question
Which one of the following is NOT a characteristic of a perfectly competitive market?
A. Firms earn zero economic profit in the long run.
B. Competing products are virtually identical.
C. Firms are price takers.
D. Firms advertise in order to distinguish their products and increase market share.
E. There are a large number of buyers and sellers interacting in the market
A. Firms earn zero economic profit in the long run.
B. Competing products are virtually identical.
C. Firms are price takers.
D. Firms advertise in order to distinguish their products and increase market share.
E. There are a large number of buyers and sellers interacting in the market
answer
D
question
In the short run, if a firm's price is greater than its AVC but less than its ATC, the firm should:
A. shut down temporarily because it is generating an economic loss.
B. continue operating because it is generating an economic profit.
C. None of the other answers is correct.
D. continue operating even though it is generating an economic loss.
E. Shut down immediate b/c it is generating an economic loss
A. shut down temporarily because it is generating an economic loss.
B. continue operating because it is generating an economic profit.
C. None of the other answers is correct.
D. continue operating even though it is generating an economic loss.
E. Shut down immediate b/c it is generating an economic loss
answer
D
question
A profit-maximizing, price-taking firm should cease production whenever:
A. the firm is making a loss.
B. the firm is earning zero economic profit.
C. the price is less than minimum average fixed cost.
D. the price is less than minimum average variable cost.
E. Either a or b occur
A. the firm is making a loss.
B. the firm is earning zero economic profit.
C. the price is less than minimum average fixed cost.
D. the price is less than minimum average variable cost.
E. Either a or b occur
answer
D
question
Marginal revenue for a perfectly competitive firm equals:
A. average revenue at all levels of output.
B. average total cost at all levels of output.
C. marginal cost at all levels of output.
D. the addition to total cost from producing one more unit of output.
A. average revenue at all levels of output.
B. average total cost at all levels of output.
C. marginal cost at all levels of output.
D. the addition to total cost from producing one more unit of output.
answer
A
question
Which of the following most closely resembles a perfectly competitive market?
A. the wheat market
B. long-distance telephone service
C. the airline industry
D. the soft drink industry
A. the wheat market
B. long-distance telephone service
C. the airline industry
D. the soft drink industry
answer
A
question
When price exceeds average variable cost for a firm, it is possible that:
A. it is breaking even.
B. it is suffering an economic loss.
C. any of the others is true.
D. It is earning an economic profit
A. it is breaking even.
B. it is suffering an economic loss.
C. any of the others is true.
D. It is earning an economic profit
answer
C
question
Firms in perfectly competitive markets:
A. are price takers.
B. are price makers.
C. influence price by varying the quality of output.
D. <p>
sell heterogeneous products.</p>
E. are characterized by both b. and d.
A. are price takers.
B. are price makers.
C. influence price by varying the quality of output.
D. <p>
sell heterogeneous products.</p>
E. are characterized by both b. and d.
answer
A
question
When economic profits are positive in a perfectly competitive industry,
A. we would expect that the market demand curve to shift right as a result
B. we would expect the market supply curve to shift to the left as a result.
C. we would expect the market supply curve to shift
D. We would not expect any change in the market supply curve to result
A. we would expect that the market demand curve to shift right as a result
B. we would expect the market supply curve to shift to the left as a result.
C. we would expect the market supply curve to shift
D. We would not expect any change in the market supply curve to result
answer
C
question
The demand curve facing a perfectly competitive firm is:
A. upward sloping.
B. perfectly elastic.
C. downward sloping.
D. perfectly inelastic.
E. unit elastic.
A. upward sloping.
B. perfectly elastic.
C. downward sloping.
D. perfectly inelastic.
E. unit elastic.
answer
B
question
A perfectly competitive firm seeking to maximize its profits would want to maximize the difference between:
A. its price and its marginal cost.
B. its marginal revenue and its marginal cost.
C. its total revenue and its total cost.
D. It's accounting revenue and its accounting costs
A. its price and its marginal cost.
B. its marginal revenue and its marginal cost.
C. its total revenue and its total cost.
D. It's accounting revenue and its accounting costs
answer
C
question
If the market demand curve in a perfectly competitive industry shifts left, the demand curve for each existing firm will:
A. shift up.
B. shift down.
C. shift right.
D. shift left.
E. do both b. and d.
A. shift up.
B. shift down.
C. shift right.
D. shift left.
E. do both b. and d.
answer
B
question
During a period when new entrants are being attracted to an industry, we would expect that:
A. economic profits are positive.
B. economic profits are falling.
C. economic profits are rising.
D. both a. and b. are true.
E. Both a and c are true
A. economic profits are positive.
B. economic profits are falling.
C. economic profits are rising.
D. both a. and b. are true.
E. Both a and c are true
answer
D
question
A perfectly competitive firm cannot make economic profits in the long run because:
A. it is a price taker.
B. there are no barriers to entry into the industry.
C. it faces a perfectly elastic demand curve.
D. its advertising costs will rise to eliminate any economic profits.
A. it is a price taker.
B. there are no barriers to entry into the industry.
C. it faces a perfectly elastic demand curve.
D. its advertising costs will rise to eliminate any economic profits.
answer
B
question
Which of the following is a characteristic of perfect competition?
A. many buyers
B. many sellers
C. zero barriers to entry
D. homogeneous products
E. All of the other answers are correct.
A. many buyers
B. many sellers
C. zero barriers to entry
D. homogeneous products
E. All of the other answers are correct.
answer
E
question
A profit maximizing perfectly competitive firm would never operate at an output level where
A. it was not earning an accounting profit.
B. it was not earning a zero economic profit.
C. it was not earning a positive economic profit.
D. it would not cover all of its variable costs.
A. it was not earning an accounting profit.
B. it was not earning a zero economic profit.
C. it was not earning a positive economic profit.
D. it would not cover all of its variable costs.
answer
D
question
A firm that is a price taker:
A. will lose all sales if it prices its product in excess of the market equilibrium price.
B. can exert a major influence on the overall market.
C. competes with other producers who produce differentiated products.
D. must be a relatively large producer compared to other firms in the market.
A. will lose all sales if it prices its product in excess of the market equilibrium price.
B. can exert a major influence on the overall market.
C. competes with other producers who produce differentiated products.
D. must be a relatively large producer compared to other firms in the market.
answer
A
question
Which of the following is true?
A. The objective of the firm is to maximize profits, by producing the amount that equates average revenue and average variable cost.
B. The objective of the firm is to maximize profits, by producing the amount that equates marginal revenue and marginal cost.
C. None of the other answers is correct.
D. The objective of the firm is to maximize profits, by producing the amount that equates total revenue and total cost.
E. The objective of the firm is to maximize profits, by producing the amount that equates average revenue and average total cost.
A. The objective of the firm is to maximize profits, by producing the amount that equates average revenue and average variable cost.
B. The objective of the firm is to maximize profits, by producing the amount that equates marginal revenue and marginal cost.
C. None of the other answers is correct.
D. The objective of the firm is to maximize profits, by producing the amount that equates total revenue and total cost.
E. The objective of the firm is to maximize profits, by producing the amount that equates average revenue and average total cost.
answer
B
question
The shape of the long-run industry supply curve in a perfectly competitive industry is largely determined by:
A. the shape of the average fixed cost curve.
B. the price elasticity of market demand.
C. the shape of the short-run industry supply curve.
D. the price of inputs as the industry expands.
A. the shape of the average fixed cost curve.
B. the price elasticity of market demand.
C. the shape of the short-run industry supply curve.
D. the price of inputs as the industry expands.
answer
D
question
Which of the following is true?
A. The objective of the firm is to maximize profits, by producing the amount that maximizes the difference between its average revenue and average total cost.
B. The objective of the firm is to maximize profits, by producing the amount that maximizes the difference between its total revenues and total cost.
C. The objective of the firm is to maximize profits, by producing the amount that maximizes the difference between its average revenue and average variable cost.
D. The objective of the firm is to maximize profits, by producing the amount that maximizes the difference between its marginal revenue and marginal cost.
E. None of the other answers is correct.
A. The objective of the firm is to maximize profits, by producing the amount that maximizes the difference between its average revenue and average total cost.
B. The objective of the firm is to maximize profits, by producing the amount that maximizes the difference between its total revenues and total cost.
C. The objective of the firm is to maximize profits, by producing the amount that maximizes the difference between its average revenue and average variable cost.
D. The objective of the firm is to maximize profits, by producing the amount that maximizes the difference between its marginal revenue and marginal cost.
E. None of the other answers is correct.
answer
B
question
In short run equilibrium in a perfectly competitive industry whose firms are earning economic profits, a firm:
A. has no incentive to do any of the above.
B. has no incentive to leave the industry.
C. has no incentive to expand its factory.
D. has no incentive to change its plant size.
E. has no incentive to change its output.
A. has no incentive to do any of the above.
B. has no incentive to leave the industry.
C. has no incentive to expand its factory.
D. has no incentive to change its plant size.
E. has no incentive to change its output.
answer
B
question
Which market structure is characterized by many sellers, easy entry, and homogeneous products?
A. monopoly
B. monopolistic competition
C. None of the other answers is correct.
D. oligopoly
E. perfect competition
A. monopoly
B. monopolistic competition
C. None of the other answers is correct.
D. oligopoly
E. perfect competition
answer
E
question
"I'm losing money, but since my fixed costs are so high, I simply cannot afford to shut down." If the firm were attempting to maximize profit, this decision may be:
A. correct if price is less than average variable cost.
B. incorrect because a firm experiencing economic losses should never continue to operate.
C. correct if the firm is covering all of its variable costs and expects the price of its product to rise in the near future.
D. Incorrect since a firm should shut down whenever price falls below average total costs in the short run
A. correct if price is less than average variable cost.
B. incorrect because a firm experiencing economic losses should never continue to operate.
C. correct if the firm is covering all of its variable costs and expects the price of its product to rise in the near future.
D. Incorrect since a firm should shut down whenever price falls below average total costs in the short run
answer
C
question
When the marginal cost of a price-taking firm is less than the market price of its product, the firm should:
A. charge more than the market price.
B. reduce output (provided that price is not less than average variable cost).
C. maintain output (provided that price is not less than average variable cost).
D. expand output (provided that price is not less than average variable cost).
A. charge more than the market price.
B. reduce output (provided that price is not less than average variable cost).
C. maintain output (provided that price is not less than average variable cost).
D. expand output (provided that price is not less than average variable cost).
answer
D
question
Which of the following is a characteristic of perfect competition?
A. few sellers
B. substantial barriers to entry
C. differentiated products
D. None of the other answers is correct.
A. few sellers
B. substantial barriers to entry
C. differentiated products
D. None of the other answers is correct.
answer
D
question
Assume that the equilibrium price in a perfectly competitive industry is $4.25. If a firm in this industry produced and sold 10 units with an average total cost of $5.00, the result would be:
A. a profit of $7.50
B. a loss of $7.50
C. a loss of $0.75
D. a profit of $0.75
E. a loss of $75.00
A. a profit of $7.50
B. a loss of $7.50
C. a loss of $0.75
D. a profit of $0.75
E. a loss of $75.00
answer
B
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