Question 1

If the long-run industry supply curve is downward-sloping,it follows that there are __________ costs in the industry.

Accepted Answer

A)   increasing
B)   constant
C)   decreasing
D)   a or b
E)   There is not enough information to answer the question.

Question 2

Equilibrium price is $22 in a perfectly competitive market.For a perfectly competitive firm,MR = MC at 200 units of output.At 200 units,ATC is $23,and AVC is $18.The best policy for this firm is to __________ in the short run.Also,this firm earns __________ of __________ if it produces and sells 200 units.Finally,the difference between total variable cost and total fixed cost for this firm is __________.

Accepted Answer

A)   continue to produce, profits, $1800, $3,600
B)   shut down, losses, $200, $3,600
C)   continue to produce, losses, $200, $2,600
D)   shut down, profits, $200, $1,800
E)   none of the above

Question 3

The market demand curve in a perfectly competitive market is

Accepted Answer

A)   downward sloping.
B)   upward sloping.
C)   perfectly horizontal.
D)   perfectly vertical.
E)   downward or upward sloping depending upon the type of product offered for sale.

Question 4

In a constant-cost industry,positive profits are eliminated through

Accepted Answer

A)   an increase in costs only.
B)   a decrease in price only.
C)   both an increase in costs and a decrease in price.
D)   None of the above, because positive profits are persistent in a constant-cost industry.

Question 5

All firms in an industry sell their product for the same price.This is a result of

Accepted Answer

A)   collusion.
B)   perfect competition.
C)   a government law that specifies all firms must charge the same price.
D)   a or b
E)   There is not enough information to answer the question.

Question 6

Exhibit 23-7
 
-Refer to Exhibit 23-7.What is the profit at 60 units of output?

Accepted Answer

A)   $360
B)   $90
C)   $75
D)   $60

Question 7

In order for a firm to earn economic profits,price must exceed average total cost.

Accepted Answer

A) True 
 B)False

Question 8

A firm produces the quantity of output at which P = MC and P = ATC.It follows that the firm is

Accepted Answer

A)   resource allocative efficient, but not necessarily productive efficient.
B)   productive efficient, but not necessarily resource allocative efficient.
C)   both resource allocative and productive efficient.
D)   neither resource allocative nor productive efficient.

Question 9

For the perfectly competitive firm,the demand curve and the marginal revenue curve are one and the same.

Accepted Answer

A) True 
 B)False

Question 10

Exhibit 23-2
 1, where  what is coming in  on the last unit is greater than  what is going out.  B)  Q2, where the difference between  what is coming in  on the last unit and  what is going out  is zero. C)  Q3, where marginal cost is greater than marginal revenue. D)  Q4, which maximizes the excess of marginal cost over marginal revenue." class="answers-bank-image d-inline" rel="preload" >
-Refer to Exhibit 23-2.What quantity does the profit-maximizing or loss-minimizing firm produce?

Accepted Answer

A)   Q1, where "what is coming in" on the last unit is greater than "what is going out."
B)   Q2, where the difference between "what is coming in" on the last unit and "what is going out" is zero.
C)   Q3, where marginal cost is greater than marginal revenue.
D)   Q4, which maximizes the excess of marginal cost over marginal revenue.

Question 11

Exhibit 23-9
 1,Q1) ,and that demand increases from D1 to D2.As a consequence,the typical profit-maximizing firm will A)  increase quantity produced by (q2 - q1) . B)  decrease quantity produced by (q2 - q1) . C)  decrease quantity produced by (q1 - q3) . D)  not change its output level because the demand curve it is facing did not change." class="answers-bank-image d-inline" rel="preload" >
-Refer to Exhibit 23-9.Suppose that the market starts at its long-run competitive equilibrium (P1,Q1) ,and that demand increases from D1 to D2.As a consequence,the typical profit-maximizing firm will

Accepted Answer

A)   increase quantity produced by (q2 - q1) .
B)   decrease quantity produced by (q2 - q1) .
C)   decrease quantity produced by (q1 - q3) .
D)   not change its output level because the demand curve it is facing did not change.

Question 12

Which of the following is inconsistent with long-run industry equilibrium?

Accepted Answer

A)   upward-sloping marginal cost curves for all of the firms in the industry
B)   zero economic profits
C)   P = minimum ATC
D)   SRATC = LRATC
E)   none of the above

Question 13

Exhibit 23-7
 
-Refer to Exhibit 23-7.At the profit-maximizing output level,average fixed cost is

Accepted Answer

A)   $2.00.
B)   $4.00.
C)   $5.00.
D)   $6.00.
E)   This cannot be determined based on the information provided.

Question 14

A price-taker firm will not sell any of its product for less than the equilibrium price because

Accepted Answer

A)   it is against the law to do this.
B)   it can sell all it wants at the equilibrium price.
C)   this would invite competition from outside the market and end up reducing the profits of the firm.
D)   this would be breaking the cartel agreement that price-taker firms often enter into.
E)   none of the above

Question 15

Resources are allocated efficiently when

Accepted Answer

A)   the exchange value of the resources to demanders equals the opportunity cost of the resources.
B)   the marginal benefit to demanders of the resources in the goods they purchase is equal to the marginal cost to suppliers of the resources they use in producing the goods.
C)   firms produce the quantity of output at which price is equal to marginal cost.
D)   a and b
E)   a, b, and c

Question 16

A constant-cost industry is characterized by

Accepted Answer

A)   an upward-sloping long-run supply curve.
B)   a downward-sloping long-run supply curve.
C)   a perfectly elastic long-run supply curve.
D)   perfectly elastic short-run and long-run supply curves.
E)   a perfectly elastic short-run supply curve and an upward-sloping long-run supply curve.

Question 17

Exhibit 23-3
 
-Refer to Exhibit 23-3.Is it possible for this firm to produce "too much" in the short-run?

Accepted Answer

A)   Any quantity above 42 units is too much.
B)   Any quantity above 44 units is too much.
C)   Any quantity above 40 units is too much.
D)   none of the above

Question 18

Assume that a decreasing-cost industry experiences an increase in demand.In the short run,this will

Accepted Answer

A)   lead to a price increase.
B)   lead to a price decrease.
C)   have no influence on price.
D)   a or b, depending on the marginal cost curve

Question 19

Exhibit 23-3
 
-Refer to Exhibit 23-3.What is the increase in profit that would result from producing 43 units of the product rather than producing 40 units?

Accepted Answer

A)   $60
B)   $48
C)   $28
D)   $16
E)   $13

Question 20

In long-run competitive equilibrium,no firm has an incentive to change its plant size.

Accepted Answer

A) True 
 B)False

Exam 23: Perfect Competition

A constant-cost industry is characterized by

Correct Answer
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Exhibit 23-7 -Refer to Exhibit 23-7.What is the profit at 60 units of output?

Correct Answer
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Correct Answer
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Exhibit 23-9 -Refer to Exhibit 23-9.Suppose that the market starts at its long-run competitive equilibrium (P₁,Q₁) ,and that demand increases from D₁ to D₂.As a consequence,the typical profit-maximizing firm will

Correct Answer
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Resources are allocated efficiently when

Correct Answer
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Exhibit 23-7 -Refer to Exhibit 23-7.At the profit-maximizing output level,average fixed cost is

Correct Answer
verified

In long-run competitive equilibrium,no firm has an incentive to change its plant size.

Correct Answer
verified

The market demand curve in a perfectly competitive market is

Correct Answer
verified

Exhibit 23-2 -Refer to Exhibit 23-2.What quantity does the profit-maximizing or loss-minimizing firm produce?

Correct Answer
verified

For the perfectly competitive firm,the demand curve and the marginal revenue curve are one and the same.

Correct Answer
verified

If the long-run industry supply curve is downward-sloping,it follows that there are __________ costs in the industry.

Correct Answer
verified

Assume that a decreasing-cost industry experiences an increase in demand.In the short run,this will

Correct Answer
verified

Exhibit 23-3 -Refer to Exhibit 23-3.Is it possible for this firm to produce "too much" in the short-run?

Correct Answer
verified

Exhibit 23-3 -Refer to Exhibit 23-3.What is the increase in profit that would result from producing 43 units of the product rather than producing 40 units?

Correct Answer
verified

A price-taker firm will not sell any of its product for less than the equilibrium price because

Correct Answer
verified

In order for a firm to earn economic profits,price must exceed average total cost.

Correct Answer
verified

All firms in an industry sell their product for the same price.This is a result of

Correct Answer
verified

Which of the following is inconsistent with long-run industry equilibrium?

Correct Answer
verified

A firm produces the quantity of output at which P = MC and P = ATC.It follows that the firm is

Correct Answer
verified

In a constant-cost industry,positive profits are eliminated through

Correct Answer
verified

Exam 23: Perfect Competition

A constant-cost industry is characterized by

Correct AnswerverifiedShow Answer

Exhibit 23-7 -Refer to Exhibit 23-7.What is the profit at 60 units of output?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Exhibit 23-9 -Refer to Exhibit 23-9.Suppose that the market starts at its long-run competitive equilibrium (P1,Q1) ,and that demand increases from D1 to D2.As a consequence,the typical profit-maximizing firm will

Correct AnswerverifiedShow Answer

Resources are allocated efficiently when

Correct AnswerverifiedShow Answer

Exhibit 23-7 -Refer to Exhibit 23-7.At the profit-maximizing output level,average fixed cost is

Correct AnswerverifiedShow Answer

In long-run competitive equilibrium,no firm has an incentive to change its plant size.

Correct AnswerverifiedShow Answer

The market demand curve in a perfectly competitive market is

Correct AnswerverifiedShow Answer

Exhibit 23-2 -Refer to Exhibit 23-2.What quantity does the profit-maximizing or loss-minimizing firm produce?

Correct AnswerverifiedShow Answer

For the perfectly competitive firm,the demand curve and the marginal revenue curve are one and the same.

Correct AnswerverifiedShow Answer

If the long-run industry supply curve is downward-sloping,it follows that there are __________ costs in the industry.

Correct AnswerverifiedShow Answer

Assume that a decreasing-cost industry experiences an increase in demand.In the short run,this will

Correct AnswerverifiedShow Answer

Exhibit 23-3 -Refer to Exhibit 23-3.Is it possible for this firm to produce "too much" in the short-run?

Correct AnswerverifiedShow Answer

Exhibit 23-3 -Refer to Exhibit 23-3.What is the increase in profit that would result from producing 43 units of the product rather than producing 40 units?

Correct AnswerverifiedShow Answer

A price-taker firm will not sell any of its product for less than the equilibrium price because

Correct AnswerverifiedShow Answer

In order for a firm to earn economic profits,price must exceed average total cost.

Correct AnswerverifiedShow Answer

All firms in an industry sell their product for the same price.This is a result of

Correct AnswerverifiedShow Answer

Which of the following is inconsistent with long-run industry equilibrium?

Correct AnswerverifiedShow Answer

A firm produces the quantity of output at which P = MC and P = ATC.It follows that the firm is

Correct AnswerverifiedShow Answer

In a constant-cost industry,positive profits are eliminated through

Correct AnswerverifiedShow Answer

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Exhibit 23-9 -Refer to Exhibit 23-9.Suppose that the market starts at its long-run competitive equilibrium (P₁,Q₁) ,and that demand increases from D₁ to D₂.As a consequence,the typical profit-maximizing firm will

Correct Answer
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