Question 1

If a market is allocatively efficient,

Accepted Answer

A) firms are minimizing marginal cost 
B) firms are minimizing total cost 
C) consumers are minimizing expenditures 
D) it must be impossible to increase total utility 
E) it must be impossible to decrease output 
A) firms are minimizing marginal cost 
B) firms are minimizing total cost 
C) consumers are minimizing expenditures 
D) it must be impossible to increase total utility 
E) it must be impossible to decrease output D

Question 2

Exhibit 8-12   If the market price rises, the total revenue (TR)curve in Exhibit 8-12 will

Accepted Answer

A) rotate upward and become steeper 
B) shift to the right 
C) rotate downward and become steeper 
D) not be affected 
E) shift to the left 
A) rotate upward and become steeper 
B) shift to the right 
C) rotate downward and become steeper 
D) not be affected 
E) shift to the left A

Question 3

In a perfectly competitive industry we are likely to find

Accepted Answer

A) firms producing a wide variety of products 
B) barriers to entry 
C) no profit possible in the short run 
D) firms that do not advertise 
E) firms that can choose the price of their products 
A) firms producing a wide variety of products 
B) barriers to entry 
C) no profit possible in the short run 
D) firms that do not advertise 
E) firms that can choose the price of their products D

Question 4

Which of the following is not true with regard to economic profit?

Accepted Answer

A) economic profit equals total revenue minus total cost 
B) economic profit excludes implicit cost 
C) economic profit is any profit greater than a normal profit 
D) firms attempt to maximize economic profit 
E) long-run economic profit is always zero in perfect competition 
A) economic profit equals total revenue minus total cost 
B) economic profit excludes implicit cost 
C) economic profit is any profit greater than a normal profit 
D) firms attempt to maximize economic profit 
E) long-run economic profit is always zero in perfect competition

Question 5

Exhibit 8-13   If the market price in Exhibit 8-13 is $6, what is the greatest possible short-run profit for this perfectly competitive firm?

Accepted Answer

A) $3 
B) $30 
C) -$3 
D) -$30 
E) $20 
A) $3 
B) $30 
C) -$3 
D) -$30 
E) $20

Question 6

Which of the following is not a characteristic of perfect competition?

Accepted Answer

A) A commodity product 
B) A large number of independently acting sellers 
C) Freedom of entry 
D) The existence of externalities 
E) Each firm is a price taker 
A) A commodity product 
B) A large number of independently acting sellers 
C) Freedom of entry 
D) The existence of externalities 
E) Each firm is a price taker

Question 7

Producer surplus measures the difference between total revenues and fixed cost

Accepted Answer

A) True 
 B)False

Question 8

Which of the following is most likely to be an increasing-cost industry?

Accepted Answer

A) An industry whose firms experience diseconomies of scale 
B) An industry whose firms experience economies of scale 
C) An industry that is a major buyer in the markets for the inputs it uses 
D) An industry that is a very small buyer in the markets for the inputs it uses 
E) An industry that is a major seller in the markets for its outputs 
A) An industry whose firms experience diseconomies of scale 
B) An industry whose firms experience economies of scale 
C) An industry that is a major buyer in the markets for the inputs it uses 
D) An industry that is a very small buyer in the markets for the inputs it uses 
E) An industry that is a major seller in the markets for its outputs

Question 9

Because it is small relative to the market, a perfectly competitive firm faces an inelastic demand curve for its output.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following characterizes a perfectly competitive market?

Accepted Answer

A) a few firms fiercely competing by slashing prices 
B) product differentiation through aggressive advertising 
C) perfect information 
D) limited resource mobility 
E) barriers to entry such as licenses 
A) a few firms fiercely competing by slashing prices 
B) product differentiation through aggressive advertising 
C) perfect information 
D) limited resource mobility 
E) barriers to entry such as licenses

Question 11

Suppose, at its present rate of output, a perfectly competitive firm's marginal revenue exceeds both its marginal cost and its average variable cost.To maximize profit, the firm should

Accepted Answer

A) lower the price 
B) raise the price 
C) increase output 
D) reduce output 
E) maintain its current rate of output 
A) lower the price 
B) raise the price 
C) increase output 
D) reduce output 
E) maintain its current rate of output

Question 12

If a perfectly competitive firm shuts down in the short run, its variable cost equals zero.

Accepted Answer

A) True 
 B)False

Question 13

To maximize profit, a perfectly competitive firm that decides not to shut down will choose the rate of output at which

Accepted Answer

A) price is highest 
B) price minus average total cost is maximized 
C) price equals marginal cost 
D) total revenue is maximized 
E) average total cost is minimized 
A) price is highest 
B) price minus average total cost is maximized 
C) price equals marginal cost 
D) total revenue is maximized 
E) average total cost is minimized

Question 14

A firm with positive accounting profit may be suffering an economic loss.

Accepted Answer

A) True 
 B)False

Question 15

Exhibit 8-11   In Exhibit 8-11, total cost at the profit-maximizing output level is shown by area

Accepted Answer

A) ejx0 
B) giw0 
C) mfz0 
D) abz0 
E) cdy0 
A) ejx0 
B) giw0 
C) mfz0 
D) abz0 
E) cdy0

Question 16

Mary Ann and Don provide catering services in a perfectly competitive market.When they started in business, the going rate was $50 per person per meal.After the price increased to $60, they became willing to supply more meals.Their response to the price change is shown by

Accepted Answer

A) a rightward shift of the market supply curve 
B) a leftward shift of the market supply curve 
C) movement up along their firm's marginal cost curve 
D) movement down along their firm's marginal cost curve 
E) a rightward shift in their demand for jobs 
A) a rightward shift of the market supply curve 
B) a leftward shift of the market supply curve 
C) movement up along their firm's marginal cost curve 
D) movement down along their firm's marginal cost curve 
E) a rightward shift in their demand for jobs

Question 17

Many country inns shut down in the off-season because

Accepted Answer

A) the off-season market price falls below average total cost 
B) the off-season market price can't cover their average fixed cost 
C) the off-season revenue can't cover variable cost 
D) the off-season price is below the marginal cost of providing a room 
E) innkeepers are interested in maximizing revenue 
A) the off-season market price falls below average total cost 
B) the off-season market price can't cover their average fixed cost 
C) the off-season revenue can't cover variable cost 
D) the off-season price is below the marginal cost of providing a room 
E) innkeepers are interested in maximizing revenue

Question 18

A perfectly competitive firm in the short run determines its quantity supplied at various prices by using

Accepted Answer

A) the portion of its marginal cost curve rising above its average total cost curve 
B) the portion of its marginal cost curve rising above its average variable cost 
C) its average variable cost curve 
D) its average total cost curve 
E) the portion of its average variable cost curve rising above its average fixed cost curve 
A) the portion of its marginal cost curve rising above its average total cost curve 
B) the portion of its marginal cost curve rising above its average variable cost 
C) its average variable cost curve 
D) its average total cost curve 
E) the portion of its average variable cost curve rising above its average fixed cost curve

Question 19

Suppose a perfectly competitive increasing-cost industry is in long-run equilibrium when market demand suddenly increases.What happens to the typical firm in the long run?

Accepted Answer

A) It experiences no change from the original equilibrium 
B) It experiences a higher average total cost and equilibrium price 
C) It experiences a lower average total cost and equilibrium price 
D) It experiences the same equilibrium price but a greater average total cost 
E) It experiences the same equilibrium price but a lower average total cost 
A) It experiences no change from the original equilibrium 
B) It experiences a higher average total cost and equilibrium price 
C) It experiences a lower average total cost and equilibrium price 
D) It experiences the same equilibrium price but a greater average total cost 
E) It experiences the same equilibrium price but a lower average total cost

Question 20

In the short run, if a firm shuts down, its loss is equal to

Accepted Answer

A) $0 
B) its variable costs 
C) its fixed costs 
D) fixed costs minus variable costs 
E) fixed costs minus total revenue 
A) $0 
B) its variable costs 
C) its fixed costs 
D) fixed costs minus variable costs 
E) fixed costs minus total revenue

Exam 8: A--Perfect Competition

If a market is allocatively efficient,

Exhibit 8-12 If the market price rises, the total revenue (TR)curve in Exhibit 8-12 will

In a perfectly competitive industry we are likely to find

Which of the following is not true with regard to economic profit?

Exhibit 8-13 If the market price in Exhibit 8-13 is $6, what is the greatest possible short-run profit for this perfectly competitive firm?

Which of the following is not a characteristic of perfect competition?

Producer surplus measures the difference between total revenues and fixed cost

Which of the following is most likely to be an increasing-cost industry?

Because it is small relative to the market, a perfectly competitive firm faces an inelastic demand curve for its output.

Which of the following characterizes a perfectly competitive market?

Suppose, at its present rate of output, a perfectly competitive firm's marginal revenue exceeds both its marginal cost and its average variable cost.To maximize profit, the firm should

If a perfectly competitive firm shuts down in the short run, its variable cost equals zero.

To maximize profit, a perfectly competitive firm that decides not to shut down will choose the rate of output at which

A firm with positive accounting profit may be suffering an economic loss.

Exhibit 8-11 In Exhibit 8-11, total cost at the profit-maximizing output level is shown by area

Mary Ann and Don provide catering services in a perfectly competitive market.When they started in business, the going rate was $50 per person per meal.After the price increased to $60, they became willing to supply more meals.Their response to the price change is shown by

Many country inns shut down in the off-season because

A perfectly competitive firm in the short run determines its quantity supplied at various prices by using

Suppose a perfectly competitive increasing-cost industry is in long-run equilibrium when market demand suddenly increases.What happens to the typical firm in the long run?

In the short run, if a firm shuts down, its loss is equal to

The Art and Science of Economic Analysis

Appendix--Understanding Graphs

Economic Tools and Economics Systems

Economic Decision Makers

Demand, Supply, and Markets

Elasticity of Demand and Supply

Appendix--Price Elasticity and Tax Incidence

Consumer Choice and Demand

Appendix--Indifference Curves and Utility Maximization

Production and Cost in the Firm

B--Perfect Competition

A--Monopoly

B--Monopoly

Monopolistic Competition and Oligopoly

Resource Markets

Labor Markets and Labor Unions

Capital, Interest, and Corporate Finance

Transaction Costs, Imperfect Information, and Behavioral Economics

Economic Regulation and Antitrust Policy

Public Goods and Public Choice

Externalities and the Environment

Income Distribution and Poverty

International Trade

International Finance

Economic Development

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