Question 1

Which of the following is a condition for long-run equilibrium in a competitive industry?

Accepted Answer

A) Each firm in the industry is earning zero economic profit. 
B) The inputs employed in the industry earn less than they would had they been used elsewhere. 
C) Each firm in the industry will produce that level of output at which marginal cost is the lowest. 
D) The number of new entrants into the industry is positive. 
A) Each firm in the industry is earning zero economic profit. 
B) The inputs employed in the industry earn less than they would had they been used elsewhere. 
C) Each firm in the industry will produce that level of output at which marginal cost is the lowest. 
D) The number of new entrants into the industry is positive. A

Question 2

Explain the difference between diminishing marginal returns to factor and a decreasing-cost industry.

Accepted Answer

The upward slope of the short-run industry supply curve (the portion of the marginal cost curve above the average variable cost curve)is due to diminishing marginal returns.Diminishing marginal returns operates in the short-run when one input is fixed.It implies that as the employment of an input is increased,the additional output that is produced with the help of the additional input decreases.
A decreasing-cost industry is one where the long-run supply curve is downward sloping.This means that output expands at a lower cost.Lower cost is due to the fall in input prices as more is demanded.

Question 3

The short-run supply curve for a competitive industry:

Accepted Answer

A) is subject to the law of diminishing returns. 
B) is the industry's marginal cost curve. 
C) coincides with the marginal revenue curve. 
D) is horizontal because there are many buyers and sellers. 
A) is subject to the law of diminishing returns. 
B) is the industry's marginal cost curve. 
C) coincides with the marginal revenue curve. 
D) is horizontal because there are many buyers and sellers. A

Question 4

The model of perfect competition assumes that:

Accepted Answer

A) there is information asymmetry in the market. 
B) individual suppliers face a downward sloping demand curve. 
C) all goods in that market are homogeneous. 
D) there are a small number of sellers in the market. 
A) there is information asymmetry in the market. 
B) individual suppliers face a downward sloping demand curve. 
C) all goods in that market are homogeneous. 
D) there are a small number of sellers in the market.

Question 5

According to the _____ principle,firms that do not approximate profit maximization will not succeed in competitive markets.

Accepted Answer

A) equity 
B) successor 
C) survivor 
D) winner-takes-all 
A) equity 
B) successor 
C) survivor 
D) winner-takes-all

Question 6

Use the following figure to answer the question : Figure 9-3 : shows the marginal cost curve,average total cost curve,average variable cost curve,and marginal revenue curve for a firm for different levels of output.  
-At the profit-maximizing level of output in Figure 9-3,the profit of the firm is equal to the area given by _____.

Accepted Answer

A) RLMG 
B) RGZW 
C) RGCO 
D) RGHS 
A) RLMG 
B) RGZW 
C) RGCO 
D) RGHS

Question 7

Which of the following is true of a long-run competitive equilibrium?

Accepted Answer

A) The market has a horizontal long-run supply curve. 
B) Inputs employed in the industry cannot earn more in other industries. 
C) Firms in the market earn high abnormal profits. 
D) Firms face constant input costs irrespective of the output level. 
A) The market has a horizontal long-run supply curve. 
B) Inputs employed in the industry cannot earn more in other industries. 
C) Firms in the market earn high abnormal profits. 
D) Firms face constant input costs irrespective of the output level.

Question 8

Use the following figure to answer the question : Figure 9-2 : shows the total cost and total revenue curves for a firm. 
 
-Refer to Figure 9-2.The firm's profits are positive:

Accepted Answer

A) from output level 1 to 2. 
B) only at output level 2. 
C) from output level 2 to 4. 
D) only at output level 1. 
A) from output level 1 to 2. 
B) only at output level 2. 
C) from output level 2 to 4. 
D) only at output level 1.

Question 9

On the graphs below,demonstrate the circumstances that would prevail in a perfectly competitive market where the representative firm is experiencing economic losses.Draw the relevant cost curves (marginal,average total,and average variable costs;use U-shaped curves),the marginal revenue curve,and the market supply and demand curves.Shade in the area of total revenue and the area of economic loss.As you've drawn it,will the firm shut down in the short-run or choose to continue production? Explain your answer.

Accepted Answer

@#IMG-DLM&_TB1826_00 
The loss and revenue are ide

Question 10

Product homogeneity implies that consumers:

Accepted Answer

A) buy goods from the lowest-priced source. 
B) know which seller produces the highest quality goods. 
C) cannot easily decide which seller to buy from. 
D) can judge quality easily by price. 
A) buy goods from the lowest-priced source. 
B) know which seller produces the highest quality goods. 
C) cannot easily decide which seller to buy from. 
D) can judge quality easily by price.

Question 11

The slope of the long-run supply curve in a decreasing-cost industry is _____.

Accepted Answer

A) zero 
B) negative 
C) positive 
D) infinite 
A) zero 
B) negative 
C) positive 
D) infinite

Question 12

In an increasing-cost industry,the slope of the long-run supply curve is _____.

Accepted Answer

A) zero 
B) negative 
C) positive 
D) infinity 
A) zero 
B) negative 
C) positive 
D) infinity

Question 13

In a constant-cost industry,the slope of the long-run supply curve is _____.

Accepted Answer

A) zero 
B) negative 
C) positive 
D) infinity 
A) zero 
B) negative 
C) positive 
D) infinity

Question 14

Assume a competitive industry produces widgets using labor and capital in fixed proportions.Both input supply curves slope upward.The government considers the equilibrium price of widgets to be too high and imposes a price ceiling that is below the equilibrium price.Which of the following is most likely to occur?

Accepted Answer

A) The sales of widgets will increase and the prices and employment of both inputs will rise. 
B) The sales of widgets will decline and the prices and employment of both inputs will remain unchanged. 
C) The sales of widgets will decline and the prices and employment of both inputs will fall. 
D) The sales of widgets will increase and the prices and employment of both inputs will fall. 
A) The sales of widgets will increase and the prices and employment of both inputs will rise. 
B) The sales of widgets will decline and the prices and employment of both inputs will remain unchanged. 
C) The sales of widgets will decline and the prices and employment of both inputs will fall. 
D) The sales of widgets will increase and the prices and employment of both inputs will fall.

Question 15

Which of the following is constant along the industry long-run supply curve?

Accepted Answer

A) Technology 
B) Number of firms 
C) Input prices 
D) Price of output 
A) Technology 
B) Number of firms 
C) Input prices 
D) Price of output

Question 16

The short-run supply curve for the firm operating in a perfectly competitive industry is:

Accepted Answer

A) its marginal cost curve. 
B) its marginal cost curve above the minimum of average variable cost. 
C) its marginal cost curve above the minimum of average total cost. 
D) the average variable cost curve above average revenue curve. 
A) its marginal cost curve. 
B) its marginal cost curve above the minimum of average variable cost. 
C) its marginal cost curve above the minimum of average total cost. 
D) the average variable cost curve above average revenue curve.

Question 17

If a competitive industry is characterized by increasing cost,which of the following will occur in response to an unexpected increase in demand?

Accepted Answer

A) New firms will enter the industry. 
B) Economic profit will remain zero. 
C) Input prices will remain constant. 
D) The price of the product will remain unchanged. 
A) New firms will enter the industry. 
B) Economic profit will remain zero. 
C) Input prices will remain constant. 
D) The price of the product will remain unchanged.

Question 18

Following a significant decrease in the price of a variable input,at the initial output level:

Accepted Answer

A) marginal revenue is higher than average revenue. 
B) marginal cost is higher than marginal revenue. 
C) marginal cost is lower than average revenue. 
D) marginal cost is still equal to marginal revenue. 
A) marginal revenue is higher than average revenue. 
B) marginal cost is higher than marginal revenue. 
C) marginal cost is lower than average revenue. 
D) marginal cost is still equal to marginal revenue.

Question 19

Eggs,which are standardized products,are sold within a city at higher prices than in the suburbs.Given that firms in the city are able to sustain the higher prices but do not make higher profits than firms in the suburbs,this means that:

Accepted Answer

A) the egg industry is a constant-cost industry. 
B) the egg industry is not competitive as the prices of perfectly substitutable goods are different. 
C) consumers do not have perfect information which leads to price differentials. 
D) the convenience of buying eggs in the city weakens the homogeneous product assumption. 
A) the egg industry is a constant-cost industry. 
B) the egg industry is not competitive as the prices of perfectly substitutable goods are different. 
C) consumers do not have perfect information which leads to price differentials. 
D) the convenience of buying eggs in the city weakens the homogeneous product assumption.

Question 20

Use the following figure to answer the question : Figure 9-4 : shows the marginal cost curve,the average cost curve,the average variable cost curve,and the demand curve for a firm over different levels of output.The market price is $P.  
-Refer to Figure 9-4.At the output level OB the total fixed cost is equal to _____.

Accepted Answer

A) TBOV 
B) KTVP 
C) GKPS 
D) GTVS 
A) TBOV 
B) KTVP 
C) GKPS 
D) GTVS

Which of the following is a condition for long-run equilibrium in a competitive industry?

Explain the difference between diminishing marginal returns to factor and a decreasing-cost industry.

The short-run supply curve for a competitive industry:

The model of perfect competition assumes that:

According to the _____ principle,firms that do not approximate profit maximization will not succeed in competitive markets.

Which of the following is true of a long-run competitive equilibrium?

Use the following figure to answer the question : Figure 9-2 : shows the total cost and total revenue curves for a firm. -Refer to Figure 9-2.The firm's profits are positive:

Product homogeneity implies that consumers:

The slope of the long-run supply curve in a decreasing-cost industry is _____.

In an increasing-cost industry,the slope of the long-run supply curve is _____.

In a constant-cost industry,the slope of the long-run supply curve is _____.

Which of the following is constant along the industry long-run supply curve?

The short-run supply curve for the firm operating in a perfectly competitive industry is:

If a competitive industry is characterized by increasing cost,which of the following will occur in response to an unexpected increase in demand?

Following a significant decrease in the price of a variable input,at the initial output level:

Eggs,which are standardized products,are sold within a city at higher prices than in the suburbs.Given that firms in the city are able to sustain the higher prices but do not make higher profits than firms in the suburbs,this means that:

An Introduction to Microeconomics

Supply and Demand

The Theory of Consumer Choice

Individual and Market Demand

Using Consumer Choice Theory

Exchange, Efficiency, and Prices

Production

The Cost of Production

Using the Competitive Model

Monopoly

Product Pricing With Monopoly Power

Monopolistic Competition and Oligopoly

Game Theory and the Economics of Information

Using Noncompetitive Market Models

Employment and Pricing of Inputs

Wages, Rent, Interest, and Profit

Using Input Market Analysis

General Equilibrium Analysis and Economic Efficiency

Public Goods and Externalities

Filters

Exam 9: Profit Maximization in Perfectly Competitive Markets

Which of the following is a condition for long-run equilibrium in a competitive industry?

Explain the difference between diminishing marginal returns to factor and a decreasing-cost industry.

The short-run supply curve for a competitive industry:

The model of perfect competition assumes that:

According to the _____ principle,firms that do not approximate profit maximization will not succeed in competitive markets.

Which of the following is true of a long-run competitive equilibrium?

Use the following figure to answer the question : Figure 9-2 : shows the total cost and total revenue curves for a firm. -Refer to Figure 9-2.The firm's profits are positive:

Product homogeneity implies that consumers:

The slope of the long-run supply curve in a decreasing-cost industry is _____.

In an increasing-cost industry,the slope of the long-run supply curve is _____.

In a constant-cost industry,the slope of the long-run supply curve is _____.

Which of the following is constant along the industry long-run supply curve?

The short-run supply curve for the firm operating in a perfectly competitive industry is:

If a competitive industry is characterized by increasing cost,which of the following will occur in response to an unexpected increase in demand?

Following a significant decrease in the price of a variable input,at the initial output level:

Eggs,which are standardized products,are sold within a city at higher prices than in the suburbs.Given that firms in the city are able to sustain the higher prices but do not make higher profits than firms in the suburbs,this means that:

An Introduction to Microeconomics

Supply and Demand

The Theory of Consumer Choice

Individual and Market Demand

Using Consumer Choice Theory

Exchange, Efficiency, and Prices

Production

The Cost of Production

Using the Competitive Model

Monopoly

Product Pricing With Monopoly Power

Monopolistic Competition and Oligopoly

Game Theory and the Economics of Information

Using Noncompetitive Market Models

Employment and Pricing of Inputs

Wages, Rent, Interest, and Profit

Using Input Market Analysis

General Equilibrium Analysis and Economic Efficiency

Public Goods and Externalities

Filters