Question 1

In long-run competitive equilibrium, no firm has an incentive to change its plant size.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following statements is true?

Accepted Answer

A)  A perfectly competitive firm that seeks to maximize profits will not be resource-allocative efficient.
B)  If the demand curve and the marginal revenue curve weren't the same curve for a perfectly competitive firm, then the firm would not be resource-allocative efficient.
C)  Resource allocative efficiency exists when a firm produces its output at the lowest possible per unit cost (lowest AT
C)  .
D)  Productive efficiency exists when firms produce the quantity of output at which price equals marginal cost.

Question 3

When a perfectly competitive firm incurs losses, it follows that price

Accepted Answer

A)  must be below average total cost.
B)  must be below average variable cost.
C)  is less than marginal cost.
D)  is less than marginal revenue.

Question 4

Is it possible for a perfectly competitive firm to be maximizing profits, but not achieving resource allocative efficiency?

Accepted Answer

A)  Definitely yes, because it is impossible to achieve both at the same time.
B)  Yes, it is possible, but it is not possible to minimize losses without also achieving resource allocative efficiency.
C)  No, it is not possible, because the output at which MR = MC is also the output at which P = MC.
D)  There is not enough information to answer this question.

Question 5

In the theory of perfect competition, the assumption of easy entry into and exit from the market implies

Accepted Answer

A)  positive economic profits in the long run.
B)  losses in the long-run equilibrium.
C)  zero economic profits in the long run.
D)  zero economic profits in both the short run and the long run.
E)  positive economic profits in both the short run and the long run.

Question 6

Perfectly competitive industries are

Accepted Answer

A)  difficult to enter because there are already so many producers in the industry.
B)  not particularly appealing or attractive to enter because there tend to be so many buyers that it is difficult to deal with them.
C)  relatively easy to enter but not so easy to exit from.
D)  relatively easy to enter or exit.

Question 7

A decreasing-cost industry is characterized by

Accepted Answer

A)  an upward-sloping long-run supply curve.
B)  a downward-sloping long-run supply curve.
C)  a perfectly elastic long-run supply curve.
D)  perfectly elastic short-run and long-run supply curves.
E)  a perfectly elastic short-run supply curve and an upward-sloping long-run supply curve.

Question 8

List and describe the four assumptions that underlie the theory of perfect competition.

Accepted Answer

1)There are many sellers and buyers, eac...

Question 9

Exhibit 22-10  Refer to Exhibit 22-10.  Is it possible for this firm to produce "too much" output (in terms of profitability) ?

Accepted Answer

A)  Yes, any quantity above 5 units is too much output.
B)  Yes, any quantity above 6 units is too much output.
C)  Yes, any quantity above 7 units is too much output.
D)  No, it is not possible for this firm to produce too much output.

Question 10

In the short run, the best policy for a perfectly competitive firm is to

Accepted Answer

A)  shut down its operation if price ever falls below average total cost.
B)  produce and sell its product as long as price is greater than average variable cost.
C)  shut down its operation if price falls between average total cost and average variable cost.
D)  shut down its operation any time that marginal revenue is less than marginal cost.

Question 11

In the theory of perfect competition, the market demand curve is __________ and the firm faces a demand curve that is __________.

Accepted Answer

A)  perfectly elastic; perfectly elastic
B)  downward sloping; downward sloping
C)  perfectly elastic; downward sloping
D)  downward sloping; perfectly elastic
E)  perfectly inelastic; downward sloping

Question 12

Exhibit 22-4 ​
1 and the firm produces Q1. At this level of output, average variable cost and average total cost are indicated by the dots. Given this situation, the firm is A) receiving a profit equal to area 3. B) taking a loss equal to area 2 + area 3. C) earning total revenue equal to area 1 +  area 2. D) receiving a profit equal to area 2." class="answers-bank-image d-inline" rel="preload" >
Refer to Exhibit 22-4. The market equilibrium price is P1 and the firm produces Q1. At this level of output, average variable cost and average total cost are indicated by the dots. Given this situation, the firm is

Accepted Answer

A)  receiving a profit equal to area 3.
B)  taking a loss equal to area 2 + area 3.
C)  earning total revenue equal to area 1 +  area 2.
D)  receiving a profit equal to area 2.

Question 13

For a perfectly competitive firm, if price is greater than average variable cost at the profit-maximizing (or loss-minimizing) level of output, then it follows that

Accepted Answer

A)  total revenue is greater than total cost.
B)  total revenue is greater than total variable cost.
C)  the firm will benefit from shutting down in the short run.
D)  total revenue is greater than total fixed cost.

Question 14

A perfectly-competitive firm produces 2,000 units of a good during some period of time. For the 2,000th unit, marginal cost is equal to marginal revenue. The difference between marginal revenue and marginal cost is greater for the first unit the firm produces than the second, and greater for the second than the third, and so on. Furthermore, marginal revenue is greater than marginal cost for every unit from the first to the 1,999th. It follows that the

Accepted Answer

A)  marginal cost curve for the firm has a downward-sloping portion and an upward-sloping portion.
B)  marginal cost curve for the firm is downward-sloping.
C)  marginal cost curve for the firm is upward-sloping.
D)  marginal revenue curve is downward-sloping.

Question 15

If firms are earning zero economic profits, they must be producing at an output level at which

Accepted Answer

A)  price equals marginal cost.
B)  price equals average total cost.
C)  price equals average variable cost.
D)  marginal revenue equals marginal cost.

Question 16

Exhibit 22-8 ​

Refer to Exhibit 22-8. What is the total variable cost of firm B at the profit-maximizing (or loss-minimizing) level of production?

Accepted Answer

A)  $6
B)  $750
C)  $1,650
D)  $900

Question 17

When the government imposes taxes on firms that are earning high profits, there could be an unintended effect of reducing the supply of goods in that market compared to what the supply would be if the profits were not taxed.

Accepted Answer

A) True 
 B)False

Question 18

Exhibit 22-8 ​

Refer to Exhibit 22-8. What is the total fixed cost of firm A at the profit-maximizing (or loss-minimizing) level of output?

Accepted Answer

A)  $3
B)  $300
C)  $90
D)  $400
E)  There is not enough information provided to answer this question.

Question 19

A perfectly competitive firm that wants to maximize profits or minimize losses will produce in the short run as long as

Accepted Answer

A)  customers are buying its product.
B)  price is above average variable cost.
C)  price is above marginal revenue.
D)  average variable cost is above price.
E)  average total cost is above price.

Question 20

Equilibrium price is $25 in a perfectly competitive market. For a perfectly competitive firm, MR = MC at 2,000 units of output. At 2,000 units, ATC is $33, and AVC is $27. The best policy for this firm is to __________ in the short run. Also, total fixed cost equals __________ and total variable cost equals __________ for this firm.

Accepted Answer

A)  continue to produce; $12,000; $54,000
B)  shut down; $12,000; $54,000
C)  shut down; $66,000; $54,000
D)  continue to produce; $150; $1,500
E)  There is not enough information to answer all parts of the question.

Exam 9: Perfect Competition

A decreasing-cost industry is characterized by

Correct Answer
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Which of the following statements is true?

Correct Answer
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In the theory of perfect competition, the market demand curve is and the firm faces a demand curve that is .

Correct Answer
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List and describe the four assumptions that underlie the theory of perfect competition.

Correct Answer
verified
1)There are many sellers and buyers, eac...
View Answer

A perfectly competitive firm that wants to maximize profits or minimize losses will produce in the short run as long as

Correct Answer
verified

Exhibit 22-8 Refer to Exhibit 22-8. What is the total variable cost of firm B at the profit-maximizing (or loss-minimizing) level of production?

Correct Answer
verified

When a perfectly competitive firm incurs losses, it follows that price

Correct Answer
verified

Exhibit 22-4 Refer to Exhibit 22-4. The market equilibrium price is P₁ and the firm produces Q₁. At this level of output, average variable cost and average total cost are indicated by the dots. Given this situation, the firm is

Correct Answer
verified

Perfectly competitive industries are

Correct Answer
verified

Exhibit 22-8 Refer to Exhibit 22-8. What is the total fixed cost of firm A at the profit-maximizing (or loss-minimizing) level of output?

Correct Answer
verified

For a perfectly competitive firm, if price is greater than average variable cost at the profit-maximizing (or loss-minimizing) level of output, then it follows that

Correct Answer
verified

Correct Answer
verified

In long-run competitive equilibrium, no firm has an incentive to change its plant size.

Correct Answer
verified

Is it possible for a perfectly competitive firm to be maximizing profits, but not achieving resource allocative efficiency?

Correct Answer
verified

When the government imposes taxes on firms that are earning high profits, there could be an unintended effect of reducing the supply of goods in that market compared to what the supply would be if the profits were not taxed.

Correct Answer
verified

In the theory of perfect competition, the assumption of easy entry into and exit from the market implies

Correct Answer
verified

Exhibit 22-10 Refer to Exhibit 22-10. Is it possible for this firm to produce "too much" output (in terms of profitability) ?

Correct Answer
verified

Correct Answer
verified

If firms are earning zero economic profits, they must be producing at an output level at which

Correct Answer
verified

In the short run, the best policy for a perfectly competitive firm is to

Correct Answer
verified

Exam 9: Perfect Competition

A decreasing-cost industry is characterized by

Correct AnswerverifiedShow Answer

Which of the following statements is true?

Correct AnswerverifiedShow Answer

In the theory of perfect competition, the market demand curve is __________ and the firm faces a demand curve that is __________.

Correct AnswerverifiedShow Answer

List and describe the four assumptions that underlie the theory of perfect competition.

Correct Answerverified1)There are many sellers and buyers, eac...View AnswerShow Answer

A perfectly competitive firm that wants to maximize profits or minimize losses will produce in the short run as long as

Correct AnswerverifiedShow Answer

Exhibit 22-8 ​ Refer to Exhibit 22-8. What is the total variable cost of firm B at the profit-maximizing (or loss-minimizing) level of production?

Correct AnswerverifiedShow Answer

When a perfectly competitive firm incurs losses, it follows that price

Correct AnswerverifiedShow Answer

Exhibit 22-4 ​ Refer to Exhibit 22-4. The market equilibrium price is P1 and the firm produces Q1. At this level of output, average variable cost and average total cost are indicated by the dots. Given this situation, the firm is

Correct AnswerverifiedShow Answer

Perfectly competitive industries are

Correct AnswerverifiedShow Answer

Exhibit 22-8 ​ Refer to Exhibit 22-8. What is the total fixed cost of firm A at the profit-maximizing (or loss-minimizing) level of output?

Correct AnswerverifiedShow Answer

For a perfectly competitive firm, if price is greater than average variable cost at the profit-maximizing (or loss-minimizing) level of output, then it follows that

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In long-run competitive equilibrium, no firm has an incentive to change its plant size.

Correct AnswerverifiedShow Answer

Is it possible for a perfectly competitive firm to be maximizing profits, but not achieving resource allocative efficiency?

Correct AnswerverifiedShow Answer

When the government imposes taxes on firms that are earning high profits, there could be an unintended effect of reducing the supply of goods in that market compared to what the supply would be if the profits were not taxed.

Correct AnswerverifiedShow Answer

In the theory of perfect competition, the assumption of easy entry into and exit from the market implies

Correct AnswerverifiedShow Answer

Exhibit 22-10 Refer to Exhibit 22-10. Is it possible for this firm to produce "too much" output (in terms of profitability) ?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If firms are earning zero economic profits, they must be producing at an output level at which

Correct AnswerverifiedShow Answer

In the short run, the best policy for a perfectly competitive firm is to

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

In the theory of perfect competition, the market demand curve is and the firm faces a demand curve that is .

Correct Answer
verified

Correct Answer
verified
1)There are many sellers and buyers, eac...
View Answer

Correct Answer
verified

Exhibit 22-8 Refer to Exhibit 22-8. What is the total variable cost of firm B at the profit-maximizing (or loss-minimizing) level of production?

Correct Answer
verified

Correct Answer
verified

Exhibit 22-4 Refer to Exhibit 22-4. The market equilibrium price is P₁ and the firm produces Q₁. At this level of output, average variable cost and average total cost are indicated by the dots. Given this situation, the firm is

Correct Answer
verified

Correct Answer
verified

Exhibit 22-8 Refer to Exhibit 22-8. What is the total fixed cost of firm A at the profit-maximizing (or loss-minimizing) level of output?

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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