Question 1

Which of the following is NOT a characteristic of perfect competition?

Accepted Answer

A)   There are many buyers and sellers.
B)   Each firm determines the market price of its product.
C)   Products are homogeneous.
D)   Buyers and sellers have equal access to information.E) A) and D)
F) B) and C)

Question 2

If a perfectly competitive firm has economic profits greater than zero, then we know that

Accepted Answer

A)   the firm's industry is not in long-run equilibrium.
B)   the firm's industry is in long-run equilibrium.
C)   the firm is producing at the bottom of the average total cost curve.
D)   the firm will reduce output.E) B) and D)
F) None of the above

Question 3

Which of the following statements is not true for a perfectly competitive firm?

Accepted Answer

A)   A firm's demand curve is horizontal.
B)   The firm can influence its demand curve by advertising its product.
C)   The firm's demand curve is perfectly elastic.
D)   The market demand and supply curves determine the market price.E) All of the above
F) A) and B)

Question 4

If a perfectly competitive firm is producing at an output at which marginal cost exceeds marginal revenue,

Accepted Answer

A)   price will be at the profit maximizing level.
B)   sales will be at the profit maximizing level.
C)   the firm should expand production.
D)   the firm should reduce production.E) A) and B)
F) C) and D)

Question 5

-Using the above figure, the perfectly competitive firm in the diagram will earn an economic profit if the market price is

Accepted Answer

A)    .
B)    .
C)    .
D)    .E) A) and B)
F) C) and D)

Question 6

-In the above figure, if d1 is the relevant demand curve for this firm, then which level of output will maximize this firm's profits or minimize its losses?

Accepted Answer

A)   A
B)   B
C)   C
D)   DE) A) and D)
F) B) and D)

Question 7

Suppose a perfectly competitive firm faces the following short-run cost and revenue conditions: ATC = $12; AVC = $10; MC = $15; MR = $13. The firm should

Accepted Answer

A)   decrease output.
B)   increase output.
C)   increase price.
D)   change nothing.E) All of the above
F) B) and C)

Question 8

When price equals marginal cost

Accepted Answer

A)   firms make zero profits.
B)   firms make positive profits.
C)   the industry is in long-run equilibrium.
D)   the marginal benefits of consuming an extra unit of the good exactly equals the marginal cost to society of producing the good.E) None of the above
F) C) and D)

Question 9

The short-run supply curve for a perfectly competitive firm is the portion of its

Accepted Answer

A)   ATC curve above the MC curve.
B)   MC curve above the ATC curve.
C)   ATC curve below the MC curve.
D)   MC curve above its AVC curve.E) None of the above
F) B) and C)

Question 10

Competitive pricing is efficient because

Accepted Answer

A)   the price that consumers pay reflects the opportunity cost to society of producing the good.
B)   firms make positive economic profits in long-run equilibrium.
C)   average revenue equals average cost.
D)   firms produce above the minimum efficient scale.E) A) and D)
F) None of the above

Question 11

In the long run in a perfectly competitive industry,

Accepted Answer

A)   opportunity costs are negligible.
B)   economic profits will be zero.
C)   some firms will be experiencing economic losses.
D)   only entrepreneurs will earn more than their opportunity costs.E) C) and D)
F) A) and B)

Question 12

A company finds that at its present level of production, MC = AVC at $15, MC = ATC at $20, and MC = MR at $17. Your advice to the firm regarding its short-run operations is

Accepted Answer

A)   to continue production, as it is earning an economic profit of $2 per unit.
B)   to continue production, as it is earning an economic profit of $3 per unit.
C)   to shut down.
D)   to continue production at a loss.E) C) and D)
F) A) and D)

Question 13

If a constant-cost, perfectly competitive industry experiences an increase in the demand for its product, we would expect

Accepted Answer

A)   only the market price of the good to increase.
B)   both the market price and quantity supplied to increase.
C)   decreases in the market price, but increases in quantity supplied.
D)   only the quantity supplied of the product to increase.E) B) and D)
F) A) and B)

Question 14

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) All of the above
F) A) and B)

Question 15

Signals are

Accepted Answer

A)   used by economic decision-makers to inform others about their plans.
B)   the method by which government planners inform economic decision-makers about the types of decisions they should make.
C)   the method by which firms determine their profit maximizing quantity.
D)   compact ways of conveying to economic decision makers information needed to identify industries where more resources are needed.E) All of the above
F) None of the above

Question 16

A firm's total explicit costs are $1,000. Its total implicit costs are $500, and it has a total revenue of $2000. This firm receives

Accepted Answer

A)   an accounting profit only.
B)   an economic profit only.
C)   both an economic profit and an accounting profit.
D)   neither an economic profit nor an accounting profit.E) A) and B)
F) A) and C)

Question 17

The vertical distance between the horizontal axis and any point on a perfect competitor's demand curve measures

Accepted Answer

A)   total cost.
B)   total revenues.
C)   product price, marginal revenue, and average revenue.
D)   supply curve for the product.E) All of the above
F) None of the above

Question 18

Which of the following is NOT a characteristic of perfect competition?

Accepted Answer

A)   Firms are "price takers."
B)   All firms sell identical products.
C)   There are substantial barriers to entry into the industry.
D)   There are many buyers and sellers.E) All of the above
F) B) and C)

Question 19

A constant-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 demand curve in the long run.
D)   an upward sloping supply curve in the long run.E) None of the above
F) A) and D)

Question 20

A firm that has positive economic profits has accounting profits that are

Accepted Answer

A)   zero.
B)   positive.
C)   negative.
D)   indeterminate without more information.E) A) and B)
F) A) and C)

Exam 23: Perfect Competition

When price equals marginal cost

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A firm's total explicit costs are $1,000. Its total implicit costs are $500, and it has a total revenue of $2000. This firm receives

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Suppose a perfectly competitive firm faces the following short-run cost and revenue conditions: ATC = $12; AVC = $10; MC = $15; MR = $13. The firm should

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A company finds that at its present level of production, MC = AVC at $15, MC = ATC at $20, and MC = MR at $17. Your advice to the firm regarding its short-run operations is

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In the long run in a perfectly competitive industry,

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Which of the following is NOT a characteristic of perfect competition?

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The vertical distance between the horizontal axis and any point on a perfect competitor's demand curve measures

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Which of the following is NOT a characteristic of perfect competition?

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Which of the following statements is not true for a perfectly competitive firm?

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A firm that has positive economic profits has accounting profits that are

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-Using the above figure, the perfectly competitive firm in the diagram will earn an economic profit if the market price is

Correct AnswerverifiedShow Answer

The short-run supply curve for a perfectly competitive firm is the portion of its

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If a perfectly competitive firm has economic profits greater than zero, then we know that

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Signals are

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Competitive pricing is efficient because

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-In the above figure, if d1 is the relevant demand curve for this firm, then which level of output will maximize this firm's profits or minimize its losses?

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A constant-cost industry will have

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If a constant-cost, perfectly competitive industry experiences an increase in the demand for its product, we would expect

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When a firm has economic profits equal to zero,

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If a perfectly competitive firm is producing at an output at which marginal cost exceeds marginal revenue,

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