Question 1

The primary application of the model of perfect competition is to:

Accepted Answer

A) serve as a guide for the operation of the firm on a day-to-day basis. 
B) predict how firms will respond to changes in demand and production costs. 
C) serve as the basis for stabilization policy. 
D) serve as a completely accurate description of the day-to-day practices of businesses. 
A) serve as a guide for the operation of the firm on a day-to-day basis. 
B) predict how firms will respond to changes in demand and production costs. 
C) serve as the basis for stabilization policy. 
D) serve as a completely accurate description of the day-to-day practices of businesses. B

Question 2

Use the following to answer questions 129-135:
  
-(Exhibit: A Perfectly Competitive Firm in the Short Run)A perfectly competitive firm's supply curve is the:

Accepted Answer

A) entire MC curve. 
B) rising part of MC beginning at the shutdown point. 
C) rising part of MC beginning at the point at which the firm starts earning economic profit. 
D) MC curve below the shutdown point. 
A) entire MC curve. 
B) rising part of MC beginning at the shutdown point. 
C) rising part of MC beginning at the point at which the firm starts earning economic profit. 
D) MC curve below the shutdown point. B

Question 3

In perfectly competitive markets, if the price is _______ , the firm will _______ .

Accepted Answer

A) greater than ATC; make an economic profit 
B) less than the minimum AVC; shut down 
C) greater than the minimum AVC but less than ATC; continue to produce and incur a loss. 
D) all of the above are true. 
A) greater than ATC; make an economic profit 
B) less than the minimum AVC; shut down 
C) greater than the minimum AVC but less than ATC; continue to produce and incur a loss. 
D) all of the above are true. D

Question 4

The supply curve for the firm in perfect competition:

Accepted Answer

A) is the MC curve above the minimum of ATC. 
B) tells the quantity produced at each price. 
C) must result in a price greater than MR. 
D) shows the outputs at which the firm makes an economic profit. 
A) is the MC curve above the minimum of ATC. 
B) tells the quantity produced at each price. 
C) must result in a price greater than MR. 
D) shows the outputs at which the firm makes an economic profit.

Question 5

Use the following to answer questions $$\begin{array}{l}
\text { Total Cost for a Perfectly Competitive Firm }\\
\begin{array} { c c } 
\begin{array} { cc } 
\text { Quantity } \
\text { per } &
\end{array} & \text { Total }    \
\text { period }&\text { Cost } \
0 & \$ 10 \
1 & \$ 16 \
2 & \$ 20 \
3 & \$ 22 \
4 & \$ 24 \
5 & \$ 25 \
6 & \$ 27 \
7 & \$ 30 \
8 & \$ 34 \
9 & \$ 39 \
10 & \$ 45
\end{array}
\end{array}$$
-(Exhibit: Total Cost for a Perfectly Competitive Firm)The firm will produce, but at a loss in the short run if the price is:

Accepted Answer

A) $2.00. 
B) $2.50. 
C) $3.50. 
D) $4.50. 
A) $2.00. 
B) $2.50. 
C) $3.50. 
D) $4.50.

Question 6

Perfect competition is important to study because it:

Accepted Answer

A) is a theoretical extreme used for analysis. 
B) is a realistic model of a few key markets. 
C) is a realistic model of many different markets. 
D) avoids all real-world problems and complexities. 
A) is a theoretical extreme used for analysis. 
B) is a realistic model of a few key markets. 
C) is a realistic model of many different markets. 
D) avoids all real-world problems and complexities.

Question 7

The slope of the total cost curve is:

Accepted Answer

A) marginal cost. 
B) marginal revenue. 
C) constant under perfect competition. 
D) always negative. 
A) marginal cost. 
B) marginal revenue. 
C) constant under perfect competition. 
D) always negative.

Question 8

Use the following to answer questions  
-(Exhibit: Profit Maximizing)The exhibit shows cost curves for a firm operating in a perfectly competitive market.If the market price is P4, the firm will produce quantity _______ and _______ in the short run.

Accepted Answer

A) q1; break even 
B) q3; make a profit 
C) q4; break even 
D) None of the above is true. 
A) q1; break even 
B) q3; make a profit 
C) q4; break even 
D) None of the above is true.

Question 9

If price is less than average variable cost at the profit-maximizing quantity of output in the short run, a perfectly competitive firm will:

Accepted Answer

A) produce at a loss. 
B) produce at a profit. 
C) shut down production. 
D) produce more than the profit-maximizing quantity. 
A) produce at a loss. 
B) produce at a profit. 
C) shut down production. 
D) produce more than the profit-maximizing quantity.

Question 10

When production costs change in a perfectly competitive industry, price will change by ________ than the change in production cost in the _______ .

Accepted Answer

A) more; long run 
B) less; short run 
C) less; long 
D) more; long 
A) more; long run 
B) less; short run 
C) less; long 
D) more; long

Question 11

Use the following to answer questions  
-(Exhibit: Profit Maximizing)The exhibit shows cost curves for a firm operating in a perfectly competitive market.If the market price is P4:

Accepted Answer

A) firms will leave the industry and the price will fall in the long run. 
B) there will be economic profits and firms will enter the industry in the long run. 
C) the market supply curve will shift to the left and price will fall in the long run. 
D) the firm will continue producing q3 and will continue to make economic profits in the long run. 
A) firms will leave the industry and the price will fall in the long run. 
B) there will be economic profits and firms will enter the industry in the long run. 
C) the market supply curve will shift to the left and price will fall in the long run. 
D) the firm will continue producing q3 and will continue to make economic profits in the long run.

Question 12

Economic profit:

Accepted Answer

A) exists when total revenue exceeds marginal revenue. 
B) is the horizontal distance between total cost and total revenue. 
C) is the vertical distance between total revenue and total cost at a particular level of output. 
D) can't exist in perfectly competitive markets. 
A) exists when total revenue exceeds marginal revenue. 
B) is the horizontal distance between total cost and total revenue. 
C) is the vertical distance between total revenue and total cost at a particular level of output. 
D) can't exist in perfectly competitive markets.

Question 13

The difference between total revenue and total cost is:

Accepted Answer

A) economic profit. 
B) nominal revenue. 
C) average revenue. 
D) marginal revenue. 
A) economic profit. 
B) nominal revenue. 
C) average revenue. 
D) marginal revenue.

Question 14

Use the following to answer questions 122-128:  
-(Exhibit: Perfectly Competitive Firm)The exhibit shows a perfectly competitive firm that faces demand curve d, has the cost curves shown, and maximizes profit.The firm's total profit per day is:

Accepted Answer

A) zero. 
B) $250. 
C) $275. 
D) $300. 
A) zero. 
B) $250. 
C) $275. 
D) $300.

Question 15

Firms in the model of perfect competition will:

Accepted Answer

A) maximize total revenue by using the marginal decision rule. 
B) increase output up to the point that the marginal benefit of an additional unit of output is greater than the marginal cost. 
C) increase output up to the point that the marginal benefit of an additional unit of output is equal to the marginal cost. 
D) always attempt to minimize average variable cost. 
A) maximize total revenue by using the marginal decision rule. 
B) increase output up to the point that the marginal benefit of an additional unit of output is greater than the marginal cost. 
C) increase output up to the point that the marginal benefit of an additional unit of output is equal to the marginal cost. 
D) always attempt to minimize average variable cost.

Question 16

Accounting profit in the long run in perfect competition will be zero.

Accepted Answer

A) True 
 B)False

Question 17

Use the following to answer questions  
-(Exhibit: Total Revenue, Total Costs, and Economic Profit)Which of the following is true?

Accepted Answer

A) As output increases the slope of the total revenue curve does not change. 
B) The total cost curve becomes steeper and steeper as output increases from 0 to 10,000 pounds of output. 
C) Total revenue and total cost curves never have the same slope. 
D) None of the above is true. 
A) As output increases the slope of the total revenue curve does not change. 
B) The total cost curve becomes steeper and steeper as output increases from 0 to 10,000 pounds of output. 
C) Total revenue and total cost curves never have the same slope. 
D) None of the above is true.

Question 18

Use the following to answer questions 122-128:  
-(Exhibit: Perfectly Competitive Firm)The exhibit shows a perfectly competitive firm that faces demand curve d, has the cost curves shown, and maximizes profit.The firm is experiencing:

Accepted Answer

A) diminishing marginal returns to its variable input. 
B) increasing marginal returns to its variable input. 
C) negative economic profit. 
D) zero economic profit. 
A) diminishing marginal returns to its variable input. 
B) increasing marginal returns to its variable input. 
C) negative economic profit. 
D) zero economic profit.

Question 19

Suppose that some firms in a perfectly competitive industry are incurring negative economic profits.In the long run, the:

Accepted Answer

A) industry supply curve will not shift. 
B) industry supply curve will shift to the left. 
C) number of firms in the industry will not change. 
D) number of firms in the industry will increase. 
A) industry supply curve will not shift. 
B) industry supply curve will shift to the left. 
C) number of firms in the industry will not change. 
D) number of firms in the industry will increase.

Question 20

Suppose that the market for candy canes operates under conditions of perfect competition, that it is initially in long-run equilibrium, and that the price of each candy cane is $0.10.Now suppose that the price of sugar rises, increasing the marginal and average total cost of producing candy canes by $0.05; there are no other changes in production costs.Based on the information given, we can conclude that once all the adjustments to long-run equilibrium are achieved, the price of candy canes will equal:

Accepted Answer

A) five cents. 
B) ten cents. 
C) fifteen cents 
D) It is impossible to answer without knowing exactly how many firms entered and/or left the industry. 
A) five cents. 
B) ten cents. 
C) fifteen cents 
D) It is impossible to answer without knowing exactly how many firms entered and/or left the industry.

Exam 9: The Nature and Creation of Money

The primary application of the model of perfect competition is to:

Use the following to answer questions 129-135: -(Exhibit: A Perfectly Competitive Firm in the Short Run)A perfectly competitive firm's supply curve is the:

In perfectly competitive markets, if the price is _______ , the firm will _______ .

The supply curve for the firm in perfect competition:

Perfect competition is important to study because it:

The slope of the total cost curve is:

Use the following to answer questions -(Exhibit: Profit Maximizing)The exhibit shows cost curves for a firm operating in a perfectly competitive market.If the market price is P4, the firm will produce quantity _______ and _______ in the short run.

If price is less than average variable cost at the profit-maximizing quantity of output in the short run, a perfectly competitive firm will:

When production costs change in a perfectly competitive industry, price will change by ________ than the change in production cost in the _______ .

Use the following to answer questions -(Exhibit: Profit Maximizing)The exhibit shows cost curves for a firm operating in a perfectly competitive market.If the market price is P4:

Economic profit:

The difference between total revenue and total cost is:

Use the following to answer questions 122-128: -(Exhibit: Perfectly Competitive Firm)The exhibit shows a perfectly competitive firm that faces demand curve d, has the cost curves shown, and maximizes profit.The firm's total profit per day is:

Firms in the model of perfect competition will:

Accounting profit in the long run in perfect competition will be zero.

Use the following to answer questions -(Exhibit: Total Revenue, Total Costs, and Economic Profit)Which of the following is true?

Use the following to answer questions 122-128: -(Exhibit: Perfectly Competitive Firm)The exhibit shows a perfectly competitive firm that faces demand curve d, has the cost curves shown, and maximizes profit.The firm is experiencing:

Suppose that some firms in a perfectly competitive industry are incurring negative economic profits.In the long run, the:

Economics: the Study of Choice

Confronting Scarcity: Choices in Production

Demand and Supply

Applications of Demand and Supply

Macroeconomics: the Big Picture

Measuring Total Output and Income

Aggregate Demand and Aggregate Supply

Economic Growth

Monopoly

The World of Imperfect Competition

Wages and Employment in Perfect Competition

Interest Rates and the Markets for Capital and Natural Resources

Imperfectly Competitive Markets for Factors of Production

Public Finance and Public Choice

Inflation and Unemployment

International Trade

The Economics of the Environment

Inequality, Poverty, and Discrimination

Macroeconomics: the Big Picture

Measuring Total Income and Output

Aggregate Demand and Aggregate Supply

Economic Growth

The Nature and Creation of Money

Financial Markets and the Economy

Monetary Policy and the Fed

Government and Fiscal Policy

Consumption and the Aggregate Expenditures Model

Investment and Economic Activity

Net Exports and International Finance

Macro Inflation and Unemployment

Macro a Brief History of Macroeconomic Thought and Policy

Economic Development

Socialist Economies in Transition

Filters

In perfectly competitive markets, if the price is _ , the firm will _ .

Use the following to answer questions -(Exhibit: Profit Maximizing)The exhibit shows cost curves for a firm operating in a perfectly competitive market.If the market price is P₄, the firm will produce quantity _ and _ in the short run.

When production costs change in a perfectly competitive industry, price will change by __ than the change in production cost in the _ .

Use the following to answer questions -(Exhibit: Profit Maximizing)The exhibit shows cost curves for a firm operating in a perfectly competitive market.If the market price is P₄: