Question 1

Which of the following is a key characteristic of the long-run competitive equilibrium that distinguishes it from the short-run competitive equilibrium?

Accepted Answer

A)   Free entry to reduce short-run profits, or free exit to reduce short-run losses.
B)   Economic profits are positive, but cannot be negative.
C)   Marginal revenue is greater than marginal cost.
D)   Average revenue is less than average cost.E) All of the above
F) B) and C)

Question 2

Exhibit 7-10  Price and cost data for a firm  In Exhibit 7-10, the maximum possible total profit is:

Accepted Answer

A)   $36.
B)   $24.
C)   $20.
D)   $12.
E)   $8.F) A) and D)
G) All of the above

Question 3

In long-run equilibrium for a perfectly competitive firm, price equals which of the following?

Accepted Answer

A)   Economies of real cost.
B)   Maximum total revenue.
C)   Diseconomies of scale cost.
D)   Minimum point on the long-run average cost curve.E) A) and C)
F) None of the above

Question 4

When the marginal cost of a price-taker firm is more than the market price of its product, the firm should:

Accepted Answer

A)   expand output.
B)   reduce output.
C)   maintain output.
D)   charge more than the market price.E) C) and D)
F) B) and D)

Question 5

If marginal revenue equals marginal cost in the short run, the perfectly competitive firm earns zero profits.

Accepted Answer

A) True 
 B)False

Question 6

Total profit can be calculated by:

Accepted Answer

A)   c and e.
B)   subtracting total revenue from total costs.
C)   subtracting total costs from total revenue.
D)   finding the product of the difference between average profit and average total cost and the quantity produced.
E)   quantity produced times the difference between average revenue and average total cost.F) B) and E)
G) A) and D)

Question 7

In long-run equilibrium, a competitive firm produces the level of output at which:

Accepted Answer

A)   marginal cost is at a minimum.
B)   short-run average total cost and long-run average cost are at a minimum.
C)   total revenue is at a maximum.
D)   diseconomies of scale end.E) A) and D)
F) A) and C)

Question 8

In long-run equilibrium, a perfectly competitive firm's short-run marginal cost curve crosses the long-run average cost curve at the lowest point on the long-run average cost curve.

Accepted Answer

A) True 
 B)False

Question 9

What are the characteristics of the perfectly competitive market?

Accepted Answer

The perfectly competitive market is char...

Question 10

If marginal revenue exceeds marginal cost in the short run, total revenue for the perfectly competitive firm is greater than total cost.

Accepted Answer

A) True 
 B)False

Question 11

Exhibit 7-10  Price and cost data for a firm  In Exhibit 7-10, following the rule regarding MR and MC, the most profitable output level is:

Accepted Answer

A)   0.
B)   1.
C)   2.
D)   3.
E)   4.F) A) and B)
G) A) and C)

Question 12

A perfectly competitive industry must have a perfectly elastic long-run supply curve.

Accepted Answer

A) True 
 B)False

Question 13

If a firm decreases output when MR

Accepted Answer

A)   profit will equal zero.
B)   profit will increase.
C)   profit will decrease.
D)   profit will remain the same.
E)   the firm is minimizing losses.F) None of the above
G) B) and E)

Question 14

In the short run, a firm should shut down if its economic loss from operating exceeds its total fixed cost.

Accepted Answer

A) True 
 B)False

Question 15

If at some output level for a firm price exceeds average total cost, then the firm is earning an economic profit.

Accepted Answer

A) True 
 B)False

Question 16

Exhibit 7-15  Short-run cost curves for E-Z Care lawn mowing company  In Exhibit 7-15, what market price would cause E-Z-Care to just beak even?

Accepted Answer

A)   $6 per lawn.
B)   $8 per lawn.
C)   $12 per lawn.
D)   $16 per lawn.E) All of the above
F) B) and C)

Question 17

In long-run equilibrium for a perfectly competitive firm, price equals which of the following?

Accepted Answer

A)   Economies of scale.
B)   Minimum short-run average total cost.
C)   The sum of each short-run marginal cost curve.
D)   All of the above.E) All of the above
F) B) and D)

Question 18

A perfectly competitive firm shuts down in the short-run when the market price is less than the average variable cost.

Accepted Answer

A) True 
 B)False

Question 19

A sandwich shop owner has the following information: P = MR = $4, ATC = $2, AVC = $1, MC = 4, and Q = 500. From this, she can determine:

Accepted Answer

A)   her profits are not being maximized.
B)   she has earned zero economic profits.
C)   she has earned economic profits of $1,000.
D)   she has earned economic profits of $1,500.
E)   she should sell fewer sandwiches.F) A) and B)
G) D) and E)

Question 20

Exhibit 7-14  Total cost and total revenue curves  In Exhibit 7-14, if output is at 200 units per week, total economic profit for the firm is:

Accepted Answer

A)   zero.
B)   positive.
C)   negative.
D)   none of the above.E) B) and C)
F) C) and D)

Exam 7: Perfect Competition

If a firm decreases output when MR

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When the marginal cost of a price-taker firm is more than the market price of its product, the firm should:

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What are the characteristics of the perfectly competitive market?

Correct AnswerverifiedThe perfectly competitive market is char...View AnswerShow Answer

Exhibit 7-10 Price and cost data for a firm In Exhibit 7-10, the maximum possible total profit is:

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A perfectly competitive firm shuts down in the short-run when the market price is less than the average variable cost.

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Which of the following is a key characteristic of the long-run competitive equilibrium that distinguishes it from the short-run competitive equilibrium?

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In long-run equilibrium for a perfectly competitive firm, price equals which of the following?

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Total profit can be calculated by:

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A sandwich shop owner has the following information: P = MR = $4, ATC = $2, AVC = $1, MC = 4, and Q = 500. From this, she can determine:

Correct AnswerverifiedShow Answer

Exhibit 7-10 Price and cost data for a firm In Exhibit 7-10, following the rule regarding MR and MC, the most profitable output level is:

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Exhibit 7-15 Short-run cost curves for E-Z Care lawn mowing company In Exhibit 7-15, what market price would cause E-Z-Care to just beak even?

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In the short run, a firm should shut down if its economic loss from operating exceeds its total fixed cost.

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A perfectly competitive industry must have a perfectly elastic long-run supply curve.

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Exhibit 7-14 Total cost and total revenue curves In Exhibit 7-14, if output is at 200 units per week, total economic profit for the firm is:

Correct AnswerverifiedShow Answer

In long-run equilibrium for a perfectly competitive firm, price equals which of the following?

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In long-run equilibrium, a perfectly competitive firm's short-run marginal cost curve crosses the long-run average cost curve at the lowest point on the long-run average cost curve.

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If at some output level for a firm price exceeds average total cost, then the firm is earning an economic profit.

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In long-run equilibrium, a competitive firm produces the level of output at which:

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If marginal revenue equals marginal cost in the short run, the perfectly competitive firm earns zero profits.

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If marginal revenue exceeds marginal cost in the short run, total revenue for the perfectly competitive firm is greater than total cost.

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The perfectly competitive market is char...
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