Question 1

If the market price falls below a firm's minimum average total cost, the firm should:

Accepted Answer

A)  stop production.
B)  continue to operate at a loss.
C)  consider how to minimize its losses.
D)  pay only fixed costs.E) A) and D)
F) B) and C)

Question 2

In reality, the long run supply curve for a perfectly competitive market is upward sloping because:

Accepted Answer

A)  firms may face changing costs of production.
B)  not all firms have identical cost structures.
C)  experienced firms will have different information and costs than new firms.
D)  All of these are correct.E) A) and B)
F) None of the above

Question 3

In the long run, in a perfectly competitive market:

Accepted Answer

A)  firms earn zero economic profits.
B)  firms operate at an efficient scale.
C)  supply is perfectly elastic when all firms have the same cost structure.
D)  All of these are correct.E) A) and B)
F) All of the above

Question 4

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

Accepted Answer

A)  accounting profits will be positive.
B)  firms will likely enter the market.
C)  the price will eventually rise, once enough firms have left the market.
D)  economic profits will be equal to zero.E) All of the above
F) C) and D)

Question 5

When demand increases in a perfectly competitive market, the market price _______ in the short run and _______ in the long run.

Accepted Answer

A)  increases; decreases
B)  decreases; increases
C)  increases; permanently stays high
D)  decreases; permanently stays lowE) A) and B)
F) All of the above

Question 6

The table shown displays the total and marginal costs for a single firm in a perfectly competitive market.

What is the market price?

Accepted Answer

A)  $20
B)  $10
C)  $8
D)  $12E) C) and D)
F) A) and B)

Question 7

If firms are producing at a profit-maximizing level of output where the price is equal to the average total cost:

Accepted Answer

A)  accounting profits may be negative.
B)  accounting profits must be zero.
C)  economic profits may be positive.
D)  economic profits must be zero.E) A) and B)
F) A) and C)

Question 8

If demand increases in a perfectly competitive market, firms will likely:

Accepted Answer

A)  experience a loss due to increased competition.
B)  permanently set prices artificially higher.
C)  enter the market in hopes of capturing some profits.
D)  engage in more advertising in order to further stimulate the increase in demand.E) A) and C)
F) B) and C)

Question 9

In the long run, firms in a perfectly competitive market:

Accepted Answer

A)  produce a quantity that maximizes profits.
B)  earn zero economic profit.
C)  choose the level of output that minimizes average total costs.
D)  All of these are correct.E) A) and B)
F) C) and D)

Question 10

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

What is the firm's marginal cost from producing the second unit?

Accepted Answer

A)  $10.00
B)  $7.50
C)  $27.50
D)  $20.00E) A) and D)
F) A) and C)

Question 11

Transaction costs are:

Accepted Answer

A)  costs a buyer or seller incurs to make an exchange take place.
B)  taxes a buyer or seller pays when purchasing a good or service.
C)  fees a buyer is charged when purchasing a good or service on credit.
D)  costs a buyer faces upon reselling a good or service.E) A) and B)
F) B) and C)

Question 12

A price taker is a buyer or seller who:

Accepted Answer

A)  has complete control over setting the market price.
B)  can influence the market price.
C)  has no control over setting the market price.
D)  has the goal of maximizing market share, not profits.E) B) and C)
F) A) and D)

Question 13

The graph shown displays the marginal cost and marginal revenue curves for a perfectly competitive firm.  Producing nine units will earn the firm _______ profits than those earned at an output of 11 units, so the firm should _______ production.

Accepted Answer

A)  lower; increase
B)  higher; decrease
C)  higher; increase
D)  lower; decreaseE) A) and B)
F) A) and C)

Question 14

If a firm in a perfectly competitive market is producing at a level of output where marginal costs are less than marginal revenue, the firm's profit:

Accepted Answer

A)  must be positive.
B)  is maximized.
C)  will increase if production decreases.
D)  will increase if production increases.E) All of the above
F) None of the above

Question 15

For firms that sell one product in a perfectly competitive market, marginal revenue is always:

Accepted Answer

A)  greater than the market price.
B)  less than the market price.
C)  equal to the market price.
D)  equal to average total cost.E) All of the above
F) None of the above

Question 16

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

What is the firm's marginal revenue from the third unit produced?

Accepted Answer

A)  $50
B)  $90
C)  $150
D)  $60E) A) and B)
F) All of the above

Question 17

Perfectly competitive markets:

Accepted Answer

A)  are more of an idealized model economists use than a real-life occurrence.
B)  are the most common type of market in the United States.
C)  tend to have relatively few buyers.
D)  tend to have relatively few sellers.E) B) and D)
F) C) and D)

Question 18

For firms that sell one product in a perfectly competitive market, the market price:

Accepted Answer

A)  can be influenced by one firm's output decision.
B)  is equal to a firm's average total cost.
C)  is equal to a firm's marginal revenue.
D)  decreases as the firm increases output.E) B) and D)
F) None of the above

Question 19

In a perfectly competitive market, total revenue:

Accepted Answer

A)  is how much a firm receives from all sales minus any costs incurred.
B)  is calculated by multiplying price times quantity sold.
C)  varies due to changes in price, since quantity is constant.
D)  should vary across firms.E) B) and C)
F) All of the above

Question 20

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

What is the firm's total revenue when four units are produced?

Accepted Answer

A)  $160
B)  $50
C)  $200
D)  $40E) B) and D)
F) B) and C)

Exam 13: Perfect Competition

The graph shown displays the marginal cost and marginal revenue curves for a perfectly competitive firm. Producing nine units will earn the firm _______ profits than those earned at an output of 11 units, so the firm should _______ production.

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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. What is the firm's marginal cost from producing the second unit?

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When demand increases in a perfectly competitive market, the market price _______ in the short run and _______ in the long run.

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If demand increases in a perfectly competitive market, firms will likely:

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For firms that sell one product in a perfectly competitive market, the market price:

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If a firm in a perfectly competitive market is producing at a level of output where marginal costs are less than marginal revenue, the firm's profit:

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If the market price falls below a firm's minimum average total cost, the firm should:

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Perfectly competitive markets:

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Transaction costs are:

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For firms that sell one product in a perfectly competitive market, marginal revenue is always:

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The table shown displays the total and marginal costs for a single firm in a perfectly competitive market. What is the market price?

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If firms are producing at a profit-maximizing level of output where the price is equal to the average total cost:

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In the long run, firms in a perfectly competitive market:

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In reality, the long run supply curve for a perfectly competitive market is upward sloping because:

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A price taker is a buyer or seller who:

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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. What is the firm's marginal revenue from the third unit produced?

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

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In a perfectly competitive market, total revenue:

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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. What is the firm's total revenue when four units are produced?

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In the long run, in a perfectly competitive market:

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The graph shown displays the marginal cost and marginal revenue curves for a perfectly competitive firm. Producing nine units will earn the firm _ profits than those earned at an output of 11 units, so the firm should _ production.

Correct Answer
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When demand increases in a perfectly competitive market, the market price _ in the short run and _ in the long run.

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