question
Which of the following is NOT an assumption of perfect competition?
each firm sells an identical product
many buyers
many firms
restricted entry into the industry
each firm sells an identical product
many buyers
many firms
restricted entry into the industry
answer
restricted entry into the industry
question
In perfect competition there are no fliers, coupons, brand names, or price wars because all firms produce ________.
identical products and set their price equal to the slope of the demand curve
differentiated products and are price takers
differentiated products and set price equal to the slope of the demand curve
identical products and are price takers
identical products and set their price equal to the slope of the demand curve
differentiated products and are price takers
differentiated products and set price equal to the slope of the demand curve
identical products and are price takers
answer
identical products and are price takers
question
In a perfectly competitive market, the demand for a single firm's product is perfectly elastic ________.
only in the long run
because this firm's output is a perfect substitute for any other firm's output
because this firm is a price maker
because there are many buyers in this market
only in the long run
because this firm's output is a perfect substitute for any other firm's output
because this firm is a price maker
because there are many buyers in this market
answer
because this firm's output is a perfect substitute for any other firm's output
question
The firm's goal is to ________.
maximize its total revenue
maximize its industry's revenue
maximize its normal profit
maximize its economic profit
maximize its total revenue
maximize its industry's revenue
maximize its normal profit
maximize its economic profit
answer
maximize its economic profit
question
For a perfectly competitive firm, price ALWAYS equals ________.
average total cost
minimum average total cost
marginal product
marginal revenue
average total cost
minimum average total cost
marginal product
marginal revenue
answer
marginal revenue
question
A perfectly competitive firm maximizes its profit by ________.
manipulating demand
cutting wages
setting the right price
choosing the right level of output
manipulating demand
cutting wages
setting the right price
choosing the right level of output
answer
choosing the right level of output
question
A firm maximizes its profits by producing the level of output such that ________.
P = ATC
P = AVC
MR = P
MR = MC
P = ATC
P = AVC
MR = P
MR = MC
answer
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 ________.
be maximizing profits
increase its output to increase its profit
shut down for the short run
decrease its output to increase its profit
be maximizing profits
increase its output to increase its profit
shut down for the short run
decrease its output to increase its profit
answer
decrease its output to increase its profit
question
The figure depicts the marginal revenue and costs of a perfectly competitive firm. The firm's profit is maximized when the firm produces ________.
130 units of output
170 units of output
90 units of output
210 units of output
MOD 4, LESSON 12, PRE TEST Q 9
130 units of output
170 units of output
90 units of output
210 units of output
MOD 4, LESSON 12, PRE TEST Q 9
answer
The figure depicts the marginal revenue and costs of a perfectly competitive firm. The firm's profit is maximized when the firm produces ________.
MOD 4, LESSON 12, PRE TEST Q 9
170 units of output
MOD 4, LESSON 12, PRE TEST Q 9
170 units of output
question
The figure depicts the marginal revenue and costs of a perfectly competitive firm. The price the firm charges is ________.
MOD 4, LESSON 12, PRE TEST Q 10
$16 per unit
$8 per unit
$4 per unit
None of the above is correct.
MOD 4, LESSON 12, PRE TEST Q 10
$16 per unit
$8 per unit
$4 per unit
None of the above is correct.
answer
The figure depicts the marginal revenue and costs of a perfectly competitive firm. The price the firm charges is ________.
MOD 4, LESSON 12, PRE TEST Q 10
$16 per unit
MOD 4, LESSON 12, PRE TEST Q 10
$16 per unit
question
No. The firm will sell at the market price.
price equals the minimum average variable cost
price is above the minimum average total cost but below the minimum average fixed cost
price equals average total cost
price equals average fixed costs
price equals the minimum average variable cost
price is above the minimum average total cost but below the minimum average fixed cost
price equals average total cost
price equals average fixed costs
answer
price equals the minimum average variable cost
question
The short-run market supply curve for a perfectly competitive industry is the ________.
sum of the part of each firm's AVC curve that lies above its MC curve
sum of each firm's MC curve that lies below the AVC curve
sum of each firm's AVC curve that lies below the MC curve
sum of the part of each firm's MC curve that lies above its AVC curve
sum of the part of each firm's AVC curve that lies above its MC curve
sum of each firm's MC curve that lies below the AVC curve
sum of each firm's AVC curve that lies below the MC curve
sum of the part of each firm's MC curve that lies above its AVC curve
answer
sum of the part of each firm's MC curve that lies above its AVC curve
question
The figure to the right shows the cost curves for a perfectly competitive firm. If all firms in the industry have the same cost curves and the price equals $16 per unit, ________.
the industry is in long-run equilibrium
over time, firms will leave this industry
over time, the price will fall as new firms enter the industry
the firm is earning zero economic profit
MOD 4, LESSON 12, PRE TEST Q 13
the industry is in long-run equilibrium
over time, firms will leave this industry
over time, the price will fall as new firms enter the industry
the firm is earning zero economic profit
MOD 4, LESSON 12, PRE TEST Q 13
answer
The figure to the right shows the cost curves for a perfectly competitive firm. If all firms in the industry have the same cost curves and the price equals $16 per unit, ________.
MOD 4, LESSON 12, PRE TEST Q 13
over time, the price will fall as new firms enter the industry
MOD 4, LESSON 12, PRE TEST Q 13
over time, the price will fall as new firms enter the industry
question
In a perfectly competitive market, ________.
a firm can raise its profits by increasing its output beyond the point at which MR = MC
a firm can raise its price to increase its profits
the price of the good can exceed firms' average total cost but only in the short run
the price of the good can exceed firms' marginal cost but only in the short run
a firm can raise its profits by increasing its output beyond the point at which MR = MC
a firm can raise its price to increase its profits
the price of the good can exceed firms' average total cost but only in the short run
the price of the good can exceed firms' marginal cost but only in the short run
answer
the price of the good can exceed firms' average total cost but only in the short run
question
In the long run, perfectly competitive firms earn zero economic profit (earn a normal profit) because ________ .
any economic profit would attract newcomers to the industry
there are many buyers and sellers
any economic loss would cause an increase in the demand for the product, thereby raising its price
the firms are incompetent
any economic profit would attract newcomers to the industry
there are many buyers and sellers
any economic loss would cause an increase in the demand for the product, thereby raising its price
the firms are incompetent
answer
any economic profit would attract newcomers to the industry
question
In a perfectly competitive market that is in long-run equilibrium, a permanent leftward shift in the market demand curve will cause ________.
profits to fall in the short run
firms to leave the industry in the long run
the price to fall in the short run
All of the above are correct.
profits to fall in the short run
firms to leave the industry in the long run
the price to fall in the short run
All of the above are correct.
answer
All of the above are correct.
question
In the picture, a perfectly competitive firm is definitely earning an economic profit when ________
MR < MC
P > ATC
P < ATC
P > AVC
MOD 4, LESSON 12, PRE TEST Q 17
MR < MC
P > ATC
P < ATC
P > AVC
MOD 4, LESSON 12, PRE TEST Q 17
answer
In the picture, a perfectly competitive firm is definitely earning an economic profit when ________
MOD 4, LESSON 12, PRE TEST Q 17
P > ATC
MOD 4, LESSON 12, PRE TEST Q 17
P > ATC
question
In the long run, a perfectly competitive firm can ________ .
earn an economic profit
earn a normal profit
incur an economic loss
earn an economic profit, earn a normal profit, or incur an economic loss
earn an economic profit
earn a normal profit
incur an economic loss
earn an economic profit, earn a normal profit, or incur an economic loss
answer
earn a normal profit
question
In the short run, a perfectly competitive firm can ________.
earn an economic profit
earn a normal profit
incur an economic loss
earn an economic profit, earn a normal profit, or incur an economic loss
earn an economic profit
earn a normal profit
incur an economic loss
earn an economic profit, earn a normal profit, or incur an economic loss
answer
earn an economic profit, earn a normal profit, or incur an economic loss
question
Carol's Candies is producing 150 boxes of candy a day. Carol's marginal revenue and marginal cost curves are shown in the figure. To increase her profit, Carol should ________.
increase output to increase profit
decrease output to increase profit
maintain the current level of output to maximize profit
Not enough information is given to determine if Carol should increase, decrease, or not change her level of output.
MOD 4, LESSON 12, PRE TEST Q 20
increase output to increase profit
decrease output to increase profit
maintain the current level of output to maximize profit
Not enough information is given to determine if Carol should increase, decrease, or not change her level of output.
MOD 4, LESSON 12, PRE TEST Q 20
answer
Carol's Candies is producing 150 boxes of candy a day. Carol's marginal revenue and marginal cost curves are shown in the figure. To increase her profit, Carol should ________.
MOD 4, LESSON 12, PRE TEST Q 20
decrease output to increase profit
MOD 4, LESSON 12, PRE TEST Q 20
decrease output to increase profit
question
In perfect competition, the product of a single firm __________.
has many perfect substitutes produced by other firms
has many perfect complements produced by other firms
is sold under many differing brand names
is sold to different customers at different prices
has many perfect substitutes produced by other firms
has many perfect complements produced by other firms
is sold under many differing brand names
is sold to different customers at different prices
answer
has many perfect substitutes produced by other firms
question
In perfect competition, restrictions on entry into an industry __________.
apply to both capital and labor
apply to labor but not to capital
apply to capital but not to labor
do not exist
apply to both capital and labor
apply to labor but not to capital
apply to capital but not to labor
do not exist
answer
do not exist
question
Total economic profit is __________.
total revenue minus total opportunity cost
total revenue divided by total cost
marginal revenue minus marginal cost
marginal revenue divided by marginal cost
total revenue minus total opportunity cost
total revenue divided by total cost
marginal revenue minus marginal cost
marginal revenue divided by marginal cost
answer
total revenue minus total opportunity cost
question
For a perfectly competitive firm, curve A in the figure is the firm's __________.
MOD 4, LESSON 12, CGA Q 4
total fixed cost curve
average fixed cost curve
average variable cost curve
total revenue curve
MOD 4, LESSON 12, CGA Q 4
total fixed cost curve
average fixed cost curve
average variable cost curve
total revenue curve
answer
For a perfectly competitive firm, curve A in the figure is the firm's __________.
MOD 4, LESSON 12, CGA Q 4
total revenue curve
MOD 4, LESSON 12, CGA Q 4
total revenue curve
question
The firm's marginal revenue from selling a unit of output __________.
MOD 4, LESSON 12, CGA Q 4
equals $0.50
equals $1.00
equals $2.00
cannot be determined
MOD 4, LESSON 12, CGA Q 4
equals $0.50
equals $1.00
equals $2.00
cannot be determined
answer
equals $2.00
question
In the table to the right, the firm's total fixed cost of production is __________.
MOD 4, LESSON 12, CGA Q 6
$3.00
$4.00
$7.00
$29.00
MOD 4, LESSON 12, CGA Q 6
$3.00
$4.00
$7.00
$29.00
answer
$4.00
question
A firm will expand the amount of output it produces as long as its __________.
average total revenue exceeds its average total cost
average total revenue exceeds its average variable cost
marginal cost exceeds its marginal revenue
marginal revenue exceeds its marginal cost
average total revenue exceeds its average total cost
average total revenue exceeds its average variable cost
marginal cost exceeds its marginal revenue
marginal revenue exceeds its marginal cost
answer
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 .
average total cost
average marginal cost
average variable cost
wage rate
average total cost
average marginal cost
average variable cost
wage rate
answer
average variable cost
question
A firm that shuts down and produces no output incurs a loss equal to its __________.
total fixed costs
total variable costs
marginal costs
marginal revenue
total fixed costs
total variable costs
marginal costs
marginal revenue
answer
total fixed costs
question
The figure shows short-run cost curves for a perfectly competitive firm. If the price of the product is $8, in the short run the firm will __________.
MOD 4, LESSON 12, CGA Q 10
exit from the industry
break even
make an economic profit
incur an economic loss
MOD 4, LESSON 12, CGA Q 10
exit from the industry
break even
make an economic profit
incur an economic loss
answer
The figure shows short-run cost curves for a perfectly competitive firm. If the price of the product is $8, in the short run the firm will __________.
MOD 4, LESSON 12, CGA Q 10
incur an economic loss
MOD 4, LESSON 12, CGA Q 10
incur an economic loss
question
The figure represents a firm in a perfectly competitive market. The firm will shut down if price falls below __________.
MOD 4, LESSON 12, CGA Q 11
P1
P2
P3
P4
MOD 4, LESSON 12, CGA Q 11
P1
P2
P3
P4
answer
The figure represents a firm in a perfectly competitive market. The firm will shut down if price falls below __________.
MOD 4, LESSON 12, CGA Q 11
P2
MOD 4, LESSON 12, CGA Q 11
P2
question
If there are 1,000 rutabaga farms, all perfectly competitive, an increase in the price of fertilizer used for growing rutabagas will __________.
have no effect on the total quantity of rutabagas supplied, because no farm has enough market power to raise the price
have no effect on the total quantity of rutabagas supplied, because each farm's supply curve is a vertical line
decrease the total quantity of rutabagas supplied, because each farm's supply curve shifts leftward
reduce the total quantity of rutabagas supplied, because each farm's supply curve is a horizontal line and will shift upward
have no effect on the total quantity of rutabagas supplied, because no farm has enough market power to raise the price
have no effect on the total quantity of rutabagas supplied, because each farm's supply curve is a vertical line
decrease the total quantity of rutabagas supplied, because each farm's supply curve shifts leftward
reduce the total quantity of rutabagas supplied, because each farm's supply curve is a horizontal line and will shift upward
answer
decrease the total quantity of rutabagas supplied, because each farm's supply curve shifts leftward
question
In the figure, if the price is P1, the firm is __________.
MOD 4, LESSON 12, CGA Q 13
making an economic profit
incurring an economic loss
earning a normal profit
earning enough revenue to pay all of its opportunity costs
MOD 4, LESSON 12, CGA Q 13
making an economic profit
incurring an economic loss
earning a normal profit
earning enough revenue to pay all of its opportunity costs
answer
In the figure, if the price is P1, the firm is __________.
MOD 4, LESSON 12, CGA Q 13
incurring an economic loss
MOD 4, LESSON 12, CGA Q 13
incurring an economic loss
question
Suppose the cost curves in the figure apply to all firms in the industry. If the initial price is P1, firms are __________.
MOD 4, LESSON 12, CGA Q 14
making an economic profit and some firms will leave the industry
making an economic profit and some firms will enter the industry
incurring an economic loss and some firms will leave the industry
incurring an economic loss and some firms will enter the industry
MOD 4, LESSON 12, CGA Q 14
making an economic profit and some firms will leave the industry
making an economic profit and some firms will enter the industry
incurring an economic loss and some firms will leave the industry
incurring an economic loss and some firms will enter the industry
answer
incurring an economic loss and some firms will leave the industry
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 __________.
rises; rises
rises; falls
falls; rises
falls; falls
rises; rises
rises; falls
falls; rises
falls; falls
answer
falls; falls
question
In the long run, fixed costs are __________.
zero and variable costs are zero
zero and variable costs are positive
positive and variable costs are zero
positive and variable costs are positive
zero and variable costs are zero
zero and variable costs are positive
positive and variable costs are zero
positive and variable costs are positive
answer
zero and variable costs are positive
question
In the long run, the economic profits of a firm in a perfectly competitive industry __________.
will be above zero
will be below zero
will equal zero
can be above, below, or equal to zero
will be above zero
will be below zero
will equal zero
can be above, below, or equal to zero
answer
will equal zero
question
Congestion of airports and airspace causes the airline industry to experience external __________.
economies and have a long-run supply curve with negative slope
economies and have a long-run supply curve with positive slope
diseconomies and have a long-run supply curve with negative slope
diseconomies and have a long-run supply curve with positive slope
economies and have a long-run supply curve with negative slope
economies and have a long-run supply curve with positive slope
diseconomies and have a long-run supply curve with negative slope
diseconomies and have a long-run supply curve with positive slope
answer
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 __________.
shifts downward
shifts upward
stays the same
is no longer U-shaped
shifts downward
shifts upward
stays the same
is no longer U-shaped
answer
shifts downward
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 __________.
one printer a day
two printers a day
three printers a day
more than three printers a day
one printer a day
two printers a day
three printers a day
more than three printers a day
answer
two printers a day
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