Question 1
1.
In a perfectly competitive market, positive economic profits act to
Answer
| a. | attract new entrants into the industry. |
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| b. | drive potential competitors away from the industry. |
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| c. | prevent reinvestment on the part of firms within the industry. |
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| d. | signal resource owners elsewhere not to invest their capital in this industry. |
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5 points
Question 2
1.
Which is always true at a firm's profit-maximizing rate of production?
Answer
| a. | Marginal Revenue > Marginal Cost |
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| b. | The total revenue curve lies below the total cost curve. |
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| c. | Marginal Revenue = Marginal Cost |
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| d. | Total Revenue = Total Costs |
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5 points
Question 3
1.
For a firm in a perfectly competitive industry,
Answer
| a. | short-run economic profits may be positive, but long-run economic profits must be zero. |
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| b. | short-run economic profits must be zero. |
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| c. | short-run and long-run economic profits must be zero. |
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| d. | both short-run and long-run economic profits may be negative. |
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5 points
Question 4
1.
All firms in a perfect competition industry
Answer
| a. | are price makers. |
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| b. | produce differentiated products. |
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| c. | produce identical products. |
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| d. | lose money. |
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5 points
Question 5
1.
In the above figure, at which output level is this firm earning negative economic profits?
Answer
| a. | 2 |
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| b. | 5 |
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| c. | 10 |
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| d. | 12 |
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5 points
Question 6
1.
If a firm is perfectly competitive, then
Answer
| a. | its demand curve is perfectly elastic. |
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| b. | it can independently set the price of the product it sells without regard to what other firms in the market are doing. |
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| c. | it is impossible for the firm to earn short-run economic profits. |
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| d. | its marginal cost will exceed marginal revenue at the optimal level of output. |
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5 points
Question 7
1.
Which of the following is a characteristic of perfect competition?
Answer
| a. | Easy entry and exit |
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| b. | Few firms |
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| c. | Differentiated products |
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| d. | none of these |
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5 points
Question 8
1.
In the above figure, what is the profit-maximizing output and price?
Answer
| a. | 10, $8 |
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| b. | 10, $10 |
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| c. | 12, $10 |
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| d. | 8, $7 |
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5 points
Question 9
1.
In the above figure, assume this firm is operating on d3. Which is true?
Answer
| a. | This firm is earning an economic profit. |
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| b. | This firm is experiencing an economic loss. |
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| c. | This firm is breaking even. |
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| d. | This firm's total revenues equal HRD0. |
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5 points
Question 10
1.
If a constant-cost, perfectly competitive industry experiences an increase in the demand for its product, we would expect
Answer
| a. | only the market price of the good to increase. |
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| b. | both the market price and quantity supplied to increase. |
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| c. | decreases in the market price, but increases in quantity supplied. |
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| d. | only the quantity supplied of the product to increase. |
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5 points
Question 11
1.
In the above figure, the market price charged by this perfectly competitive firm is
Answer
| a. | $5 per unit of output. |
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| b. | $10 per unit of output. |
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| c. | $8 per unit of output. |
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| d. | $14 per unit of output. |
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5 points
Question 12
1.
If price is $5, marginal cost is $5, average total cost is $3, and the quantity produced is 150 units, then the firm is
Answer
| a. | earning $300 and maximizing economic profit. |
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| b. | earning $2 and maximizing economic profit. |
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| c. | not maximizing economic profit. |
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| d. | earning $150 and not maximizing economic profit. |
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5 points
Question 13
1.
For a firm in a perfectly competitive market, average revenue equals
Answer
| a. | average cost. |
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| b. | the change in total revenue. |
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| c. | the market price. |
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| d. | price divided by quantity. |
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5 points
Question 14
1.
In the above figure, when price is below E, this firm should
Answer
| a. | lower prices. |
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| b. | continue to operate as-is. |
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| c. | attempt to lower ATC and to raise AVC. |
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| d. | shut down. |
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5 points
Question 15
1.
In a perfectly competitive industry
Answer
| a. | no buyer or seller can influence the market price. |
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| b. | firms can never make an economic profit. |
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| c. | there is apt to be a shortage of sellers of output. |
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| d. | each firm is a price maker. |
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5 points
Question 16
1.
A firm that shuts down in the short run experiences losses equal to its
Answer
| a. | total fixed costs. |
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| b. | average variable costs. |
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| c. | total variable costs. |
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| d. | total variable costs minus its total fixed costs. |
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5 points
Question 17
1.
In the above figure, if the market price is less than $7, the firm
Answer
| a. | produces 11 units. |
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| b. | produces 10 units. |
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| c. | produces 12 units. |
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| d. | shuts down operations. |
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5 points
Question 18
1.
According to the above figure, if the firm is earning zero economic profits, what quantity is the firm selling and at what price?
Answer
| a. | Q = 200; P = $4 |
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| b. | Q = 1,000; P = $5 |
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| c. | Q = 800; P = $4 |
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| d. | Q = 1,200; P = $7.00 |
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5 points
Question 19
1.
Suppose that at the current level of output, price = $10, MC = $4, AVC = 7, and ATC = $11. Which of the following is true?
Answer
| a. | The firm should decrease output. |
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| b. | The firm should shut down. |
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| c. | The firm should increase output. |
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| d. | The firm should maintain the current level of output. |
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5 points
Question 20
1.
Economists generally assume that firms attempt to maximize
Answer
| a. | total revenue. |
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| b. | sales. |
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| c. | marginal revenue. |
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| d. | total economic profits. |
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