question
Each firm in a perfectly competitive industry is
A. relatively large.
B. a price taker.
C. producing a unique product.
D. a price maker.
A. relatively large.
B. a price taker.
C. producing a unique product.
D. a price maker.
answer
B. a price taker.
question
The demand curve for the perfectly competitive firm is
A. perfectly inelastic.
B. elastic at lower output levels, then unit elastic, and then inelastic at higher output levels.
C. unit elastic.
D. perfectly elastic.
A. perfectly inelastic.
B. elastic at lower output levels, then unit elastic, and then inelastic at higher output levels.
C. unit elastic.
D. perfectly elastic.
answer
D. perfectly elastic.
question
The decision making process for the perfectly competitive firm boils down to
A. deciding how much to produce.
B. deciding when to change the price.
C. deciding what price to charge.
D. deciding for whom to produce.
A. deciding how much to produce.
B. deciding when to change the price.
C. deciding what price to charge.
D. deciding for whom to produce.
answer
A. deciding how much to produce.
question
Suppose that a firm in a perfectly competitive industry finds that at its current output rate, marginal revenue exceeds the minimum average total cost of producing any feasible rate of output. Furthermore, the firm is producing an output rate at which marginal cost is less than the average total cost at that rate of output.
Is the firm maximizing its economic profits?
A. No, the marginal cost is less than the average cost, so the average cost must be declining at the output level where the firm is producing.
B. Yes, marginal revenue exceeds the minimum average total cost of producing any feasible rate of output.
C. No, if the firm was maximizing its economic profits the marginal cost would not be less than the average total cost at that rate of output.
D. No, the firm is producing where average total cost are a minimum.
E. It is impossible to draw a conclusion from the given information.
Is the firm maximizing its economic profits?
A. No, the marginal cost is less than the average cost, so the average cost must be declining at the output level where the firm is producing.
B. Yes, marginal revenue exceeds the minimum average total cost of producing any feasible rate of output.
C. No, if the firm was maximizing its economic profits the marginal cost would not be less than the average total cost at that rate of output.
D. No, the firm is producing where average total cost are a minimum.
E. It is impossible to draw a conclusion from the given information.
answer
C. No, if the firm was maximizing its economic profits the marginal cost would not be less than the average total cost at that rate of output.
question
The perfectly competitive firm's demand curve has
A. a slope of infinity.
B. a positive slope.
C. a slope of 0.
D. a negative slope.
A. a slope of infinity.
B. a positive slope.
C. a slope of 0.
D. a negative slope.
answer
C. a slope of 0.
question
Which is always true at a firm's profit-maximizing rate of production?
A. Marginal Revenue > Marginal Cost
B. Total Revenue = Total Costs
C. Marginal Revenue = Marginal Cost
D. The total revenue curve lies below the total cost curve.
A. Marginal Revenue > Marginal Cost
B. Total Revenue = Total Costs
C. Marginal Revenue = Marginal Cost
D. The total revenue curve lies below the total cost curve.
answer
C. Marginal Revenue = Marginal Cost
question
If a perfectly competitive firm sells the product for a profit-maximizing price of $4.76 and has average total cost per unit of $5.16, in the short run
A. this firm should shut down if $4.76 is less than minimum AVC.
B. this firm must hope the market price rises soon or exit the industry.
C. this firm is losing money.
D. All of the above.
A. this firm should shut down if $4.76 is less than minimum AVC.
B. this firm must hope the market price rises soon or exit the industry.
C. this firm is losing money.
D. All of the above.
answer
D. All of the above.
question
The short-run break-even price for the perfectly competitive firm occurs where price equals
A. AFC.
B. ATC.
C. MR.
D. AVC.
A. AFC.
B. ATC.
C. MR.
D. AVC.
answer
B. ATC.
question
If price is $5, marginal cost is $5, average total cost is $3, and the quantity produced is 150 units, then the perfectly competitive firm is
A. earning $2 in economic profits and is maximizing economic profits.
B. not maximizing economic profit.
C. earning $150 in economic profits and is not maximizing economic profits.
D. earning $300 in economic profits and is maximizing economic profits.
A. earning $2 in economic profits and is maximizing economic profits.
B. not maximizing economic profit.
C. earning $150 in economic profits and is not maximizing economic profits.
D. earning $300 in economic profits and is maximizing economic profits.
answer
D. earning $300 in economic profits and is maximizing economic profits.
question
If price is below average variable costs at all rates of output, the quantity supplied by a perfectly competitive firm will equal
A. the rate of output where marginal revenue equals average fixed costs.
B. zero.
C. the rate of output where price equals marginal cost.
D. the rate of output associated with the break-even point.
A. the rate of output where marginal revenue equals average fixed costs.
B. zero.
C. the rate of output where price equals marginal cost.
D. the rate of output associated with the break-even point.
answer
B. zero.
question
In a perfectly competitive market, if P = ATC in the long run, the firm will
A. suffer losses.
B. leave the industry.
C. make economic profits.
D. None of the above.
A. suffer losses.
B. leave the industry.
C. make economic profits.
D. None of the above.
answer
D. None of the above.
question
A perfectly competitive industry's market or "going" price is established by
A. each individual producing firm and reflects that firm's costs.
B. the forces of supply and demand.
C. the largest firm in the industry.
D. the largest purchaser of this industry's output.
A. each individual producing firm and reflects that firm's costs.
B. the forces of supply and demand.
C. the largest firm in the industry.
D. the largest purchaser of this industry's output.
answer
B. the forces of supply and demand.
question
A perfectly competitive industry is initially in a short-run equilibrium in which all firms are earning zero economic profits but in which firms are operating below their minimum efficient scale. All of the following statements are true as the industry and the firms make their long-run adjustments except that
A. firms begin to make adjustments along their long-run average cost curves.
B. new firms enter the market, causing the industry output to expand.
C. some firms leave the industry and the existing firms slowly adjust their production to reach their minimum efficient scale.
D. individual firms expand their output level to their minimum efficient scale.
A. firms begin to make adjustments along their long-run average cost curves.
B. new firms enter the market, causing the industry output to expand.
C. some firms leave the industry and the existing firms slowly adjust their production to reach their minimum efficient scale.
D. individual firms expand their output level to their minimum efficient scale.
answer
C. some firms leave the industry and the existing firms slowly adjust their production to reach their minimum efficient scale.
question
In the long run, all firms in a perfectly competitive industry
A. earn positive economic profits.
B. break even.
C. suffer economic losses.
D. sell differentiated products to earn economic profits.
A. earn positive economic profits.
B. break even.
C. suffer economic losses.
D. sell differentiated products to earn economic profits.
answer
B. break even.
question
Market failure occurs when
A. all firms in the industry earn an economic profit of zero.
B. markets do not produce goods desired by government planners.
C. an unrestrained market allocates too many or too few resources to a specific economic activity.
D. market price is equal to marginal cost.
A. all firms in the industry earn an economic profit of zero.
B. markets do not produce goods desired by government planners.
C. an unrestrained market allocates too many or too few resources to a specific economic activity.
D. market price is equal to marginal cost.
answer
C. an unrestrained market allocates too many or too few resources to a specific economic activity.
question
A situation in which the price charged is less than society's opportunity cost would lead to
A. an efficient amount being produced.
B. too little being produced.
C. too much being produced.
D. marginal cost pricing.
A. an efficient amount being produced.
B. too little being produced.
C. too much being produced.
D. marginal cost pricing.
answer
C. too much being produced.
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