Econ Final Chapter 10 -- Perfect Competition
A firm will shut down in the short run if A. P < AVC. B. P > AVC. C. AVC > AFC. D. TR > TC.
A. P < AVC.
At a perfectly competitive firm's short-run equilibrium level of output, A. P = MR = MC. B. P = MR, but MR does not equal MC. C. P = MC, but MR does not equal MC. D.MR = MC and P < MR.
A. P = MR = MC
When a firm enters the steel industry, the short-run equilibrium price of steel A. always falls. B. falls only if existing firms gang up on the entrant. C. falls only if existing firms are earning no economic profit. D. falls only if the new firm is more efficient than existing firms.
A. always falls.
Firms entering a competitive industry will cause the price of the product to A. fall. B. rise. C. remain constant. D. become more responsive to consumer demand.
A. fall.
The competitive firm has no influence over price because A. its output is so insignificant relative to the market as a whole. B. anti-trust laws constrain perfectly competitive firms. C. consumers establish the prices of products. D. it doesn't know its demand curve
A. its output is so insignificant relative to the market as a whole.
In short-run equilibrium, a perfectly competitive firm A. may earn a profit or a loss. B. always earns a profit. C. never earns a profit. D. earns a profit only if the firm has no fixed cost
A. may earn a profit or a loss.
We expect the demand curve in the perfectly competitive industry to be A. negatively sloped. B. vertical. C. horizontal. D. perfectly elastic.
A. negatively sloped.
If the opportunity cost of capital is below the rate of return to capital in the perfectly competitive beauty salon industry, A. resources will flow into the industry. B. beauty salon owners must be earning negative economic profit. C. the beauty salon industry cannot be in long-run equilibrium. D. beauty salon owners must be earning negative marginal revenue at their current levels of output.
A. resources will flow into the industry.
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 percent 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 A. $15,000. B. $20,000. C. $75,000. D. not possible to determine from the information given.
B. $20,000
A firm in short-run equilibrium always earns positive profits if A. SRAC > P > SRAVC. B. SRAR > SRAC. C. MR = MC. D. SRAC > MC
B. SRAR > SRAC
Perfect competition is the term used to describe A. an industry in which all businessmen are honest and accommodating. B. an industry in which numerous firms produce identical products. C. an industry untouched by government regulation. D. the kind of industry any American would support.
B. an industry in which numerous firms produce identical products.
In a market with perfectly competitive firms, the market demand curve is usually ______ and the demand curve facing each individual firm_____. A. upward sloping; horizontal B. downward sloping; horizontal C. horizontal; downward sloping D. downward sloping; downward sloping
B. downward sloping; horizontal
In perfect competition, an increase in fixed costs will eventually cause all except A. reduction in industry output. B. reduction in a firm's output. C. reduction in the number of firms. D. decrease in industry supply.
B. reduction in a firm's output.
Zero economic profits for a perfectly competitive firm in the long run means A. the firm must exit the industry. B. the firm is in equilibrium. C. the firm will shut down until the market improves. D. average revenue is insufficient to cover long-run average cost.
B. the firm is in equilibrium.
If government forced a firm to charge a price equal to marginal cost in a situation where there are scale economies, A. new firms would enter the industry. B. the firm would be forced to go bankrupt. C. positive economic profit would grow even larger. D. marginal cost would exceed average cost.
B. the firm would be forced to go bankrupt.
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 A. each firm's output. B. the number of firms. C. each firm's profit. D. each firm's average cost.
B. the number of firms.
A firm can stay in business while taking a loss in the short run as long as it covers its A. fixed costs. B. variable costs. C. fixed and variable costs. D. A firm can never stay in business when it experiences losses
B. variable costs
If the price falls below minimum SRAVC, the quantity supplied by the firm will be A. the quantity at minimum MC. B. zero. C. the quantity at the point where MC intersects AC. D. the quantity at minimum AC.
B. zero.
The short-run supply curve of the competitive firm is the firm's A. MC curve. B. AVC curve. C. MC curve above the minimum point on the AVC curve. D. MC curve above the minimum point on the AFC curve.
C. MC curve above the minimum point on the AVC curve.
A firm earns a profit of exactly zero at its optimal output level only if A. P = MR. B. P = MC. C. P = AC. D. P = SR AVC
C. P = AC
A firm will shut down if A. TR - TC > TFC. B. TR + TC > TFC. C. TC - TR > TFC. D. TFC + TVC > TR
C. TC - TR > TFC
The perfectly competitive firm's short-run shutdown rule is to shut down immediately if A. TR < TC. B. TR < SRFC. C. TR < SRVC. D. TR < MC > Q
C. TR < SRVC.
Firms will continue to enter a competitive industry until A. the supply curve is vertical. B. the supply curve is meaningless. C. any excess returns have been competed away. D. all resources are fully employed.
C. any excess returns have been competed away.
The long-run supply curve of an industry equals the industry's A. long-run marginal cost curve. B. the horizontal sum of all firms' supply curves at any point in time. C. long-run average cost curve. D. long-run total variable cost curve.
C. long-run average cost curve
A firm in a perfectly competitive industry A. is unaffected by the entrance of new firms into the industry, since entering firms affect only the prices they themselves receive. B. always produces more output in the C. may choose a different input mix in the long run than in the short run. D. earns economic profit in the long run but not in the short run.
C. may choose a different input mix in the long run than in the short run.
The entry of firms into a competitive industry causes the supply curve to A. increase its slope. B. decrease its slope. C. move farther toward the right. D. move toward the left.
C. move farther toward the right.
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 A. is earning an economic profit of $25,000. B. must have an opportunity cost of labor of less than $25,000. C. must have an opportunity cost of labor of exactly $25,000. D. must have an opportunity cost of labor of more than $25,000.
C. must have an opportunity cost of labor of exactly $25,000.
Which of the following is closest to the economist's definition of perfect competition? A. the airline industry B. the soft drink industry C. the fishing industry D. the long-distance telephone service
C. the fishing industry
Economists study perfect competition A. because many markets are perfectly competitive. B. for its descriptive realism. C. to establish a benchmark by which to measure the performance of the economy. D. All of the above are correct.
C. to establish a benchmark by which to measure the performance of the economy
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? A. Zero B. $100,000 C. $90,000 D. $95,000
D. $95,000
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 A. 18. B. 12. C. 10. D. 8.
D. 8.
Perfect Competition A. may be an organized exchange B. refers to a set of sellers and buyers whose actions affect a commodity's price. C. is that area in which buyers and sellers compete to effect a product price D. All of the above are correct
D. All of the above
To determine whether a market is perfectly competitive, economists examine the: A. may be an organized exchange. B. refers to a set of sellers and buyers whose actions affect a commodity's price. C. is that area in which buyers and sellers compete to effect a product price. D. All of the above are correct.
D. All of the above
A firm facing a horizontal demand curve A. cannot affect the price it receives for its output. B. always produces at an output at which P = MR. C. faces perfectly elastic demand for its product. D. All of the above are correct.
D. All of the above are correct.
Long-run average cost of the perfectly competitive firm includes the A. cost of raw materials per unit of output. B. opportunity cost of labor per unit of output. C. opportunity cost of capital per unit of output. D. All of the above are correct.
D. All of the above are correct.
Sunk costs are created in the short run by A. contract for labor services. B. lease agreement on real estate. C. purchasing machinery. D. All of the above are correct.
D. All of the above are correct.
The long run for the industry is defined as a period of time long enough for A. any new firm that desires to enter the industry. B. any old firm that desires to leave the industry. C. all aspects of production to vary, including the number of firms in the industry. D. All of the above are correct.
D. All of the above are correct.
The short run for the industry is defined as a period A.too brief for new firms to enter the industry. B. too brief for old firms to leave the industry. C. in which the number of firms in the industry is fixed. D. All of the above are correct.
D. All of the above are correct.
Which of the following is not a characteristic of perfect competition? A. Firms and consumers all have perfect information about the good and market. C. All goods sold are identical. D. All consumers have identical individual demand curve
D. All the consumers have identical individual demand curve
Which of the following is a characteristic of a perfectly competitive market? A. a few large firms B. firms producing specialized products in order to attract consumers C. each individual firm having some control over the market price D. a large number of small firms
D. a large number of small firms
The result that perfectly competitive firms produce at the lowest per-unit cost is derived from the assumptions of A. homogeneous products. B. few sellers. C. firms facing horizontal demand curves. D. free entry and exit.
D. free entry and exit.
For a perfectly competitive firm, marginal revenue equals average revenue because the. A. firm's supply curve is horizontal. B. industry's demand curve is horizontal D. industry's supply curve is horizontal.
D. industry's supply curve is horizontal
166. A subsidy to firms intended to reduce pollution in an industry would A. shift the LRAC curve upward. B. have the same impact on the firm as a tax. C. likely drive some existing firms from the industry. D. likely have the paradoxical effect of increasing pollution in the industry in the long run.
D. likely have the paradoxical effect of increasing pollution in the industry in the long run.
At a firm's profit-maximizing level of output, its price is $200 and its short-run average total cost is $225. The firm A. has a profit of $25 per unit of output. B. should shut down if its short-run average fixed cost is less than $25. C. has a loss of $100 per unit of output. D. should shut down if its short-run average variable cost exceeds $25.
D. should shut down if its short-run average variable cost exceeds $25
Which of the following most resembles a perfectly competitive market? D. the stock market B. the publishing industry C. the steel industry D. the new car market
D. stock market
In a perfectly competitive industry, influence over price is exerted by A. individual sellers. B. individual buyers. C. the largest firms. D. the forces of supply and demand.
D. the forces of supply and demand.
A firm operating at MC = MR must be making a profit.. True or False
False
A firm that is earning zero economic profit should go out of business. True or False
False
A perfectly competitive firm can maximize profits by producing the quantity at which MR exceeds MC by the greatest amount. True or False
False
A perfectly competitive firm may, under some circumstances, be able to affect the market price. True or False
False
A perfectly competitive firm will not operate where MC = MR but at MC = AC True or False
False
If TR < TC, a perfectly competitive firm will always shut down. True or False
False
In perfect competition there are differences in the products sold by various firms. True or False
False
In the long run, a perfectly competitive industry tends to develop differentiated products. True or False
False
Once a firm's marginal revenue curve is known, the output level can be determined. True or False
False
Perfectly competitive markets are not the most efficient type. True or False
False
Perfectly competitive markets feature relatively high barriers to entry. True or False
False
Perfectly competitive markets have absolutely no drawbacks. True or False
False
Subsidizing firms that pollute will reduce pollution in the long run. True or False
False
The entry of new firms into a perfectly competitive market shifts the demand curve outward. True or False
False
The market for toothpaste is a good example of perfect competition. True or False
False
Using only marginal revenue and marginal cost, we can determine whether a firm is incurring a profit or a loss. True or False
False
Zero economic profit means that the firm's owners receive no compensation for their investment. True or False
False
A perfectly competitive firm has a horizontal demand curve because it can sell as much as it wants at the market price. True or False
True
A perfectly competitive firm is a "price taker" because it cannot sell its product for more than the market price. True or False
True
As long as TVC < TR, a firm will have a positive level of output in the short run. True or False
True
For a perfectly competitive firm, the long-run supply curve is the long-run average cost curve. True or False
True
If a firm sells its output at a price greater than AC, it will earn economic profit. True or False
True
In a long-run equilibrium in a perfectly competitive market, firms are selling at a price equal to marginal cost. True or False
True
In long-run equilibrium, a firm in perfect competition has no economic profit. True or False
True
In perfect competition, a firm's MR=Price. True or False
True
In the short run, a firm may have accounting losses and remain in operation. True or False
True
In the short run, a perfectly competitive firm can make a profit, a loss, or shut down. True or False
True
In the short run, if price is below AC, maximizing profits really means minimizing total losses. True or False
True
It is relatively easy for a firm to enter a perfectly competitive market True or False
True
Perfect competition is an ideal market structure. True or False
True
Perfectly competitive markets are the best at producing the goods that are desired by consumers. True or False
True
The lowest price that a competitive firm will accept without closing its doors is found by examining the average variable cost curve. True or False
True
The opportunity cost of a given investment is the potential earnings forfeited by tying up money in the investment. True or False
True
The short-run equilibrium output of a competitive firm is found by equating marginal cost with price. True or False
True
The short-run supply curve for a perfectly competitive firm is that portion of the MC curve above the AVC curve. True or False
True
Total profit of a competitive firm can be found by multiplying profit per unit times units sold. True or False
True
Under the theory of perfect competition, firms and buyers know the availability and prices associated with all products in the market. True or False
True
Perfectly competitive firms ______ earn zero economic profit in long-run equilibrium because
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
If a firm shuts down in the short run, its losses are equal to a. TC - TR. b. TFC. c. TVC. d. MC.
b. TFC.
The difference between zero profit and zero economic profit is that
economists include opportunity cost in zero economic profit, while accountants do not include opportunity cost in zero profit.
