Question 1

What causes the market supply curve to shift rightward?

Accepted Answer

A) Increase in the aggregate demand 
B) Decrease in the number of existing firms 
C) Decrease in the price level 
D) Increase in the cost of production 
E) Entry of new firms 
A) Increase in the aggregate demand 
B) Decrease in the number of existing firms 
C) Decrease in the price level 
D) Increase in the cost of production 
E) Entry of new firms

Question 2

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 3

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

Accepted Answer

A) True 
 B)False

Question 4

If the marginal cost exceeds the marginal revenue, a perfectly competitive firm should:

Accepted Answer

A) raise the level of output to maximize profit. 
B) keep the level of output constant. 
C) raise the level of output to minimize loss. 
D) reduce the level of output to minimize loss. 
E) shut down. 
A) raise the level of output to maximize profit. 
B) keep the level of output constant. 
C) raise the level of output to minimize loss. 
D) reduce the level of output to minimize loss. 
E) shut down.

Question 5

Which of the following statements concerning perfect competition is not true?

Accepted Answer

A) Firms are price takers. 
B) The demand curve facing the individual firm is horizontal. 
C) The firm's demand curve is identical to its marginal revenue curve. 
D) The firms produce differentiated products. 
E) If the firm raises its price, it will lose all of its customers. 
A) Firms are price takers. 
B) The demand curve facing the individual firm is horizontal. 
C) The firm's demand curve is identical to its marginal revenue curve. 
D) The firms produce differentiated products. 
E) If the firm raises its price, it will lose all of its customers.

Question 6

If, at the profit-maximizing level of output, a typical perfectly competitive firm's price is greater than its average total cost, the firm should increase output.

Accepted Answer

A) True 
 B)False

Question 7

Above-normal profits earned by existing firms in a perfectly competitive market will eventually lead to:

Accepted Answer

A) exit of the firms from the market. 
B) an increase in the market price of the good. 
C) entry of new firms into the market. 
D) a decrease in the aggregate supply. 
E) existing firms emerging as price makers. 
A) exit of the firms from the market. 
B) an increase in the market price of the good. 
C) entry of new firms into the market. 
D) a decrease in the aggregate supply. 
E) existing firms emerging as price makers.

Question 8

Under perfect competition, entry of new firms into the market in the long run tends to:

Accepted Answer

A) raise the aggregate supply. 
B) raise the level of profit of the existing firms. 
C) raise the aggregate demand for goods. 
D) reduce the degree of competitiveness in the market. 
E) reduce the market power of the existing firms. 
A) raise the aggregate supply. 
B) raise the level of profit of the existing firms. 
C) raise the aggregate demand for goods. 
D) reduce the degree of competitiveness in the market. 
E) reduce the market power of the existing firms.

Question 9

From a social viewpoint, when price = marginal cost:

Accepted Answer

A) the economy as a whole would be better off if more was produced. 
B) the economy as a whole would be better off if less was produced. 
C) firms would be better off by producing less. 
D) economic efficiency is attained as a whole. 
E) consumers will be better by consuming less. 
A) the economy as a whole would be better off if more was produced. 
B) the economy as a whole would be better off if less was produced. 
C) firms would be better off by producing less. 
D) economic efficiency is attained as a whole. 
E) consumers will be better by consuming less.

Question 10

The figure given below shows the revenue and the cost curves of a perfectly competitive firm. Figure 9.3   In Figure 9.3, 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 11

The model of perfect competition best applies to markets with:

Accepted Answer

A) a few firms selling identical products. 
B) a few firms selling differentiated products. 
C) many firms selling differentiated products. 
D) many firms selling identical products. 
E) significant barriers to entry and exit. 
A) a few firms selling identical products. 
B) a few firms selling differentiated products. 
C) many firms selling differentiated products. 
D) many firms selling identical products. 
E) significant barriers to entry and exit.

Question 12

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 13

The following figure shows equilibrium at the industry and firm level. Figure 9.6   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 9.6, at a price of $1, the firm would earn an economic profit of:

Accepted Answer

A) $15. 
B) $9. 
C) $13.50. 
D) $12.50. 
E) 0. 
A) $15. 
B) $9. 
C) $13.50. 
D) $12.50. 
E) 0.

Question 14

The figure given below shows the demand and cost curves of a perfectly competitive firm. Figure: 9.4   D: Demand curve
MC: Marginal cost curve
ATC: Average-total cost curve
AVC: Average-variable-cost curve
Refer to Figure 9.4.The total profit or loss for the firm is:

Accepted Answer

A) $500 profit. 
B) $2, 500 profit. 
C) $2, 500 loss. 
D) $650 loss. 
E) $500 loss. 
A) $500 profit. 
B) $2, 500 profit. 
C) $2, 500 loss. 
D) $650 loss. 
E) $500 loss.

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

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 17

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 18

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 19

A firm will shut down permanently if total revenue is not sufficient to pay for total costs in the long run.

Accepted Answer

A) True 
 B)False

Question 20

The figure given below shows the demand and cost curves of a perfectly competitive firm. Figure: 9.4   D: Demand curve
MC: Marginal cost curve
ATC: Average-total cost curve
AVC: Average-variable-cost curve
According to Figure 9.4, the firm's shutdown price is:

Accepted Answer

A) above $60. 
B) $60. 
C) $50. 
D) between $50 and $60. 
E) less than $15. 
A) above $60. 
B) $60. 
C) $50. 
D) between $50 and $60. 
E) less than $15.

Exam 14: Perfect Competition

What causes the market supply curve to shift rightward?

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

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

If the marginal cost exceeds the marginal revenue, a perfectly competitive firm should:

Which of the following statements concerning perfect competition is not true?

If, at the profit-maximizing level of output, a typical perfectly competitive firm's price is greater than its average total cost, the firm should increase output.

Above-normal profits earned by existing firms in a perfectly competitive market will eventually lead to:

Under perfect competition, entry of new firms into the market in the long run tends to:

From a social viewpoint, when price = marginal cost:

The figure given below shows the revenue and the cost curves of a perfectly competitive firm. Figure 9.3 In Figure 9.3, the firm will have to suspend its operations if the price falls below _____.

The model of perfect competition best applies to markets with:

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

The figure given below shows the demand and cost curves of a perfectly competitive firm. Figure: 9.4 D: Demand curve MC: Marginal cost curve ATC: Average-total cost curve AVC: Average-variable-cost curve Refer to Figure 9.4.The total profit or loss for the firm is:

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

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

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

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

A firm will shut down permanently if total revenue is not sufficient to pay for total costs in the long run.

The figure given below shows the demand and cost curves of a perfectly competitive firm. Figure: 9.4 D: Demand curve MC: Marginal cost curve ATC: Average-total cost curve AVC: Average-variable-cost curve According to Figure 9.4, the firm's shutdown price is:

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

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

Perfect Competition

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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