Question 1

A perfectly competitive firm is a "price taker" because it cannot sell its product for more than the market price.

Accepted Answer

A) True 
 B)False  True

Question 2

A firm that is earning zero economic profit should go out of business.

Accepted Answer

A) True 
 B)False  False

Question 3

Figure 10-6  
-In Figure 10-6, the price at long-run equilibrium is

Accepted Answer

A) $5. 
B) $10. 
C) $20. 
D) $35. 
A) $5. 
B) $10. 
C) $20. 
D) $35. C

Question 4

Which of the following most resembles a perfectly competitive market?

Accepted Answer

A) the stock market 
B) the publishing industry 
C) the steel industry 
D) the new car market 
A) the stock market 
B) the publishing industry 
C) the steel industry 
D) the new car market

Question 5

The difference between zero accounting profit and zero economic profit is that

Accepted Answer

A) an economic profit of zero indicates a fair rate of return because it includes opportunity cost.opportunity cost and 
B) an economic profit of zero indicates an unacceptable rate of return because it does not include opportunity cost. 
C) an economic profit of zero indicates more than a fair rate of return because it includes opportunity cost and explicit cost.. 
D) an accounting profit of zero indicates a fair rate of return because it includes opportunity cost. 
A) an economic profit of zero indicates a fair rate of return because it includes opportunity cost.opportunity cost and 
B) an economic profit of zero indicates an unacceptable rate of return because it does not include opportunity cost. 
C) an economic profit of zero indicates more than a fair rate of return because it includes opportunity cost and explicit cost.. 
D) an accounting profit of zero indicates a fair rate of return because it includes opportunity cost.

Question 6

Which of the following statements concerning equilibrium in the long run is not true?

Accepted Answer

A) Most firms earn economic profits in the long run. 
B) The firm can vary its plant size in the long run. 
C) Economic profits are eliminated as new firms enter the industry in the long run. 
D) For firms in long-run equilibrium, P = MC = AC. 
A) Most firms earn economic profits in the long run. 
B) The firm can vary its plant size in the long run. 
C) Economic profits are eliminated as new firms enter the industry in the long run. 
D) For firms in long-run equilibrium, P = MC = AC.

Question 7

The short-run supply curve for a perfectly competitive firm is that portion of the MC curve above the AVC curve.

Accepted Answer

A) True 
 B)False

Question 8

For the perfectly competitive firm in Figure 10-8, what is the long-run price and quantity?

Accepted Answer

A) P = 4, Q = 150 
B) P = 9, Q = 200 
C) P = 10, Q = 200 
D) P = 5, Q = 150 
A) P = 4, Q = 150 
B) P = 9, Q = 200 
C) P = 10, Q = 200 
D) P = 5, Q = 150

Question 9

A firm facing a horizontal demand curve

Accepted Answer

A) cannot affect the price it receives for its output. 
B) always produces at an output at which P = MR. 
C) faces perfectly elastic demand for its product. 
D) All of the above are correct. 
A) cannot affect the price it receives for its output. 
B) always produces at an output at which P = MR. 
C) faces perfectly elastic demand for its product. 
D) All of the above are correct.

Question 10

Sally Rand owns a ceiling fan company.She sells 1,000 ceiling fans at $50 each.Each fan costs her $20.She uses her own money to buy the fans; she withdraws the money from her savings account where it earns 5 percent interest.Before going into the ceiling fan business, she worked as a fan-dancer at $25,000 a year.Should Sally remain in business?

Accepted Answer

If her economic profit is at least zero,

Question 11

A perfectly competitive firm will always maximize profits by producing where

Accepted Answer

A) per-unit costs are lowest. 
B) total costs and total revenue are equal. 
C) P = MC. 
D) P = AC. 
A) per-unit costs are lowest. 
B) total costs and total revenue are equal. 
C) P = MC. 
D) P = AC.

Question 12

Explain why Adam Smith believed that competitive markets are a key component of achieving the gains from the invisible hand.

Accepted Answer

Adam Smith believed that individuals act

Question 13

The entry of new firms into an industry will very likely

Accepted Answer

A) shift the industry supply curve to the right. 
B) cause the market price to fall. 
C) reduce the profits of existing firms in the industry. 
D) All of the above are correct. 
A) shift the industry supply curve to the right. 
B) cause the market price to fall. 
C) reduce the profits of existing firms in the industry. 
D) All of the above are correct.

Question 14

A perfectly competitive firm should continue to expand output until

Accepted Answer

A) total revenue exceeds total costs. 
B) total revenue exceeds variable costs. 
C) marginal revenue equals marginal costs. 
D) average revenue equals variable costs. 
A) total revenue exceeds total costs. 
B) total revenue exceeds variable costs. 
C) marginal revenue equals marginal costs. 
D) average revenue equals variable costs.

Question 15

In a market with perfectly competitive firms, the market demand curve is usually ____ and the demand curve facing each individual firm ____.

Accepted Answer

A) upward sloping; horizontal 
B) downward sloping; horizontal 
C) horizontal; downward sloping 
D) downward sloping; downward sloping 
A) upward sloping; horizontal 
B) downward sloping; horizontal 
C) horizontal; downward sloping 
D) downward sloping; downward sloping

Question 16

The market demand schedule in perfect competition is horizontal.

Accepted Answer

A) True 
 B)False

Question 17

The market for toothpaste is a good example of perfect competition.

Accepted Answer

A) True 
 B)False

Question 18

A perfectly competitive firm's short-run supply is infinite at the market price.

Accepted Answer

A) True 
 B)False

Question 19

A firm that is operating at a loss may continue to operate for a while because of costs that it will still have to pay even if production ceases.

Accepted Answer

A) True 
 B)False

Question 20

A firm sells in a competitive market in which price is $12.Its marginal cost is 6 + .25Q.Determine the profit-maximizing level of output.

Accepted Answer

The solution requires equating

Exam 10: The Firm and the Industry Under Perfect Competition

A perfectly competitive firm is a "price taker" because it cannot sell its product for more than the market price.

A firm that is earning zero economic profit should go out of business.

Figure 10-6 -In Figure 10-6, the price at long-run equilibrium is

Which of the following most resembles a perfectly competitive market?

The difference between zero accounting profit and zero economic profit is that

Which of the following statements concerning equilibrium in the long run is not true?

The short-run supply curve for a perfectly competitive firm is that portion of the MC curve above the AVC curve.

For the perfectly competitive firm in Figure 10-8, what is the long-run price and quantity?

A firm facing a horizontal demand curve

A perfectly competitive firm will always maximize profits by producing where

Explain why Adam Smith believed that competitive markets are a key component of achieving the gains from the invisible hand.

The entry of new firms into an industry will very likely

A perfectly competitive firm should continue to expand output until

In a market with perfectly competitive firms, the market demand curve is usually ____ and the demand curve facing each individual firm ____.

The market demand schedule in perfect competition is horizontal.

The market for toothpaste is a good example of perfect competition.

A perfectly competitive firm's short-run supply is infinite at the market price.

A firm that is operating at a loss may continue to operate for a while because of costs that it will still have to pay even if production ceases.

A firm sells in a competitive market in which price is $12.Its marginal cost is 6 + .25Q.Determine the profit-maximizing level of output.

What Is Economics

The Economy Myth and Reality

The Fundamental Economic Problem Scarcity and Choice

Supply and Demand an Initial Look

Consumer Choice Individual and Market Demand

Demand and Elasticity

Production Inputs and Cost Building Blocks for Supply Analysis

Output Price and Profit the Importance of Marginal Analysis

Securities Business Finance and the Economy the Tail That Wags the Dog

Monopoly

Between Competition and Monopoly

Limiting Market Power Regulation and Antitrust

The Case for Free Markets the Price System

The Shortcomings of Free Markets

Externalities the Environment and Natural Resources

Taxation and Resource Allocation

Pricing the Factors of Production

Labor and Entrepreneurship the Human Inputs

Poverty Inequality and Discrimination

Is Us Economic Leadership Threatened

International Trade and Comparative Advantage

Filters

In a market with perfectly competitive firms, the market demand curve is usually and the demand curve facing each individual firm .