Econ 2005 - Chapter 8

B

Identify the correct statement about the short-run supply curve of a firm. a. It is a horizontal line at the market price. b. It is an upward-sloping curve. c. It is a vertical line at the quantity supplied by the firm. d. It is a downward-sloping curve.

C

If a perfectly competitive firm experiences a permanent increase in demand, ____. a. market supply remains the same but the equilibrium price decreases in the long run b. market supply as well as the equilibrium price decreases in the long run c. market supply increases but the equilibrium price remains the same in the long run d. market supply as well as the equilibrium price increases in the long run

A

If a typical perfectly competitive firm earns an economic profit in the short run, _____. a. new firms enter the market in the long run b. market supply decreases in the long run c. each firm incurs an economic loss in the long run d. market price increases in the long run

A

If firms under perfect competition earn positive economic profits in the short run, which of the following will occur in the long run? a. Some firms will enter the industry, increasing the market supply and driving down market price until economic profits are eliminated, and there is no additional motive for entry. b. Some firms will enter the industry, but the market price will remain unchanged, and, therefore, all firms will earn normal profits in the long run. c. Barriers to entry will prevent firms from entering the industry, and, as a result, the existing firms will earn positive profits in the long run. d. Some firms will exit the industry, decreasing the market supply and driving up market price until economic profits are eliminated, and there is no additional motive for exit.

A

In a perfectly competitive market, as a result of a decrease in demand, _____ in the long run. a. some firms are forced out of business b. the market supply increases c. firms enter the market d. profits become positive

B

In a perfectly competitive market, each firm tries to maximize profit by: a. charging different prices to different customers for the same good sold. b. controlling its quantity supplied. c. charging the same customer different prices for different quantity supplied. d. controlling the market price.

D

In a perfectly competitive market, equilibrium price is determined: a. at the point of intersection of the marginal cost curve and the average variable cost curve. b. at the point of intersection of price and marginal cost. c. at the point of intersection of the marginal cost curve and the average total cost curve. d. at the point of intersection of the market demand and the market supply curves.

B

In a perfectly competitive market, the market demand curve is _____, while an individual firm's demand curve is _____. a. horizontal; vertical b. downward sloping; horizontal c. downward sloping but relatively flat; downward sloping but relatively steep d. horizontal; downward sloping

Long-Run Industry Supply Curve

a curve that shows the relationship between price and quantity supplied by the industry once firms adjust in the long run to any change in market demand

Constant-Cost Industry

an industry that can expand or contract without affecting the long run per-unit cost of production; the long-run industry supply curve is horizontal

Productive Efficiency

each firm employs the least cost combination of inputs; minimum average cost in the long run

Allocative Efficiency

each output produces the output most preferred by consumers; marginal benefit equals marginal cost

Market Structure

important features of a market, such as the number of firms, product uniformity across firms, firm's ease of entry and exit, and forms of competition

Golden Rule of Profit Maximization

to maximize profit or minimize loss, a firm produces the quantity at which marginal revenue equals marginal cost; this rule holds for all market structures

B

A _____ is a firm that faces a given market price and whose actions have no effect on the market price. a. price maker b. price taker c. monopoly d. dominant firm

A

A perfectly competitive firm should produce in the short run: a. as long as price exceeds average variable cost. b. only if price equals average total cost. c. even if price is less than average variable cost. d. as long as price exceeds average fixed cost.

D

A perfectly competitive firm will choose to shut down if _____ at all rates of output. a. its total revenue is greater than the total variable cost b. its marginal cost exceeds marginal revenue c. its marginal revenue is equal to the average revenue and price d. its average variable cost exceeds the price

C

A perfectly competitive market is characterized by: a. many buyers and sellers, a standardized product, and barriers to entry and exit. b. many buyers and sellers, differentiated products, and free entry and exit. c. many buyers and sellers, a standardized product, and free entry and exit. d. many buyers and few sellers, a standardized product, and barriers to entry and exit.

B

A short-run loss is likely to: a. force some sellers to leave the industry and shift the market supply curve rightward. b. force some sellers to leave the industry and shift the market supply curve leftward. c. motivate sellers to increase supply in the long run in the anticipation of higher market prices. d. force all sellers to shut down operations completely and leave the market.

B

Each firm tries to maximize economic profit. Economic profit equals: a. the difference between total revenue and opportunity cost. b. the difference between total revenue and total cost. c. the difference between market price and the cost of production. d. the difference between marginal revenue and marginal cost.

A

Profit is maximized at the rate of output where _____. a. marginal revenue equals marginal cost b. marginal revenue exceeds marginal cost by the greatest amount c. average revenue exceeds average cost by the greatest amount d. average revenue equals average cost

A

Suppose the total revenue earned by a producer of corn always increases by $8 when output increases by 1 bushel. In this case, the total revenue curve will be a: a. straight line through the origin. b. backward-bending curve. c. vertical line drawn at a quantity of 1 bushel of corn. d. horizontal line drawn at a price of $8.

B

Suppose there are 100 firms in a perfectly competitive market. Each firm supplies 100 units of output when the price is $5 per unit. So, the market supply is _____ units at a price of $5. If each firm supplies 150 units of output when the price is $7 per unit, the market supply is _____ units at a price of $7. a. 100; 150 b. 10,000; 15,000 c. 500; 1,050 d. 50; 700

A

The _____ curve shows the relationship between price and quantity supplied once firms fully adjust to any short-term economic profit or loss resulting from a change in demand. a. long-run industry supply curve b. short-run industry supply curve c. short-run firm supply curve d. long-run firm supply curve

C

The demand curve facing a perfectly competitive firm is: a. inelastic. b. unit elastic. c. perfectly elastic. d. perfectly inelastic.

A

The difference between the maximum amount buyers are willing and able to pay for each unit of a good and the amount buyers actually pay is called: a. consumer surplus. b. marginal cost. c. productive efficiency. d. marginal benefit.

A

The long-run supply curve of firms in an increasing cost industry is: a. upward sloping. b. vertical. c. downward sloping. d. horizontal.

D

The perfectly competitive firm's supply curve is: a. that portion of the marginal cost curve that intersects and rises above the average total cost curve. b. the entire marginal cost curve. c. the rising portion of the average variable cost curve. d. that portion of the marginal cost curve that intersects and rises above the average variable cost curve.

B

The profit-maximizing rate of output for a firm in a perfectly competitive market is found where: a. price equals average total cost. b. price equals marginal cost. c. marginal revenue equals price. d. total revenue equals total cost.

D

The short-run industry supply curve is the: a. horizontal sum of all the firms' variable cost curves. b. vertical sum of all the firms' short-run supply curves. c. vertical sum of all the firms' variable cost curves. d. horizontal sum of all the firms' short-run supply curves.

B

The total revenue earned by a firm can be calculated by: a. adding the output sold and the market price of a product. b. multiplying the total output produced by the firm by the market price of a product. c. adding the total output produced by the firm and the market price of a product. d. multiplying the output sold by the market price of a product.

C

To maximize total profit in the short run, a perfectly competitive firm must find: a. the quantity at which total cost is at a minimum. b. the quantity at which total revenue is at a maximum. c. the quantity at which total revenue exceeds total cost by the greatest amount. d. the quantity at which total revenue is at a maximum and total cost is at a minimum.

D

Which of the following correctly explains why sellers in a perfectly competitive market are price takers? a. Sellers in a competitive market have the power to influence price by colluding with one another and using quotas to limit overall market output and thus raise prices. b. Individual buyers in a competitive market have the power to influence price, and thus can impose prices and other conditions on powerless sellers. c. There are few sellers, and so they easily agree to charge a uniform price to their customers. d. There are many small sellers, and so the market process generates an equilibrium price that cannot be influenced by any one seller.

B

Which of the following industry types features a horizontal long-run supply curve? a. An increasing-cost industry. b. A constant-cost industry. c. A decreasing-cost industry. d. A monopolistically competitive industry.

C

Which of the following is true of a constant cost industry? a. The long-run average cost curve is downward sloping for all firms. b. Each firm's long-run average cost curve is a horizontal line. c. Each firm's long-run average cost curve does not shift as industry output changes. d. The long-run average cost curve is upward sloping for all firms.

A

Which of the following is true of a perfectly competitive market? a. Marginal revenue equals market price. b. Market price is always equal to the average cost of production. c. Marginal revenue is always equal to the marginal cost of production. d. Average revenue equals average cost.

A

Which of the following is true of perfect competition? a. It guarantees both allocative efficiency and productive efficiency in the long run. b. It ensures that the long-run average costs of a firm always remain constant. c. It ensures that the long-run average costs of a firm always decrease. d. It guarantees firms positive economic profits both in the short run and the long run.

C

Which of the following is true of the long-run equilibrium for firms and an industry in perfect competition? a. Firms produce output where total revenue is maximized. b. Firms produce output where price equals average fixed cost, which also corresponds to the point where the marginal revenue curve intersects the marginal cost curve. c. Firms produce output where price equals marginal cost, which also corresponds to the point where the marginal cost curve intersects the long-run average cost curve. d. Firms earn positive economic profits.

C

Which of the following offers a close example of a perfectly competitive market? a. Markets for water and sewer services in most towns and cities. b. The market for postal services in the United States. c. Markets for basic commodities such as wheat, corn, and livestock. d. The market for luxury cars in the United States.

D

_____ efficiency occurs when a firm produces at the minimum point on its long-run average cost curve. a. Allocative b. Social c. Economic d. Productive

B

_____ is maximized when the marginal cost of production equals the marginal benefit to consumers. a. Productivity b. Social welfare c. Total utility d. Economic profit

B

_____ is the sunk cost for a perfectly competitive firm in the short run, whether the firm produces or shuts down. a. Marginal cost b. Fixed cost c. Total cost d. Variable cost

C

_____ will ensure that each firm produces at the minimum point of its long-run average cost curve in a perfectly competitive market. a. Diminishing marginal returns b. An upward-sloping long-run supply curve c. The entry and exit of firms d. A horizontal long-run supply curve

Producer Surplus

a bonus for producers in the short run; the amount by which total revenue from production exceeds variable cost

Short-Run Industry Supply Curve

a curve that indicates the quantity supplied by the industry at each price in the short run; in perfect competition, the horizontal sum of each firm's supply curve

Short-Run Firm Supply Curve

a curve that shows how much a firm supplies at each price in the short run; in perfect competition, that portion of a firm's marginal cost curve that intersects and rises above the low point on its average variable cost curve

Perfect Competition

a market structure with many fully informed buyers and sellers of a standardized product and with no obstacles to entry or exit of firms in the long run

Commodity

a standardized product; a product that does not differ across producers

Increasing-Cost Industry

an industry that faces higher per-unit production costs as industry output expands in the long run; the long-run industry supply curve slopes upward

Price Taker

firm that faces a given market price and whose quantity supplied has no effect on that price; a perfectly competitive firm that decides to produce must accept the market price

Marginal Revenue

the firm's change in total revenue from selling an additional unit; a perfectly competitive firm's revenue is also the market price

Social Welfare

the overall well-being of people in the economy; maximized when the marginal cost of production equals the marginal benefit to consumers

Average Revenue

total revenue divided by quantity; in all market structures, average revenue equals the market price

C

Allocative efficiency occurs when firms produce the output corresponding to the point: a. where price equals marginal cost. b. where consumer surplus is zero and producer surplus is positive. c. where marginal benefit equals marginal cost. d. where price equals minimum long-run average cost.

D

If marginal revenue exceeds marginal cost, then a profit-maximizing perfectly competitive firm should: a. leave output unchanged. b. increase price. c. decrease output. d. increase output.

D

If price is less than marginal cost, a profit-maximizing perfectly competitive firm should: a. decrease price. b. increase output. c. increase price. d. decrease output.

A

If resources are allocated in such a way that there is no other way to increase the total utility of consumers, _____. a. a market is said to be allocatively efficient b. a market is said to be productively efficient c. producer surplus is maximized d. consumer surplus is maximized

D

If there are 100 identical firms in a market, and each firm maximizes profits by producing 50 units of output, _____ units of output will be produced in the market. a. 100 b. 500 c. 50,000 d. 5,000

C

In a _____, a firm is so small relative to the size of the market that the firm's decision about how much to produce has no effect on the market price. a. monopolistic competition b. monopoly c. perfect competition d. oligopoly

A

In a constant-cost industry, _____. a. each firm's per-unit costs are independent of the number of firms in an industry b. an increase in industry output decreases the per-unit production costs c. each firm's long-run average cost curve shifts upward as industry output increases d. an increase in industry output increases resource prices

B

In a perfectly competitive market, _____. a. the average cost of production decreases as firms expand their output level b. buyers and sellers are fully informed about the price and availability of all resources and products c. patents and licenses make it difficult for firms to enter and leave the market d. the quality of goods offered for sale in the market varies across suppliers

A

In a perfectly competitive market, a firm operating in the long run is forced by competition to adjust its scale of operation: a. until average cost is minimized. b. until marginal cost is minimized. c. to the point where marginal cost equals average cost. d. to the point where marginal cost equals the market price.

C

In short-run equilibrium, under perfect competition, _____. a. economic profit earned by firms is positive, but not zero or negative b. economic profit earned by firms can be zero or positive, but not negative c. economic profit earned by firms can be negative, zero, or positive d. economic profit earned by firms is always zero

C

In the long run, a perfectly competitive firm will earn _____ profits. a. zero accounting b. positive economic c. zero economic d. negative economic

D

In the short run, a perfectly competitive firm will shut down if: a. total revenue is equal to total cost. b. marginal revenue is equal to marginal cost. c. price is less than average cost. d. total revenue is less than total variable cost.