question
Which of the following would not be associated with a firm (business) operating in a perfectively competitive industry?
A) cost-plus pricing.
B) confronted with perfectively elastic demand for its product.
C) a relentless focus on operational efficiency in order to survive.
D) low or no barriers for potential competitors to enter industry.
A) cost-plus pricing.
B) confronted with perfectively elastic demand for its product.
C) a relentless focus on operational efficiency in order to survive.
D) low or no barriers for potential competitors to enter industry.
answer
A) cost-plus pricing.
question
Which of the following types of business would most likely operate in a perfectively competitive industry?
A) law firm.
B) family practice medical doctor.
C) dairy farmer.
D) small town family-dollar store.
A) law firm.
B) family practice medical doctor.
C) dairy farmer.
D) small town family-dollar store.
answer
C) dairy farmer.
question
Which type of business would most likely face a perfectively elastic demand curve for its product?
A) Wheat farmer.
B) Software manufacturer.
C) Local restaurant.
D) Ford car dealership in Logan, UT.
A) Wheat farmer.
B) Software manufacturer.
C) Local restaurant.
D) Ford car dealership in Logan, UT.
answer
A) Wheat farmer.
question
In a perfectively competitive market, which of the following explains the fact that for a particular firm marginal revenue (MR) is constant and equals the market price?
A) perfectively elastic demand for the firm's product.
B) the firm is a price taker.
C) each additional unit the firm sales is sold for the same price.
D) all of the above.
A) perfectively elastic demand for the firm's product.
B) the firm is a price taker.
C) each additional unit the firm sales is sold for the same price.
D) all of the above.
answer
D) all of the above.
question
As long as marginal cost is below marginal revenue, a perfectly competitive firm should:
A) increase production.
B) hold production constant.
C) decrease production.
D) reconsider past production decisions.
A) increase production.
B) hold production constant.
C) decrease production.
D) reconsider past production decisions.
answer
A) increase production.
question
To maximize profits, a perfectly competitive firm should produce where marginal:
A) cost equals total revenue.
B) cost exceeds marginal revenue.
C) cost equals marginal revenue.
D) revenue exceeds marginal cost.
A) cost equals total revenue.
B) cost exceeds marginal revenue.
C) cost equals marginal revenue.
D) revenue exceeds marginal cost.
answer
C) cost equals marginal revenue.
question
Refer to the graph shown. To maximize profit, this perfectly competitive firm should produce:
A) 30 units of output.
B) 40 units of output.
C) 50 units of output.
D) 60 units of output.
A) 30 units of output.
B) 40 units of output.
C) 50 units of output.
D) 60 units of output.
answer
C) 50 units of output.
question
Refer to the graph shown. If market price is currently $3.00 per unit, this perfectly competitive firm will maximize profit by producing:
A) 450 units of output.
B) 650 units of output.
C) 850 units of output.
D) between 550 and 650 units of output.
A) 450 units of output.
B) 650 units of output.
C) 850 units of output.
D) between 550 and 650 units of output.
answer
A) 450 units of output.
question
Refer to the graph shown. If market price is currently $5.00 per unit, this perfectly competitive firm will maximize profit by producing:
A) 450 units of output.
B) 650 units of output.
C) 850 units of output.
D) between 550 and 650 units of output.
A) 450 units of output.
B) 650 units of output.
C) 850 units of output.
D) between 550 and 650 units of output.
answer
B) 650 units of output.
question
A perfectly competitive firm will be profitable if price at the profit-maximizing quantity is above:
A) MC.
B) AVC.
C) ATC.
D) AFC.
A) MC.
B) AVC.
C) ATC.
D) AFC.
answer
C) ATC.
question
Refer to the table shown. Following the economic decision rule, if the market price is $4, a perfectly competitive profit-maximizing firm will produce:
Quantity Marginal Cost
1 $3
2 $5
3 $7
4 $9
A) 1 unit of output.
B) 2 units of output.
C) 3 units of output.
D) 4 units of output.
Quantity Marginal Cost
1 $3
2 $5
3 $7
4 $9
A) 1 unit of output.
B) 2 units of output.
C) 3 units of output.
D) 4 units of output.
answer
A) 1 unit of output.
question
Refer to the graph shown. What level of output should the perfectly competitive firm produce to maximize profits?
A) 7.
B) 8.
C) 6.
D) 4.
A) 7.
B) 8.
C) 6.
D) 4.
answer
B) 8.
question
Refer to the graph shown. What distance represents profit per unit?
A) AB
B) BF
C) AF
D) FW
A) AB
B) BF
C) AF
D) FW
answer
A) AB
question
refer to the graph shown. What area represents total economic profits?
A) DAFM
B) CBWT
C) MFWT
D) DABC
A) DAFM
B) CBWT
C) MFWT
D) DABC
answer
D) DABC
question
Refer to the graph shown. What price represents the shutdown price?
A) P1
B) P2
C) P3
D) P4
A) P1
B) P2
C) P3
D) P4
answer
A) P1
question
Refer to the graph show. If the market price is P4, the firm will produce:
A) Q2 and incur a loss.
B) Q3 and break even.
C) Q3 and earn a profit.
D) Q4 and earn a profit.
A) Q2 and incur a loss.
B) Q3 and break even.
C) Q3 and earn a profit.
D) Q4 and earn a profit.
answer
D) Q4 and earn a profit.
question
If a perfectly competitive firm finds that price is less than average variable cost, it should:
A) not adjust output if marginal cost equals price.
B) shut down immediately.
C) increase output until price equals marginal cost.
D) decrease output until price equals marginal cost.
A) not adjust output if marginal cost equals price.
B) shut down immediately.
C) increase output until price equals marginal cost.
D) decrease output until price equals marginal cost.
answer
B) shut down immediately.
question
Suppose that the firms in the perfectly competitive oat industry are currently receiving a price of $2 per bushel for their product and there are constant returns to scale. The minimum possible average total cost of producing oats in the long run is $1 per bushel. Other things being equal, it follows that:
A) the price of oats will be $2 in the long run.
B) the price of oats will be somewhere between $1 and $2 in the long run.
C) the price of oats will be $1 in the long run.
D) it is not possible to determine the price of oats in the long run from the information given.
A) the price of oats will be $2 in the long run.
B) the price of oats will be somewhere between $1 and $2 in the long run.
C) the price of oats will be $1 in the long run.
D) it is not possible to determine the price of oats in the long run from the information given.
answer
C) the price of oats will be $1 in the long run.
question
Long-run competitive equilibrium in an industry implies that no firm:
A) is earning a normal profit.
B) is producing at the output level where price equals long-run average total cost.
C) has an incentive to enter or exit the industry.
D) is earning accounting profits.
A) is earning a normal profit.
B) is producing at the output level where price equals long-run average total cost.
C) has an incentive to enter or exit the industry.
D) is earning accounting profits.
answer
C) has an incentive to enter or exit the industry.
question
Which explain why a firm will continue to produce if its economic profits are zero?
A) Its costs, by definition, include a normal return to owned resources.
B) Its accounting profit is likely positive.
C) By definition, its profits are normal.
D) All of the above are correct.
A) Its costs, by definition, include a normal return to owned resources.
B) Its accounting profit is likely positive.
C) By definition, its profits are normal.
D) All of the above are correct.
answer
D) All of the above are correct.
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