Question 1

Which of the following is not true in the long run under perfect competition?

Accepted Answer

A)   There is no incentive for firms to enter or exit the industry.
B)   Economic profit is zero.
C)   Long-run marginal cost is minimized.
D)   Long-run average total cost is minimized.

Question 2

A firm that is earning zero economic profits has a strong incentive to exit the industry.

Accepted Answer

A) True 
 B)False

Question 3

Exhibit 12-9 0 to P1. D)  There has been a change in quantity supplied from Q0 to Q1." class="answers-bank-image d-inline" rel="preload" > Refer to Exhibit 12-9.Using Graph C,which of the following statements is not true?

Accepted Answer

A)   There has been an increase in demand in the market.
B)   There has been an increase in supply in the market.
C)   The equilibrium price in the market has increased from P0 to P1.
D)   There has been a change in quantity supplied from Q0 to Q1.

Question 4

Exhibit 12-6  Refer to Exhibit 12-6.If P represents the market price for a price-taking firm,the best course of action in the short run for the firm is to:

Accepted Answer

A)   shut down immediately.
B)   continue operating because average total cost exceeds price.
C)   continue operating because price exceeds average total cost.
D)   continue operating because price exceeds average variable cost.

Question 5

Exhibit 12-5  Refer to Exhibit 12-5.A profit-maximizing firm in a perfectly competitive industry will produce ____ units of output if the market price equals $45.

Accepted Answer

A)   800
B)   650
C)   450
D)   200

Question 6

Marginal revenue is:

Accepted Answer

A)   the additional cost incurred from producing one more unit of output.
B)   the addition to total profit from selling one more unit of output.
C)   the addition to total revenue from selling one more unit of output.
D)   the addition to total output from hiring one more unit of labor.

Question 7

Toys for Toddlers,Inc.,sells in a perfectly competitive market,with an equilibrium price of $5.Its marginal revenue:

Accepted Answer

A)   is greater than $5.
B)   is $5.
C)   is less than $5.
D)   is less than zero.

Question 8

Which of the following best resembles a perfectly competitive market?

Accepted Answer

A)   a stock market
B)   the book publishing industry
C)   the steel industry
D)   the used car industry

Question 9

If a perfectly competitive firm's marginal revenue was less than its marginal cost,

Accepted Answer

A)   it would raise its price in order to increase its profits.
B)   it would contract its output but not raise its price in order to increase its profits.
C)   it is currently earning economic losses.
D)   both (a)  and (c)  are true.

Question 10

Which of the following is true of perfectly competitive firms?

Accepted Answer

A)   It is difficult for entrepreneurs to become suppliers of a product in a perfectly competitive market structure.
B)   A perfectly competitive firm has a perfectly elastic supply curve.
C)   In a perfectly competitive market, an individual seller can change his price and it will not alter the output he sells.
D)   None of the above are true.

Question 11

If a perfectly competitive firm is operating in the short run and seeks to maximize profit,the firm should:

Accepted Answer

A)   increase output whenever marginal cost is less than average total cost.
B)   increase output whenever marginal revenue is less than marginal cost.
C)   choose the output where per-unit profit is greatest.
D)   increase output whenever price exceeds marginal cost.

Question 12

It is relatively easy for firms to enter and exit a perfectly competitive market.

Accepted Answer

A) True 
 B)False

Question 13

If the perfectly competitive wiffle ball industry is bearing economic losses,we would expect that:

Accepted Answer

A)   output will increase, the price of wiffle balls will rise, and the economic losses would tend to disappear.
B)   output will decrease, the price of wiffle balls will fall, and the economic losses would tend to increase.
C)   output will decrease, the price of wiffle balls will rise, and the economic losses would tend to disappear.
D)   output will increase, the price of wiffle balls will fall, and the economic losses would tend to disappear.

Question 14

Which of the following is true about increasing cost industries?

Accepted Answer

A)   They use a large portion of available specialized input resources in production.
B)   In order for industry output to expand, the prices of the specialized inputs will increase.
C)   Expansion of industry output leads to a higher equilibrium price in the long run.
D)   All of the above are generally true of increasing cost industries.

Question 15

In a perfectly competitive market,in response to a permanent decrease in demand:

Accepted Answer

A)   the short run equilibrium price will be higher than the eventual long run equilibrium price.
B)   the short run equilibrium price will be lower than the eventual long run equilibrium price.
C)   the short run equilibrium price will be the same as than the eventual long run equilibrium price.
D)   we cannot know whether the short run equilibrium price will be above, below or equal to the eventual long run equilibrium price.

Question 16

A perfectly competitive firm has no influence over price because:

Accepted Answer

A)   its output is insignificant relative to the market as a whole.
B)   antitrust laws constrain perfectly competitive firms.
C)   consumers establish the prices of products.
D)   it is unaware of the demand curve it faces.

Question 17

Productive efficiency occurs in perfect competition because the firm produces at the minimum of the:

Accepted Answer

A)   average fixed cost curve.
B)   average variable cost curve
C)   average total cost curve
D)   marginal revenue curve.

Question 18

Exhibit 12-2  Refer to Exhibit 12-2.When the market price equals $105,and the firm sells 675 units of output,the firm:

Accepted Answer

A)   is earning a normal profit.
B)   is earning positive economic profits.
C)   is experiencing a loss, but should continue operating temporarily because business conditions may improve.
D)   is experiencing a loss and should shut down.

Question 19

Which of the following is true about the long run operations of perfectly competitive firms?

Accepted Answer

A)   They produce with productive efficiency.
B)   They produce with allocative efficiency.
C)   They earn zero economic profits.
D)   all of the above

Question 20

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.

Exam 12: Firms in Perfectly Competitive Markets

In a perfectly competitive market,in response to a permanent decrease in demand:

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A firm facing a horizontal demand curve:

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A firm that is earning zero economic profits has a strong incentive to exit the industry.

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A perfectly competitive firm has no influence over price because:

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Exhibit 12-5 Refer to Exhibit 12-5.A profit-maximizing firm in a perfectly competitive industry will produce ____ units of output if the market price equals $45.

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Productive efficiency occurs in perfect competition because the firm produces at the minimum of the:

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Which of the following is true about increasing cost industries?

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It is relatively easy for firms to enter and exit a perfectly competitive market.

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Exhibit 12-9 Refer to Exhibit 12-9.Using Graph C,which of the following statements is not true?

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Which of the following is true of perfectly competitive firms?

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Marginal revenue is:

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Toys for Toddlers,Inc.,sells in a perfectly competitive market,with an equilibrium price of $5.Its marginal revenue:

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Which of the following is not true in the long run under perfect competition?

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Exhibit 12-6 Refer to Exhibit 12-6.If P represents the market price for a price-taking firm,the best course of action in the short run for the firm is to:

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Which of the following best resembles a perfectly competitive market?

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If the perfectly competitive wiffle ball industry is bearing economic losses,we would expect that:

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If a perfectly competitive firm is operating in the short run and seeks to maximize profit,the firm should:

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If a perfectly competitive firm's marginal revenue was less than its marginal cost,

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Exhibit 12-2 Refer to Exhibit 12-2.When the market price equals $105,and the firm sells 675 units of output,the firm:

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Which of the following is true about the long run operations of perfectly competitive firms?

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