Question 1

The following question are based on the following graph, showing short-run supply and demand curves for a perfectly competitive market. The initial supply curve is labeled "Supply" and the initial demand curve is labeled "Demand." Price 0A and output rate 0X represent the initial equilibrium price and output.
 
-The typical producer in this market

Accepted Answer

A)   faces a demand curve less elastic than the one shown.
B)   minimizes total cost.
C)   produces a tiny fraction of output 0X.
D)   must produce at least 0Y.
E)   must increase price to break even. C

Question 2

In the long run,in a perfectly competitive industry,________ are zero.

Accepted Answer

A)   economic profits
B)   costs of production
C)   average total costs
D)   prices
E)   variable costs A

Question 3

The relevant cost for making short-run production decisions is the ________ cost.

Accepted Answer

A)   variable
B)   fixed
C)   sunk
D)   reproduction
E)   historic A

Question 4

The strategy used by the cattle ranchers in response to price ceilings imposed on beef by the Nixon administration was ineffective in the long run because of

Accepted Answer

A)   shifting consumer demands in favor of horsemeat.
B)   an unprecedented grain surplus.
C)   the limited time in which to market a perishable product.
D)   a surprising lack of consumer responsiveness to lower prices.
E)   the increasing foreign demand for U.S. beef.

Question 5

The market supply curve for a perfectly competitive,constant cost industry is

Accepted Answer

A)   identical with the supply curve of a perfectly competitive firm.
B)   horizontal in the short run.
C)   the numerical average of all the individual firms' supply curves.
D)   likely to become perfectly inelastic as the length of time covered by the curve grows.
E)   the horizontal summation of the marginal cost curves for all firms above the minimum average variable cost.

Question 6

Perhaps the biggest single criticism of price controls has been that they

Accepted Answer

A)   encourage inefficient use of scarce resources.
B)   tend to be harder on agriculture than on other segments of the economy.
C)   invariably promote the very inflation they seek to quell.
D)   are impossible to enforce in the short run.
E)   have no effect on free markets.

Question 7

Which set of characteristics best identifies an oligopoly market?

Accepted Answer

A)   many firms, homogeneous product, significant barriers to entry, significant nonprice competition, and considerable power over price
B)   few firms, differentiated product, no barriers to entry, the absence of nonprice competition, and considerable advertising
C)   one firm producing a product with no close substitutes, significant barriers to entry, and considerable power over price
D)   many firms, differentiated product, few barriers to entry, and nonprice competition
E)   few firms, differentiated product, significant barriers to entry, and significant amounts of nonprice competition

Question 8

The basic distinction between the short run and the long run in a perfectly competitive industry is that in the long run,firms

Accepted Answer

A)   earn economic profits.
B)   are free to enter or exit.
C)   face vertical demand curves.
D)   have zero marginal costs.
E)   produce the highest possible output rates.

Question 9

Perfectly competitive firms have zero economic profits in the long run because

Accepted Answer

A)   they all produce slightly different products.
B)   of nonprice competition.
C)   of freedom of entry and exit.
D)   of the outgrowth of advertising expenditures.
E)   of the law of diminishing marginal utility.

Question 10

If the marginal cost for a perfectly competitive,profit-maximizing firm currently exceeds the price of its output,the firm should

Accepted Answer

A)   expand its output and lower its price.
B)   continue to produce at the same output rate and raise its price.
C)   contract output.
D)   increase its nonprice competition.
E)   do nothing; it is currently maximizing profits.

Question 11

If a perfectly competitive firm in the short run can sell its output at $2.50 per bushel and it has an average variable cost of $1.75 per bushel and a marginal cost of $0.85 per bushel,it should

Accepted Answer

A)   expand output.
B)   raise its price.
C)   cut output to zero.
D)   advertise.
E)   do nothing at all; it is currently maximizing profits.

Question 12

The following question are based on the following diagram of a perfectly competitive firm:
 
-If the price is $7 per unit,the firm will produce ________ units.

Accepted Answer

A)   20
B)   40
C)   60
D)   70
E)   80

Question 13

The following question are based on the following cost and revenue schedule for the Presto Piano Company:
 
-If the firm finds that the market price per unit of output is $800,it should produce between ________ units per period.

Accepted Answer

A)   1 and 2
B)   2 and 3
C)   3 and 4
D)   4 and 5
E)   5 and 6

Question 14

The following question are based on the following table showing the supply curves of the five individual firms constituting the rutabaga market in a small community. Assume that simultaneous changes in output by all firms do NOT affect input prices.
 
-A price increase from $1.20 to $1.25 would cause the quantity supplied to increase by

Accepted Answer

A)   4.
B)   5.
C)   6.
D)   7.
E)   8.

Question 15

Which of the following would be excluded from the key characteristics used to classify a market structure?

Accepted Answer

A)   number of firms
B)   type of product
C)   level of technology
D)   barriers to entry
E)   power of firm over price

Question 16

Under perfect competition,the existence of economic profits and losses

Accepted Answer

A)   produces economic inefficiencies leading to the misallocation of resources in the long run.
B)   generally causes output in the short run to fall in markets where economic profits are being made and to rise in markets where economic losses are being made.
C)   creates hardships for producers, leading to industry concentration in the hands of relatively few producers.
D)   ensures that output will not be produced at minimum unit cost in the long run.
E)   causes firms to enter or leave markets and otherwise reallocate resources in the long run.

Question 17

In the long run,what adjustments take place when a perfectly competitive market in long-run equilibrium experiences an increase in demand?

Accepted Answer

A)   Price and profits fall, causing new firms to enter and existing firms to expand.
B)   Price and output remain fixed.
C)   Price rises but output remains unchanged.
D)   Price rises and firms expand output by using existing capacity more intensively.
E)   New firms enter and existing firms expand capacity, leading to an increase in supply and a decline in price.

Question 18

Which set of characteristics best identifies a pure monopoly?

Accepted Answer

A)   many firms, homogeneous product, significant barriers to entry, significant nonprice competition, and considerable power over price
B)   few firms, differentiated product, no barriers to entry, the absence of nonprice competition, and considerable advertising
C)   one firm producing a product with no close substitutes, significant barriers to entry, and considerable power over price
D)   many firms, differentiated product, few barriers to entry, and nonprice competition
E)   few firms, differentiated product, significant barriers to entry, and significant amounts of nonprice competition

Question 19

In the long run,perfectly competitive industries experiencing decreases in demand

Accepted Answer

A)   gain firms.
B)   lose resources.
C)   require price controls.
D)   become monopolies.
E)   remain unaffected.

Question 20

If the long-run response of this industry to a shift in the demand schedule to Demand₁ is to increase supply out to Supply₁,then compared to its initial position,a typical firm in long-run equilibrium

Accepted Answer

A)   makes more profit.
B)   reduces its long-run average cost.
C)   finds its marginal cost higher.
D)   finds its average cost unchanged.
E)   finds that the price for its product has risen.

Exam 6: Economic Efficiency,market Supply,and Perfect Competition