Question 1

Which of the following is closest to a perfectly competitive market?

Accepted Answer

A)   the soda pop market
B)   the market for bread
C)   the market for sugar
D)   the market for fast foodE) A) and B)
F) A) and C)

Question 2

Consider an industry that is in long-run equilibrium. An increase in demand leads to an increase in the price of the good. We know that this is

Accepted Answer

A)   a decreasing-cost industry.
B)   a constant cost industry.
C)   an increasing-cost industry.
D)   not a competitive industry.E) B) and D)
F) A) and D)

Question 3

What is a price taker? Discuss the assumptions used to obtain the perfectly competitive model.

Accepted Answer

A price taker, or perfectly competitive ...

Question 4

Marginal revenue equals

Accepted Answer

A)   total revenue divided by output.
B)   price times quantity, divided by average revenue.
C)   total revenue divided by average revenue.
D)   the change in total revenue from selling one more unit.E) None of the above
F) A) and B)

Question 5

In a perfectly competitive market, a firm's short-run supply curve is

Accepted Answer

A)   its total cost curve.
B)   its marginal cost curve equal to or above the point of intersection with its average variable cost curve.
C)   its average variable cost curve below the point of intersection with its total cost curve.
D)   its total cost curve between the shutdown point and the break-even point.E) None of the above
F) All of the above

Question 6

When a perfectly competitive firm experiences zero economic profits

Accepted Answer

A)   the high barriers to entry prevent further competition.
B)   existing firms exit the industry.
C)   additional firms enter the industry.
D)   firms have no incentive to exit or enter the industry.E) A) and C)
F) B) and D)

Question 7

-In the above figure, what happens to the firm's optimal level of output if the price it receives for its product increases from P2 to P3?

Accepted Answer

A)   Output stays the same.
B)   Output decreases.
C)   Output increases.
D)   There is not enough information provided to know what happens to output.E) A) and C)
F) A) and B)

Question 8

In the long run when a perfectly competitive firm experiences positive economic profits

Accepted Answer

A)   firms exit the industry, the market supply curve shifts rightward, and the market price falls.
B)   firms enter the industry, the market supply curve shifts rightward, and the market price falls.
C)   firms exit the industry, the market supply curve shifts leftward, and the market price rises.
D)   firms enter the industry, the market supply curve shifts rightward, and the market price rises.E) A) and D)
F) C) and D)

Question 9

Suppose a perfectly competitive ukulele factory can produce 35 ukuleles at an output at which marginal cost equals marginal revenue. The price per ukulele is $1300 and the average total cost is $1500. What is the profit or loss that this furniture factory is earning?

Accepted Answer

A)   $700.00
B)   -$7,000.00
C)   -$1,050.00
D)   -$450.00E) A) and D)
F) B) and C)

Question 10

The firm will shut down in the short run if

Accepted Answer

A)   the price falls below its minimum AVC.
B)   the market price rises unexpectedly.
C)   P = MC.
D)   P = ATC at its minimum.E) B) and D)
F) A) and D)

Question 11

-Refer to the above figure. The firm will just be covering all of its variable cost but none of its fixed cost

Accepted Answer

A)   when the price equals $1.
B)   when the price equals $2.
C)   when the price equals $4.
D)   at prices between $1 and $2.E) None of the above
F) A) and B)

Question 12

The short-run supply curve for the perfectly competitive firm is the portion of its

Accepted Answer

A)   MC curve above the AVC curve.
B)   MC curve above the AFC curve.
C)   MC curve above the ATC curve.
D)   MC curve above the MR curve.E) B) and C)
F) A) and C)

Question 13

In a perfectly competitive market structure both buyers and sellers have equal access to information. This implies

Accepted Answer

A)   the products sold will be alike.
B)   firms will move labor and capital in pursuit of profit-making opportunities to whatever business venture gives them the highest return on their investment.
C)   no one buyer or seller has any influence on price.
D)   consumers are able to find out about lower prices charged by other firms.E) None of the above
F) All of the above

Question 14

Which of the following statements about the perfect competitor is INCORRECT?

Accepted Answer

A)   The perfectly competitive firm is always a price taker.
B)   The perfect competitor sells a homogeneous commodity.
C)   If an individual firm raises price, it will lose business.
D)   The products made by a perfectly competitive firm have no close substitutes.E) None of the above
F) C) and D)

Question 15

-Refer to the above figure for the individual firm in a perfectly competitive market. If the firm's average costs are given by AC3, then

Accepted Answer

A)   the industry supply curve will shift leftward.
B)   the industry supply curve will shift rightward.
C)   the industry demand curve will shift rightward.
D)   none of the above.E) A) and B)
F) A) and C)

Question 16

Suppose a perfectly competitive cotton farmer can produce 10 containers of cotton at an output at which marginal cost equals marginal revenue. The price per container of cotton is $100 and the average total cost is $75. What is the profit or loss that this cotton farmer is earning?

Accepted Answer

A)   $750
B)   $150
C)   $250
D)   -$25E) B) and C)
F) None of the above

Question 17

When considering perfect competition the absence of entry barriers implies that

Accepted Answer

A)   no firm can enter the industry.
B)   firms can enter but cannot get out of the industry easily.
C)   all firms will earn economic profit.
D)   firms can enter and leave the industry without serious impediments.E) All of the above
F) A) and D)

Question 18

-In the above figure, if the market price is $8, the firm

Accepted Answer

A)   continues to produce but at an economic loss.
B)   continues to produce but at an economic profit.
C)   shuts down operations.
D)   produces 10 units.E) All of the above
F) None of the above

Question 19

If the costs of production do NOT change as output increases in the long run in a perfectly competitive industry, then this is a

Accepted Answer

A)   constant-return-to-scale industry.
B)   constant-competitive industry.
C)   constant-cost industry.
D)   constant-price industry.E) None of the above
F) A) and C)

Question 20

A constant-cost industry is one in which

Accepted Answer

A)   output increases lead to productivity gains.
B)   the marginal product of labor is constant.
C)   there is no change in long-run per-unit costs, even as output varies.
D)   each firm has a horizontal long-run average cost curve.E) A) and D)
F) A) and B)

Exam 23: Perfect Competition

Which of the following statements about the perfect competitor is INCORRECT?

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A constant-cost industry is one in which

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What is a price taker? Discuss the assumptions used to obtain the perfectly competitive model.

Correct AnswerverifiedA price taker, or perfectly competitive ...View AnswerShow Answer

In the long run when a perfectly competitive firm experiences positive economic profits

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-Refer to the above figure for the individual firm in a perfectly competitive market. If the firm's average costs are given by AC3, then

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The short-run supply curve for the perfectly competitive firm is the portion of its

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In a perfectly competitive market, a firm's short-run supply curve is

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When considering perfect competition the absence of entry barriers implies that

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-Refer to the above figure. The firm will just be covering all of its variable cost but none of its fixed cost

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Which of the following is closest to a perfectly competitive market?

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Consider an industry that is in long-run equilibrium. An increase in demand leads to an increase in the price of the good. We know that this is

Correct AnswerverifiedShow Answer

In a perfectly competitive market structure both buyers and sellers have equal access to information. This implies

Correct AnswerverifiedShow Answer

-In the above figure, what happens to the firm's optimal level of output if the price it receives for its product increases from P2 to P3?

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Suppose a perfectly competitive ukulele factory can produce 35 ukuleles at an output at which marginal cost equals marginal revenue. The price per ukulele is $1300 and the average total cost is $1500. What is the profit or loss that this furniture factory is earning?

Correct AnswerverifiedShow Answer

Suppose a perfectly competitive cotton farmer can produce 10 containers of cotton at an output at which marginal cost equals marginal revenue. The price per container of cotton is $100 and the average total cost is $75. What is the profit or loss that this cotton farmer is earning?

Correct AnswerverifiedShow Answer

Marginal revenue equals

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-In the above figure, if the market price is $8, the firm

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If the costs of production do NOT change as output increases in the long run in a perfectly competitive industry, then this is a

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The firm will shut down in the short run if

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When a perfectly competitive firm experiences zero economic profits

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A price taker, or perfectly competitive ...
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