Question 1

Assume that one firm in a perfectly competitive market adopts a technological innovation that enables it to produce at a lower cost per unit than competing firms in the short run.Which of the following statements is correct?

Accepted Answer

A)  The innovating firm will earn above-normal profit in the long run.
B)  All the competing firms will be forced to exit the market in the long run.
C)  This is an example of a decreasing cost industry.
D)  Competing firms will need to adopt the new technology in the long run in order to survive.
E)  Only new firms entering the industry with new-technology plants will be able to compete with the innovating firm.F) B) and D)
G) D) and E)

Question 2

Which of the following is not a characteristic of market structure?

Accepted Answer

A)  The number of sellers in the industry.
B)  The ease with which firms may enter or exit the industry.
C)  The existence of differences among sellers' products.
D)  The presence or absence of government taxation in the market.E) A) and D)
F) All of the above

Question 3

The model of perfect competition is most likely to apply to a market where

Accepted Answer

A)  it is difficult for existing firms to exit the market
B)  there are a few buyers,and they are uninformed about the degree of product standardization
C)  there are many existing sellers,but it is difficult for new sellers to enter the market
D)  one dominant seller must negotiate with one dominant buyer
E)  there are many sellers,and they produce a standardized productF) A) and B)
G) D) and E)

Question 4

Which of the following is a barrier to entry?

Accepted Answer

A)  Zoning laws preventing the establishment of new businesses in a certain area.
B)  The cost of buying a building in which to establish a new business.
C)  A sales-tax law.
D)  Inspection requirements for agricultural products.E) A) and B)
F) None of the above

Question 5

Figure 9-16
 
-Figure 9-16 shows that the profit-maximizing output level is

Accepted Answer

A)  0.
B)  25.
C)  75.
D)  200.E) A) and B)
F) A) and C)

Question 6

Ken's Lawn Service Co.operates in a perfectly competitive market.Why doesn't Ken try to increase his revenue by lowering his price below the prevailing market price?

Accepted Answer

A)  He can sell as much as he wishes to at the market price.
B)  He faces a perfectly inelastic demand curve,so a price change will have no impact on revenue.
C)  Government regulations prevent it.
D)  If he lowers his price,he will lose all his sales since he faces a horizontal demand curve.
E)  Agreements with other lawn service companies require him to sell at the market price.F) C) and D)
G) C) and E)

Question 7

-In Figure 9-13,the movement of equilibrium from point D to point C could be caused by

Accepted Answer

A)  a decrease in supply from S₂ to S₁ in response to economic profits following a decrease in demand from D₂ to D₁
B)  a short-run increase in supply from S₁ to S₂
C)  an increase in supply from S₁ to S₂ in response to economic profits following an increase in demand from D₁ to D₂
D)  external economies
E)  in the short run,by an increase in demand from D₁ to D₂F) B) and C)
G) A) and B)

Question 8

-In Figure 9-13,a movement of equilibrium from point D to point C could be caused by a(n)

Accepted Answer

A)  decrease in supply from S₂ to S₁ in response to economic profits following a decrease in demand from D₂ to D₁
B)  increase in short-run supply from S₁ to S₂
C)  increase in supply from S₁ to S₂ in response to economic profits caused by an increase in demand from D₁ to D₂
D)  an increase in demand from D₁ to D₂ in the short runE) None of the above
F) A) and B)

Question 9

In a perfectly competitive market,

Accepted Answer

A)  no firm can earn an economic profit
B)  it is possible for each firm to earn an economic profit in the short run
C)  firms determine the market price and consumers determine the market quantity
D)  consumers determine the market price,and firms decide how much to produce at that price
E)  the market demand curve is a horizontal line at the market priceF) A) and B)
G) A) and C)

Question 10

In the short run,

Accepted Answer

A)  new firms may enter a market,but existing firms cannot exit.
B)  firms may exit a market,but new firms may not enter.
C)  firms may enter or exit a market.
D)  firms may neither enter nor exit a market.E) None of the above
F) A) and D)

Question 11

In perfect competition,

Accepted Answer

A)  there are typically two or three equally powerful firms
B)  a large number of sellers offer a differentiated product
C)  the firm is a price taker
D)  marginal revenue cannot be calculated because the firm's demand is perfectly elastic
E)  the market demand and the firm's demand are perfectly elasticF) A) and D)
G) C) and D)

Question 12

A firm suffers an economic loss whenever

Accepted Answer

A)  price exceeds average total cost
B)  price is less than average total cost
C)  total revenue exceeds variable cost
D)  marginal cost is greater than marginal revenue
E)  marginal cost exceeds average costF) A) and B)
G) None of the above

Question 13

The difference between price and average total cost is

Accepted Answer

A)  a tax write off
B)  total economic profit (or loss) 
C)  fixed cost
D)  the profit (or loss) per unit of output
E)  average variable costF) C) and D)
G) All of the above

Question 14

-Figure 9-2 shows the total revenue and total cost data for a perfectly competitive firm.To maximize profits,how many units of output should it produce?

Accepted Answer

A)  1
B)  3
C)  4
D)  5
E)  6F) B) and C)
G) C) and D)

Question 15

Figure 9-14
 
-Figure 9-14 shows the cost curves for a perfectly competitive firm.This firm's shutdown price is

Accepted Answer

A)  $5.
B)  $7.
C)  $10.
D)  $14.E) All of the above
F) C) and D)

Question 16

In perfect competition,as the long run approaches,economic profit will cause

Accepted Answer

A)  the entry of new firms,shifting the market supply curve to the right
B)  the emergence of powerful monopolistic corporations
C)  inflation
D)  technological innovation
E)  government regulationF) B) and D)
G) A) and D)

Question 17

In perfect competition,as the long run approaches,economic losses will cause

Accepted Answer

A)  the exit of existing firms,shifting the market supply curve to the left
B)  government regulation
C)  technological innovation
D)  inflation
E)  a favorable shift in tastes and preferencesF) All of the above
G) A) and B)

Question 18

-Figure 9-11 illustrates the long-run average total cost curve for a perfectly competitive firm and the short-run average total cost curve (ATC*) for the firm's current plant size.In the long run,this

Accepted Answer

A)  firm's plant size is too large to allow it to earn a normal profit
B)  firm's plant size is too small to allow it to earn a normal profit
C)  firm will be able to stay in operation with the same plant size
D)  firm will suffer an economic loss
E)  firm will earn an economic profitF) A) and B)
G) B) and E)

Question 19

If price is less than average total cost,a firm

Accepted Answer

A)  earns an economic profit
B)  hires additional workers
C)  moves its factory offshore
D)  fires the marginal worker
E)  suffers an economic lossF) C) and E)
G) A) and E)

Question 20

In the short run,a perfectly competitive firm may earn economic profits that are

Accepted Answer

A)  positive.
B)  positive but very small.
C)  negative.
D)  all of the above.E) C) and D)
F) None of the above

Exam 9: Perfect Competition

In the short run,a perfectly competitive firm may earn economic profits that are

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-Figure 9-2 shows the total revenue and total cost data for a perfectly competitive firm.To maximize profits,how many units of output should it produce?

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In perfect competition,as the long run approaches,economic profit will cause

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In the short run,

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Which of the following is not a characteristic of market structure?

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Figure 9-16 -Figure 9-16 shows that the profit-maximizing output level is

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-Figure 9-11 illustrates the long-run average total cost curve for a perfectly competitive firm and the short-run average total cost curve (ATC*) for the firm's current plant size.In the long run,this

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-In Figure 9-13,a movement of equilibrium from point D to point C could be caused by a(n)

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Ken's Lawn Service Co.operates in a perfectly competitive market.Why doesn't Ken try to increase his revenue by lowering his price below the prevailing market price?

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Which of the following is a barrier to entry?

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The difference between price and average total cost is

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The model of perfect competition is most likely to apply to a market where

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Assume that one firm in a perfectly competitive market adopts a technological innovation that enables it to produce at a lower cost per unit than competing firms in the short run.Which of the following statements is correct?

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A firm suffers an economic loss whenever

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In a perfectly competitive market,

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In perfect competition,

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-In Figure 9-13,the movement of equilibrium from point D to point C could be caused by

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Figure 9-14 -Figure 9-14 shows the cost curves for a perfectly competitive firm.This firm's shutdown price is

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In perfect competition,as the long run approaches,economic losses will cause

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If price is less than average total cost,a firm

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