Question 1

When P < ATC in the long run, a perfectly competitive firm experiences economic profit and new firms will enter the market.

Accepted Answer

A) True 
 B)False

Question 2

When an athletic shoe company is producing a level of output at which price is greater than MC, from society's standpoint the company is producing too

Accepted Answer

A)  Much because society is giving up more to produce additional shoes than the shoes are worth. 
B)  Much because society would be willing to give up more alternative goods in order to get additional shoes. 
C)  Little because society is giving up more to produce additional shoes than the shoes are worth. 
D)  Little because society would be willing to give up more alternative goods in order to get additional shoes. 
A)  Much because society is giving up more to produce additional shoes than the shoes are worth. 
B)  Much because society would be willing to give up more alternative goods in order to get additional shoes. 
C)  Little because society is giving up more to produce additional shoes than the shoes are worth. 
D)  Little because society would be willing to give up more alternative goods in order to get additional shoes.

Question 3

If a firm decides to make the investment decision to expand its capacity, then it must have discovered that

Accepted Answer

A)  P = ATC. 
B)  P > AVC. 
C)  P > ATC. 
D)  P = AVC. 
A)  P = ATC. 
B)  P > AVC. 
C)  P > ATC. 
D)  P = AVC.

Question 4

When a computer firm is producing a level of output at which MC is greater than price, from society's standpoint the firm is producing too

Accepted Answer

A)  Much because society is giving up more to produce additional computers than the computers are worth. 
B)  Much because society would be willing to give up more alternative goods in order to get additional computers. 
C)  Little because society is giving up more to produce additional computers than the computers are worth. 
D)  Little because society would be willing to give up more alternative goods in order to get additional computers. 
A)  Much because society is giving up more to produce additional computers than the computers are worth. 
B)  Much because society would be willing to give up more alternative goods in order to get additional computers. 
C)  Little because society is giving up more to produce additional computers than the computers are worth. 
D)  Little because society would be willing to give up more alternative goods in order to get additional computers.

Question 5

Which of the following is characteristic of a perfectly competitive market?

Accepted Answer

A)  Differentiated products. 
B)  Price below marginal revenue. 
C)  A large number of firms. 
D)  Significant barriers to entry. 
A)  Differentiated products. 
B)  Price below marginal revenue. 
C)  A large number of firms. 
D)  Significant barriers to entry.

Question 6

A profit-maximizing producer seeks to

Accepted Answer

A)  Maximize profit per unit. 
B)  Minimize marginal cost. 
C)  Minimize average total costs. 
D)  Maximize total profit. 
A)  Maximize profit per unit. 
B)  Minimize marginal cost. 
C)  Minimize average total costs. 
D)  Maximize total profit.

Question 7

A necessary condition for the operation of a perfectly competitive market is free entry and exit from the market.

Accepted Answer

A) True 
 B)False

Question 8

Economic losses are a signal to producers

Accepted Answer

A)  That they are using resources in the most efficient way. 
B)  That they are not using resources in the best way. 
C)  That consumer demand is being satisfied. 
D)  That consumers are content with the allocation of resources. 
A)  That they are using resources in the most efficient way. 
B)  That they are not using resources in the best way. 
C)  That consumer demand is being satisfied. 
D)  That consumers are content with the allocation of resources.

Question 9

In which of the following cases would a firm enter 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.

Question 10

The competitive market model is important because

Accepted Answer

A)  It characterizes all the markets in the U.S. economy. 
B)  It shows how laissez faire can overcome market failures. 
C)  All industries function much like the competitive model. 
D)  It shows that firms can earn economic profits in the long run. 
A)  It characterizes all the markets in the U.S. economy. 
B)  It shows how laissez faire can overcome market failures. 
C)  All industries function much like the competitive model. 
D)  It shows that firms can earn economic profits in the long run.

Question 11

If long-run economic losses are being experienced in a competitive market,

Accepted Answer

A)  More firms will enter the market. 
B)  The market supply curve will shift to the right. 
C)  Equilibrium price will rise as firms exit. 
D)  Normal profit will fall to zero as firms enter. 
A)  More firms will enter the market. 
B)  The market supply curve will shift to the right. 
C)  Equilibrium price will rise as firms exit. 
D)  Normal profit will fall to zero as firms enter.

Question 12

Which characteristic of competitive markets permits society to answer the WHAT to produce question efficiently?

Accepted Answer

A)  Marginal cost pricing. 
B)  Average cost pricing. 
C)  Minimum cost pricing. 
D)  Total cost pricing. 
A)  Marginal cost pricing. 
B)  Average cost pricing. 
C)  Minimum cost pricing. 
D)  Total cost pricing.

Question 13

The decision by firms to enter a market shifts the market supply curve to the right.

Accepted Answer

A) True 
 B)False

Question 14

The entry of firms into a market, ceteris paribus,

Accepted Answer

A)  Shifts the market supply curve to the left. 
B)  Reduces the economic profit of each firm already in the market. 
C)  Decreases the equilibrium output in the market. 
D)  Shifts the market demand curve to the left. 
A)  Shifts the market supply curve to the left. 
B)  Reduces the economic profit of each firm already in the market. 
C)  Decreases the equilibrium output in the market. 
D)  Shifts the market demand curve to the left.

Question 15

As long as an economic profit is available, a perfectly competitive market will continue to attract new entrants.

Accepted Answer

A) True 
 B)False

Question 16

In Figure 23.3, diagram "a" presents the cost curves that are relevant to a firm's production decision, and diagram "b" shows the market demand and supply curves for the market. Use both diagrams to answer the following question: In Figure 23.3, if market demand is at D1, the firm should

Accepted Answer

A)  Leave the market. 
B)  Produce q1. 
C)  Shut down. 
D)  Do any of the above depending on the position of the AVC and the length of the time period. 
A)  Leave the market. 
B)  Produce q1. 
C)  Shut down. 
D)  Do any of the above depending on the position of the AVC and the length of the time period.

Question 17

The equilibrium price in a competitive market

Accepted Answer

A)  Ensures that anyone who wants the good can get it. 
B)  Equates the demand for goods with the supply of goods. 
C)  Remains unchanged forever. 
D)  Remains unchanged only if demand doesn't change. 
A)  Ensures that anyone who wants the good can get it. 
B)  Equates the demand for goods with the supply of goods. 
C)  Remains unchanged forever. 
D)  Remains unchanged only if demand doesn't change.

Question 18

If the firm in Figure 23.4 raised the price of its product above $4, the firm would

Accepted Answer

A)  Increase its profits. 
B)  Reduce its total revenue to zero. 
C)  Increase its total revenue but not its profits because costs would increase. 
D)  Not affect revenues but increase profits because costs would decrease. 
A)  Increase its profits. 
B)  Reduce its total revenue to zero. 
C)  Increase its total revenue but not its profits because costs would increase. 
D)  Not affect revenues but increase profits because costs would decrease.

Question 19

Technological improvements cause

Accepted Answer

A)  New firms to enter but existing firms to continue producing their old output levels. 
B)  Some firms to exit but the remaining firms to produce more output. 
C)  Existing firms to produce more output. 
D)  Existing firms to continue producing their old output levels but to lower the price of the products. 
A)  New firms to enter but existing firms to continue producing their old output levels. 
B)  Some firms to exit but the remaining firms to produce more output. 
C)  Existing firms to produce more output. 
D)  Existing firms to continue producing their old output levels but to lower the price of the products.

Question 20

Refer to Figure 23.1 for a perfectly competitive firm. This firm should shut down in the short run if the market price is below

Accepted Answer

A)  $5. 
B)  $10. 
C)  $15. 
D)  $20. 
A)  $5. 
B)  $10. 
C)  $15. 
D)  $20.

Exam 9: Aggregate Demand

When P < ATC in the long run, a perfectly competitive firm experiences economic profit and new firms will enter the market.

When an athletic shoe company is producing a level of output at which price is greater than MC, from society's standpoint the company is producing too

If a firm decides to make the investment decision to expand its capacity, then it must have discovered that

When a computer firm is producing a level of output at which MC is greater than price, from society's standpoint the firm is producing too

Which of the following is characteristic of a perfectly competitive market?

A profit-maximizing producer seeks to

A necessary condition for the operation of a perfectly competitive market is free entry and exit from the market.

Economic losses are a signal to producers

In which of the following cases would a firm enter a market?

The competitive market model is important because

If long-run economic losses are being experienced in a competitive market,

Which characteristic of competitive markets permits society to answer the WHAT to produce question efficiently?

The decision by firms to enter a market shifts the market supply curve to the right.

The entry of firms into a market, ceteris paribus,

As long as an economic profit is available, a perfectly competitive market will continue to attract new entrants.

In Figure 23.3, diagram "a" presents the cost curves that are relevant to a firm's production decision, and diagram "b" shows the market demand and supply curves for the market. Use both diagrams to answer the following question: In Figure 23.3, if market demand is at D1, the firm should

The equilibrium price in a competitive market

If the firm in Figure 23.4 raised the price of its product above $4, the firm would

Technological improvements cause

Refer to Figure 23.1 for a perfectly competitive firm. This firm should shut down in the short run if the market price is below

Economics: the Core Issues

The Us Economy: a Global View

Supply and Demand

The Role of Government

National Income Accounting

Unemployment

Inflation

The Business Cycle

Self-Adjustment or Instability

Fiscal Policy

Deficits and Debt

Money and Banks

The Federal Reserve System

Monetary Policy

Supply-Side Policy: Short-Run Options

Growth and Productivity: Long-Run Possibilities

Theory Versus Reality

International Trade

International Finance

Global Poverty Glossary Index Reference Tables

International Economics

International Economics

Filters

In Figure 23.3, diagram "a" presents the cost curves that are relevant to a firm's production decision, and diagram "b" shows the market demand and supply curves for the market. Use both diagrams to answer the following question: In Figure 23.3, if market demand is at D₁, the firm should