Question 1

Why do economists consider perfect competition to be the most efficient market structure?

Accepted Answer

Perfect competition is the most efficient market structure because, in the long run, each firm in the market will be producing at its minimum average cost, or per-unit cost (see Figure 10-9a in the text, for example). This means that consumers get desired goods and services at the lowest possible prices, and also that the firms are economizing on society's scarce resources to the greatest extent possible.
Figure 10-9 ​

Question 2

Table 10-1   In Table 10-1 are the short-run cost schedules of a perfectly competitive firm. Below what price would the firm choose to shut down?

Accepted Answer

A) $50 
B) $20 
C) $18 
D) $14 
A) $50 
B) $20 
C) $18 
D) $14 D

Question 3

In perfect competition, an increase in fixed costs will eventually cause all except

Accepted Answer

A) reduction in industry output. 
B) reduction in a firm's output. 
C) reduction in the number of firms. 
D) decrease in industry supply. 
A) reduction in industry output. 
B) reduction in a firm's output. 
C) reduction in the number of firms. 
D) decrease in industry supply. B

Question 4

In the short run if TR

Accepted Answer

A) True 
 B)False

Question 5

If the price falls below minimum SRAVC, the quantity supplied by the firm will be

Accepted Answer

A) the quantity at minimum MC. 
B) zero. 
C) the quantity at the point where MC intersects AC. 
D) the quantity at minimum AC. 
A) the quantity at minimum MC. 
B) zero. 
C) the quantity at the point where MC intersects AC. 
D) the quantity at minimum AC.

Question 6

The short run for the industry is defined as a period

Accepted Answer

A) too brief for new firms to enter the industry. 
B) too brief for old firms to leave the industry. 
C) in which the number of firms in the industry is fixed. 
D) All of the responses are correct. 
A) too brief for new firms to enter the industry. 
B) too brief for old firms to leave the industry. 
C) in which the number of firms in the industry is fixed. 
D) All of the responses are correct.

Question 7

Under perfect competition, firms are relatively ignorant of the actions of their competitors.

Accepted Answer

A) True 
 B)False

Question 8

In the short run, only a limited number of new firms may enter a perfectly competitive market.

Accepted Answer

A) True 
 B)False

Question 9

If you must determine the long-run equilibrium output of a perfectly competitive firm and you are permitted to see only one curve, which of the following curves is most helpful?

Accepted Answer

A) Demand 
B) Marginal cost 
C) Average cost 
D) Average fixed cost 
A) Demand 
B) Marginal cost 
C) Average cost 
D) Average fixed cost

Question 10

Helga owns Viking, Inc., started with her $100,000 inheritance. Helga's accountant informs her that her firm earned a profit of $100,000 last year, and that if she chooses to invest the money she can expect a 10 percent return. If Helga did not run Viking, she would not work. What were Helga's economic profits last year?

Accepted Answer

A) Zero 
B) $100,000 
C) $90,000 
D) $95,000 
A) Zero 
B) $100,000 
C) $90,000 
D) $95,000

Question 11

Which of the following observations is not true?

Accepted Answer

A) Demand curve of the perfectly competitive firm is perfectly elastic. 
B) There is only one price for a product in a perfectly competitive market. 
C) A firm in a perfectly competitive market can sell as much as it wants at market price. 
D) Demand curve of the perfectly competitive industry is perfectly elastic. 
A) Demand curve of the perfectly competitive firm is perfectly elastic. 
B) There is only one price for a product in a perfectly competitive market. 
C) A firm in a perfectly competitive market can sell as much as it wants at market price. 
D) Demand curve of the perfectly competitive industry is perfectly elastic.

Question 12

Graphically show a firm earning a profit; shade the appropriate profit rectangle. Explain how the profit formula represented by the rectangle is analogous to TR − TC.

Accepted Answer

Figure 10-11 shows price (= MR)above min

Question 13

Perfect competition is an ideal market structure.

Accepted Answer

A) True 
 B)False

Question 14

Figure 10-3 ​
 
In Figure 10-3, the perfectly competitive firm is realizing a

Accepted Answer

A) loss equal to ABCE. 
B) profit equal to ABCE. 
C) profit equal to ABDF. 
D) loss equal to ABDF. 
A) loss equal to ABCE. 
B) profit equal to ABCE. 
C) profit equal to ABDF. 
D) loss equal to ABDF.

Question 15

If a firm shuts down, its

Accepted Answer

A) fixed costs remain unchanged. 
B) revenue will fall to zero. 
C) short-run variable costs will fall to zero. 
D) All of the responses are correct. 
A) fixed costs remain unchanged. 
B) revenue will fall to zero. 
C) short-run variable costs will fall to zero. 
D) All of the responses are correct.

Question 16

Firms will continue to enter a perfectly competitive industry until

Accepted Answer

A) the supply curve is vertical. 
B) the supply curve is meaningless. 
C) any excess returns have been competed away. 
D) all resources are fully employed. 
A) the supply curve is vertical. 
B) the supply curve is meaningless. 
C) any excess returns have been competed away. 
D) all resources are fully employed.

Question 17

In long-run equilibrium, a firm in perfect competition has no economic profit.

Accepted Answer

A) True 
 B)False

Question 18

Zero profit in the economic sense means that firms are earning a normal rate of return.

Accepted Answer

A) True 
 B)False

Question 19

If a competitive firm's short-run average cost curve lies above the price of the product, we can conclude that the firm

Accepted Answer

A) is earning a huge profit. 
B) is incurring losses. 
C) is earning zero economic profits. 
D) is earning a normal profit. 
A) is earning a huge profit. 
B) is incurring losses. 
C) is earning zero economic profits. 
D) is earning a normal profit.

Question 20

The supply curve for a perfectly competitive industry is obtained by

Accepted Answer

A) making an empirical study of historical data. 
B) vertically summing the supply curves of firms in the industry. 
C) horizontally summing the average cost curves of firms in the industry. 
D) horizontally summing the supply curves of firms in the industry. 
A) making an empirical study of historical data. 
B) vertically summing the supply curves of firms in the industry. 
C) horizontally summing the average cost curves of firms in the industry. 
D) horizontally summing the supply curves of firms in the industry.

Exam 10: The Firm and the Industry Under Perfect Competition

Why do economists consider perfect competition to be the most efficient market structure?

Table 10-1 In Table 10-1 are the short-run cost schedules of a perfectly competitive firm. Below what price would the firm choose to shut down?

In perfect competition, an increase in fixed costs will eventually cause all except

In the short run if TR

If the price falls below minimum SRAVC, the quantity supplied by the firm will be

The short run for the industry is defined as a period

Under perfect competition, firms are relatively ignorant of the actions of their competitors.

In the short run, only a limited number of new firms may enter a perfectly competitive market.

If you must determine the long-run equilibrium output of a perfectly competitive firm and you are permitted to see only one curve, which of the following curves is most helpful?

Which of the following observations is not true?

Graphically show a firm earning a profit; shade the appropriate profit rectangle. Explain how the profit formula represented by the rectangle is analogous to TR − TC.

Perfect competition is an ideal market structure.

Figure 10-3 ​ In Figure 10-3, the perfectly competitive firm is realizing a

If a firm shuts down, its

Firms will continue to enter a perfectly competitive industry until

In long-run equilibrium, a firm in perfect competition has no economic profit.

Zero profit in the economic sense means that firms are earning a normal rate of return.

If a competitive firm's short-run average cost curve lies above the price of the product, we can conclude that the firm

The supply curve for a perfectly competitive industry is obtained by

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

The Financial Markets and the Economy: the Tail That Wags the Dog

The Case for Free Markets: the Price System

Monopoly

Between Competition and Monopoly

Limiting Market Power: Antitrust and Regulation

The Shortcomings of Free Markets

Externalities, Externaliteis, the Environment, and Natural Resources

Taxation and Resource Allocation

Pricing the Factors of Production

Labor and Entrepreneurship: the Human Inputs

Poverty, Inequality, and Discrimination

International Trade and Comparative Advantage

Contemporary Issues in the Us Economy

Filters

Figure 10-3 In Figure 10-3, the perfectly competitive firm is realizing a