Question 1

Which of the following is a principal determinant of the market supply curve?

Accepted Answer

A)  consumer preferences 
B)  the level of input prices 
C)  the price elasticity of demand 
D)  the number of buyers in the market 
E)  the level of expenditures in the market

Question 2

One of the major long-term effects of rent controls in New York City has been

Accepted Answer

A)  an increase in the average size of an apartment. 
B)  the creation of above-average profits for landlords. 
C)  the creation of surpluses of affordable housing units. 
D)  a rapid increase in the rate of New York's population growth. 
E)  the abandonment of buildings, reducing the number of rental units available to consumers.

Question 3

The legal,technical,and financial difficulties a firm must overcome to participate in a particular market are called

Accepted Answer

A)  implicit costs. 
B)  open market operations. 
C)  crowding-out conditions. 
D)  external economies and diseconomies. 
E)  barriers to entry.

Question 4

Profit-maximizing firms should increase output to the point where

Accepted Answer

A)  total revenue is largest. 
B)  total revenue just exceeds total cost. 
C)  an increase in revenue is just offset by an increase in cost. 
D)  fixed costs are covered. 
E)  total cost is minimized.

Question 5

The following question are based on the following diagram of a perfectly competitive firm:
 
-At which price will the firm earn zero economic profits if it follows the Golden Rule of Output Determination?

Accepted Answer

A)  $1 
B)  $2 
C)  $3 
D)  $4 
E)  $5

Question 6

If demand for the product increases to Demand₁,the market achieves its short-run equilibrium position where the

Accepted Answer

A)  market price is 0A. 
B)  market price is 0B. 
C)  market price is 0C. 
D)  industry output rate is 0X. 
E)  industry output rate is 0Y.

Question 7

A perfectly competitive firm has the following cost schedule:

If the firm is a profit-maximizing firm and it can sell its output for $5 each,it should produce ________ units.

Accepted Answer

A)  5,000 
B)  6,000 
C)  7,000 
D)  8,000 
E)  9,000

Question 8

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.
 
-For a typical producer in this market

Accepted Answer

A)  marginal cost equals 0A. 
B)  average total cost is less than 0A. 
C)  average total cost is greater than 0A. 
D)  long-run average cost equals the supply curve. 
E)  average total cost equals the supply curve.

Question 9

A market consisting of a few firms producing similar products with significant barriers to entry is characteristic of

Accepted Answer

A)  perfect competition. 
B)  monopoly. 
C)  monopolistic competition. 
D)  oligopoly. 
E)  libertarianism.

Question 10

Compared to its initial position,a typical firm in new short-run equilibrium

Accepted Answer

A)  finds its average fixed cost higher. 
B)  increases its plant size. 
C)  finds its marginal cost higher. 
D)  makes less profit. 
E)  reduces average variable cost.

Question 11

If price equals average total cost,economic profit will

Accepted Answer

A)  become large. 
B)  equal marginal revenue. 
C)  equal total cost. 
D)  be zero. 
E)  exceed output.

Question 12

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 $2.75 per bushel and a marginal cost of $2.50 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 13

In a free market,a price ceiling

Accepted Answer

A)  encourages sellers to produce more. 
B)  leads to a decrease in the market demand curve. 
C)  improves the ability of a market to adjust to changes in demand. 
D)  eliminates the need to ration. 
E)  creates shortages.

Question 14

A perfectly competitive firm's marginal cost curve above the minimum value of average variable cost is equivalent to the

Accepted Answer

A)  industry demand curve. 
B)  long-run average cost curve. 
C)  firm's production function. 
D)  production possibilities curve. 
E)  firm's supply curve.

Question 15

The following question are based on the following diagram showing the short-run cost curves for a perfectly competitive firm:
 
-If the price is $5 per unit,the profit-maximizing level of output is

Accepted Answer

A)  zero. 
B)  0Q1. 
C)  0Q2. 
D)  0Q3. 
E)  0Q4.

Question 16

-If the perfectly competitive firm pictured is in long-run equilibrium,the price must be

Accepted Answer

A)  0P₁. 
B)  0P₂. 
C)  0P₃. 
D)  0P₄. 
E)  0P₅.

Question 17

When price ceilings on beef were imposed under the Nixon administration,cattle ranchers generally responded by

Accepted Answer

A)  raising prices anyway. 
B)  creating a deliberate market shortage. 
C)  finding ways to hold demand down. 
D)  boycotting other inputs, like grain. 
E)  slaughtering their cattle.

Question 18

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.
 
-In the short 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 19

The following question are based on the following diagram showing the short-run cost curves for a perfectly competitive firm:
 
-If the price is $2 per unit,the profit-maximizing level of output is

Accepted Answer

A)  zero. 
B)  0Q1. 
C)  0Q2. 
D)  0Q3. 
E)  0Q4.

Question 20

The shape of the total revenue curve of a perfectly competitive firm is a(n)

Accepted Answer

A)  horizontal line. 
B)  vertical line. 
C)  downward-sloping straight line. 
D)  upward-sloping straight line. 
E)  parabolic line, rising at first and then falling.

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