Question 1

Which of the following statements is true in the context of the long run?

Accepted Answer

A) All the factors of production are fixed. 
B) No new firms enter the market. 
C) The producer can vary all the factors of production. 
D) The firms earn positive economic profit. 
E) Large firms tend to acquire market power. 
A) All the factors of production are fixed. 
B) No new firms enter the market. 
C) The producer can vary all the factors of production. 
D) The firms earn positive economic profit. 
E) Large firms tend to acquire market power.

Question 2

To maximize profits in the short run, a perfectly competitive firm will produce that output at which:

Accepted Answer

A) marginal revenue equals demand. 
B) price equals marginal revenue. 
C) price equals marginal cost. 
D) marginal revenue equals average total cost. 
E) total revenue equals total cost. 
A) marginal revenue equals demand. 
B) price equals marginal revenue. 
C) price equals marginal cost. 
D) marginal revenue equals average total cost. 
E) total revenue equals total cost.

Question 3

The figure given below shows the revenue and cost curves of a perfectly competitive firm. Figure 9.1   In Figure 9.1, the firm's profit is equal to the area:

Accepted Answer

A) OIWR. 
B) JKEF 
C) OKET 
D) LMNG 
E) OJFS 
A) OIWR. 
B) JKEF 
C) OKET 
D) LMNG 
E) OJFS

Question 4

An individual perfectly competitive firm's supply curve is its:

Accepted Answer

A) average-fixed-cost curve. 
B) marginal revenue curve. 
C) average-variable-cost curve. 
D) marginal cost curve. 
E) total cost curve. 
A) average-fixed-cost curve. 
B) marginal revenue curve. 
C) average-variable-cost curve. 
D) marginal cost curve. 
E) total cost curve.

Question 5

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
  Refer to Table 9.1.If the market price of the good falls to $0.80 per unit, the firm:

Accepted Answer

A) should decrease its output to seven units. 
B) Should decrease its output to seven units. 
C) should increase its output to ten units. 
D) should produce nine units. 
E) should keep its output level unchanged. 
A) should decrease its output to seven units. 
B) Should decrease its output to seven units. 
C) should increase its output to ten units. 
D) should produce nine units. 
E) should keep its output level unchanged.

Question 6

If a firm is a price taker, then the demand curve faced by the firm is perfectly elastic.

Accepted Answer

A) True 
 B)False

Question 7

For a perfectly competitive firm the break-even price is equal to the shutdown price in the short run.

Accepted Answer

A) True 
 B)False

Question 8

The figure given below shows the revenue and cost curves of a perfectly competitive firm. Figure 9.2   MC: Marginal cost curve
MR: Marginal revenue curve
ATC: Average-total-cost curve
AVC: Average-variable-cost curve
Refer to Figure 9.2.What is the profit-maximizing price and output level?

Accepted Answer

A) $35 and 10 units 
B) $50 and 15 units 
C) $50 and 20 units 
D) $20 and 20 units 
E) $35 and 20 units 
A) $35 and 10 units 
B) $50 and 15 units 
C) $50 and 20 units 
D) $20 and 20 units 
E) $35 and 20 units

Question 9

Given a perfectly competitive market structure at the profit-maximizing output level, a firm's total fixed cost is $10, total variable cost is $100, marginal revenue is $4, and the quantity demanded is 50.The total profit earned by the firm is:

Accepted Answer

A) $70. 
B) $65. 
C) $90. 
D) $75. 
A) $70. 
B) $65. 
C) $90. 
D) $75.

Question 10

If losses are incurred in a competitive industry, then over the long run we can expect a greater quantity supplied because market price will rise.

Accepted Answer

A) True 
 B)False

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

The figure given below shows the aggregate demand and supply curves of a perfectly competitive market. Figure 9.7   Refer to Figure 9.7 and calculate the consumer surplus.

Accepted Answer

A) $200 
B) $600 
C) $400 
D) $800 
E) $500 
A) $200 
B) $600 
C) $400 
D) $800 
E) $500

Question 13

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 14

The minimum point of the _____ curve is called the shutdown price.

Accepted Answer

A) average-fixed-cost 
B) marginal cost 
C) average -total-cost 
D) total fixed cost 
E) average-variable-cost 
A) average-fixed-cost 
B) marginal cost 
C) average -total-cost 
D) total fixed cost 
E) average-variable-cost

Question 15

A perfectly competitive firm's supply curve is the portion of the:

Accepted Answer

A) TC curve that lies above the TR curve. 
B) MR curve that lies above the MC curve. 
C) AFC curve that lies above the AR curve. 
D) AVC curve that lies above the ATC curve. 
E) MC curve that lies above the AVC curve. 
A) TC curve that lies above the TR curve. 
B) MR curve that lies above the MC curve. 
C) AFC curve that lies above the AR curve. 
D) AVC curve that lies above the ATC curve. 
E) MC curve that lies above the AVC curve.

Question 16

Economic efficiency is achieved when the price of a unit of a commodity is equal to the marginal cost of producing that unit.

Accepted Answer

A) True 
 B)False

Question 17

The figure given below shows the revenue and the cost curves of a perfectly competitive firm. Figure 9.3   In Figure 9.3, 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 18

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 19

Which of the following statements characterizes perfect competition?

Accepted Answer

A) Producers enjoy complete freedom of entry and exit from the industry. 
B) Producers sell differentiated products. 
C) Producers are price makers. 
D) Consumers are price makers. 
E) The firm is not free to choose the quantity that it wishes to produce. 
A) Producers enjoy complete freedom of entry and exit from the industry. 
B) Producers sell differentiated products. 
C) Producers are price makers. 
D) Consumers are price makers. 
E) The firm is not free to choose the quantity that it wishes to produce.

Question 20

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, in the long run, the firm:

Accepted Answer

A) will produce at quantity 9 and price $1.50. 
B) will produce at quantity 9 and price $1. 
C) will produce at quantity 10 and price $1.50. 
D) will produce at quantity 19 and price $1.25. 
E) will shut down. 
A) will produce at quantity 9 and price $1.50. 
B) will produce at quantity 9 and price $1. 
C) will produce at quantity 10 and price $1.50. 
D) will produce at quantity 19 and price $1.25. 
E) will shut down.

Exam 14: Perfect Competition

Which of the following statements is true in the context of the long run?

To maximize profits in the short run, a perfectly competitive firm will produce that output at which:

The figure given below shows the revenue and cost curves of a perfectly competitive firm. Figure 9.1 In Figure 9.1, the firm's profit is equal to the area:

An individual perfectly competitive firm's supply curve is its:

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 Refer to Table 9.1.If the market price of the good falls to $0.80 per unit, the firm:

If a firm is a price taker, then the demand curve faced by the firm is perfectly elastic.

For a perfectly competitive firm the break-even price is equal to the shutdown price in the short run.

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.What is the profit-maximizing price and output level?

Given a perfectly competitive market structure at the profit-maximizing output level, a firm's total fixed cost is $10, total variable cost is $100, marginal revenue is $4, and the quantity demanded is 50.The total profit earned by the firm is:

If losses are incurred in a competitive industry, then over the long run we can expect a greater quantity supplied because market price will rise.

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:

The figure given below shows the aggregate demand and supply curves of a perfectly competitive market. Figure 9.7 Refer to Figure 9.7 and calculate the consumer surplus.

Perfect competition describes firm behavior when:

The minimum point of the _____ curve is called the shutdown price.

A perfectly competitive firm's supply curve is the portion of the:

Economic efficiency is achieved when the price of a unit of a commodity is equal to the marginal cost of producing that unit.

The figure given below shows the revenue and the cost curves of a perfectly competitive firm. Figure 9.3 In Figure 9.3, at equilibrium, the firm enjoys a profit of:

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

Which of the following statements characterizes perfect competition?

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

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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

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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

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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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