Question 1

If the wage rate increases and firms in a perfectly competitive industry are hiring labor, then

Accepted Answer

A)   the firms will quit using labor.
B)   profits will increase.
C)   market supply will decrease.
D)   market price will decrease.E) C) and D)
F) All of the above

Question 2

If the long-run supply curve is upward sloping, we know that

Accepted Answer

A)   entrepreneurs are earning higher profits as output expands.
B)   some input prices are increasing as the industry expands.
C)   firms are getting larger as the industry contracts.
D)   the law of diminishing marginal returns has set in.E) B) and C)
F) All of the above

Question 3

What is always true about the short-run equilibrium position for a firm in perfect competition?

Accepted Answer

A)   MR = MC = P = ATC = AR
B)   TR = TC
C)   MR = MC = P = AR
D)   MC = ATCE) C) and D)
F) None of the above

Question 4

The difference between price and average total cost is

Accepted Answer

A)   total costs.
B)   marginal costs.
C)   average profit.
D)   an irrelevant quantity.E) A) and D)
F) A) and C)

Question 5

What is the short-run break-even price? What are economic profits at this price? Why would a firm be willing to operate permanently at this price?

Accepted Answer

The short-run break-even price is the pr...

Question 6

A perfectly competitive market has

Accepted Answer

A)   high barriers to entry or exit.
B)   homogeneous products.
C)   to do a lot of advertising to attract buyers.
D)   few firms.E) A) and B)
F) All of the above

Question 7

Perfectly competitive markets are efficient because

Accepted Answer

A)   they always reach equilibrium.
B)   firms in the market are price takers.
C)   the cost to society for producing the goods is exactly equal to the value that society places on the good.
D)   the long run equilibrium assures that the prices of resources will not increase.E) B) and C)
F) A) and D)

Question 8

Under perfect competition, the firm must decide

Accepted Answer

A)   the best price to charge for its product.
B)   the best rate of output it should produce.
C)   the optimal level of advertising to engage in.
D)   the optimal level of quality and the packaging that will maximize profits.E) A) and C)
F) B) and C)

Question 9

An increasing-cost industry will have

Accepted Answer

A)   a perfectly elastic long-run supply curve.
B)   a perfectly inelastic long-run supply curve.
C)   an upward sloping supply curve in the long run.
D)   an upward sloping demand curve in the long run.E) A) and C)
F) A) and B)

Question 10

In the long run, the price for a perfectly competitive firm

Accepted Answer

A)   will be determined by the firm's supply and demand curves.
B)   will allow for positive economic profits.
C)   will equal marginal cost where marginal cost is at a minimum.
D)   will equal the minimum average total cost.E) A) and B)
F) None of the above

Question 11

Which of the following conditions is TRUE for a profit-maximizing firm in a perfectly competitive industry?

Accepted Answer

A)   MR = TC
B)   ATC = AFC
C)   MR = MC
D)   MC = AVCE) B) and C)
F) All of the above

Question 12

-Refer to the above figure. The figure represents the market demand and supply curves for widgets. What statement can be made about the demand curve for an individual firm in this market?

Accepted Answer

A)   An individual firm's demand curve will be a smaller version of the market demand curve.
B)   An individual firm's demand curve will be horizontal at $5.
C)   An individual firm's demand curve will be horizontal at a price below $5.
D)   An individual firm's demand curve cannot be determined from the graph above.E) A) and B)
F) None of the above

Question 13

The rate of production that maximizes the positive difference between total revenues and total costs is the

Accepted Answer

A)   profit-maximizing rate of production.
B)   rate of production at which marginal revenue equals marginal product.
C)   rate of production at which marginal revenue equals average revenue.
D)   rate of production at which average revenue equals average total cost.E) All of the above
F) B) and C)

Question 14

-In the above figure, at the profit-maximizing rate of production for the perfectly competitive firm total revenue is

Accepted Answer

A)   $100.
B)   $70.
C)   $30.
D)   $130.E) A) and D)
F) B) and D)

Question 15

"A firm should shut down immediately when it earns zero economic profits." Do you agree or disagree? Explain your answer.

Accepted Answer

Disagree. When a firm earns economic pro...

Question 16

The opportunity cost to society of producing one more unit of the good is

Accepted Answer

A)   average cost.
B)   marginal cost.
C)   efficiency costing.
D)   the optimal cost.E) A) and B)
F) None of the above

Question 17

A firm should continue producing until

Accepted Answer

A)   the cost of producing the output equals the revenues obtainable from selling the output.
B)   the cost of increasing output by one more unit equals the revenues obtainable from selling the extra unit.
C)   average costs are at a minimum.
D)   the average cost when another unit is produced equals the average revenue obtainable from selling the extra unit.E) None of the above
F) A) and B)

Question 18

For a perfectly competitive firm, when MC is less than MR,

Accepted Answer

A)   the producer has an incentive to expand output.
B)   the producer has an incentive to decrease output.
C)   the producer has no incentive to change production.
D)   economic profits must be positive.E) A) and D)
F) C) and D)

Question 19

With marginal cost pricing,

Accepted Answer

A)   marginal benefits are usually less than marginal cost.
B)   all opportunity costs will be covered in the short run.
C)   the price charged is equal to the opportunity cost to society of producing one more unit of the good.
D)   there cannot be any short-run economic profit.E) A) and B)
F) A) and C)

Question 20

"A market is said to be perfectly competitive when consumers can tell that some products are of better quality than others." Do you agree or disagree? Why?

Accepted Answer

Disagree. A market is perfectl...

Exam 23: Perfect Competition

"A market is said to be perfectly competitive when consumers can tell that some products are of better quality than others." Do you agree or disagree? Why?

Correct AnswerverifiedDisagree. A market is perfectl...View AnswerShow Answer

With marginal cost pricing,

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If the long-run supply curve is upward sloping, we know that

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"A firm should shut down immediately when it earns zero economic profits." Do you agree or disagree? Explain your answer.

Correct AnswerverifiedDisagree. When a firm earns economic pro...View AnswerShow Answer

-Refer to the above figure. The figure represents the market demand and supply curves for widgets. What statement can be made about the demand curve for an individual firm in this market?

Correct AnswerverifiedShow Answer

A firm should continue producing until

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Perfectly competitive markets are efficient because

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What is the short-run break-even price? What are economic profits at this price? Why would a firm be willing to operate permanently at this price?

Correct AnswerverifiedThe short-run break-even price is the pr...View AnswerShow Answer

Which of the following conditions is TRUE for a profit-maximizing firm in a perfectly competitive industry?

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An increasing-cost industry will have

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-In the above figure, at the profit-maximizing rate of production for the perfectly competitive firm total revenue is

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If the wage rate increases and firms in a perfectly competitive industry are hiring labor, then

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The rate of production that maximizes the positive difference between total revenues and total costs is the

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In the long run, the price for a perfectly competitive firm

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For a perfectly competitive firm, when MC is less than MR,

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The opportunity cost to society of producing one more unit of the good is

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A perfectly competitive market has

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What is always true about the short-run equilibrium position for a firm in perfect competition?

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Under perfect competition, the firm must decide

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The difference between price and average total cost is

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Disagree. A market is perfectl...
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Disagree. When a firm earns economic pro...
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The short-run break-even price is the pr...
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