Question 1

If an individual firm in a market is a price taker, then:

Accepted Answer

A) it faces a horizontal demand curve. 
B) it is operating in a monopolistically competitive market. 
C) it sells its product at the market price that is solely determined by the buyers. 
D) it faces a positively sloped marginal revenue curve. 
E) it faces significant barriers to exit from the market. 
A) it faces a horizontal demand curve. 
B) it is operating in a monopolistically competitive market. 
C) it sells its product at the market price that is solely determined by the buyers. 
D) it faces a positively sloped marginal revenue curve. 
E) it faces significant barriers to exit from the market.

Question 2

The figure given below shows the revenue and the cost curves of a perfectly competitive firm. Figure 9.3   Refer to Figure 9.3 and calculate the total fixed cost borne by the firm at the profit maximizing level of the output.

Accepted Answer

A) $28 
B) $84 
C) $70 
D) $56 
E) $42 
A) $28 
B) $84 
C) $70 
D) $56 
E) $42

Question 3

A perfectly competitive firm maximizes its profit when:

Accepted Answer

A) its marginal revenue is equal to its marginal cost. 
B) its marginal revenue is greater than its marginal cost. 
C) its marginal cost is negative. 
D) its marginal cost is greater than its marginal revenue. 
E) its marginal cost is minimum. 
A) its marginal revenue is equal to its marginal cost. 
B) its marginal revenue is greater than its marginal cost. 
C) its marginal cost is negative. 
D) its marginal cost is greater than its marginal revenue. 
E) its marginal cost is minimum.

Question 4

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 5

The figure given below shows the revenue and cost curves of a perfectly competitive firm. Figure 9.5   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 9.5 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.

Question 6

The table given below shows the price of each unit of the product manufactured by a firm and the marginal cost of producing different units of the output. Table: 9.1
  According to the information in Table 9.1, the marginal revenue of the firm:

Accepted Answer

A) is equal to the marginal cost at each level of output. 
B) is equal to price times output. 
C) is equal to price times marginal cost. 
D) is equal to $1 at all levels of the output. 
E) decreases with an increase in output. 
A) is equal to the marginal cost at each level of output. 
B) is equal to price times output. 
C) is equal to price times marginal cost. 
D) is equal to $1 at all levels of the output. 
E) decreases with an increase in output.

Question 7

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 8

The figure given below shows the revenue and cost curves of a perfectly competitive firm. Figure 9.1   In Figure 9.1, the firm maximizes its profit at an output level of _____ units.

Accepted Answer

A) R 
B) S 
C) T 
D) U 
E) V 
A) R 
B) S 
C) T 
D) U 
E) V

Question 9

In the long run, a perfectly competitive firm will leave the market if it is unable to cover all of its fixed costs.

Accepted Answer

A) True 
 B)False

Question 10

Why is a perfectly competitive firm said to be a price taker?

Accepted Answer

A) It produces such a good which is not produced by any other firm in the market. 
B) It faces the downward sloping market demand curve. 
C) The firm's individual production is insignificant relative to production in the industry. 
D) There does not exist any barrier to the entry of new firms in the industry. 
E) The firm's marginal-revenue curve is downward sloping. 
A) It produces such a good which is not produced by any other firm in the market. 
B) It faces the downward sloping market demand curve. 
C) The firm's individual production is insignificant relative to production in the industry. 
D) There does not exist any barrier to the entry of new firms in the industry. 
E) The firm's marginal-revenue curve is downward sloping.

Question 11

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 12

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, if the market price was $1.50, the individual firm would:

Accepted Answer

A) be earning a negative economic profit of about $5. 
B) be earning a positive economic profit of about $5. 
C) be earning a positive economic profit of about $0.87. 
D) be earning a negative economic profit of about $4.50. 
E) be earning a positive economic profit of about $0.50. 
A) be earning a negative economic profit of about $5. 
B) be earning a positive economic profit of about $5. 
C) be earning a positive economic profit of about $0.87. 
D) be earning a negative economic profit of about $4.50. 
E) be earning a positive economic profit of about $0.50.

Question 13

If a perfectly competitive firm's price increases, then:

Accepted Answer

A) the marginal-cost curve will shift up. 
B) the demand curve faced by the firm will shift to the left. 
C) marginal cost will fall as output declines. 
D) the marginal-revenue curve for the firm will shift up. 
E) the marginal-cost curve for the firm will shift down. 
A) the marginal-cost curve will shift up. 
B) the demand curve faced by the firm will shift to the left. 
C) marginal cost will fall as output declines. 
D) the marginal-revenue curve for the firm will shift up. 
E) the marginal-cost curve for the firm will shift down.

Question 14

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, a shift of the S curves in the graph on the left side represents:

Accepted Answer

A) an increased supply because the firm produces more. 
B) an increased supply because more firms are producing. 
C) an increased supply resulting from a larger number of customers. 
D) an increased supply resulting from a lower demand. 
E) an increased supply resulting from a lower price. 
A) an increased supply because the firm produces more. 
B) an increased supply because more firms are producing. 
C) an increased supply resulting from a larger number of customers. 
D) an increased supply resulting from a lower demand. 
E) an increased supply resulting from a lower price.

Question 15

The figure given below shows the revenue and cost curves of a perfectly competitive firm. Figure 9.2   MC: Marginal cost curve
MR: Marginal revenue curve
ATC: Average-total-cost curve
AVC: Average-variable-cost curve
Refer to Figure 9.2.The firm will suspend production if the price falls below:

Accepted Answer

A) $30. 
B) $50. 
C) $10. 
D) $20. 
E) $35. 
A) $30. 
B) $50. 
C) $10. 
D) $20. 
E) $35.

Question 16

When the marginal costs, of firms in perfect competition increases, the short-run supply curve of the industry will shift to the left.

Accepted Answer

A) True 
 B)False

Question 17

For a farmer, the long run would be the current growing season, where she can vary the amount of irrigation, pesticides, and fertilizer on a fixed number of acres planted.

Accepted Answer

A) True 
 B)False

Question 18

A perfectly competitive firm incurs loss in the short run if at the profit maximizing level of output:

Accepted Answer

A) the marginal revenue curve lies below the marginal cost curve. 
B) the marginal revenue curve lies above the average revenue curve. 
C) the average cost curve lies below the average revenue curve. 
D) the average revenue curve lies below the average cost curve. 
E) marginal revenue curve lies above the marginal cost curve. 
A) the marginal revenue curve lies below the marginal cost curve. 
B) the marginal revenue curve lies above the average revenue curve. 
C) the average cost curve lies below the average revenue curve. 
D) the average revenue curve lies below the average cost curve. 
E) marginal revenue curve lies above the marginal cost curve.

Question 19

On August 5, 2003, a tragic fire destroyed a large Jim Beam whiskey factory in Kentucky.Assume that the U.S.market for whiskey is perfectly competitive, and that the market was originally in long run equilibrium.What would be the effects of such a whiskey factory fire?

Accepted Answer

A) An increase in supply would cause a reduction in price, which would then lead to entry of firms. 
B) A decrease in supply would cause an increase in price, which would then lead to entry of firms.` 
C) An increase in supply would cause an increase in price, which would then lead to entry of firms 
D) A decrease in supply would cause an increase in price, which would then lead to exit of firms. 
E) Price of the whiskey remains unchanged and the existing firms continue to earn zero economic profit. 
A) An increase in supply would cause a reduction in price, which would then lead to entry of firms. 
B) A decrease in supply would cause an increase in price, which would then lead to entry of firms.` 
C) An increase in supply would cause an increase in price, which would then lead to entry of firms 
D) A decrease in supply would cause an increase in price, which would then lead to exit of firms. 
E) Price of the whiskey remains unchanged and the existing firms continue to earn zero economic profit.

Question 20

The figure given below shows the revenue and the cost curves of a perfectly competitive firm. Figure 9.3   Refer to Figure 9.3 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

Exam 14: Perfect Competition

If an individual firm in a market is a price taker, then:

The figure given below shows the revenue and the cost curves of a perfectly competitive firm. Figure 9.3 Refer to Figure 9.3 and calculate the total fixed cost borne by the firm at the profit maximizing level of the output.

A perfectly competitive firm maximizes its profit when:

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

The table given below shows the price of each unit of the product manufactured by a firm and the marginal cost of producing different units of the output. Table: 9.1 According to the information in Table 9.1, the marginal revenue of the firm:

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.

The figure given below shows the revenue and cost curves of a perfectly competitive firm. Figure 9.1 In Figure 9.1, the firm maximizes its profit at an output level of _____ units.

In the long run, a perfectly competitive firm will leave the market if it is unable to cover all of its fixed costs.

Why is a perfectly competitive firm said to be a price taker?

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

If a perfectly competitive firm's price increases, then:

The figure given below shows the revenue and cost curves of a perfectly competitive firm. Figure 9.2 MC: Marginal cost curve MR: Marginal revenue curve ATC: Average-total-cost curve AVC: Average-variable-cost curve Refer to Figure 9.2.The firm will suspend production if the price falls below:

When the marginal costs, of firms in perfect competition increases, the short-run supply curve of the industry will shift to the left.

For a farmer, the long run would be the current growing season, where she can vary the amount of irrigation, pesticides, and fertilizer on a fixed number of acres planted.

A perfectly competitive firm incurs loss in the short run if at the profit maximizing level of output:

On August 5, 2003, a tragic fire destroyed a large Jim Beam whiskey factory in Kentucky.Assume that the U.S.market for whiskey is perfectly competitive, and that the market was originally in long run equilibrium.What would be the effects of such a whiskey factory fire?

The figure given below shows the revenue and the cost curves of a perfectly competitive firm. Figure 9.3 Refer to Figure 9.3 and identify the price level at which the firm earns only normal profit.

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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