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 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 3

If at the profit maximizing level of output, the AR curve lies below the ATC curve in the short run, the firm is earning positive economic profit.

Accepted Answer

A) True 
 B)False

Question 4

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 5

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 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 6

Quickie Inc. , a perfectly competitive firm, currently maximizes profit by producing 400 units of output.If its marginal cost is equal to $25 and its average total cost is $20, then how much is it earning in economic profit?

Accepted Answer

A) Economic profit is always equal to zero in perfect competition. 
B) $10, 000 
C) $8, 000 
D) $2, 000 
E) $4, 000 
A) Economic profit is always equal to zero in perfect competition. 
B) $10, 000 
C) $8, 000 
D) $2, 000 
E) $4, 000

Question 7

In the long run with the entry of new firms in a competitive market shifts the aggregate supply curve to the left.

Accepted Answer

A) True 
 B)False

Question 8

A firm whose price is below its average cost:

Accepted Answer

A) is earning negative economic profit. 
B) is earning positive economic profit. 
C) is just breaking even. 
D) is earning zero economic profit. 
E) is earning zero accounting profit. 
A) is earning negative economic profit. 
B) is earning positive economic profit. 
C) is just breaking even. 
D) is earning zero economic profit. 
E) is earning zero accounting profit.

Question 9

The table given below shows the total revenue and total cost of a firm at different levels of output. Table 9.2
  Consider the perfectly competitive firm described in Table 9.2.How much profit will the firm make if it is a profit maximizer?

Accepted Answer

A) $20 
B) $45 
C) $46 
D) $80 
E) $50 
A) $20 
B) $45 
C) $46 
D) $80 
E) $50

Question 10

Since the beginning of the millennium, the United States has witnessed closure of many Internet start-up companies.According to the model of perfect competition, these companies must have shut down in the short run because:

Accepted Answer

A) the price they were charging was too high to attract customers. 
B) the price they were charging was too low to provide sufficient revenues. 
C) they weren't earning enough revenue to cover their total costs. 
D) they were not earning enough revenue to cover their total variable costs. 
E) they were not earning enough revenue to cover their total fixed costs. 
A) the price they were charging was too high to attract customers. 
B) the price they were charging was too low to provide sufficient revenues. 
C) they weren't earning enough revenue to cover their total costs. 
D) they were not earning enough revenue to cover their total variable costs. 
E) they were not earning enough revenue to cover their total fixed costs.

Question 11

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 12

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 13

A perfectly competitive firm faces the downward sloping market demand curve.

Accepted Answer

A) True 
 B)False

Question 14

If a firm in a perfectly competitive market is operating at its profit-maximizing level of output and suddenly faces a reduction in the price it can charge for its product, will the firm suspend operations?

Accepted Answer

A) No, because it can always raise its prices in the short run. 
B) No, because it can always raise its prices in the long run. 
C) No, as long as the firm earns sufficient revenue to pay all of the variable costs. 
D) Yes, since it never makes sense to operate at a loss, even in the short run. 
E) No, because it always makes sense to operate at a loss, even in the long run. 
A) No, because it can always raise its prices in the short run. 
B) No, because it can always raise its prices in the long run. 
C) No, as long as the firm earns sufficient revenue to pay all of the variable costs. 
D) Yes, since it never makes sense to operate at a loss, even in the short run. 
E) No, because it always makes sense to operate at a loss, even in the long run.

Question 15

In the short run, a firm attempting to minimize losses:

Accepted Answer

A) must leave the industry in order to maximize opportunity costs. 
B) will produce as long as marginal cost equals marginal revenue. 
C) will produce as long as total revenue exceeds total variable cost. 
D) will produce as long as total revenue exceeds total fixed cost. 
E) will produce as long as competitors continue to produce. 
A) must leave the industry in order to maximize opportunity costs. 
B) will produce as long as marginal cost equals marginal revenue. 
C) will produce as long as total revenue exceeds total variable cost. 
D) will produce as long as total revenue exceeds total fixed cost. 
E) will produce as long as competitors continue to produce.

Question 16

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 17

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 producer surplus.

Accepted Answer

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

Question 18

Which of the following is true of the model of perfect competition?

Accepted Answer

A) There is a high degree of product differentiation. 
B) Consumers do not have adequate information concerning the prices and quality of products in the market. 
C) There are significant barriers to entry and exit. 
D) There are only a few, large firms in the market. 
E) An individual firm cannot affect the market price. 
A) There is a high degree of product differentiation. 
B) Consumers do not have adequate information concerning the prices and quality of products in the market. 
C) There are significant barriers to entry and exit. 
D) There are only a few, large firms in the market. 
E) An individual firm cannot affect the market price.

Question 19

The table given below shows the total revenue and total cost of a firm at different levels of output. Table 9.2
  What is the equilibrium price for the perfectly competitive firm described in Table 9.2?

Accepted Answer

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

Question 20

A perfectly competitive firm decides to shut down if:

Accepted Answer

A) the price falls below the average-total-cost. 
B) average revenue falls below the average-variable-cost. 
C) the price falls below the marginal cost. 
D) the average revenue curve lies below the marginal cost curve. 
E) the total revenue is less than total cost. 
A) the price falls below the average-total-cost. 
B) average revenue falls below the average-variable-cost. 
C) the price falls below the marginal cost. 
D) the average revenue curve lies below the marginal cost curve. 
E) the total revenue is less than total cost.

Exam 14: Perfect Competition

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

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

If at the profit maximizing level of output, the AR curve lies below the ATC curve in the short run, the firm is earning positive economic profit.

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 9.3 Refer to Figure 9.3 and calculate the firm's total revenue at the profit maximizing level of output.

Quickie Inc. , a perfectly competitive firm, currently maximizes profit by producing 400 units of output.If its marginal cost is equal to $25 and its average total cost is $20, then how much is it earning in economic profit?

In the long run with the entry of new firms in a competitive market shifts the aggregate supply curve to the left.

A firm whose price is below its average cost:

The table given below shows the total revenue and total cost of a firm at different levels of output. Table 9.2 Consider the perfectly competitive firm described in Table 9.2.How much profit will the firm make if it is a profit maximizer?

Since the beginning of the millennium, the United States has witnessed closure of many Internet start-up companies.According to the model of perfect competition, these companies must have shut down in the short run because:

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 perfectly competitive firm faces the downward sloping market demand curve.

If a firm in a perfectly competitive market is operating at its profit-maximizing level of output and suddenly faces a reduction in the price it can charge for its product, will the firm suspend operations?

In the short run, a firm attempting to minimize losses:

A firm should not necessarily shut down if:

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 producer surplus.

Which of the following is true of the model of perfect competition?

The table given below shows the total revenue and total cost of a firm at different levels of output. Table 9.2 What is the equilibrium price for the perfectly competitive firm described in Table 9.2?

A perfectly competitive firm decides to shut down if:

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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