Question 1

A constant cost industry is one in which:

Accepted Answer

A)  demand is horizontal.
B)  long-run supply is horizontal.
C)  short-run supply is horizontal.
D)  all of the aboveE) None of the above
F) A) and B)

Question 2

A perfectly competitive firmʹs marginal cost curve above the minimum of the average variable cost curve is its:

Accepted Answer

A)  short-run supply curve.
B)  average cost schedule.
C)  capacity output schedule.
D)  total revenue minus total cost schedule.E) None of the above
F) A) and C)

Question 3

A perfectly competitive industry is in long-run equilibrium. If demand for the product decreases, we can expect:

Accepted Answer

A)  firms to enter the market.
B)  firms to exit the market.
C)  no change in the number of firms in the market.
D)  not enough information to tell what will happen to the number of firms in the marketE) A) and B)
F) None of the above

Question 4

If a profit-maximizing firm in a perfectly competitive market is currently producing the output where price - average variable cost) > average fixed cost, the firm is:

Accepted Answer

A)  making a positive economic profit.
B)  making a zero economic profit.
C)  suffering an economic loss.
D)  none of the aboveE) B) and C)
F) None of the above

Question 5

Figure 6.3
-Figure 6.3 shows the cost structure of a firm in a perfectly competitive market. If the market price is $3 and the firm shuts down in the short run, its profit is:

Accepted Answer

A)  -$300.
B)  -$600.
C)  -$900.
D)  -$1,200.E) C) and D)
F) All of the above

Question 6

Figure 6.3
-Figure 6.3 shows the cost structure of a firm in a perfectly competitive market. If the market price is $3 and the firm produces the output where MR = MC, its profit is:

Accepted Answer

A)  -$300.
B)  -$600.
C)  -$900.
D)  -$1,200.E) None of the above
F) B) and D)

Question 7

If marginal revenue is $8 and marginal costs is $10, the firm should increase its output.

Accepted Answer

A) True 
 B)False

Question 8

Alexʹs Furniture Mart produces and sells tables in a perfectly competitive market. When Alexʹs Furniture Mart produces and sells 250 tables, its marginal cost is equal to $200, and AVC is rising. If the market price of tables is equal to $150, Alexʹs Furniture Mart should:

Accepted Answer

A)  decrease its level of table production.
B)  increase its level of table production.
C)  continue producing 250 tables.
D)  raise the price of its tables.E) B) and C)
F) All of the above

Question 9

Costs increase with output in an increasing-cost industry because:

Accepted Answer

A)  input prices increase as the industry competes for scarce resources.
B)  firms may be forced to use less productive inputs.
C)  the firms become monopolies.
D)  Both A and B are correct.E) All of the above
F) C) and D)

Question 10

-Figure 6.1 shows the cost structure of a firm in a perfectly competitive market. If the firmʹs fixed cost increases by 3,000 due to a new government regulation,

Accepted Answer

A)  the marginal cost curve shifts upward.
B)  the average variable cost curve shifts upward.
C)  the average total cost curve shifts upward.
D)  none of the aboveE) A) and D)
F) A) and C)

Question 11

What is a long-run supply curve?

Accepted Answer

A curve showing the ...

Question 12

Jerryʹs Quarry sells building stone in a perfectly competitive market. At its current level of building stone production, Jerryʹs Quarry has marginal costs equal to $45, and AVC is rising. If the market price of building stone is $50, Jerryʹs Quarry should:

Accepted Answer

A)  decrease its level of building stone production.
B)  continue producing its current level of production.
C)  increase its production of building stone.
D)  shut down and produce no building stone.E) A) and B)
F) B) and D)

Question 13

Recall the Application about costs in the copper mining industry to answer the following question(s) .
-Recall the Application. Which of the following variables is causing copper mines to have increasing costs?

Accepted Answer

A)  The cost of extraction of copper vary across mines.
B)  The purity of the ore extracted differ across mines.
C)  The demand for copper in some mines is higher than in other mines.
D)  A and B are correct.E) B) and D)
F) A) and B)

Question 14

In a constant cost industry, a decrease in price causes:

Accepted Answer

A)  some firms to exit the industry.
B)  quantity supplied to remain constant.
C)  some firms to enter the industry.
D)  price controls.E) A) and B)
F) All of the above

Question 15

Explain why a firmʹs shut-down decision does not incorporate the fixed costs of the production facility.

Accepted Answer

A firmʹs fixed costs are fixed no matter...

Question 16

You notice that the price of butter falls and then rises. The best explanation for this is that:

Accepted Answer

A)  demand for butter increased causing price to fall, which attracted other firms to enter the market causing supply to increase, which caused the price to go back up.
B)  demand for butter decreased causing price to fall, which attracted other firms to enter the market causing supply to increase, which caused the price to go back up.
C)  demand for butter decreased causing price to fall, which induced other firms to exit the market causing supply to decrease, which caused the price to go back up.
D)  demand for butter decreased causing price to fall, which attracted other firms to enter the market causing supply to decrease, which caused the price to go back up.E) None of the above
F) A) and C)

Question 17

Figure 6.2
-Figure 6.2 shows the cost structure of a firm in a perfectly competitive market. If the market price is $10 and the firm chooses the profit maximizing output level, its profit is:

Accepted Answer

A)  $1,000.
B)  $800.
C)  $720.
D)  $200.E) A) and B)
F) A) and C)

Question 18

Which of the following is true for a perfectly competitive market in long-run equilibrium?

Accepted Answer

A)  There is no incentive for new firms to enter the market.
B)  Each firm in the market earns zero economic profit.
C)  There is no incentive for existing firms to leave the market.
D)  All of the above are correct.E) A) and B)
F) None of the above

Question 19

The long-run supply curve is upward sloping in an increasing cost industry.

Accepted Answer

A) True 
 B)False

Question 20

Figure 6.3
-Figure 6.3 shows the cost structure of a firm in a perfectly competitive market. If the market price is $3 and the firm is currently producing 100 units. If the firm produces zero unit in the short run, it will reduce its economic loss by:

Accepted Answer

A)  $300.
B)  $600.
C)  $900.
D)  $1,200.E) B) and D)
F) B) and C)

Exam 6: Perfect Competition

If marginal revenue is $8 and marginal costs is $10, the firm should increase its output.

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If a profit-maximizing firm in a perfectly competitive market is currently producing the output where price - average variable cost) > average fixed cost, the firm is:

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A perfectly competitive industry is in long-run equilibrium. If demand for the product decreases, we can expect:

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-Figure 6.1 shows the cost structure of a firm in a perfectly competitive market. If the firmʹs fixed cost increases by 3,000 due to a new government regulation,

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Figure 6.3 -Figure 6.3 shows the cost structure of a firm in a perfectly competitive market. If the market price is $3 and the firm produces the output where MR = MC, its profit is:

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Costs increase with output in an increasing-cost industry because:

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Explain why a firmʹs shut-down decision does not incorporate the fixed costs of the production facility.

Correct AnswerverifiedA firmʹs fixed costs are fixed no matter...View AnswerShow Answer

Figure 6.3 -Figure 6.3 shows the cost structure of a firm in a perfectly competitive market. If the market price is $3 and the firm shuts down in the short run, its profit is:

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A perfectly competitive firmʹs marginal cost curve above the minimum of the average variable cost curve is its:

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Which of the following is true for a perfectly competitive market in long-run equilibrium?

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A constant cost industry is one in which:

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Alexʹs Furniture Mart produces and sells tables in a perfectly competitive market. When Alexʹs Furniture Mart produces and sells 250 tables, its marginal cost is equal to $200, and AVC is rising. If the market price of tables is equal to $150, Alexʹs Furniture Mart should:

Correct AnswerverifiedShow Answer

Figure 6.2 -Figure 6.2 shows the cost structure of a firm in a perfectly competitive market. If the market price is $10 and the firm chooses the profit maximizing output level, its profit is:

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The long-run supply curve is upward sloping in an increasing cost industry.

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You notice that the price of butter falls and then rises. The best explanation for this is that:

Correct AnswerverifiedShow Answer

Jerryʹs Quarry sells building stone in a perfectly competitive market. At its current level of building stone production, Jerryʹs Quarry has marginal costs equal to $45, and AVC is rising. If the market price of building stone is $50, Jerryʹs Quarry should:

Correct AnswerverifiedShow Answer

Recall the Application about costs in the copper mining industry to answer the following question(s) . -Recall the Application. Which of the following variables is causing copper mines to have increasing costs?

Correct AnswerverifiedShow Answer

In a constant cost industry, a decrease in price causes:

Correct AnswerverifiedShow Answer

What is a long-run supply curve?

Correct AnswerverifiedA curve showing the ...View AnswerShow Answer

Figure 6.3 -Figure 6.3 shows the cost structure of a firm in a perfectly competitive market. If the market price is $3 and the firm is currently producing 100 units. If the firm produces zero unit in the short run, it will reduce its economic loss by:

Correct AnswerverifiedShow Answer

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A firmʹs fixed costs are fixed no matter...
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A curve showing the ...
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