Question 1

A perfectly competitive, increasing-cost industry is initially in long-run equilibrium. If a permanent increase in demand occurs, then at the new long-run equilibrium, _____.​

Accepted Answer

A)  price will be higher and total output will be greater than before
B)  price will be the same and total output will be greater than before
C)  price will be lower and total output will be greater than before
D)  price will be higher and therefore total output will be smaller than before
E)  price will be lower and therefore total output will be smaller than before A

Question 2

Figure 7-1 shows the market demand curve and an individual firm's demand curve in a perfectly competitive market. In Graph A, the market demand has increased from d0 to d1 and, as a result, _____.Figure 7-1 0 to d1 and, as a result, _____.Figure 7-1   A) both the market price and the price of the price-taking firm have risen to $6 B) both the market price and the price of the price-taking firm have fallen to $5 C) the quantity of goods transacted in the market has fallen D) the firm will be unable to sell any of its output at the new equilibrium price E) some firms will sell their output at a higher price than others" class="answers-bank-image d-inline" rel="preload" >

Accepted Answer

A)  both the market price and the price of the price-taking firm have risen to $6
B)  both the market price and the price of the price-taking firm have fallen to $5
C)  the quantity of goods transacted in the market has fallen
D)  the firm will be unable to sell any of its output at the new equilibrium price
E)  some firms will sell their output at a higher price than others

Question 3

Whenever marginal revenue is greater than marginal cost, a profit-maximizing firm should reduce its output.

Accepted Answer

A) True 
 B)False  False

Question 4

Which of the following is a characteristic of a perfectly competitive industry in long-run equilibrium?

Accepted Answer

A)  A profit-maximizing firm may produce any output level at which P 
B)  Every firm produces at an output level at which MC > LRATC.
C)  Firms will continue to enter or exit the industry.
D)  No firm earns an economic profit.
E)  Every firm earns an economic profit.

Question 5

Why is true that even though perfectly competitive firms are price takers, price varies in a perfectly competitive industry?

Accepted Answer

Answers will vary. Price-taking perfectl...

Question 6

A perfectly competitive firm has no influence over price because:

Accepted Answer

A)  its output is insignificant relative to the market as a whole.
B)  antitrust laws constrain perfectly competitive firms.
C)  consumers establish the prices of products.
D)  it is unaware of the demand curve it faces.
E)  there is only one buyer in a perfectly competitive market.

Question 7

Figure 7-4 shows the relationship among the various costs of a perfectly competitive firm. In the figure, when the market price equals $54, the firm:Figure 7-4

Accepted Answer

A)  should shut down.
B)  should continue operating temporarily despite an economic loss because the firm is able to cover all of its variable costs.
C)  should continue operating temporarily despite an economic loss because the firm is able to cover a portion of its fixed costs.
D)  should continue operating because the firm is making a profit.
E)  should increase its output in order to charge a higher price. A

Question 8

Productive efficiency requires production at a quantity such that:

Accepted Answer

A)  MC = MR.
B)  MC = ATC.
C)  MC = D.
D)  ATC = D.
E)  MR = ATC.

Question 9

A perfectly competitive firm looking to maximize its profits would want to maximize the difference between:

Accepted Answer

A)  its marginal revenue and its marginal cost.
B)  its total revenue and its total cost.
C)  its accounting revenue and its accounting cost.
D)  its price and its marginal cost.
E)  its marginal revenue and its total cost.

Question 10

Brady, a farmer, sells wheat in a market where sellers are price takers. Which of the following is true of Brady's production and pricing decisions?

Accepted Answer

A)  Brady will be able to increase the total revenue from the sale of his wheat if he increases the price of the wheat.
B)  Since the market dictates the price of his product, Brady will have no incentive to minimize per-unit production costs.
C)  Since the market dictates the price of his product, Brady has no production decisions to make.
D)  It would be senseless for Brady to try to increase sales by lowering the price of his product. His entire output can be sold at the market price.
E)  Brady can increase his profits by selling his output at a price above the equilibrium price in the market.

Question 11

In long-run equilibrium, a perfectly competitive firms produces at the output level at which:

Accepted Answer

A)  total revenue is maximized.
B)  long-run marginal cost is minimized.
C)  average total cost is minimized.
D)  short-run variable cost is minimized.
E)  marginal revenue is maximized.

Question 12

A perfectly competitive firm faces a demand curve that is:

Accepted Answer

A)  parallel to the horizontal axis.
B)  parallel to the vertical axis.
C)  downward sloping.
D)  upward sloping.
E)  U-shaped.

Question 13

In the short run, if a perfectly competitive firm produced at the quantity of productive efficiency, would it generate the highest profit level possible? Why or why not?

Accepted Answer

Answers will vary. In the short run, a f...

Question 14

It is relatively easy for firms to enter and exit a perfectly competitive market.

Accepted Answer

A) True 
 B)False

Question 15

If a perfectly competitive industry uses only a small share of the available inputs in a resource market, then the long-run market supply curve for the industry will most likely be:

Accepted Answer

A)  vertical.
B)  horizontal.
C)  upward sloping.
D)  downward sloping.
E)  concave to the horizontal axis.

Question 16

Figure 7-4 shows the relationship between the various costs of a perfectly competitive firm. In the figure, when the market price equals $105 and the firm sells 675 units of output, the firm:Figure 7-4

Accepted Answer

A)  is earning a normal profit.
B)  is earning positive economic profit.
C)  is experiencing a loss, but should continue operating temporarily because business conditions may improve.
D)  is experiencing a loss and should shut down.
E)  should sell more units of its output to earn higher prices.

Question 17

Which of the following market structures is characterized by many sellers, easy entry, and homogeneous products?

Accepted Answer

A)  Perfect competition
B)  Monopolistic competition
C)  Oligopoly
D)  Monopoly
E)  Duopoly

Question 18

Which of the following best resembles a perfectly competitive market?

Accepted Answer

A)  A stock market
B)  The book publishing industry
C)  The steel industry
D)  The used car industry
E)  The cell phone industry

Question 19

Marginal revenue is:

Accepted Answer

A)  the additional cost incurred from producing one more unit of output.
B)  the addition to total profit from selling one more unit of output.
C)  the addition to total revenue from selling one more unit of output.
D)  the addition to total output from hiring one more unit of labor.
E)  the addition to total revenue from selling the entire output to one buyer.

Question 20

Economic profits in a perfectly competitive industry will encourage the entry of new firms, which will shift the market supply curve to the right.

Accepted Answer

A) True 
 B)False

Exam 7: Firms in Perfectly Competitive Markets

A perfectly competitive, increasing-cost industry is initially in long-run equilibrium. If a permanent increase in demand occurs, then at the new long-run equilibrium, _____.​

Correct AnswerverifiedA

Figure 7-1 shows the market demand curve and an individual firm's demand curve in a perfectly competitive market. In Graph A, the market demand has increased from d0 to d1 and, as a result, _____.Figure 7-1

Correct AnswerverifiedShow Answer

Whenever marginal revenue is greater than marginal cost, a profit-maximizing firm should reduce its output.

Correct AnswerverifiedFalse

Which of the following is a characteristic of a perfectly competitive industry in long-run equilibrium?

Correct AnswerverifiedShow Answer

Why is true that even though perfectly competitive firms are price takers, price varies in a perfectly competitive industry?

Correct AnswerverifiedAnswers will vary. Price-taking perfectl...View AnswerShow Answer

A perfectly competitive firm has no influence over price because:

Correct AnswerverifiedShow Answer

Figure 7-4 shows the relationship among the various costs of a perfectly competitive firm. In the figure, when the market price equals $54, the firm:Figure 7-4

Correct AnswerverifiedA

Productive efficiency requires production at a quantity such that:

Correct AnswerverifiedShow Answer

A perfectly competitive firm looking to maximize its profits would want to maximize the difference between:

Correct AnswerverifiedShow Answer

Brady, a farmer, sells wheat in a market where sellers are price takers. Which of the following is true of Brady's production and pricing decisions?

Correct AnswerverifiedShow Answer

In long-run equilibrium, a perfectly competitive firms produces at the output level at which:

Correct AnswerverifiedShow Answer

A perfectly competitive firm faces a demand curve that is:

Correct AnswerverifiedShow Answer

In the short run, if a perfectly competitive firm produced at the quantity of productive efficiency, would it generate the highest profit level possible? Why or why not?

Correct AnswerverifiedAnswers will vary. In the short run, a f...View AnswerShow Answer

It is relatively easy for firms to enter and exit a perfectly competitive market.

Correct AnswerverifiedShow Answer

If a perfectly competitive industry uses only a small share of the available inputs in a resource market, then the long-run market supply curve for the industry will most likely be:

Correct AnswerverifiedShow Answer

Figure 7-4 shows the relationship between the various costs of a perfectly competitive firm. In the figure, when the market price equals $105 and the firm sells 675 units of output, the firm:Figure 7-4

Correct AnswerverifiedShow Answer

Which of the following market structures is characterized by many sellers, easy entry, and homogeneous products?

Correct AnswerverifiedShow Answer

Which of the following best resembles a perfectly competitive market?

Correct AnswerverifiedShow Answer

Marginal revenue is:

Correct AnswerverifiedShow Answer

Economic profits in a perfectly competitive industry will encourage the entry of new firms, which will shift the market supply curve to the right.

Correct AnswerverifiedShow Answer

A perfectly competitive, increasing-cost industry is initially in long-run equilibrium. If a permanent increase in demand occurs, then at the new long-run equilibrium, _____.

Correct Answer
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Figure 7-1 shows the market demand curve and an individual firm's demand curve in a perfectly competitive market. In Graph A, the market demand has increased from d₀ to d₁ and, as a result, _____.Figure 7-1

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