question
Which of the following is NOT an assumption of perfect competition?
answer
A. each firm sells an identical product
B. many buyers
C. many firms
D. restricted entry into the industry
B. many buyers
C. many firms
D. restricted entry into the industry
question
In perfect competition there are no fliers, coupons, brand names, or price wars because all firms produce ________.
answer
A. identical products and set their price equal to the slope of the demand curve
B. differentiated products and are price takers
C. differentiated products and set price equal to the slope of the demand curve
D. identical products and are price takers
B. differentiated products and are price takers
C. differentiated products and set price equal to the slope of the demand curve
D. identical products and are price takers
question
In a perfectly competitive market, the demand for a single firm's product is perfectly elastic ________.
answer
A. only in the long run
B. because this firm's output is a perfect substitute for any other firm's output
C. because this firm is a price maker
D. because there are many buyers in this market
B. because this firm's output is a perfect substitute for any other firm's output
C. because this firm is a price maker
D. because there are many buyers in this market
question
The firm's goal is to ________.
answer
A. maximize its total revenue
B. maximize its industry's revenue
C. maximize its normal profit
D. maximize its economic profit
B. maximize its industry's revenue
C. maximize its normal profit
D. maximize its economic profit
question
For a perfectly competitive firm, price ALWAYS equals ________.
answer
A. average total cost
B. minimum average total cost
C. marginal product
D. marginal revenue
B. minimum average total cost
C. marginal product
D. marginal revenue
question
A perfectly competitive firm maximizes its profit by ________.
answer
A. manipulating demand
B. cutting wages
C. setting the right price
D. choosing the right level of output
B. cutting wages
C. setting the right price
D. choosing the right level of output
question
A firm maximizes its profits by producing the level of output such that ________.
answer
A. P = ATC
B. P = AVC
C. MR = P
D. MR = MC
B. P = AVC
C. MR = P
D. MR = MC
question
In a perfectly competitive market, if a firm finds it is producing at a level of output such that its marginal cost exceeds its price, it will ________.
answer
A. be maximizing profits
B. increase its output to increase its profit
C. shut down for the short run
D. decrease its output to increase its profit
B. increase its output to increase its profit
C. shut down for the short run
D. decrease its output to increase its profit
question
No. The firm will sell at the market price.
answer
A. price equals the minimum average variable cost
B. price is above the minimum average total cost but below the minimum average fixed cost
C. price equals average total cost
D. price equals average fixed costs
B. price is above the minimum average total cost but below the minimum average fixed cost
C. price equals average total cost
D. price equals average fixed costs
question
The short-run market supply curve for a perfectly competitive industry is the ________.
answer
A. sum of the part of each firm's AVC curve that lies above its MC curve
B. sum of each firm's MC curve that lies below the AVC curve
C. sum of each firm's AVC curve that lies below the MC curve
D. sum of the part of each firm's MC curve that lies above its AVC curve
B. sum of each firm's MC curve that lies below the AVC curve
C. sum of each firm's AVC curve that lies below the MC curve
D. sum of the part of each firm's MC curve that lies above its AVC curve
question
In a perfectly competitive market, ________.
answer
A. a firm can raise its profits by increasing its output beyond the point at which MR = MC
B. a firm can raise its price to increase its profits
C. the price of the good can exceed firms' average total cost but only in the short run
D. the price of the good can exceed firms' marginal cost but only in the short run
B. a firm can raise its price to increase its profits
C. the price of the good can exceed firms' average total cost but only in the short run
D. the price of the good can exceed firms' marginal cost but only in the short run
question
In the long run, perfectly competitive firms earn zero economic profit (earn a normal profit) because ________ .
answer
A. any economic profit would attract newcomers to the industry
B. there are many buyers and sellers
C. any economic loss would cause an increase in the demand for the product, thereby raising its price
D. the firms are incompetent
B. there are many buyers and sellers
C. any economic loss would cause an increase in the demand for the product, thereby raising its price
D. the firms are incompetent
question
In a perfectly competitive market that is in long-run equilibrium, a permanent leftward shift in the market demand curve will cause ________.
answer
A. profits to fall in the short run
B. firms to leave the industry in the long run
C. the price to fall in the short run
D. All of the above are correct.
B. firms to leave the industry in the long run
C. the price to fall in the short run
D. All of the above are correct.
question
In the long run, a perfectly competitive firm can ________ .
answer
A. earn an economic profit
B. earn a normal profit
C. incur an economic loss
D. earn an economic profit, earn a normal profit, or incur an economic loss
B. earn a normal profit
C. incur an economic loss
D. earn an economic profit, earn a normal profit, or incur an economic loss
question
In the short run, a perfectly competitive firm can ________.
answer
A. earn an economic profit
B. earn a normal profit
C. incur an economic loss
D. earn an economic profit, earn a normal profit, or incur an economic loss
B. earn a normal profit
C. incur an economic loss
D. earn an economic profit, earn a normal profit, or incur an economic loss
question
In perfect competition, the product of a single firm __________.
answer
A. has many perfect substitutes produced by other firms
B. has many perfect complements produced by other firms
C. is sold under many differing brand names
D. is sold to different customers at different prices
B. has many perfect complements produced by other firms
C. is sold under many differing brand names
D. is sold to different customers at different prices
question
In perfect competition, restrictions on entry into an industry __________.
answer
A. apply to both capital and labor
B. apply to labor but not to capital
C. apply to capital but not to labor
D. do not exist
B. apply to labor but not to capital
C. apply to capital but not to labor
D. do not exist
question
Total economic profit is __________.
answer
A. total revenue minus total opportunity cost
B. total revenue divided by total cost
C. marginal revenue minus marginal cost
D. marginal revenue divided by marginal cost
B. total revenue divided by total cost
C. marginal revenue minus marginal cost
D. marginal revenue divided by marginal cost
question
The firm's marginal revenue from selling a unit of output __________.
answer
A. equals $0.50
B. equals $1.00
C. equals $2.00
D. cannot be determined
B. equals $1.00
C. equals $2.00
D. cannot be determined
question
A firm will expand the amount of output it produces as long as its __________.
answer
A. average total revenue exceeds its average total cost
B. average total revenue exceeds its average variable cost
C. marginal cost exceeds its marginal revenue
D. marginal revenue exceeds its marginal cost
B. average total revenue exceeds its average variable cost
C. marginal cost exceeds its marginal revenue
D. marginal revenue exceeds its marginal cost
question
The owners will shut down a perfectly competitive firm if the price of its product falls below its minimum .
answer
A. average total cost
B. average marginal cost
C. average variable cost
D. wage rate
B. average marginal cost
C. average variable cost
D. wage rate
question
A firm that shuts down and produces no output incurs a loss equal to its __________.
answer
A. total fixed costs
B. total variable costs
C. marginal costs
D. marginal revenue
B. total variable costs
C. marginal costs
D. marginal revenue
question
If there are 1,000 rutabaga farms, all perfectly competitive, an increase in the price of fertilizer used for growing rutabagas will __________.
answer
A. have no effect on the total quantity of rutabagas supplied, because no farm has enough market power to raise the price
B. have no effect on the total quantity of rutabagas supplied, because each farm's supply curve is a vertical line
C. decrease the total quantity of rutabagas supplied, because each farm's supply curve shifts leftward
D. reduce the total quantity of rutabagas supplied, because each farm's supply curve is a horizontal line and will shift upward
B. have no effect on the total quantity of rutabagas supplied, because each farm's supply curve is a vertical line
C. decrease the total quantity of rutabagas supplied, because each farm's supply curve shifts leftward
D. reduce the total quantity of rutabagas supplied, because each farm's supply curve is a horizontal line and will shift upward
question
New reports indicate that eating turnips helps people remain healthy. The news shifts the demand curve for turnips rightward. In response, new farms enter the turnip industry. During the period in which the new farms are entering, the price of a turnip and the profit of each existing firm __________.
answer
A. rises; rises
B. rises; falls
C. falls; rises
D. falls; falls
B. rises; falls
C. falls; rises
D. falls; falls
question
In the long run, fixed costs are __________.
answer
A. zero and variable costs are zero
B. zero and variable costs are positive
C. positive and variable costs are zero
D. positive and variable costs are positive
B. zero and variable costs are positive
C. positive and variable costs are zero
D. positive and variable costs are positive
question
In the long run, the economic profits of a firm in a perfectly competitive industry __________.
answer
A. will be above zero
B. will be below zero
C. will equal zero
D. can be above, below, or equal to zero
B. will be below zero
C. will equal zero
D. can be above, below, or equal to zero
question
Congestion of airports and airspace causes the airline industry to experience external __________.
answer
A. economies and have a long-run supply curve with negative slope
B. economies and have a long-run supply curve with positive slope
C. diseconomies and have a long-run supply curve with negative slope
D. diseconomies and have a long-run supply curve with positive slope
B. economies and have a long-run supply curve with positive slope
C. diseconomies and have a long-run supply curve with negative slope
D. diseconomies and have a long-run supply curve with positive slope
question
Assuming long-run external economies exist, when demand increases in a perfectly competitive market, in the long run the average total cost curve for a typical firm __________.
answer
A. shifts downward
B. shifts upward
C. stays the same
D. is no longer U-shaped
B. shifts upward
C. stays the same
D. is no longer U-shaped
question
Paul runs a shop that sells printers. Paul is a perfect competitor and can sell each printer for a price of $300. The marginal cost of selling one printer a day is $200; the marginal cost of selling a second printer is $250; and the marginal cost of selling a third printer is $350. To maximize his profit, Paul should sell __________.
answer
A. one printer a day
B. two printers a day
C. three printers a day
D. more than three printers a day
B. two printers a day
C. three printers a day
D. more than three printers a day
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