Question 1

Perfectly competitive firms are sometimes called price makers because they have significant control over product price.

Accepted Answer

A) True 
 B)False

Question 2

If average revenue equals average total cost,

Accepted Answer

A)   total revenue is maximized
B)   average revenue is maximized
C)   average total cost is minimized
D)   economic profit is maximized
E)   economic profit is zero

Question 3

If Harry's Blueberries,a perfectly competitive firm,shuts down in the short run,Harry must pay

Accepted Answer

A)   variable cost but not fixed cost
B)   no costs at all
C)   variable cost and fixed cost
D)   only variable cost
E)   only fixed cost

Question 4

Which of the following would not help identify market structure?

Accepted Answer

A)   number of firms in the industry
B)   type of product produced in the industry
C)   ease of entry into the industry
D)   forms of competition among firms in the industry
E)   price of the good

Question 5

If a market is productively efficient,

Accepted Answer

A)   the output is being produced at the lowest possible resource cost
B)   the output is selling for the lowest possible price
C)   economic profit in the market is positive
D)   the output being produced is what consumers want
E)   no firm can earn a normal profit

Question 6

If price-taking firms are required to install wet scrubbers on their chimneys to meet EPA regulations and their costs increase as a result,we would expect

Accepted Answer

A)   demand for the product to fall
B)   the market supply curve to shift to the left
C)   the long-run economic profit of individual firms in the industry to fall
D)   the short-run economic profit of individual firms in the industry to remain unchanged
E)   short-run profits to rise as the industry raises price more than the cost of pollution

Question 7

In the short run,a perfectly competitive firm suffering a loss

Accepted Answer

A)   will close if P 
B)   will shut down operations if P 
C)   cannot leave the industry even if P 
D)   can sell off all its resources to competitors
E)   can raise the price to increase revenues

Question 8

Which of the following does not characterize a perfectly competitive firm that has shut down in the short run?

Accepted Answer

A)   total revenue equals zero
B)   variable costs equal zero
C)   the firm suffers a loss
D)   fixed cost is positive
E)   fixed cost is zero

Question 9

Which of the following is not necessarily a characteristic of perfect competition?

Accepted Answer

A)   low prices
B)   a large number of buyers and sellers
C)   a homogeneous product
D)   perfect information
E)   easy entry and exit in the long run

Question 10

Marginal revenue is the change in total revenue from selling one more unit of output.

Accepted Answer

A) True 
 B)False

Question 11

The significance of the minimum point on the average variable cost curve is that

Accepted Answer

A)   it is the profit-maximizing level
B)   it is the selling price
C)   it is the point of indifference between producing at a loss or shutting down
D)   if the firm produces one more unit,its AVC will be less than MC
E)   it shows the amount of total cost

Question 12

A perfectly competitive firm is allocatively efficient because price is identical to marginal cost at every quantity

Accepted Answer

A) True 
 B)False

Question 13

Suppose a perfectly competitive increasing-cost industry is in long-run equilibrium when market demand suddenly decreases.What might happen to the typical firm in the long run?

Accepted Answer

A)   It would experience no change from the original equilibrium
B)   It would experience a higher equilibrium price
C)   It would experience a lower equilibrium price
D)   It would experience the same equilibrium price but would increase output
E)   It would experience a lower average total cost and would increase output

Question 14

A horizontal long-run industry supply curve occurs under conditions of

Accepted Answer

A)   economies of scale
B)   diseconomies of scale
C)   monopoly
D)   increasing costs
E)   constant costs

Question 15

Economists assume that firms seek to

Accepted Answer

A)   maximize accounting profit
B)   maximize economic profit
C)   maximize total revenue
D)   maximize normal profit
E)   minimize cost

Question 16

Exhibit 8-14
 
-In Exhibit 8-14,what area represents total revenue at the loss-minimizing output?

Accepted Answer

A)   0cda
B)   0jka
C)   0efa
D)   0hib
E)   0egb

Question 17

Suppose the market for hot pretzels in New York City is perfectly competitive.What is true of demand in this market?

Accepted Answer

A)   The demand curve facing each seller is perfectly elastic.
B)   The demand curve facing each seller is perfectly inelastic.
C)   The market demand curve is perfectly elastic.
D)   The market demand curve is perfectly inelastic.
E)   The market demand curve is elastic.

Question 18

For perfectly competitive firms,what is the relationship among market price (P) ,average revenue (AR) ,and marginal revenue (MR) ?

Accepted Answer

A)   P = AR = MR
B)   P > AR = MR
C)   P = AR > MR
D)   P = AR 
E)   P < AR = MR

Question 19

A perfectly competitive firm has reached long run equilibrium at 20 units of output produced with total cost of $1,200.The market price is:

Accepted Answer

A)   $1,200
B)   $400
C)   $20
D)   $60
E)   We don't have enough information to calculate it

Question 20

In the short run,a perfectly competitive ball bearing manufacturer will continue to produce at a loss if

Accepted Answer

A)   it is covering all of its fixed cost
B)   it is covering all of its variable cost plus part of its fixed cost
C)   variable cost is less than fixed cost
D)   fixed cost is zero
E)   fixed cost is minimized

Exam 8: Perfect Competition

For perfectly competitive firms,what is the relationship among market price (P) ,average revenue (AR) ,and marginal revenue (MR) ?

Correct AnswerverifiedShow Answer

Marginal revenue is the change in total revenue from selling one more unit of output.

Correct AnswerverifiedShow Answer

If price-taking firms are required to install wet scrubbers on their chimneys to meet EPA regulations and their costs increase as a result,we would expect

Correct AnswerverifiedShow Answer

A perfectly competitive firm has reached long run equilibrium at 20 units of output produced with total cost of $1,200.The market price is:

Correct AnswerverifiedShow Answer

Which of the following would not help identify market structure?

Correct AnswerverifiedShow Answer

Exhibit 8-14 -In Exhibit 8-14,what area represents total revenue at the loss-minimizing output?

Correct AnswerverifiedShow Answer

If Harry's Blueberries,a perfectly competitive firm,shuts down in the short run,Harry must pay

Correct AnswerverifiedShow Answer

A horizontal long-run industry supply curve occurs under conditions of

Correct AnswerverifiedShow Answer

Which of the following is not necessarily a characteristic of perfect competition?

Correct AnswerverifiedShow Answer

In the short run,a perfectly competitive ball bearing manufacturer will continue to produce at a loss if

Correct AnswerverifiedShow Answer

Which of the following does not characterize a perfectly competitive firm that has shut down in the short run?

Correct AnswerverifiedShow Answer

If a market is productively efficient,

Correct AnswerverifiedShow Answer

Economists assume that firms seek to

Correct AnswerverifiedShow Answer

Suppose a perfectly competitive increasing-cost industry is in long-run equilibrium when market demand suddenly decreases.What might happen to the typical firm in the long run?

Correct AnswerverifiedShow Answer

If average revenue equals average total cost,

Correct AnswerverifiedShow Answer

In the short run,a perfectly competitive firm suffering a loss

Correct AnswerverifiedShow Answer

Perfectly competitive firms are sometimes called price makers because they have significant control over product price.

Correct AnswerverifiedShow Answer

A perfectly competitive firm is allocatively efficient because price is identical to marginal cost at every quantity

Correct AnswerverifiedShow Answer

Suppose the market for hot pretzels in New York City is perfectly competitive.What is true of demand in this market?

Correct AnswerverifiedShow Answer

The significance of the minimum point on the average variable cost curve is that

Correct AnswerverifiedShow Answer

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