Question 1

Which of the following is an investment decision in a competitive market?

Accepted Answer

A)  The shutdown decision. 
B)  The rate of output to produce. 
C)  Entry or exit. 
D)  The price to charge. 
A)  The shutdown decision. 
B)  The rate of output to produce. 
C)  Entry or exit. 
D)  The price to charge. C

Question 2

Refer to Figure 23.4 for a perfectly competitive market and firm. Which of the following is most likely to occur, ceteris paribus?

Accepted Answer

A)  The firm will exit in the long run. 
B)  The firm will increase output. 
C)  The firm will shut down in the short run. 
D)  The firm will raise its price. 
A)  The firm will exit in the long run. 
B)  The firm will increase output. 
C)  The firm will shut down in the short run. 
D)  The firm will raise its price. A

Question 3

Refer to Figure 23.5 for a perfectly competitive firm. If this firm produces the level of output corresponding to point B in the short run, it will earn

Accepted Answer

A)  Zero economic profit. 
B)  The maximum profit possible. 
C)  A profit, although not the maximum profit possible. 
D)  A loss. 
A)  Zero economic profit. 
B)  The maximum profit possible. 
C)  A profit, although not the maximum profit possible. 
D)  A loss. A

Question 4

In long-run perfectly competitive equilibrium, marginal cost

Accepted Answer

A)  Is greater than ATC. 
B)  Is less than ATC. 
C)  Equals the minimum of the ATC. 
D)  Equals the minimum of the AVC. 
A)  Is greater than ATC. 
B)  Is less than ATC. 
C)  Equals the minimum of the ATC. 
D)  Equals the minimum of the AVC.

Question 5

Refer to Figure 23.2 for a perfectly competitive firm. Given the current market price of $100, we expect to see

Accepted Answer

A)  Firms exit from the industry, driving up the market price. 
B)  Firms exit from the industry, driving down the market price. 
C)  No change in the number of firms in the industry and no change in the market price. 
D)  Firms enter the industry, driving down the market price. 
A)  Firms exit from the industry, driving up the market price. 
B)  Firms exit from the industry, driving down the market price. 
C)  No change in the number of firms in the industry and no change in the market price. 
D)  Firms enter the industry, driving down the market price.

Question 6

Marginal cost is the increase in total cost associated with a one-unit

Accepted Answer

A)  Increase in production. 
B)  Decrease in production. 
C)  Increase in input usage. 
D)  Decrease in input usage. 
A)  Increase in production. 
B)  Decrease in production. 
C)  Increase in input usage. 
D)  Decrease in input usage.

Question 7

In a perfectly competitive industry, economic profit:

Accepted Answer

A)  Can persist in the long run because of barriers to entry. 
B)  Can persist in the long run because of homogeneous products. 
C)  Will approach zero in the long run as prices are driven to zero. 
D)  Will approach zero in the long run as prices are driven to the level of average production costs. 
A)  Can persist in the long run because of barriers to entry. 
B)  Can persist in the long run because of homogeneous products. 
C)  Will approach zero in the long run as prices are driven to zero. 
D)  Will approach zero in the long run as prices are driven to the level of average production costs.

Question 8

Which of the following is a consequence of competition?

Accepted Answer

A)  An unrelenting squeeze on prices and profit. 
B)  Positive economic profit in the long run. 
C)  Elimination of the most efficient firms. 
D)  Price-gouging behavior. 
A)  An unrelenting squeeze on prices and profit. 
B)  Positive economic profit in the long run. 
C)  Elimination of the most efficient firms. 
D)  Price-gouging behavior.

Question 9

Refer to Figure 23.6 for a perfectly competitive firm. Given the current market price, we expect to see

Accepted Answer

A)  Entry into this industry. 
B)  Exit from this industry. 
C)  No change in the number of firms in this industry. 
D)  Costs rise to absorb the profits earned by the firms in the industry. 
A)  Entry into this industry. 
B)  Exit from this industry. 
C)  No change in the number of firms in this industry. 
D)  Costs rise to absorb the profits earned by the firms in the industry.

Question 10

The profit motive drives entry and exit decisions.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following is least likely to occur during the long run in a perfectly competitive market experiencing economic profits?

Accepted Answer

A)  A rightward shift in the market supply curve. 
B)  An increase in the market quantity demanded. 
C)  An increase in marginal revenue. 
D)  A decline in the ATC and MC curves. 
A)  A rightward shift in the market supply curve. 
B)  An increase in the market quantity demanded. 
C)  An increase in marginal revenue. 
D)  A decline in the ATC and MC curves.

Question 12

One World View article is titled "Wireless Phone Rates in India Declining as Competition Grows." Competitive forces typically force companies to

Accepted Answer

A)  Cut prices and reduce product quality. 
B)  Improve product quality and reduce service. 
C)  Improve service and raise prices. 
D)  Cut prices, improve product quality, and improve service. 
A)  Cut prices and reduce product quality. 
B)  Improve product quality and reduce service. 
C)  Improve service and raise prices. 
D)  Cut prices, improve product quality, and improve service.

Question 13

Bib's Soccer Ball Company produces 800 soccer balls per week. If the firm used marginal cost pricing to determine soccer ball output, it would produce 600 soccer balls. Consumers do not receive the most desirable quantity of soccer balls from Bib's because

Accepted Answer

A)  Economic losses are occurring. 
B)  The firm must be earning higher than normal economic profits. 
C)  The cost of producing the additional 200 soccer balls is greater than the amount that consumers are willing to pay for the additional soccer balls. 
D)  The cost of producing the additional 200 soccer balls is less than the amount that consumers are willing to pay for the additional soccer balls. 
A)  Economic losses are occurring. 
B)  The firm must be earning higher than normal economic profits. 
C)  The cost of producing the additional 200 soccer balls is greater than the amount that consumers are willing to pay for the additional soccer balls. 
D)  The cost of producing the additional 200 soccer balls is less than the amount that consumers are willing to pay for the additional soccer balls.

Question 14

In order to attain the optimal mix of output, we must know the opportunity cost of producing different goods.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following is not a barrier to entry?

Accepted Answer

A)  Government regulation. 
B)  Control of essential factors of production. 
C)  Economies of scale. 
D)  Perfect information. 
A)  Government regulation. 
B)  Control of essential factors of production. 
C)  Economies of scale. 
D)  Perfect information.

Question 16

If price is below the long-run competitive equilibrium level, there will be

Accepted Answer

A)  Greater demand. 
B)  Positive economic profits. 
C)  Greater output. 
D)  Exit of firms from the market. 
A)  Greater demand. 
B)  Positive economic profits. 
C)  Greater output. 
D)  Exit of firms from the market.

Question 17

If two products are homogeneous, then they

Accepted Answer

A)  Are identical. 
B)  Differ from each other. 
C)  Must be used together. 
D)  Are similar to each other. 
A)  Are identical. 
B)  Differ from each other. 
C)  Must be used together. 
D)  Are similar to each other.

Question 18

Which of the following is not a characteristic of a perfectly competitive market?

Accepted Answer

A)  Zero economic profit in the long run. 
B)  Perfect information. 
C)  Homogeneous products. 
D)  High barriers. 
A)  Zero economic profit in the long run. 
B)  Perfect information. 
C)  Homogeneous products. 
D)  High barriers.

Question 19

In a competitive market where firms are earning economic profits, which of the following should be expected as the industry moves to long-run equilibrium, ceteris paribus?

Accepted Answer

A)  A higher price and fewer firms. 
B)  A higher price and more firms. 
C)  A lower price and fewer firms. 
D)  A lower price and more firms. 
A)  A higher price and fewer firms. 
B)  A higher price and more firms. 
C)  A lower price and fewer firms. 
D)  A lower price and more firms.

Question 20

In which of the following cases would a firm exit from a market?

Accepted Answer

A) P > short-run ATC. B) P long-run ATC. D) P < long-run ATC. A) P > short-run ATC. B) P long-run ATC. D) P < long-run ATC.

Exam 9: Aggregate Demand

Which of the following is an investment decision in a competitive market?

Refer to Figure 23.4 for a perfectly competitive market and firm. Which of the following is most likely to occur, ceteris paribus?

Refer to Figure 23.5 for a perfectly competitive firm. If this firm produces the level of output corresponding to point B in the short run, it will earn

In long-run perfectly competitive equilibrium, marginal cost

Refer to Figure 23.2 for a perfectly competitive firm. Given the current market price of $100, we expect to see

Marginal cost is the increase in total cost associated with a one-unit

In a perfectly competitive industry, economic profit:

Which of the following is a consequence of competition?

Refer to Figure 23.6 for a perfectly competitive firm. Given the current market price, we expect to see

The profit motive drives entry and exit decisions.

Which of the following is least likely to occur during the long run in a perfectly competitive market experiencing economic profits?

One World View article is titled "Wireless Phone Rates in India Declining as Competition Grows." Competitive forces typically force companies to

Bib's Soccer Ball Company produces 800 soccer balls per week. If the firm used marginal cost pricing to determine soccer ball output, it would produce 600 soccer balls. Consumers do not receive the most desirable quantity of soccer balls from Bib's because

In order to attain the optimal mix of output, we must know the opportunity cost of producing different goods.

Which of the following is not a barrier to entry?

If price is below the long-run competitive equilibrium level, there will be

If two products are homogeneous, then they

Which of the following is not a characteristic of a perfectly competitive market?

In a competitive market where firms are earning economic profits, which of the following should be expected as the industry moves to long-run equilibrium, ceteris paribus?

In which of the following cases would a firm exit from a market?

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The Role of Government

National Income Accounting

Unemployment

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The Business Cycle

Self-Adjustment or Instability

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Deficits and Debt

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Supply-Side Policy: Short-Run Options

Growth and Productivity: Long-Run Possibilities

Theory Versus Reality

International Trade

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