Question 1

A constant-cost industry is one in which

Accepted Answer

A)  output increases lead to productivity gains.
B)  the marginal product of labor is constant.
C)  there is no change in long-run per-unit costs, even as output varies.
D)  each firm has a horizontal long-run average cost curve.E) A) and D)
F) B) and C)

Question 2

For a firm in a perfectly competitive industry

Accepted Answer

A)  the demand curve is unitary elastic throughout.
B)  marginal revenue and product price are equal at every level of output.
C)  the price elasticity of demand is zero.
D)  more output can be sold only if the firm unilaterally lowers its product price.E) B) and D)
F) B) and C)

Question 3

Economic efficiency means

Accepted Answer

A)  the same as technical efficiency.
B)  that all firms within a single competitive industry are producing at the same level of output.
C)  that it is impossible to increase the output of any good without lowering the total value of the output of the economy.
D)  that high-tech methods of production are the most efficient.E) B) and C)
F) A) and B)

Question 4

-Refer to the above table. If the price is $6 the maximum profit this firm could earn is

Accepted Answer

A)  $210.
B)  $414.
C)  $420.
D)  $630.E) C) and D)
F) All of the above

Question 5

A market failure is a situation in which

Accepted Answer

A)  resources are being efficiently allocated, but some companies are forced to shut down.
B)  the market equilibrium leads to either too many or too few resources going towards producing the good or service.
C)  the government must take actions to correct the failures of the market in a particular industry.
D)  there is no free entry or exit into an industry.E) A) and C)
F) A) and B)

Question 6

-Refer to the above figure. The firm will just be covering all of its variable cost but none of its fixed cost

Accepted Answer

A)  when the price equals $1.
B)  when the price equals $2.
C)  when the price equals $4.
D)  at prices between $1 and $2.E) A) and B)
F) C) and D)

Question 7

In a perfectly competitive industry

Accepted Answer

A)  each firm is a price maker.
B)  no buyer or seller can influence the market price.
C)  there is apt to be a shortage of sellers of output.
D)  firms can never make an economic profit.E) A) and C)
F) A) and D)

Question 8

Which of the following statements about the perfect competitor is INCORRECT?

Accepted Answer

A)  The perfectly competitive firm is always a price taker.
B)  The perfect competitor sells a homogeneous commodity.
C)  If an individual firm raises price, it will lose business.
D)  The products made by a perfectly competitive firm have no close substitutes.E) None of the above
F) All of the above

Question 9

Why should a perfect competitor produce at which price equals marginal cost?

Accepted Answer

For a perfect competitor, its market pri...

Question 10

The profit-maximizing level of output for a firm occurs at the point at which

Accepted Answer

A)  P = ATC.
B)  P = AVC.
C)  MR = MC.
D)  MR = ATC.E) A) and B)
F) B) and C)

Question 11

-Refer to the above table. If the price is $3, the perfectly competitive firm should produce

Accepted Answer

A)  102 units.
B)  105 units.
C)  103 units.
D)  104 units.E) A) and B)
F) None of the above

Question 12

The demand curve faced by a perfectly competitive industry

Accepted Answer

A)  slopes upward.
B)  slopes downward.
C)  has no slope.
D)  is perfectly inelastic.E) A) and B)
F) B) and D)

Question 13

A firm is currently producing an output at which price equals the minimum point on the average variable cost curve. If wage rates increase, the firm will

Accepted Answer

A)  increase its rate of output to make up for the higher variable costs.
B)  shut down since it would no longer be covering its variable costs.
C)  decrease its rate of output to offset the higher variable costs.
D)  not make any changes since its current rate of output is still minimizing its losses.E) None of the above
F) B) and D)

Question 14

A perfectly elastic demand function

Accepted Answer

A)  shows that a consumer is willing to pay any amount for the product.
B)  is characteristic of an individual firm operating in a perfectly competitive market.
C)  shows that the individual firm can increase sales by lowering the price of output.
D)  has a marginal revenue that is always decreasing.E) A) and C)
F) A) and D)

Question 15

-A perfectly competitive firm's short-run break-even output occurs

Accepted Answer

A)  at the minimum point of its average variable cost curve.
B)  at the minimum point of its average total cost curve.
C)  at the minimum point of its marginal cost curve.
D)  at the intersection of its total cost curve and its marginal revenue curve.E) All of the above
F) B) and D)

Question 16

When a firm has economic profits equal to zero,

Accepted Answer

A)  the firm is earning a normal rate of return on investment.
B)  the firm is not earning a normal rate of return on investment.
C)  the firm should shut down.
D)  the firm's accounting profits are also zero.E) A) and D)
F) C) and D)

Question 17

An increase in the productivity of labor causes

Accepted Answer

A)  quantity supplied by each firm in a competitive industry to decrease.
B)  supply in a competitive industry to increase.
C)  the market price to increase in a competitive industry.
D)  the firm's supply curve to shift but has no effect on the industry supply curve.E) None of the above
F) A) and D)

Question 18

Economic profits and losses are true market signals because they

Accepted Answer

A)  convey information in an asymmetrical fashion.
B)  convey information about rewards people should anticipate experiencing by shifting resources from one activity to another.
C)  convey information to public officials about where to encourage people to invest and what skills people should develop.
D)  cause people to move into careers in both undesirable and desirable industries with equal ease.E) A) and B)
F) A) and C)

Question 19

The owner of a perfectly competitive firm that is earning economic losses in the short run

Accepted Answer

A)  should alter the rate of output in order to increase profitability.
B)  should cut his own salary in order to reach the break-even point.
C)  is actually losing more than he thinks because not all of the implicit costs have been considered.
D)  is earning less than he would if he worked for someone else.E) All of the above
F) A) and B)

Question 20

Which of the following is closest to a perfectly competitive market?

Accepted Answer

A)  the pizza market
B)  the market for breakfast cereal
C)  the market for corn
D)  the market for automobilesE) None of the above
F) A) and B)

Exam 23: Perfect Competition

Which of the following statements about the perfect competitor is INCORRECT?

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A firm is currently producing an output at which price equals the minimum point on the average variable cost curve. If wage rates increase, the firm will

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Economic profits and losses are true market signals because they

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In a perfectly competitive industry

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-A perfectly competitive firm's short-run break-even output occurs

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Why should a perfect competitor produce at which price equals marginal cost?

Correct AnswerverifiedFor a perfect competitor, its market pri...View AnswerShow Answer

-Refer to the above figure. The firm will just be covering all of its variable cost but none of its fixed cost

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-Refer to the above table. If the price is $6 the maximum profit this firm could earn is

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-Refer to the above table. If the price is $3, the perfectly competitive firm should produce

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A constant-cost industry is one in which

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Which of the following is closest to a perfectly competitive market?

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A perfectly elastic demand function

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The demand curve faced by a perfectly competitive industry

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Economic efficiency means

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When a firm has economic profits equal to zero,

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A market failure is a situation in which

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The owner of a perfectly competitive firm that is earning economic losses in the short run

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The profit-maximizing level of output for a firm occurs at the point at which

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For a firm in a perfectly competitive industry

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An increase in the productivity of labor causes

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For a perfect competitor, its market pri...
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