Question 1

This graph represents the cost and revenue curves of a firm in a perfectly competitive market.  According to the graph shown,the long-run output decision for this firm is:

Accepted Answer

A)   Q1, P1.
B)   Q1, P2.
C)   Q2, P1.
D)   Q3, P3.E) A) and B)
F) None of the above

Question 2

If a firm is earning a profit,then:

Accepted Answer

A)   the ATC must be higher than the market price.
B)   total revenue must be higher than total cost.
C)   the ATC must be higher than AR.
D)   MR is equal to MC.E) A) and B)
F) B) and C)

Question 3

According to the graph shown,at point C the firm is earning:

Accepted Answer

A)   higher profits than at point B, and they should produce more.
B)   fewer profits than at point B, and they should produce more.
C)   fewer profits than at point B, and they should produce less.
D)   higher profits than at point B, and they should produce less.E) A) and B)
F) None of the above

Question 4

Of the curves displayed in the graph shown,what does curve B most likely represent?

Accepted Answer

A)   Marginal cost
B)   Average total cost
C)   Average variable cost
D)   Average fixed costE) A) and C)
F) B) and C)

Question 5

The key difference between supply in the short run and supply in the long run is that we assume 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) A) and C)

Question 6

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

Accepted Answer

A)   exit if the price is lower than their lowest average total cost.
B)   attract other firms to the market if the price is equal to their lowest average total cost.
C)   not attract other firms if they are earning slightly positive economic profits.
D)   earn positive economic profits.E) B) and C)
F) A) and B)

Question 7

In theory,the long-run supply curve for perfectly competitive market firms who are identical is:

Accepted Answer

A)   perfectly elastic.
B)   perfectly inelastic.
C)   upward sloping.
D)   downward sloping.E) A) and D)
F) None of the above

Question 8

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

Accepted Answer

A)   where average variable costs are minimized.
B)   at a quantity with positive economic profits.
C)   where price equals marginal cost.
D)   where MC is at its lowest point.E) C) and D)
F) B) and C)

Question 9

A good that is perfectly standardized is:

Accepted Answer

A)   likely to be interchangeable with others in the market.
B)   indistinguishable to others in the market.
C)   fairly close to others in the market.
D)   determined to be the same by government.E) A) and B)
F) A) and C)

Question 10

One implication of goods being standardized in a market is:

Accepted Answer

A)   the government regulations must promote competition and lower prices to be efficient.
B)   there are no information asymmetries.
C)   the similarity in products may be real or perceived.
D)   the market has a low degree of competition.E) A) and D)
F) B) and D)

Question 11

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

Accepted Answer

A)   definitely stop production.
B)   definitely continue to operate at a loss.
C)   consider how to minimize its losses.
D)   pay only fixed costs.E) A) and B)
F) None of the above

Question 12

If a firm in a perfectly competitive market faces the cost curves in the graph shown and observes a market price of $10,the firm:

Accepted Answer

A)   can make positive profits by producing more than 43 units.
B)   can make positive profits by producing where MC = MR.
C)   cannot make positive profits and should shut down in the short run.
D)   should continue to operate in the short run, but plan to exit in the long run.E) B) and D)
F) B) and C)

Question 13

Commodities:

Accepted Answer

A)   are a special type of standardized good.
B)   have no product differentiation.
C)   are identical regardless of who produced them.
D)   All of these are true.E) None of the above
F) A) and B)

Question 14

When firms have market power,it means that they:

Accepted Answer

A)   are a price taker.
B)   can noticeably affect the market price.
C)   do not affect the market quantity offered for sale.
D)   can earn as much profit as they want.E) All of the above
F) None of the above

Question 15

This graph represents the cost and revenue curves of a firm in a perfectly competitive market.  According to the graph shown,if a firm is producing at Q3:

Accepted Answer

A)   profits are being maximized.
B)   average total costs exceed the market price.
C)   the firm should expand production.
D)   marginal revenue is greater than marginal cost.E) A) and C)
F) All of the above

Question 16

Each point of a firm's supply curve represents a price-quantity pair where:

Accepted Answer

A)   MC = MR.
B)   P = min ATC.
C)   P = min AVC.
D)   MC = ATC.E) B) and D)
F) All of the above

Question 17

According to the graph shown,producing 9 units earns profits that are:

Accepted Answer

A)   lower than output of 11 units, and the firm should increase production.
B)   higher than output of 11 units, and the firm should decrease production.
C)   higher than output of 11 units, and the firm should increase production.
D)   lower than output of 11 units, and the firm should decrease production.E) A) and B)
F) None of the above

Question 18

Firms in perfectly competitive markets typically have:

Accepted Answer

A)   one profit-maximizing level of output.
B)   several profit-maximizing levels of output to choose from.
C)   two profit-maximizing levels of output to choose from.
D)   no chance of maximizing profits, since they have no control over market price.E) B) and C)
F) C) and D)

Question 19

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

Accepted Answer

A)   calculated by total revenue divided by total output.
B)   equal to marginal revenue.
C)   equal to the market price.
D)   All of these are true.E) A) and D)
F) A) and C)

Question 20

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) A) and B)
F) A) and C)

Exam 13: Perfect Competition

Of the curves displayed in the graph shown,what does curve B most likely represent?

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According to the graph shown,at point C the firm is earning:

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One implication of goods being standardized in a market is:

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This graph represents the cost and revenue curves of a firm in a perfectly competitive market. According to the graph shown,the long-run output decision for this firm is:

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If a firm is earning a profit,then:

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

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Each point of a firm's supply curve represents a price-quantity pair where:

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In theory,the long-run supply curve for perfectly competitive market firms who are identical is:

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This graph represents the cost and revenue curves of a firm in a perfectly competitive market. According to the graph shown,if a firm is producing at Q3:

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Firms in perfectly competitive markets typically have:

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

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Commodities:

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

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When firms have market power,it means that they:

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If a firm in a perfectly competitive market faces the cost curves in the graph shown and observes a market price of $10,the firm:

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A good that is perfectly standardized is:

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A price taker is a buyer or seller who:

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

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According to the graph shown,producing 9 units earns profits that are:

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

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