Question 1

Assume a perfectly competitive firm sells its output for $150 per unit.At its current 2,000 units of output, marginal cost is $140 and increasing, and average variable cost is $143.Assuming it wants to maximize its profits, it should:

Accepted Answer

A)  increase output.
B)  decrease output, but not shut down.
C)  maintain its current output rate.
D)  shut down.
E)  There is not enough information to determine what the firm should do.F) A) and C)
G) A) and B) D

Question 2

Which of the following is true about perfect competition?

Accepted Answer

A)  Since a perfectly competitive seller can sell all he wants at the market price, her demand curve is horizontal at the market price over the entire range of output that she could possibly produce.
B)  Because perfectly competitive markets have many buyers and sellers, each firm is so small in relation to the industry that its production decisions have no impact on the market.
C)  Because consumers believe that all firms in a perfectly competitive market sell identical (homogeneous)  products, the products of all the firms are perfect substitutes.
D)  Perfectly competitive markets have easy entry and exit.
E)  All of the above are true about perfect competition.F) B) and D)
G) D) and E)

Question 3

At the level of output where marginal revenue equals marginal cost, price is less than average total cost but greater than average variable cost.In this instance, a profit-maximizing firm should:

Accepted Answer

A)  cease production as it is incurring an economic loss.
B)  continue operating at that output level in the short term, since total revenue will cover all of the firm's variable costs and some of its fixed costs.
C)  continue operating at that output level in the short term, since total revenue will cover all of the firm's fixed costs and a portion of its variable costs.
D)  decrease output to where marginal revenue exceeds marginal cost by the greatest dollar amount.
E)  increase the production of output.F) C) and D)
G) All of the above

Question 4

In order to maximize profits, a firm should produce the level of output at which total revenue is maximized.

Accepted Answer

A) True 
 B)False

Question 5

If input prices rise as industry output expands, then a perfectly competitive firm's marginal cost and average cost curves will:

Accepted Answer

A)  shift upward.
B)  shift downward.
C)  not shift. As the firm increases production, however, costs increase as the firm moves upward to the right along these curves.
D)  not shift. As the firm increases production, however, costs decrease as the firm moves downward to the left along these curves.E) A) and C)
F) A) and B)

Question 6

Assume that all of the inputs used in a particular perfectly competitive industry can be increased without bidding up their prices.The long run supply curve for that industry will be:

Accepted Answer

A)  vertical.
B)  upward sloping.
C)  horizontal.
D)  downward sloping.E) B) and D)
F) B) and C) C

Question 7

Which market structure is characterized by many sellers, easy entry, and homogeneous products?

Accepted Answer

A)  perfect competition
B)  monopolistic competition
C)  oligopoly
D)  monopoly
E)  none of the aboveF) B) and D)
G) B) and C)

Question 8

Which of the following is a characteristic of perfect competition?

Accepted Answer

A)  substantial barriers to entry
B)  homogeneous products
C)  few sellers
D)  each firm has significant control over the market
E)  none of the aboveF) B) and C)
G) B) and D)

Question 9

A firm facing a horizontal demand curve:

Accepted Answer

A)  cannot affect the price it receives for its output.
B)  is unlikely to price its goods below market price.
C)  faces a perfectly elastic demand curve for its product.
D)  is characterized by all of the above.E) A) and B)
F) C) and D)

Question 10

In a perfectly competitive market, producers efficiently use their scarce resources to produce what consumers want, in order to achieve:

Accepted Answer

A)  productive efficiency.
B)  allocative efficiency.
C)  economic efficiency.
D)  constant returns of scale.E) A) and B)
F) A) and C)

Question 11

Beginning from a long run equilibrium in a competitive industry, if there is a substantial, permanent increase in demand for industry output:

Accepted Answer

A)  firms will enter the industry, the quantity produced will rise, and prices will end up lower than their initial long run equilibrium level.
B)  firms will enter the industry, the quantity produced will rise, and prices will end up higher than their initial long run equilibrium level.
C)  firms will enter the industry, the quantity produced will rise, and prices will end up at the same level as their initial long run equilibrium level.
D)  firms will enter the industry, the quantity produced will rise, and but without more information, we cannot know if prices will end up higher than their initial long run equilibrium level.E) B) and C)
F) A) and D)

Question 12

In the long run, a perfectly competitive firm is expected to generate either an economic profit or an economic loss.

Accepted Answer

A) True 
 B)False

Question 13

In long-run equilibrium, the perfectly competitive firm produces:

Accepted Answer

A)  where P = MC = AC.
B)  at the lowest point on its long-run average cost curve.
C)  where its long-run average cost curve is tangent to its horizontal demand curve.
D)  at a level of output such that all of the above are true.E) A) and B)
F) B) and D)

Question 14

Figure 7-F
The figure shows the price, marginal cost, and average cost curves of a perfectly competitive firm. 
-Refer to Figure 7-F.What is the profit earned each day by a profit-maximizing (loss-minimizing)  firm?

Accepted Answer

A)  $0
B)  -$50
C)  -$150
D)  -$200
E)  +$50F) B) and D)
G) A) and B)

Question 15

A profit-maximizing firm in a perfectly competitive market will always produce a quantity of output that:

Accepted Answer

A)  minimizes the per-unit cost of production.
B)  is expected to maximize total revenue.
C)  maximizes the amount by which total revenue exceeds total cost.
D)  brings average total cost and price into equality.E) A) and B)
F) A) and C)

Question 16

If the long-run industry supply curve in a perfectly competitive market is horizontal, then very likely input prices will ____ as industry output expands.

Accepted Answer

A)  increase
B)  decrease
C)  remain constant
D)  first increase and then decrease
E)  None of the above.F) A) and E)
G) B) and C)

Question 17

Figure 7-E 1Bq. B) OqAP. C) OP1Bq D) PAB P1." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 7-E.What would be the area of total cost if the firm maximized profits/minimized losses?

Accepted Answer

A)  OP1Bq.
B)  OqAP.
C)  OP1Bq
D)  PAB P1.E) None of the above
F) A) and D) C

Question 18

Assume you know the following short run information for a perfectly competitive firm:  Quantity67891011Price10 Total  Marginal  Revenue  Revenue TotalCost3051627590 Marginal  Total  Cost  Profil 303542\begin{array}{c}\begin{array}{lll}	ext {Quantity}\\6 \7 \8 \9 \10 \11 \end{array}\begin{array}{lll}	ext {Price}\\10\\\\\\ \end{array}\begin{array}{cc}	ext { Total } & 	ext { Marginal } \	ext { Revenue } & 	ext { Revenue }\\\\\\\\end{array}\begin{array}{lll}	ext {Total}\	ext {Cost}\30\\51\62 \75\90 \end{array}\begin{array}{cc}	ext { Marginal } & 	ext { Total } \	ext { Cost } & 	ext { Profil } \& 30 \& 35 \& 42\\\\ \end{array}\end{array}Quantity67891011​Price10​ Total  Revenue ​ Marginal  Revenue TotalCost3051627590​ Marginal  Cost ​ Total  Profil 303542​​ 
 Based on the information above, which of the following is true?

Accepted Answer

A)  The marginal revenue for the 12th unit of output will be less than $10.
B)  The firm would earn higher profits if it produced 10 units than if it produced 9 units.
C)  The profit from producing 12 units of output will be the same as for producing 6 units of output.
D)  Fixed costs for the firm are $30.
E)  None of the above is true. F) None of the above
G) B) and D)

Question 19

Which of the following is a characteristic of perfect competition?

Accepted Answer

A)  zero barriers to entry
B)  homogeneous products
C)  many sellers
D)  many buyers
E)  all of the aboveF) All of the above
G) B) and D)

Question 20

Table 7-B
The long-run total cost schedule of a perfectly competitive firm that produces walnuts is as follows:
   Pounds of1,0002,0003,0004,0005,0006,000 Walnuts  Total Cost$3,000$5,500$7,500$8,000$11,000$15,000\begin{array}{llcc}  	ext {  Pounds of} & 1,000&2,000&3,000&4,000&5,000&6,000 \ 	ext {  Walnuts } &\ 	ext {   Total Cost} &\$3,000&\$5,500&\$7,500&\$8,000&\$11,000&\$15,000\\end{array} Pounds of Walnuts  Total Cost​1,000$3,000​2,000$5,500​3,000$7,500​4,000$8,000​5,000$11,000​6,000$15,000​

-Refer to Table 7-B.The average total cost of producing 2,000 pounds of walnuts in the long run is:

Accepted Answer

A)  $2.00
B)  $2.20.
C)  $2.50.
D)  $2.75.
E)  $3.00 F) D) and E)
G) C) and E)

Exam 7: Firms in Competitive Markets

Assume a perfectly competitive firm sells its output for $150 per unit.At its current 2,000 units of output, marginal cost is $140 and increasing, and average variable cost is $143.Assuming it wants to maximize its profits, it should:

Correct Answer
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D

Which of the following is true about perfect competition?

Correct Answer
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At the level of output where marginal revenue equals marginal cost, price is less than average total cost but greater than average variable cost.In this instance, a profit-maximizing firm should:

Correct Answer
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In order to maximize profits, a firm should produce the level of output at which total revenue is maximized.

Correct Answer
verified

If input prices rise as industry output expands, then a perfectly competitive firm's marginal cost and average cost curves will:

Correct Answer
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Assume that all of the inputs used in a particular perfectly competitive industry can be increased without bidding up their prices.The long run supply curve for that industry will be:

Correct Answer
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C

Which market structure is characterized by many sellers, easy entry, and homogeneous products?

Correct Answer
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Which of the following is a characteristic of perfect competition?

Correct Answer
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A firm facing a horizontal demand curve:

Correct Answer
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In a perfectly competitive market, producers efficiently use their scarce resources to produce what consumers want, in order to achieve:

Correct Answer
verified

Beginning from a long run equilibrium in a competitive industry, if there is a substantial, permanent increase in demand for industry output:

Correct Answer
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In the long run, a perfectly competitive firm is expected to generate either an economic profit or an economic loss.

Correct Answer
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In long-run equilibrium, the perfectly competitive firm produces:

Correct Answer
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Figure 7-F The figure shows the price, marginal cost, and average cost curves of a perfectly competitive firm. -Refer to Figure 7-F.What is the profit earned each day by a profit-maximizing (loss-minimizing) firm?

Correct Answer
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A profit-maximizing firm in a perfectly competitive market will always produce a quantity of output that:

Correct Answer
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If the long-run industry supply curve in a perfectly competitive market is horizontal, then very likely input prices will ____ as industry output expands.

Correct Answer
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Figure 7-E -Refer to Figure 7-E.What would be the area of total cost if the firm maximized profits/minimized losses?

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C

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Which of the following is a characteristic of perfect competition?

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Exam 7: Firms in Competitive Markets

Assume a perfectly competitive firm sells its output for $150 per unit.At its current 2,000 units of output, marginal cost is $140 and increasing, and average variable cost is $143.Assuming it wants to maximize its profits, it should:

Correct AnswerverifiedD

Which of the following is true about perfect competition?

Correct AnswerverifiedShow Answer

At the level of output where marginal revenue equals marginal cost, price is less than average total cost but greater than average variable cost.In this instance, a profit-maximizing firm should:

Correct AnswerverifiedShow Answer

In order to maximize profits, a firm should produce the level of output at which total revenue is maximized.

Correct AnswerverifiedShow Answer

If input prices rise as industry output expands, then a perfectly competitive firm's marginal cost and average cost curves will:

Correct AnswerverifiedShow Answer

Assume that all of the inputs used in a particular perfectly competitive industry can be increased without bidding up their prices.The long run supply curve for that industry will be:

Correct AnswerverifiedC

Which market structure is characterized by many sellers, easy entry, and homogeneous products?

Correct AnswerverifiedShow Answer

Which of the following is a characteristic of perfect competition?

Correct AnswerverifiedShow Answer

A firm facing a horizontal demand curve:

Correct AnswerverifiedShow Answer

In a perfectly competitive market, producers efficiently use their scarce resources to produce what consumers want, in order to achieve:

Correct AnswerverifiedShow Answer

Beginning from a long run equilibrium in a competitive industry, if there is a substantial, permanent increase in demand for industry output:

Correct AnswerverifiedShow Answer

In the long run, a perfectly competitive firm is expected to generate either an economic profit or an economic loss.

Correct AnswerverifiedShow Answer

In long-run equilibrium, the perfectly competitive firm produces:

Correct AnswerverifiedShow Answer

Figure 7-F The figure shows the price, marginal cost, and average cost curves of a perfectly competitive firm. -Refer to Figure 7-F.What is the profit earned each day by a profit-maximizing (loss-minimizing) firm?

Correct AnswerverifiedShow Answer

A profit-maximizing firm in a perfectly competitive market will always produce a quantity of output that:

Correct AnswerverifiedShow Answer

If the long-run industry supply curve in a perfectly competitive market is horizontal, then very likely input prices will ____ as industry output expands.

Correct AnswerverifiedShow Answer

Figure 7-E -Refer to Figure 7-E.What would be the area of total cost if the firm maximized profits/minimized losses?

Correct AnswerverifiedC

Correct AnswerverifiedShow Answer

Which of the following is a characteristic of perfect competition?

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D

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C

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C

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