Question 1

In the short run, the fixed costs of a firm:

Accepted Answer

A)  can sometimes be avoided.
B)  are irrelevant in deciding whether to shut down production.
C)  are equal to zero when the quantity produced is zero.
D)  are all the costs the firm incurs when it produces some positive quantity.E) B) and C)
F) C) and D)

Question 2

For firms that sell one product in a perfectly competitive market, average revenue is equal to:

Accepted Answer

A)  total revenue divided by total output.
B)  marginal revenue.
C)  the market price.
D)  All of these are correct.E) All of the above
F) C) and D)

Question 3

The graph shown displays the marginal cost and marginal revenue curves for a perfectly competitive firm.  This firm's profits at point A are:

Accepted Answer

A)  higher than those at point B.
B)  lower than those at point B.
C)  the same as those at point B.
D)  higher than those at point C.E) B) and C)
F) C) and D)

Question 4

The graph shown displays the cost curves for a firm in a perfectly competitive market. If the market price is $2:  A) the firm should produce 100 units in the short run but will earn zero profit. B) the profit-maximizing quantity is 60 units. C) the profit-maximizing quantity is zero units. D) the firm can earn positive profits in the short run but will earn zero profit in the long run." class="answers-bank-image d-inline" rel="preload" >

Accepted Answer

A)  the firm should produce 100 units in the short run but will earn zero profit.
B)  the profit-maximizing quantity is 60 units.
C)  the profit-maximizing quantity is zero units.
D)  the firm can earn positive profits in the short run but will earn zero profit in the long run.E) None of the above
F) B) and D)

Question 5

In the long run, firms will enter a perfectly competitive market if the existing firms are making:

Accepted Answer

A)  a profit.
B)  negative profits.
C)  zero profits.
D)  Any of these could be true.E) A) and B)
F) B) and D)

Question 6

In the long run, the market price in a perfectly competitive market always tends to return to the minimum average total cost for all identical firms. Thus, in theory:

Accepted Answer

A)  supply will remain a constant quantity.
B)  price will be the same at any quantity.
C)  the supply curve will be upward sloping.
D)  the supply curve may be downward sloping.E) A) and B)
F) A) and C)

Question 7

If a firm is earning a negative economic profit, it means that:

Accepted Answer

A)  the resources should not be invested in other business opportunities.
B)  more profits could be earned with the same resources in another industry.
C)  the opportunity cost is smaller than what the firm is earning.
D)  the firm must be earning negative accounting profits.E) A) and B)
F) A) and C)

Question 8

Having free entry and exit in a market can help drive:

Accepted Answer

A)  innovation.
B)  cost-cutting.
C)  quality improvements.
D)  All of these are true.E) A) and C)
F) A) and B)

Question 9

The key difference between supply in the short run and supply in the long run is the assumption that firms:

Accepted Answer

A)  are able to enter and exit the market in the short run.
B)  are able to enter and exit the market in the long run.
C)  will not collude in the short run.
D)  will have a total supply that is constant in the long run.E) B) and D)
F) B) and C)

Question 10

When economic profits are zero for a firm, it means that:

Accepted Answer

A)  no firms will enter or exit the industry.
B)  average revenue is slightly higher than average total costs.
C)  average variable costs are minimized.
D)  accounting profits are also zero.E) B) and C)
F) A) and B)

Question 11

Which of the following is an important characteristic of perfectly competitive markets? Goods are standardized. Buyers and sellers are price takers. Firms can freely enter and exit the market.

Accepted Answer

A)  I and II only
B)  II and III only
C)  I only
D)  I, II, and IIIE) None of the above
F) A) and C)

Question 12

The graph shown displays the cost curves for a firm in a perfectly competitive market. Assume that all firms in this market have identical cost structures. Initially the market price is $8. Which of the following statements is true?  A) The long run equilibrium price will be $6. B) Market demand will decrease in the long run. C) The long run equilibrium price will be $11. D) Market supply will increase in the long run." class="answers-bank-image d-inline" rel="preload" >

Accepted Answer

A)  The long run equilibrium price will be $6.
B)  Market demand will decrease in the long run.
C)  The long run equilibrium price will be $11.
D)  Market supply will increase in the long run.E) C) and D)
F) B) and D)

Question 13

The table shown displays the total costs for various levels of output for a firm operating in a perfectly competitive market.

When one unit is produced, _______ exceed _______, and the firm should produce _______.

Accepted Answer

A)  marginal costs; marginal revenue; more
B)  marginal revenue; marginal costs; more
C)  marginal revenue; marginal costs; less
D)  marginal costs; marginal revenue; lessE) A) and B)
F) A) and C)

Question 14

Which of the following is an example of a standardized good?

Accepted Answer

A)  Cereal
B)  Iron
C)  Soda
D)  PizzaE) B) and D)
F) A) and B)

Question 15

The market supply in a perfectly competitive market is:

Accepted Answer

A)  fixed at a specific amount.
B)  the sum of the quantities that each individual producer is willing to supply.
C)  the total quantity of a good that the biggest market shareholder supplies at a given price.
D)  derived from the marginal cost curves of each firm after marginal cost hits average total cost.E) A) and D)
F) All of the above

Question 16

The market price has fallen below a firm's average total costs, and the firm is now earning a loss. What is the best action for the firm to take in the short run?

Accepted Answer

A)  Produce where marginal cost equals marginal revenue to minimize losses, as long as price is greater than average variable costs.
B)  Shut down if price is greater than average variable costs.
C)  Produce where marginal cost equals marginal revenue to minimize losses, as long as price is less than average variable costs.
D)  Shut down if total revenue is less than fixed costs.E) A) and B)
F) None of the above

Question 17

In a perfectly competitive market, when the price is greater than the minimum average total cost for all firms:

Accepted Answer

A)  positive economic profits are being earned.
B)  firms will enter the market, causing the price to rise.
C)  firms will exit the market, causing the price to fall.
D)  None of these are correct.E) B) and C)
F) A) and B)

Question 18

If a firm in a perfectly competitive market facing a market price of $7 decides to increase its production from 4,000 to 12,000 units, the firm's marginal revenue will:

Accepted Answer

A)  diminish once diminishing marginal product sets in.
B)  rise once diminishing marginal product sets in.
C)  stay the same.
D)  increase from $28,000 to $84,000.E) B) and C)
F) C) and D)

Question 19

In the short run, a firm should shut down if:

Accepted Answer

A)  price is greater than average variable cost.
B)  price is less than average variable cost.
C)  price is greater than average total cost.
D)  price is less than average total cost.E) A) and B)
F) B) and C)

Question 20

The graph shown displays the cost curves for a firm in a perfectly competitive market. If the market price is $100, which of the following statements is true?  This firm will earn positive profits in the short run.In the long run, the market supply curve will increase.Profits for this firm will decrease in the long run.

Accepted Answer

A)  I only
B)  II and III only
C)  I and III only
D)  I, II, and IIIE) B) and C)
F) A) and C)

Exam 13: Perfect Competition

In a perfectly competitive market, when the price is greater than the minimum average total cost for all firms:

Correct Answer
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The graph shown displays the marginal cost and marginal revenue curves for a perfectly competitive firm. This firm's profits at point A are:

Correct Answer
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Which of the following is an important characteristic of perfectly competitive markets? Goods are standardized. Buyers and sellers are price takers. Firms can freely enter and exit the market.

Correct Answer
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Having free entry and exit in a market can help drive:

Correct Answer
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When economic profits are zero for a firm, it means that:

Correct Answer
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The table shown displays the total costs for various levels of output for a firm operating in a perfectly competitive market. When one unit is produced, ___ exceed _, and the firm should produce _____.

Correct Answer
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The graph shown displays the cost curves for a firm in a perfectly competitive market. If the market price is $2:

Correct Answer
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The graph shown displays the cost curves for a firm in a perfectly competitive market. Assume that all firms in this market have identical cost structures. Initially the market price is $8. Which of the following statements is true?

Correct Answer
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The market price has fallen below a firm's average total costs, and the firm is now earning a loss. What is the best action for the firm to take in the short run?

Correct Answer
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If a firm is earning a negative economic profit, it means that:

Correct Answer
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The market supply in a perfectly competitive market is:

Correct Answer
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If a firm in a perfectly competitive market facing a market price of $7 decides to increase its production from 4,000 to 12,000 units, the firm's marginal revenue will:

Correct Answer
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For firms that sell one product in a perfectly competitive market, average revenue is equal to:

Correct Answer
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The key difference between supply in the short run and supply in the long run is the assumption that firms:

Correct Answer
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In the long run, the market price in a perfectly competitive market always tends to return to the minimum average total cost for all identical firms. Thus, in theory:

Correct Answer
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Correct Answer
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In the short run, a firm should shut down if:

Correct Answer
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In the long run, firms will enter a perfectly competitive market if the existing firms are making:

Correct Answer
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In the short run, the fixed costs of a firm:

Correct Answer
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Which of the following is an example of a standardized good?

Correct Answer
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Exam 13: Perfect Competition

In a perfectly competitive market, when the price is greater than the minimum average total cost for all firms:

Correct AnswerverifiedShow Answer

The graph shown displays the marginal cost and marginal revenue curves for a perfectly competitive firm. This firm's profits at point A are:

Correct AnswerverifiedShow Answer

Which of the following is an important characteristic of perfectly competitive markets? Goods are standardized. Buyers and sellers are price takers. Firms can freely enter and exit the market.

Correct AnswerverifiedShow Answer

Having free entry and exit in a market can help drive:

Correct AnswerverifiedShow Answer

When economic profits are zero for a firm, it means that:

Correct AnswerverifiedShow Answer

The table shown displays the total costs for various levels of output for a firm operating in a perfectly competitive market. When one unit is produced, _______ exceed _______, and the firm should produce _______.

Correct AnswerverifiedShow Answer

The graph shown displays the cost curves for a firm in a perfectly competitive market. If the market price is $2:

Correct AnswerverifiedShow Answer

The graph shown displays the cost curves for a firm in a perfectly competitive market. Assume that all firms in this market have identical cost structures. Initially the market price is $8. Which of the following statements is true?

Correct AnswerverifiedShow Answer

The market price has fallen below a firm's average total costs, and the firm is now earning a loss. What is the best action for the firm to take in the short run?

Correct AnswerverifiedShow Answer

If a firm is earning a negative economic profit, it means that:

Correct AnswerverifiedShow Answer

The market supply in a perfectly competitive market is:

Correct AnswerverifiedShow Answer

If a firm in a perfectly competitive market facing a market price of $7 decides to increase its production from 4,000 to 12,000 units, the firm's marginal revenue will:

Correct AnswerverifiedShow Answer

For firms that sell one product in a perfectly competitive market, average revenue is equal to:

Correct AnswerverifiedShow Answer

The key difference between supply in the short run and supply in the long run is the assumption that firms:

Correct AnswerverifiedShow Answer

In the long run, the market price in a perfectly competitive market always tends to return to the minimum average total cost for all identical firms. Thus, in theory:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In the short run, a firm should shut down if:

Correct AnswerverifiedShow Answer

In the long run, firms will enter a perfectly competitive market if the existing firms are making:

Correct AnswerverifiedShow Answer

In the short run, the fixed costs of a firm:

Correct AnswerverifiedShow Answer

Which of the following is an example of a standardized good?

Correct AnswerverifiedShow Answer

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The table shown displays the total costs for various levels of output for a firm operating in a perfectly competitive market. When one unit is produced, ___ exceed _, and the firm should produce _____.

Correct Answer
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