MicroEcon Test 3 Chapter 10 - Assignment Essays

question

A market

answer

all of the above: may be an organized exchange; refers to a set of sellers and buyers whose actions affect a commodity's price; and is that area in which buyers and sellers compete to effect a price of a product

question

To determine whether a market is perfectly competitive, economists examine the

answer

all of the above: the number of firms in the market; similarities among the products of the different firms in the market; and the ease of entry and exit by firms in the market

question

The strength of the competition faced by a company can profoundly affect its

answer

all of the above: pricing; output decisions; and input decisions

question

Which of the following is not a characteristic of perfect competition

answer

all consumers have identical individual demand curves

question

A perfectly competitive firm is a price

answer

taker

question

Which of the following is a characteristic of a perfectly competitive market?

answer

a large number of small firms

question

One of the following is not a characteristic of perfect competition. Which is it?

answer

firms advertise to increase their market share

question

Firms in perfect competition are often described as price

answer

takers

question

Which of the following most resembles a perfectly competitive market?

answer

the stock market

question

Perfect competition is the term used to describe

answer

an industry in which numerous firms produce identical products

question

Economists study perfect competition

answer

to establish a benchmark by which to measure the performance of the economy

question

Which of the following is closest to the economist's definition of perfect competition?

answer

the fishing industry

question

The result that perfectly competitive firms produce at the lowest per-unit cost is derived from the assumptions of

answer

free entry and exit

question

In a market with perfectly competitive firms, the market demand curve is usually _____ and the demand curve facing each individual firm _____

answer

downward sloping; horizontal

question

A firm facing a horizontal demand curve

answer

all of the above: cannot affect the price it receives for its output; always produces at an output at which P = MR; and faces perfectly elastic demand for its product

question

For a perfectly competitive firm, marginal revenue equals average revenue because the

answer

firm's demand curve is horizontal

question

In a perfectly competitive industry, influence over price is exerted by

answer

the forces of supply and demand

question

The competitive firm has no influence over price because

answer

its output is so insignificant relative to the market as a whole

question

At a perfectly competitive firm's short-run equilibrium level of output,

answer

P = MR = MC

question

In short-run equilibrium, a perfectly competitive firm

answer

may earn a profit or a loss

question

A firm in short-run equilibrium always earns positive profits if

answer

SRAR > SRAC

question

A firm earns a profit of exactly zero at its optimal output level only if

answer

P = AC

question

In the short-run, perfectly competitive firms can

answer

all of the above: make an economic profit; take a loss; and break even

question

In perfect competition, marginal revenue always equals

answer

average cost

question

A perfectly competitive firm should continue to expand output until

answer

marginal revenue equals marginal costs

question

A competitive firm will always maximize profits by producing where

answer

P = MC

question

The perfectly competitive firm's short-run shutdown rule is to shut down immediately if

answer

TR < SRVC

question

At a firm's profit-maximizing level output, its price is $200 and its short-run average total cost is $225. The firm

answer

should shut down if its short-run average variable cost exceeds $25

question

A firm can stay in business while taking a loss in the short run as long as it covers its

answer

variable costs

question

A firm will shut down if

answer

TC - TR > TFC

question

A firm will shut down in the short run if

answer

P < AVC

question

If a firm shuts down in the short run, its losses are equal to

answer

TFC

question

Sunk costs are created in the short run by

answer

all of the above: contract for labor services; lease agreement on real estate; and purchasing machinery

question

If a firm shuts down, its

answer

all of the above: sunk costs remain unchanged; revenue will fall to zero; and short-run variable costs will fall to zero

question

The short-run supply curve of a perfectly competitive firm

answer

goes through the lowest point on both its short-run average variable cost and its short-run average total cost curves

question

In perfect competition, an increase in fixed costs will eventually cause all except

answer

reduction in a firm's output

question

The short-run supply curve of the competitive firm is the firm's

answer

MC curve above the minimum point on the AVC curve

question

If the price falls below minimum SRAVC, the quantity supplied by the firm will be

answer

zero

question

The quantity which a firm will supply in the short run

answer

can be read from the firm's marginal cost curve above average variable cost

question

The supply curve for a competitive industry is obtained by

answer

horizontally summing the supply curves of firms in the industry

question

The short run for the industry is defined as a period

answer

all of the above: too brief for new firms to enter the industry; too brief for old firms to leave the industry; and in which the number of firms in the industry is fixed

question

The long run for the industry is defined as a period of time long enough for

answer

all of the above: any new firm that desires to enter the industry; any old firm that desires to leave the industry; and all aspects of production to vary, including the number of firms in the industry

question

When a firm leaves a perfectly competitive industry,

answer

the individual demand curves facing remaining firms shift up in the long run

question

The short-run supply curve of the competitive industry is found by summing the

answer

MC curves above AVC of the individual firms in the industry

question

A firm in a perfectly competitive industry

answer

may choose a different input mix in the long run than in the short run

question

Given an industry demand curve, Qd = 20 - 2P, and an industry supply curve, Qs = 2 + P, industry equilibrium price in the short run will be

answer

question

Given an industry demand curve, Qd = 20 - 2P, and an industry supply curve, Qs = 2 + P, industry equilibrium quantity in the short run will be

answer

question

We expect the demand curve in the perfectly competitive industry to be

answer

negatively sloped

question

When a firm enters the steel industry, the short-run equilibrium price of steel

answer

always falls

question

Firms entering a competitive industry will cause the price of the product to

answer

fall

question

Perfectly competitive firms _____ earn zero economic profit in long-run equilibrium because _____

answer

always; firms enter whenever their economic profit is positive and exit whenever it's negative, so in long-run equilibrium economic profit must always be zero

question

If the opportunity cost of capital is below the rate of return to capital in the perfectly competitive beauty salon industry,

answer

resources will flow into the industry

question

The difference between zero profit and zero economic profit is that

answer

economists include opportunity cost in zero economic profit, while accountants to not include opportunity cost in zero profit

question

Helga owns Viking, Inc., started with her $100,000 inheritance. Helga's accountant informs her that her firm earned a profit of $100,000 last year, and that if she chooses to invest the money she can expect a 10% return. If Helga did not run Viking, she would not work. What were Helga's economic profits last year?

answer

$95,000

question

Richard Bland quit his job as an accounting professor to start his own restaurant. He gave up a salary of $50,000 per year and withdrew $100,000 in bank CDs earning 5% to buy a building and equipment. In the restaurant's first year it had direct expenses of $75,000 and revenues of $150,000. The restaurant's economic profit was

answer

$20,000

question

A perfectly competitive firm would be willing to remain in the industry in the long run at zero economic profit because

answer

revenue is equal to all costs, including the opportunity cost of capital and labor

question

Zero economic profits for a perfectly competitive firm in the long run means

answer

the firm is in equilibrium

question

Long-run average cost of the perfectly competitive firm includes the

answer

all of the above: cost of raw materials per unit of output; opportunity cost of labor per unit of output; and opportunity cost of capital per unit of output

question

Which of the following statements is not true in a perfectly competitive industry in long-run equilibrium?

answer

a profit-maximizing firm may produce any output level at which P < LRAC

question

The perfectly competitive widget industry is in long-run equilibrium. A profit-maximizing manufacturer receives total revenue of $55,000. He uses his labor, $15,000 worth of wire, and $15,000 worth of steel to make the widgets. The manufacturer

answer

must have an opportunity cost of labor of exactly $25,000

question

The entry of firms into a competitive industry causes the supply curve to

answer

move farther toward the right

question

An increase in demand will cause an increase in industry output in the long run because

answer

new firms enter the industry

question

The market for a perfectly competitive industry clears at a price of $3, and the minimum average cost for all firms is $2.50. In the long run, we would expect an increase in

answer

the number of firms

question

The long-run supply curve of an industry equals the industry's

answer

long run average cost curve

question

Regardless of quantity in long-run equilibrium, the industry price cannot exceed the

answer

long-run average cost of supplying that quantity

question

The long-run industry supply curve in perfect competition is derived from the

answer

all answers: short run industry supply curve which shifts as new firms enter the industry; short run industry supply curve which shifts as old firms exit the industry; and freedom of firms from sunk costs so that new cost curves become long-run curves

question

In a perfectly competitive industry, if price exceeds LRAC, we may be sure

answer

all of the above: equilibrium has not been reached; new firms will continue to enter the industry; and the long-run industry supply curve will shift to the right

question

The process of adjustment to a new long-run equilibrium in a perfectly competitive industry is complete when

answer

all of the above: no firms want to enter or exit the industry; every firm has adjusted its production process to make the most efficient use of its resources; and investors in the industry receive the standard economy-wide rate of return on their investments

question

At its long-run equilibrium level of output, the demand curve facing an individual perfectly competitive firm is tangent to its

answer

long-run average cost curve

question

Firms will continue to enter a competitive industry until

answer

any excess returns have been competed away

question

A perfectly competitive industry in long-run equilibrium is described as efficient because firms

answer

produce at the low point on their average cost curve

question

If you must determine the long-run equilibrium output of a competitive firm and you are permitted to see only one curve, which of the following curves is most helpful?

answer

average cost

question

The entry of new firms into an industry will very likely

answer

all of the above: shift the industry supply curve to the right; cause the market price to fall; and reduce the profits of existing firms in the industry

question

In long-run equilibrium under perfect competition,

answer

the demand curves facing individual firms will fall to the level of minimum AC

question

Which of the following statements concerning equilibrium in the long run is not true?

answer

most firms earn economic profits in the long run

question

In long-run equilibrium, the perfectly competitive firm produces

answer

all of the above: where P = MC = AC; at the lowest point on its long-run average cost curve; and where its long-run average cost curve is tangent to its horizontal demand curve

question

The most efficient market structure in the long run is

answer

perfect competition

question

If government forced a firm to charge a price equal to marginal cost in a situation where there are scale economies,

answer

the firm would be forced to go bankrupt

question

tax on polluting firms

answer

would shift the LRAC curve upward

question

If the objective of economic policy is to decrease the amount of pollution by an industry in the long run, the

answer

most effective policy action would be a tax on polluting firms

question

A subsidy to firms intended to reduce pollution in an industry would

answer

likely have the paradoxical effect of increasing pollution in the industry in the long run

1 of 81

question

A market

answer

question

To determine whether a market is perfectly competitive, economists examine the

answer

all of the above: the number of firms in the market; similarities among the products of the different firms in the market; and the ease of entry and exit by firms in the market

question

The strength of the competition faced by a company can profoundly affect its

answer

all of the above: pricing; output decisions; and input decisions

question

Which of the following is not a characteristic of perfect competition

answer

all consumers have identical individual demand curves

question

A perfectly competitive firm is a price

answer

taker

question

Which of the following is a characteristic of a perfectly competitive market?

answer

a large number of small firms

question

One of the following is not a characteristic of perfect competition. Which is it?

answer

firms advertise to increase their market share

question

Firms in perfect competition are often described as price

answer

takers

question

Which of the following most resembles a perfectly competitive market?

answer

the stock market

question

Perfect competition is the term used to describe

answer

an industry in which numerous firms produce identical products

question

Economists study perfect competition

answer

to establish a benchmark by which to measure the performance of the economy

question

Which of the following is closest to the economist's definition of perfect competition?

answer

the fishing industry

question

The result that perfectly competitive firms produce at the lowest per-unit cost is derived from the assumptions of

answer

free entry and exit

question

In a market with perfectly competitive firms, the market demand curve is usually _____ and the demand curve facing each individual firm _____

answer

downward sloping; horizontal

question

A firm facing a horizontal demand curve

answer

all of the above: cannot affect the price it receives for its output; always produces at an output at which P = MR; and faces perfectly elastic demand for its product

question

For a perfectly competitive firm, marginal revenue equals average revenue because the

answer

firm's demand curve is horizontal

question

In a perfectly competitive industry, influence over price is exerted by

answer

the forces of supply and demand

question

The competitive firm has no influence over price because

answer

its output is so insignificant relative to the market as a whole

question

At a perfectly competitive firm's short-run equilibrium level of output,

answer

P = MR = MC

question

In short-run equilibrium, a perfectly competitive firm

answer

may earn a profit or a loss

question

A firm in short-run equilibrium always earns positive profits if

answer

SRAR > SRAC

question

A firm earns a profit of exactly zero at its optimal output level only if

answer

P = AC

question

In the short-run, perfectly competitive firms can

answer

all of the above: make an economic profit; take a loss; and break even

question

In perfect competition, marginal revenue always equals

answer

average cost

question

A perfectly competitive firm should continue to expand output until

answer

marginal revenue equals marginal costs

question

A competitive firm will always maximize profits by producing where

answer

P = MC

question

The perfectly competitive firm's short-run shutdown rule is to shut down immediately if

answer

TR < SRVC

question

At a firm's profit-maximizing level output, its price is $200 and its short-run average total cost is $225. The firm

answer

should shut down if its short-run average variable cost exceeds $25

question

A firm can stay in business while taking a loss in the short run as long as it covers its

answer

variable costs

question

A firm will shut down if

answer

TC - TR > TFC

question

A firm will shut down in the short run if

answer

P < AVC

question

If a firm shuts down in the short run, its losses are equal to

answer

TFC

question

Sunk costs are created in the short run by

answer

all of the above: contract for labor services; lease agreement on real estate; and purchasing machinery

question

If a firm shuts down, its

answer

all of the above: sunk costs remain unchanged; revenue will fall to zero; and short-run variable costs will fall to zero

question

The short-run supply curve of a perfectly competitive firm

answer

goes through the lowest point on both its short-run average variable cost and its short-run average total cost curves

question

In perfect competition, an increase in fixed costs will eventually cause all except

answer

reduction in a firm's output

question

The short-run supply curve of the competitive firm is the firm's

answer

MC curve above the minimum point on the AVC curve

question

If the price falls below minimum SRAVC, the quantity supplied by the firm will be

answer

zero

question

The quantity which a firm will supply in the short run

answer

can be read from the firm's marginal cost curve above average variable cost

question

The supply curve for a competitive industry is obtained by

answer

horizontally summing the supply curves of firms in the industry

question

The short run for the industry is defined as a period

answer

all of the above: too brief for new firms to enter the industry; too brief for old firms to leave the industry; and in which the number of firms in the industry is fixed

question

The long run for the industry is defined as a period of time long enough for

answer

question

When a firm leaves a perfectly competitive industry,

answer

the individual demand curves facing remaining firms shift up in the long run

question

The short-run supply curve of the competitive industry is found by summing the

answer

MC curves above AVC of the individual firms in the industry

question

A firm in a perfectly competitive industry

answer

may choose a different input mix in the long run than in the short run

question

Given an industry demand curve, Qd = 20 - 2P, and an industry supply curve, Qs = 2 + P, industry equilibrium price in the short run will be

answer

question

Given an industry demand curve, Qd = 20 - 2P, and an industry supply curve, Qs = 2 + P, industry equilibrium quantity in the short run will be

answer

question

We expect the demand curve in the perfectly competitive industry to be

answer

negatively sloped

question

When a firm enters the steel industry, the short-run equilibrium price of steel

answer

always falls

question

Firms entering a competitive industry will cause the price of the product to

answer

fall

question

Perfectly competitive firms _____ earn zero economic profit in long-run equilibrium because _____

answer

always; firms enter whenever their economic profit is positive and exit whenever it's negative, so in long-run equilibrium economic profit must always be zero

question

If the opportunity cost of capital is below the rate of return to capital in the perfectly competitive beauty salon industry,

answer

resources will flow into the industry

question

The difference between zero profit and zero economic profit is that

answer

economists include opportunity cost in zero economic profit, while accountants to not include opportunity cost in zero profit

question

answer

$95,000

question

answer

$20,000

question

A perfectly competitive firm would be willing to remain in the industry in the long run at zero economic profit because

answer

revenue is equal to all costs, including the opportunity cost of capital and labor

question

Zero economic profits for a perfectly competitive firm in the long run means

answer

the firm is in equilibrium

question

Long-run average cost of the perfectly competitive firm includes the

answer

all of the above: cost of raw materials per unit of output; opportunity cost of labor per unit of output; and opportunity cost of capital per unit of output

question

Which of the following statements is not true in a perfectly competitive industry in long-run equilibrium?

answer

a profit-maximizing firm may produce any output level at which P < LRAC

question

answer

must have an opportunity cost of labor of exactly $25,000

question

The entry of firms into a competitive industry causes the supply curve to

answer

move farther toward the right

question

An increase in demand will cause an increase in industry output in the long run because

answer

new firms enter the industry

question

The market for a perfectly competitive industry clears at a price of $3, and the minimum average cost for all firms is $2.50. In the long run, we would expect an increase in

answer

the number of firms

question

The long-run supply curve of an industry equals the industry's

answer

long run average cost curve

question

Regardless of quantity in long-run equilibrium, the industry price cannot exceed the

answer

long-run average cost of supplying that quantity

question

The long-run industry supply curve in perfect competition is derived from the

answer

question

In a perfectly competitive industry, if price exceeds LRAC, we may be sure

answer

all of the above: equilibrium has not been reached; new firms will continue to enter the industry; and the long-run industry supply curve will shift to the right

question

The process of adjustment to a new long-run equilibrium in a perfectly competitive industry is complete when

answer

question

At its long-run equilibrium level of output, the demand curve facing an individual perfectly competitive firm is tangent to its

answer

long-run average cost curve

question

Firms will continue to enter a competitive industry until

answer

any excess returns have been competed away

question

A perfectly competitive industry in long-run equilibrium is described as efficient because firms

answer

produce at the low point on their average cost curve

question

If you must determine the long-run equilibrium output of a competitive firm and you are permitted to see only one curve, which of the following curves is most helpful?

answer

average cost

question

The entry of new firms into an industry will very likely

answer

all of the above: shift the industry supply curve to the right; cause the market price to fall; and reduce the profits of existing firms in the industry

question

In long-run equilibrium under perfect competition,

answer

the demand curves facing individual firms will fall to the level of minimum AC

question

Which of the following statements concerning equilibrium in the long run is not true?

answer

most firms earn economic profits in the long run

question

In long-run equilibrium, the perfectly competitive firm produces

answer

all of the above: where P = MC = AC; at the lowest point on its long-run average cost curve; and where its long-run average cost curve is tangent to its horizontal demand curve

question

The most efficient market structure in the long run is

answer

perfect competition

question

If government forced a firm to charge a price equal to marginal cost in a situation where there are scale economies,

answer

the firm would be forced to go bankrupt

question

tax on polluting firms

answer

would shift the LRAC curve upward

question

If the objective of economic policy is to decrease the amount of pollution by an industry in the long run, the

answer

most effective policy action would be a tax on polluting firms

question

A subsidy to firms intended to reduce pollution in an industry would

answer

likely have the paradoxical effect of increasing pollution in the industry in the long run

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