Question 1

A perfectly competitive firm cannot make economic profits in the long run because:

Accepted Answer

A)  it is a price taker.
B)  there are no barriers to entry into the industry.
C)  it faces a perfectly elastic demand curve.
D)  its advertising costs will rise to eliminate any economic profits.

Question 2

Figure 7-E 
-Refer to Figure 7-E.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 average variable cost exceeds price.
D)  continue operating because price exceeds average total cost.
E)  continue operating because price exceeds average variable cost.

Question 3

Suppose losses cause industry Z to contract, and as a result, the prices of inputs used intensively in the industry's production process fall.We know, as a result, that industry Z is:

Accepted Answer

A)  an increasing cost industry.
B)  a constant cost industry.
C)  a decreasing cost industry.
D)  experiencing diminishing returns.

Question 4

Figure 7-H 
-Refer to Table 7-C.What levels of capital (K=1, K=2, or K=3) would the firm choose in the long run for producing three canisters and five canisters of peanuts per hour, respectively?

Accepted Answer

The firm would choose a level of capital...

Question 5

As an industry's output increases, the industry's demand for the inputs that it uses will also increase.

Accepted Answer

A) True 
 B)False

Question 6

Economic losses caused several firms to leave the car wash business in Portland, Oregon.Though prices have risen, firms are still leaving the industry.Apparently:

Accepted Answer

A)  economic profits exist but they are not as high as in other industries.
B)  economic profits are zero and firms won't stay in the industry if they are not earning an economic profit.
C)  firms are still generating economic losses.
D)  economic profits have decreased because of the exit of existing firms.

Question 7

The short-run supply curve of a perfectly competitive firm is:

Accepted Answer

A)  the average variable cost curve.
B)  the average total cost curve.
C)  the same as the demand curve.
D)  marginal cost above average variable cost.
E)  marginal cost above average total cost.

Question 8

Figure 7-D 
-Refer to Figure 7-D.At a market price of $30, total revenue is sufficient to pay:

Accepted Answer

A)  all variable costs.
B)  all variable costs and a portion of fixed costs.
C)  all costs, fixed and variable.
D)  only a portion of the variable costs.

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

In perfect competition, at the firm's profit maximizing short run output, which of the following is true?

Accepted Answer

A)  Marginal revenue equals marginal cost.
B)  Price equals marginal cost.
C)  Average revenue equals marginal revenue.
D)  It could be earning either economic profits or losses.
E)  All of the above are true.

Question 11

If a particular perfectly competitive industry uses only a small fraction of the supply of any of its inputs, the long run supply curve for that industry will tend to be:

Accepted Answer

A)  vertical.
B)  upward sloping.
C)  horizontal.
D)  downward sloping.

Question 12

Figure 7-H 0, then increases to P1 because of the increase in demand, and eventually decreases to P0 once again when the market supply of output increases as a result of new firms entering the industry. D) The diagrams depict an increasing cost industry." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 7-H.This pair of graphs demonstrates the chain of events for a lawn care firm, beginning with an increase in the market demand for lawn care services.Which of the following statements is incorrect?

Accepted Answer

A)  This particular firm increases its production of lawn care services in response to an increase in the price of lawn care services.
B)  The overall quantity of lawn care services increases in the industry.
C)  The equilibrium price of lawn care services is initially P0, then increases to P1 because of the increase in demand, and eventually decreases to P0 once again when the market supply of output increases as a result of new firms entering the industry.
D)  The diagrams depict an increasing cost industry.

Question 13

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 14

Figure 7-F
The figure shows the price, marginal cost, and average cost curves of a perfectly competitive firm. 
-Refer to Figure 7-F.How many units of output per day should the firm produce if it wants to maximize its profits (i.e., minimize its losses) ?

Accepted Answer

A)  30
B)  70
C)  100
D)  0

Question 15

Figure 7-H 
-What is productive efficiency? Does it guarantee that markets are operating efficiently?

Accepted Answer

Productive efficiency requires that firm...

Question 16

Whenever marginal revenue is greater than marginal cost, a profit-maximizing firm should reduce its output.

Accepted Answer

A) True 
 B)False

Question 17

Assume that a firm's total revenue is less than its total cost for the level of output it is producing.In the short run, this firm should:

Accepted Answer

A)  expand output.
B)  contract output.
C)  maintain its current level of output.
D)  shut down.
E)  There is not enough information to answer the question.

Question 18

In a constant cost industry, the cost curves of individual firms will shift upward as the industry output expands.

Accepted Answer

A) True 
 B)False

Question 19

When price exceeds average variable cost for a firm, it is possible that:

Accepted Answer

A)  it is earning an economic profit.
B)  it is breaking even.
C)  it is suffering an economic loss.
D)  any of the above is true.

Question 20

A competitive firm facing a perfectly elastic demand curve can:

Accepted Answer

A)  increase price without losing any sales.
B)  sell all of its output at any price it chooses.
C)  sell all of its output at the market price.
D)  sell more output only by reducing its price.

Exam 7: Firms in Competitive Markets

If a particular perfectly competitive industry uses only a small fraction of the supply of any of its inputs, the long run supply curve for that industry will tend to be:

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

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The short-run supply curve of a perfectly competitive firm is:

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When price exceeds average variable cost for a firm, it is possible that:

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As an industry's output increases, the industry's demand for the inputs that it uses will also increase.

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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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Figure 7-H -Refer to Figure 7-H.This pair of graphs demonstrates the chain of events for a lawn care firm, beginning with an increase in the market demand for lawn care services.Which of the following statements is incorrect?

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In a constant cost industry, the cost curves of individual firms will shift upward as the industry output expands.

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Economic losses caused several firms to leave the car wash business in Portland, Oregon.Though prices have risen, firms are still leaving the industry.Apparently:

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Figure 7-H -What is productive efficiency? Does it guarantee that markets are operating efficiently?

Correct AnswerverifiedProductive efficiency requires that firm...View AnswerShow Answer

In perfect competition, at the firm's profit maximizing short run output, which of the following is true?

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A competitive firm facing a perfectly elastic demand curve can:

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Figure 7-D -Refer to Figure 7-D.At a market price of $30, total revenue is sufficient to pay:

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Figure 7-E -Refer to Figure 7-E.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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Suppose losses cause industry Z to contract, and as a result, the prices of inputs used intensively in the industry's production process fall.We know, as a result, that industry Z is:

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Figure 7-H -Refer to Table 7-C.What levels of capital (K=1, K=2, or K=3) would the firm choose in the long run for producing three canisters and five canisters of peanuts per hour, respectively?

Correct AnswerverifiedThe firm would choose a level of capital...View AnswerShow Answer

Assume that a firm's total revenue is less than its total cost for the level of output it is producing.In the short run, this firm should:

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A perfectly competitive firm cannot make economic profits in the long run because:

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Figure 7-F The figure shows the price, marginal cost, and average cost curves of a perfectly competitive firm. -Refer to Figure 7-F.How many units of output per day should the firm produce if it wants to maximize its profits (i.e., minimize its losses) ?

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Whenever marginal revenue is greater than marginal cost, a profit-maximizing firm should reduce its output.

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Productive efficiency requires that firm...
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The firm would choose a level of capital...
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