run, a perfectly competitive firm will produce:

Accepted Answer

A) in the upward-sloping portion of its LRAC curve. 
B) where P = minimum AVC. 
C) in the downward-sloping portion of its LRAC curve. 
D) where P is greater than minimum ATC. 
E) where P = minimum ATC. 
A) in the upward-sloping portion of its LRAC curve. 
B) where P = minimum AVC. 
C) in the downward-sloping portion of its LRAC curve. 
D) where P is greater than minimum ATC. 
E) where P = minimum ATC.

Question 11

In the short run, certain costs, such as rent on land and equipment, must be paid whether or not any output is produced.These are:

Accepted Answer

A) the firm's variable costs. 
B) the firm's break-even costs. 
C) the firm's sunk costs. 
D) the firm's marginal costs. 
E) the firm's fixed costs. 
A) the firm's variable costs. 
B) the firm's break-even costs. 
C) the firm's sunk costs. 
D) the firm's marginal costs. 
E) the firm's fixed costs.

Question 12

Under perfect competition, the average revenue curve of the firm coincides with its average cost curve.

Accepted Answer

A) True 
 B)False

Question 13

The permanent shut down point of a perfectly competitive firm in the long run is:

Accepted Answer

A) the minimum point of the AVC curve. 
B) the minimum point of the MC curve. 
C) the minimum point of the AR curve. 
D) the minimum point of the ATC curve. 
E) the minimum point of the AFC curve. 
A) the minimum point of the AVC curve. 
B) the minimum point of the MC curve. 
C) the minimum point of the AR curve. 
D) the minimum point of the ATC curve. 
E) the minimum point of the AFC curve.

Question 14

A perfectly competitive firm produces 50 units of output at equilibrium in the short run.The total cost borne by the firm is $300 and the average revenue is $2.Therefore:

Accepted Answer

A) is just breaking even. 
B) is earning positive profits. 
C) is facing a positively sloped demand curve. 
D) is suffering losses. 
E) is experiencing diseconomies of scale. 
A) is just breaking even. 
B) is earning positive profits. 
C) is facing a positively sloped demand curve. 
D) is suffering losses. 
E) is experiencing diseconomies of scale.

Question 15

The following figure shows equilibrium at the industry and firm level. Figure 23.6   In the figure,
S1, S2, S3 are the market supply curves.
D1 and D2 are the market demand curves.
MC is the marginal cost curve of the firm.
MR1 and MR2 are the marginal revenue curves of the firm.
ATC is the average-total-cost curve of the firm.
According to Figure 23.6, an upward shift of the MR curve will result from:

Accepted Answer

A) a larger demand. 
B) more firms in the industry. 
C) fewer firms in the industry. 
D) a smaller demand. 
E) the firm being more efficient. 
A) a larger demand. 
B) more firms in the industry. 
C) fewer firms in the industry. 
D) a smaller demand. 
E) the firm being more efficient.

Question 16

A competitive firm's minimum supply price in the short run is its shutdown price.

Accepted Answer

A) True 
 B)False

Question 17

If in the short run, at the profit maximizing level of output, the average revenue curve of a competitive firm lies above the average cost curve:

Accepted Answer

A) the firm is incurring losses. 
B) the firm is just able to cover its total cost. 
C) the firm enjoys above-normal profits. 
D) the firm must shut down. 
E) the firm is barely able to cover its variable costs. 
A) the firm is incurring losses. 
B) the firm is just able to cover its total cost. 
C) the firm enjoys above-normal profits. 
D) the firm must shut down. 
E) the firm is barely able to cover its variable costs.

Question 18

A firm should not necessarily shut down if:

Accepted Answer

A) total revenue is less than total variable cost. 
B) losses are greater than fixed costs. 
C) the demand curve facing the firm lies below its average variable cost curve. 
D) price is less than average variable cost. 
E) losses exceed variable costs. 
A) total revenue is less than total variable cost. 
B) losses are greater than fixed costs. 
C) the demand curve facing the firm lies below its average variable cost curve. 
D) price is less than average variable cost. 
E) losses exceed variable 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, at equilibrium, the firm enjoys a profit of:

Accepted Answer

A) $69. 
B) $42. 
C) $60. 
D) $27. 
E) $48. 
A) $69. 
B) $42. 
C) $60. 
D) $27. 
E) $48.

Question 20

The figure given below shows the revenue and cost curves of a perfectly competitive firm. Figure 23.5   MC: Marginal cost curve
MR: Marginal revenue curve.
ATC: Average-total-cost curve
AVC: Average-variable-cost curve
Assume the price facing the firm in Figure 23.5 is P1.Which of the following statements is true?

Accepted Answer

A) Total revenue for the firm is area 0BDQ1. 
B) The firm should produce Q2. 
C) Total cost for the firm is area 0P1EQ1. 
D) The firm's total revenue is more than sufficient to cover its variable costs, so it should remain in operation. 
E) The firm should shut down because price per unit received is less than average total cost. 
A) Total revenue for the firm is area 0BDQ1. 
B) The firm should produce Q2. 
C) Total cost for the firm is area 0P1EQ1. 
D) The firm's total revenue is more than sufficient to cover its variable costs, so it should remain in operation. 
E) The firm should shut down because price per unit received is less than average total cost.

Exam 44: Perfect Competition

Perfect competition describes firm behavior when:

A firm's total revenue is $400 for 8 units of output, $600 for 12 units of output, and $1, 100 for 22 units of output.Evidently this firm is operating in a(n):

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 calculate the firm's total revenue at the profit maximizing level of output.

At long run equilibrium of a perfectly competitive firm the following condition holds good: Long Run Average-Total-Cost = Long Run Marginal Cost = Average Revenue = Marginal Revenue = Price.

Under long-run equilibrium in perfect competition, each firm operates at the minimum point of its average-variable-cost curve.

At the profit-maximizing output level for a perfectly competitive firm, if the firm increases its price, it will:

The figure given below shows the revenue and the cost curves of a perfectly competitive firm. Figure 23.3 In Figure 23.3, the firm will have to suspend its operations if the price falls below _____.

A firm's break-even price is the price that is just equal to the minimum point of the AVC curve in the short run.

The market-demand curve for a product in a perfectly competitive market:

In the long run, a perfectly competitive firm will produce:

In the short run, certain costs, such as rent on land and equipment, must be paid whether or not any output is produced.These are:

Under perfect competition, the average revenue curve of the firm coincides with its average cost curve.

The permanent shut down point of a perfectly competitive firm in the long run is:

A perfectly competitive firm produces 50 units of output at equilibrium in the short run.The total cost borne by the firm is $300 and the average revenue is $2.Therefore:

A competitive firm's minimum supply price in the short run is its shutdown price.

If in the short run, at the profit maximizing level of output, the average revenue curve of a competitive firm lies above the average cost curve:

A firm should not necessarily shut down if:

The figure given below shows the revenue and the cost curves of a perfectly competitive firm. Figure 23.3 In Figure 23.3, at equilibrium, the firm enjoys a profit of:

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

Filters