Question 1

Which of the following conditions is true of a perfectly competitive industry when it is in long-run equilibrium?

Accepted Answer

A) Firms are entering the industry. 
B) Firms are exiting the industry. 
C) Price equals minimum short-run average total cost for all firms. 
D) Accounting profits for all firms are zero. 
E) Firms are experiencing increasing returns to scale. 
A) Firms are entering the industry. 
B) Firms are exiting the industry. 
C) Price equals minimum short-run average total cost for all firms. 
D) Accounting profits for all firms are zero. 
E) Firms are experiencing increasing returns to scale. C

Question 2

Consider the following short-run cost curves for a profit-maximizing firm in a perfectly competitive industry.   FIGURE 9-2
-Refer to Figure 9-2.The short-run supply curve for the industry in which this firm operates is

Accepted Answer

A) the MC curve at or above a price of $1.50. 
B) the AVC curve at or above a price of $1.50. 
C) the entire MC curve. 
D) the MC curve at or above a price of $3. 
E) not determinable from the information provided. 
A) the MC curve at or above a price of $1.50. 
B) the AVC curve at or above a price of $1.50. 
C) the entire MC curve. 
D) the MC curve at or above a price of $3. 
E) not determinable from the information provided. E

Question 3

Comparing the short-run and long-run profit-maximizing positions of a perfectly competitive firm,which statement is true?

Accepted Answer

A) Price will equal marginal cost in the short run,but not necessarily in the long run. 
B) Economic profit may exist in the short run and in the long run. 
C) The firm will produce at minimum average cost in both the short and long run. 
D) Price should equal average cost in the long run,but not necessarily in the short run. 
E) The firm may have unexploited economies of scale in both the short run and the long run. 
A) Price will equal marginal cost in the short run,but not necessarily in the long run. 
B) Economic profit may exist in the short run and in the long run. 
C) The firm will produce at minimum average cost in both the short and long run. 
D) Price should equal average cost in the long run,but not necessarily in the short run. 
E) The firm may have unexploited economies of scale in both the short run and the long run. D

Question 4

Consider the following cost curves for Firm X,a perfectly competitive firm.   FIGURE 9-5
-Refer to Figure 9-5.In this industry,which one of the following is FALSE?

Accepted Answer

A) If the price were to fall below P2,firms would leave the industry. 
B) If the price were to rise above P2,new firms would enter the industry. 
C) If the scale of Firm X at output Q2 and price P2 is large enough that Firm X has an appreciable share of the market,Firm X will no longer be a price taker. 
D) At output Q2 and price P2,Firm X is maximizing its long-run profits. 
E) Only one firm can reach the size of output Q2. 
A) If the price were to fall below P2,firms would leave the industry. 
B) If the price were to rise above P2,new firms would enter the industry. 
C) If the scale of Firm X at output Q2 and price P2 is large enough that Firm X has an appreciable share of the market,Firm X will no longer be a price taker. 
D) At output Q2 and price P2,Firm X is maximizing its long-run profits. 
E) Only one firm can reach the size of output Q2.

Question 5

Suppose ABC Corp.is a firm producing newsprint in a perfectly competitive industry.Its output is 1500 tonnes per month,the marginal cost of the last tonne produced is $710,and the average revenue per tonne is $620.In the short run,this firm should

Accepted Answer

A) reduce output. 
B) increase output until average revenue is equal to marginal cost. 
C) increase output until marginal revenue is equal to marginal cost. 
D) definitely shut down. 
E) The price of the product is not known,so it is not possible to determine. 
A) reduce output. 
B) increase output until average revenue is equal to marginal cost. 
C) increase output until marginal revenue is equal to marginal cost. 
D) definitely shut down. 
E) The price of the product is not known,so it is not possible to determine.

Question 6

Consider the following total cost schedule for a perfectly competitive firm producing ball-point pens.
   TABLE 9-3
-Refer to Table 9-3.What is the marginal cost of producing the 35th unit of output?

Accepted Answer

A) $0.10 
B) $0.17 
C) $0.375 
D) $0.40 
E) $0.50 
A) $0.10 
B) $0.17 
C) $0.375 
D) $0.40 
E) $0.50

Question 7

In the short run,a profit-maximizing firm will expand output

Accepted Answer

A) as long as marginal revenue is greater than marginal cost. 
B) until marginal cost begins to rise. 
C) until marginal revenue equals average variable cost. 
D) until total revenue equals total cost. 
E) as long as marginal cost is greater than marginal revenue. 
A) as long as marginal revenue is greater than marginal cost. 
B) until marginal cost begins to rise. 
C) until marginal revenue equals average variable cost. 
D) until total revenue equals total cost. 
E) as long as marginal cost is greater than marginal revenue.

Question 8

Consider the following short-run cost curves for a profit-maximizing firm in a perfectly competitive industry.   FIGURE 9-2
-Refer to Figure 9-2.If the current market price is $6,the profit-maximizing output for this firm is

Accepted Answer

A) 100 units. 
B) 200 units. 
C) 300 units. 
D) 400 units. 
E) 500 units. 
A) 100 units. 
B) 200 units. 
C) 300 units. 
D) 400 units. 
E) 500 units.

Question 9

Consider a perfectly competitive firm when its industry is in long-run equilibrium.Which of the following statements is correct?

Accepted Answer

A) The firm has successfully differentiated its product. 
B) The firm has successfully established barriers to entry. 
C) The firm has a strong profit incentive to expand capacity. 
D) The firm has no ability to affect its product's price. 
E) The firm is earning positive economic profits. 
A) The firm has successfully differentiated its product. 
B) The firm has successfully established barriers to entry. 
C) The firm has a strong profit incentive to expand capacity. 
D) The firm has no ability to affect its product's price. 
E) The firm is earning positive economic profits.

Question 10

Suppose a typical firm in a competitive industry has the following data in the short run: price = $5000; output = 1 million units; ATC = $5300; AVC = $4750.What will likely happen in the long run?

Accepted Answer

A) In the long run the industry will expand because firms are earning economic profits. 
B) In the long run the industry will contract because firms are suffering losses. 
C) The size of the industry will remain the same in the long run. 
D) Consumers will avoid this industry because firms are suffering losses. 
E) There is not enough information to formulate an answer. 
A) In the long run the industry will expand because firms are earning economic profits. 
B) In the long run the industry will contract because firms are suffering losses. 
C) The size of the industry will remain the same in the long run. 
D) Consumers will avoid this industry because firms are suffering losses. 
E) There is not enough information to formulate an answer.

Question 11

Which of the following statements is one of the assumptions of the theory of perfect competition?

Accepted Answer

A) Firms compete with each other by varying their price. 
B) Firms are price setters. 
C) Consumers know the prices charged by each firm. 
D) Firms produce a wide variety of versions of the product. 
E) A firm's entry to the market is regulated by the federal Competition Bureau. 
A) Firms compete with each other by varying their price. 
B) Firms are price setters. 
C) Consumers know the prices charged by each firm. 
D) Firms produce a wide variety of versions of the product. 
E) A firm's entry to the market is regulated by the federal Competition Bureau.

Question 12

Consider the price and quantity data below for a perfectly competitive firm producing mousetraps.
   TABLE 9-1
-Refer to Table 9-1.Suppose this firm is currently selling 1750 mousetraps at the market price of $5.If the firm raises its price to $6,it's average revenue will be

Accepted Answer

A) $0. 
B) $5. 
C) $6. 
D) between $5 and $6. 
E) greater than $6. 
A) $0. 
B) $5. 
C) $6. 
D) between $5 and $6. 
E) greater than $6.

Question 13

9.3 Short-Run Decisions
Assume the following total cost schedule for a perfectly competitive firm.
   TABLE 9-2
-Refer to Table 9-2.This profit-maximizing firm would produce no output in the short run if the market price of its output dropped below

Accepted Answer

A) $35. 
B) $40. 
C) $70. 
D) $90. 
E) $100. 
A) $35. 
B) $40. 
C) $70. 
D) $90. 
E) $100.

Question 14

For any firm operating in any market structure,marginal revenue is defined as

Accepted Answer

A) total revenue divided by the number of units sold. 
B) the change in total revenue resulting from the sale of an additional unit of the product. 
C) the total amount received by the seller from the sale of a product. 
D) the change in price resulting from the sale of an additional unit of the product. 
E) price times quantity of the product sold. 
A) total revenue divided by the number of units sold. 
B) the change in total revenue resulting from the sale of an additional unit of the product. 
C) the total amount received by the seller from the sale of a product. 
D) the change in price resulting from the sale of an additional unit of the product. 
E) price times quantity of the product sold.

Question 15

Average revenue (AR)for an individual firm in a perfectly competitive market equals

Accepted Answer

A) p × q. 
B) p. 
C) △p × △q. 
D) △q/△p. 
E) (p × q)/△q. 
A) p × q. 
B) p. 
C) △p × △q. 
D) △q/△p. 
E) (p × q)/△q.

Question 16

The demand curve facing a perfectly competitive firm

Accepted Answer

A) is the same as the industry or market demand curve. 
B) is almost perfectly elastic at the market price. 
C) depends on the firm's technology. 
D) depends on the firm's costs of production. 
E) depends on the firm's output. 
A) is the same as the industry or market demand curve. 
B) is almost perfectly elastic at the market price. 
C) depends on the firm's technology. 
D) depends on the firm's costs of production. 
E) depends on the firm's output.

Question 17

Consider the following statement of equalities: P = MC = minimum SRATC = minimum LRAC.This statement of equalities best applies to which of the following?

Accepted Answer

A) a perfectly competitive firm that is maximizing profits,which will lead other firms to enter this industry 
B) a perfectly competitive firm when the industry is in long-run equilibrium 
C) a perfectly competitive firm that is producing the optimal quantity,such that other firms will exit the industry 
D) a perfectly competitive industry that is in long-run equilibrium 
E) a perfectly competitive industry that is in short-run equilibrium 
A) a perfectly competitive firm that is maximizing profits,which will lead other firms to enter this industry 
B) a perfectly competitive firm when the industry is in long-run equilibrium 
C) a perfectly competitive firm that is producing the optimal quantity,such that other firms will exit the industry 
D) a perfectly competitive industry that is in long-run equilibrium 
E) a perfectly competitive industry that is in short-run equilibrium

Question 18

9.3 Short-Run Decisions
Assume the following total cost schedule for a perfectly competitive firm.
   TABLE 9-2
-Refer to Table 9-2.What is the marginal cost of producing the 5th unit of output?

Accepted Answer

A) $30 
B) $35 
C) $50 
D) $70 
E) $80 
A) $30 
B) $35 
C) $50 
D) $70 
E) $80

Question 19

Suppose that in a perfectly competitive industry,the market price of the product is $12.Firm A is producing the output level at which average total cost equals marginal cost,both of which are $10.To maximize its profits,Firm A should

Accepted Answer

A) reduce its output. 
B) expand its output. 
C) leave its output unchanged. 
D) increase its advertising. 
E) change the price of the product. 
A) reduce its output. 
B) expand its output. 
C) leave its output unchanged. 
D) increase its advertising. 
E) change the price of the product.

Question 20

Which of the following assumptions about perfectly competitive markets is primarily responsible for firms having zero economic profit in long run equilibrium?

Accepted Answer

A) homogeneous product 
B) consumers are aware of all firms' prices 
C) each firm is small relative to the size of the industry 
D) freedom of entry and exit in the industry 
E) strategic behaviour 
A) homogeneous product 
B) consumers are aware of all firms' prices 
C) each firm is small relative to the size of the industry 
D) freedom of entry and exit in the industry 
E) strategic behaviour

Exam 9: Competitive Markets

Which of the following conditions is true of a perfectly competitive industry when it is in long-run equilibrium?

Consider the following short-run cost curves for a profit-maximizing firm in a perfectly competitive industry. FIGURE 9-2 -Refer to Figure 9-2.The short-run supply curve for the industry in which this firm operates is

Comparing the short-run and long-run profit-maximizing positions of a perfectly competitive firm,which statement is true?

Consider the following cost curves for Firm X,a perfectly competitive firm. FIGURE 9-5 -Refer to Figure 9-5.In this industry,which one of the following is FALSE?

Suppose ABC Corp.is a firm producing newsprint in a perfectly competitive industry.Its output is 1500 tonnes per month,the marginal cost of the last tonne produced is $710,and the average revenue per tonne is $620.In the short run,this firm should

Consider the following total cost schedule for a perfectly competitive firm producing ball-point pens. TABLE 9-3 -Refer to Table 9-3.What is the marginal cost of producing the 35th unit of output?

In the short run,a profit-maximizing firm will expand output

Consider the following short-run cost curves for a profit-maximizing firm in a perfectly competitive industry. FIGURE 9-2 -Refer to Figure 9-2.If the current market price is $6,the profit-maximizing output for this firm is

Consider a perfectly competitive firm when its industry is in long-run equilibrium.Which of the following statements is correct?

Suppose a typical firm in a competitive industry has the following data in the short run: price = $5000; output = 1 million units; ATC = $5300; AVC = $4750.What will likely happen in the long run?

Which of the following statements is one of the assumptions of the theory of perfect competition?

Consider the price and quantity data below for a perfectly competitive firm producing mousetraps. TABLE 9-1 -Refer to Table 9-1.Suppose this firm is currently selling 1750 mousetraps at the market price of $5.If the firm raises its price to $6,it's average revenue will be

9.3 Short-Run Decisions Assume the following total cost schedule for a perfectly competitive firm. TABLE 9-2 -Refer to Table 9-2.This profit-maximizing firm would produce no output in the short run if the market price of its output dropped below

For any firm operating in any market structure,marginal revenue is defined as

Average revenue (AR)for an individual firm in a perfectly competitive market equals

The demand curve facing a perfectly competitive firm

Consider the following statement of equalities: P = MC = minimum SRATC = minimum LRAC.This statement of equalities best applies to which of the following?

9.3 Short-Run Decisions Assume the following total cost schedule for a perfectly competitive firm. TABLE 9-2 -Refer to Table 9-2.What is the marginal cost of producing the 5th unit of output?

Suppose that in a perfectly competitive industry,the market price of the product is $12.Firm A is producing the output level at which average total cost equals marginal cost,both of which are $10.To maximize its profits,Firm A should

Which of the following assumptions about perfectly competitive markets is primarily responsible for firms having zero economic profit in long run equilibrium?

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