Question 1

A decline in demand in a competitive industry will result in

Accepted Answer

A)  a decrease in equilibrium price
B)  a decline in the number of firms in the industry
C)  economic losses for some firms in the industry
D)  a decline in the equilibrium quantity
E)  all of the aboveF) All of the above
G) B) and C)

Question 2

]The demand curve faced by a perfectly competitive firm

Accepted Answer

A)  is the market demand curve
B)  slopes downward
C)  is perfectly elastic
D)  is vertical
E)  rises when market supply risesF) A) and D)
G) A) and E)

Question 3

A firm in a perfectly competitive market

Accepted Answer

A)  can raise the price of its product and sell more output
B)  can lower the price of its product and sell more output
C)  can increase its supply to lower the price
D)  can decrease its supply to raise the price
E)  accepts the market price for its productF) All of the above
G) C) and D)

Question 4

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

Accepted Answer

A)  upward-sloping portion of its average total cost curve
B)  upward-sloping portion of its average variable cost curve
C)  average fixed cost curve at all levels of output
D)  marginal cost curve, which lies above the average variable cost curve
E)  downward-sloping portion of its marginal cost curveF) A) and E)
G) C) and D)

Question 5

In the short run, a perfectly competitive firm will always shut down if, at all output levels above zero,

Accepted Answer

A)  price is less than average total cost
B)  total revenue is less than total cost
C)  they cannot pay variable costs with total revenue
D)  variable cost is greater than fixed cost
E)  price is less than fixed costF) B) and E)
G) All of the above

Question 6

A perfectly competitive firm has a horizontal supply curve in the short run.

Accepted Answer

A) True 
 B)False

Question 7

Exhibit 8-18  The increase in demand shown in Exhibit 8-18 increases each firm's total revenue

Accepted Answer

A)  from $8 to $12
B)  from $16, 000 to $30, 000
C)  from $40 to $50
D)  from $320 to $600
E)  by an unspecified amountF) B) and D)
G) None of the above

Question 8

Economists assume that firms seek to

Accepted Answer

A)  maximize accounting profit
B)  maximize economic profit
C)  maximize total revenue
D)  maximize normal profit
E)  minimize costF) None of the above
G) C) and D)

Question 9

Exhibit 8-1  The perfectly competitive firewood market is composed of 1, 000 identical consumers and 1, 000 identical firms.Exhibit 8-1 shows cost data for one firm and demand data for one consumer.What does the demand curve facing a single firm look like?

Accepted Answer

A)  horizontal at a price of $120
B)  horizontal at a price of $100
C)  horizontal at a price of $80
D)  horizontal at a price of $60
E)  same as the demand for a single consumerF) A) and C)
G) All of the above

Question 10

The motivating force behind an increase in supply in a long-run adjustment to equilibrium is

Accepted Answer

A)  lower prices
B)  economic profits that are present in the short run
C)  higher profit expectations among owners of firms in the industry, triggered by increased prices
D)  normal profits witnessed by individuals outside the industry that trigger entry
E)  the decreases in average cost that can be obtained through economies of scaleF) B) and C)
G) None of the above

Question 11

A perfectly competitive firm is allocatively efficient because price is identical to marginal cost at every quantity

Accepted Answer

A) True 
 B)False

Question 12

Marginal revenue is the change in total revenue from selling one more unit of output.

Accepted Answer

A) True 
 B)False

Question 13

Exhibit 8-14  In Exhibit 8-14, what area represents variable cost at the loss-minimizing output?

Accepted Answer

A)  0cda
B)  0jka
C)  0efa
D)  cefd
E)  cjkdF) B) and D)
G) None of the above

Question 14

If a perfectly competitive firm is incurring a short-run loss, it

Accepted Answer

A)  then will incur a long-run loss
B)  will shut down
C)  will continue to operate in the short run if its fixed cost is covered
D)  will continue to operate in the short run if its variable cost is covered
E)  will raise its price in the short runF) C) and D)
G) A) and E)

Question 15

In the short run, a perfectly competitive firm will always shut down if, at all positive output levels, total revenue is

Accepted Answer

A)  less than total cost
B)  less than total cost but greater than variable cost
C)  less than total cost but greater than fixed cost
D)  greater than fixed cost
E)  less than variable costF) B) and D)
G) A) and B)

Question 16

For a perfectly competitive firm,

Accepted Answer

A)  P = MR at all output levels
B)  P = MR at the profit-maximizing quantity only
C)  P > MR at all output levels
D)  P 
E)  P < MR at all output levelsF) A) and C)
G) B) and C)

Question 17

Allocative efficiency means that

Accepted Answer

A)  firms have maximized production
B)  all mutually beneficial trades have taken place
C)  the next unit sold will increase total surplus
D)  producer surplus is maximized
E)  no mutually beneficial trades have occurredF) A) and C)
G) C) and D)

Question 18

Which characteristic of perfect competition ensures that economic profit will be zero in the long run?

Accepted Answer

A)  each firm's output is small in relation to total market supply
B)  buyers and sellers are fully informed about the price and availability of all resources and products
C)  the product is homogeneous
D)  there is freedom of entry and exit in the market
E)  firms are price takersF) B) and C)
G) D) and E)

Question 19

Exhibit 8-3  Which point in Exhibit 8-3 indicates the quantity at which marginal revenue and marginal cost are equal?

Accepted Answer

A)  point a
B)  point b
C)  point c
D)  point d
E)  either point b or point dF) C) and D)
G) B) and E)

Question 20

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

Accepted Answer

A)  its average fixed cost curve
B)  the part of its marginal cost curve rising above the average variable cost curve
C)  the part of its marginal cost curve below the average variable cost curve
D)  marginal product curve
E)  its average total cost curveF) C) and D)
G) D) and E)

Exam 8: A--Perfect Competition

If a perfectly competitive firm is incurring a short-run loss, it

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In the short run, a perfectly competitive firm will always shut down if, at all output levels above zero,

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Which characteristic of perfect competition ensures that economic profit will be zero in the long run?

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

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Exhibit 8-3 Which point in Exhibit 8-3 indicates the quantity at which marginal revenue and marginal cost are equal?

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A decline in demand in a competitive industry will result in

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

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A perfectly competitive firm has a horizontal supply curve in the short run.

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Economists assume that firms seek to

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Exhibit 8-1 The perfectly competitive firewood market is composed of 1, 000 identical consumers and 1, 000 identical firms.Exhibit 8-1 shows cost data for one firm and demand data for one consumer.What does the demand curve facing a single firm look like?

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For a perfectly competitive firm,

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]The demand curve faced by a perfectly competitive firm

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Exhibit 8-14 In Exhibit 8-14, what area represents variable cost at the loss-minimizing output?

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Allocative efficiency means that

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Exhibit 8-18 The increase in demand shown in Exhibit 8-18 increases each firm's total revenue

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In the short run, a perfectly competitive firm will always shut down if, at all positive output levels, total revenue is

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A perfectly competitive firm is allocatively efficient because price is identical to marginal cost at every quantity

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The motivating force behind an increase in supply in a long-run adjustment to equilibrium is

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Marginal revenue is the change in total revenue from selling one more unit of output.

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A firm in a perfectly competitive market

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