ECON micro- ch.9

In a competitive market where firms are earning economic profits, which of the following should be expected as the industry moves to long-run equilibrium, ceteris paribus? A. A higher price and fewer firms. B. A higher price and more firms. C. A lower price and fewer firms. D. A lower price and more firms.

A lower price and more firms.

Which of the following is an investment decision in a competitive market? A. The shutdown decision. B. The rate of output to produce. C. Entry or exit. D. The price to charge

Entry or exit.

If the products of two firms are homogeneous, then they A. Are perfect substitutes. B. Differ from each other. C. Must be used together. D. Are costless to produce.

Are perfect substitutes.

The equilibrium price in a competitive market A. Ensures that anyone who wants the good can get it. B. Equates the demand for goods with the supply of goods. C. Remains unchanged forever. D. Remains unchanged only if demand doesn't change

Equates the demand for goods with the supply of goods.

Which of the following is not a barrier to entry? A. Patents. B. Well-established brand loyalty. C. Control of distribution outlets. D. Perfect information.

Perfect information.

In a perfectly competitive industry, economic profit: A. Can persist in the long run because of barriers to entry. B. Can persist in the long run because of homogeneous products. C. Will approach zero in the long run as prices are driven to zero. D. Will approach zero in the long run as prices are driven to the level of average production costs.

Will approach zero in the long run as prices are driven to the level of average production costs.

Which of the following is characteristic of a perfectly competitive market? A. A small number of firms. B. Exit of small firms when profits are high for large firms. C. Zero economic profit in the long run. D. Marginal revenue lower than price for each firm.

Zero economic profit in the long run.

Investment decisions are made on the basis of the relationship of price to A. Short-run average total cost. B. Short-run marginal cost. C. Long-run fixed cost. D. Long-run average total cost

Long-run average total cost.

In a perfectly competitive market, when price is equal to the A. Minimum short-run average total cost, it has reached the shutdown point. B. Minimum average variable cost, economic profit is zero. C. Marginal cost, accounting profit is maximized. D. Minimum average total cost, economic profit is zero.

Minimum average total cost, economic profit is zero.

When a computer firm is producing a level of output at which MC is greater than price, from society's standpoint the firm is producing too A. Much because society is giving up more to produce additional computers than the computers are worth. B. Much because society would be willing to give up more alternative goods in order to get additional computers. C. Little because society is giving up more to produce additional computers than the computers are worth. D. Little because society would be willing to give up more alternative goods in order to get additional computers.

Much because society is giving up more to produce additional computers than the computers are worth.

In which of the following cases would a firm enter a market? A. P > short-run ATC. B. P < short-run ATC. C. P > long-run ATC. D. P < long-run ATC.

P > long-run ATC.

. To maximize profits, a competitive firm will seek to expand output until A. Total revenue equals total cost. B. The elasticity of demand equals 1. C. Price equals marginal cost. D. Price equals $0.

Price equals marginal cost.

Which of the following characterizes a firm that is in long-run perfectly competitive equilibrium where profits are maximized? A. Price equals minimum ATC. B. Positive economic profit. C. Price equals marginal cost. D. Price exceeds marginal cost.

Price equals minimum ATC.

A perfectly competitive market results in efficiency because A. Price is driven down to minimum ATC. B. Price rises high enough to equal marginal cost. C. Zero economic profit is achieved. D. MC < P.

Price is driven down to minimum ATC.

Profit per unit is equal to A. Price divided by average total cost. B. Price minus average total cost. C. Total revenue minus total cost. D. Total revenue minus variable cost divided by quantity

Price minus average total cost.

Perfectly competitive firms cannot individually affect market price because A. There is an infinite demand for their goods. B. Demand is perfectly inelastic for their goods. C. There are many firms, none of which has a significant share of total output. D. The government exercises control over the market power of competitive firms.

There are many firms, none of which has a significant share of total output.

When firms in a competitive market are experiencing zero economic profits, this is an indication that A. They should be producing a different product. B. There is currently no better way to use society's scarce resources. C. They will eventually go bankrupt. D. Accounting losses are being experienced by these firms.

There is currently no better way to use society's scarce resources.

Other things being equal, as more firms enter a market, the market supply curve A. Becomes more inelastic. B. Shifts to the left. C. Shifts to the right. D. Intersects the demand curve at a higher price.

Shifts to the right.

The market supply curve in a perfectly competitive market is usually A. Downward-sloping. B. Horizontal. C. Vertical. D. Upward-sloping

Upward-sloping

In a competitive market where firms are earning economic losses, which of the following should be expected as the industry moves to long-run equilibrium, ceteris paribus? A. A higher price and more firms. B. A higher price and fewer firms. C. A lower price and more firms. D. A lower price and fewer firms.

A higher price and fewer firms.

Which of the following is characteristic of a perfectly competitive market? A. Differentiated products. B. Price below marginal revenue. C. A large number of firms. D. Significant barriers to entry.

A large number of firms.

In a perfectly competitive market economy, business failures can benefit society by causing A. A reallocation of resources to better uses. B. An increase in market power for the remaining firms. C. A decline in market prices as remaining firms attempt to increase sales and stay in business. D. An increase in the number of jobs for bankruptcy lawyers and accountants.

A reallocation of resources to better uses.

The equilibrium price of a good or service in a competitive market is A. Higher than it should be because profits are included in the price. B. A reflection of the opportunity cost of producing the product. C. Lower than it should be because bankruptcies are common in competitive markets. D. Higher than the opportunity cost of producing the product.

A reflection of the opportunity cost of producing the product.

Technological improvements cause A. ATC to shift down. B. The supply curve to shift to the left. C. MC to shift up. D. P to increase.

ATC to shift down.

If economic profits are earned in a competitive market, then over time A. Additional firms will enter the market. B. The market supply curve will shift to the left. C. Equilibrium price will rise as more firms enter. D. Normal profit will fall to zero as more firms enter.

Additional firms will enter the market.

In a competitive market, economic profits will A. Cause existing firms to expand production. B. Potentially last a long time. C. Cause new firms to leave the market. D. Not be possible, even in the short run.

Cause existing firms to expand production.

High profits in a particular industry indicate that A. Consumers want less of that industry's goods. B. Consumers are satisfied with the level of production of that industry's goods. C. Consumers want more of that industry's goods. D. Producers are satisfied with the level of production of that industry's goods.

Consumers want more of that industry's goods.

In a competitive market, if the market price is equal to the minimum point of the firm's ATC curve, the firm may seek to earn economic profits by A. Producing at the rate of output where price equals demand. B. Decreasing production costs through technological improvements. C. Decreasing price. D. Increasing price.

Decreasing production costs through technological improvements.

Suppose a perfectly competitive firm is experiencing zero economic profits. In an effort to increase profits, the firm decides to initiate an advertising campaign for its product. The most likely short-run result of this campaign, ceteris paribus, would be A. Economic losses for the firm. B. The ability to sell more at the existing market price. C. The ability to sell more at a lower price. D. The ability to sell more at a higher price

Economic losses for the firm.

For a competitive market in the long run, A. Economic losses induce firms to shut down. B. Economic profits induce firms to enter until profits are normal. C. Accounting profit is zero. D. Economic profit is positive.

Economic profits induce firms to enter until profits are normal.

If price is below the long-run competitive equilibrium level, there will be A. Greater demand. B. Positive economic profits. C. Greater output. D. Exit of firms from the market.

Exit of firms from the market.

In a perfectly competitive market in the long run, which of the following is not correct? A. Firms are attempting to maximize profit. B. Economic profits are zero. C. There are no better uses for the firm's resources. D. Firms are maximizing total revenue.

Firms are maximizing total revenue.

Marginal cost is the increase in total cost associated with a one-unit A. Increase in production. B. Decrease in production. C. Increase in input usage. D. Decrease in input usage.

Increase in production.

The exit of firms from a market, ceteris paribus, A. Shifts the market supply curve to the right. B. Has no effect on the economic losses of remaining firms in the market. C. Increases the equilibrium price in the market. D. Shifts the market demand curve to the left.

Increases the equilibrium price in the market.

The price signal the consumer gets in a competitive market A. In no way reflects opportunity cost. B. Is an accurate reflection of opportunity cost. C. Is not reliable for making choices about the allocation of resources. D. Is the result of the selfishness of individuals.

Is an accurate reflection of opportunity cost.

When a firm is earning positive economic profits, this is an indication that the firm A. Should leave this market in the long run. B. Is using its resources in the best possible way. C. Is using its resources in one of a number of ways that would yield positive economic profits. D. Is producing at the minimum ATC.

Is using its resources in the best possible way.

Which of the following is true about a competitive market supply curve? A. It is horizontal. B. It is downward-sloping to the right. C. It is the sum of the marginal cost curves of all firms. D. It is vertical.

It is the sum of the marginal cost curves of all firms.

When an athletic shoe company is producing a level of output at which price is greater than MC, from society's standpoint the company is producing too A. Much because society is giving up more to produce additional shoes than the shoes are worth. B. Much because society would be willing to give up more alternative goods in order to get additional shoes. C. Little because society is giving up more to produce additional shoes than the shoes are worth. D. Little because society would be willing to give up more alternative goods in order to get additional shoes.

Little because society would be willing to give up more alternative goods in order to get additional shoes.

The behavior expected in a competitive market includes A. Very little entry and exit. B. Marginal cost pricing. C. Aggressive behavior among competitors to control prices. D. Little technological growth.

Marginal cost pricing.

Which characteristic of competitive markets permits society to answer the WHAT to produce question efficiently? A. Marginal cost pricing. B. Average cost pricing. C. Minimum cost pricing. D. Total cost pricing

Marginal cost pricing.

Marginal cost pricing in competitive markets results in all but which one of the following? A. An efficient mix of goods and services being produced. B. Output being produced where price equals the opportunity cost of the last unit being produced. C. The information necessary for consumers to make rational choices between alternative goods and services. D. Maximization of consumer utility.

Maximization of consumer utility.

A profit-maximizing producer seeks to A. Maximize profit per unit. B. Minimize marginal cost. C. Minimize average total costs. D. Maximize total profit.

Maximize total profit.

Which of the following is consistent with long-run equilibrium for a perfectly competitive market? A. Average total costs of production are maximized. B. Economic profits are positive. C. Maximum technical efficiency is achieved. D. Average variable costs of production are maximized.

Maximum technical efficiency is achieved.

In making an investment decision, an entrepreneur A. Makes a decision to exit if price is above marginal cost. B. Makes a short-run decision. C. Must consider only variable costs. D. Must take account of diminishing returns.

Must consider only variable costs.

In a competitive market, A. Buyers don't have market power but sellers do. B. Sellers don't have market power but buyers do. C. Neither buyers nor sellers have market power. D. Buyers and sellers both have market power.

Neither buyers nor sellers have market power.

In which of the following cases would a firm exit from a market? A. P > short-run ATC. B. P < short-run ATC. C. P > long-run ATC. D. P < long-run ATC.

P < long-run ATC.

A firm should shut down production when A. P < minimum AVC. B. P > minimum AVC. C. P = minimum ATC. D. P = MC.

P < minimum AVC.

In which of the following cases would entry and exit cease? A. P > short-run ATC. B. P = long-run ATC. C. P > long-run ATC. D. P < long-run ATC

P = long-run ATC.

For a perfectly competitive market, long-run equilibrium is characterized by all of the following but which one? A. P = MR. B. P = MC. C. P = minimum ATC. D. P = maximum ATC.

P = maximum ATC.

If a firm decides to make the investment decision to expand its capacity, then it must have discovered that A. P = ATC. B. P > AVC. C. P > ATC. D. P = AVC.

P > ATC.

Examples of barriers to entry include A. Price taking. B. Patents. C. Standardized products. D. Economic profits.

Patents.

Marginal cost pricing means that a firm A. Produces up to the output where P = MC for a given market price. B. Lowers market price to marginal cost for a given output. C. Lets marginal cost rise to the market price for a given output. D. Produces up to the output level at which MC = 0 for a given market price.

Produces up to the output where P = MC for a given market price.

The exit of firms from a market, ceteris paribus, A. Shifts the market supply curve to the right. B. Reduces the economic losses of remaining firms in the market. C. Increases the equilibrium output in the market. D. Shifts the market demand curve to the left.

Reduces the economic losses of remaining firms in the market.

The entry of firms into a market, ceteris paribus, A. Shifts the market supply curve to the left. B. Reduces the economic profit of each firm already in the market. C. Decreases the equilibrium output in the market. D. Shifts the market demand curve to the left.

Reduces the economic profit of each firm already in the market.

The entry of firms into a market A. Increases the equilibrium price. B. Reduces the profits of existing firms in the market. C. Shifts the market supply curve to the left. D. Shifts the market demand curve to the left.

Reduces the profits of existing firms in the market.

Bib's Soccer Ball Company produces 800 soccer balls per week. If the firm used marginal cost pricing to determine soccer ball output, it would produce 600 soccer balls. Consumers do not receive the most desirable quantity of soccer balls from Bib's because A. Economic losses are occurring. B. The firm must be earning higher than normal economic profits. C. The cost of producing the additional 200 soccer balls is greater than the amount that consumers are willing to pay for the additional soccer balls. D. The cost of producing the additional 200 soccer balls is less than the amount that consumers are willing to pay for the additional soccer balls

The cost of producing the additional 200 soccer balls is greater than the amount that consumers are willing to pay for the additional soccer balls.

When economic losses exist in the cereal market, for example, this is an indication that A.The goods and services that society is giving up (the opportunity cost) are more valuable than the cereal being produced. B. Society's scarce resources are being used in the best way. C. Not enough firms are producing cereal (assuming that the market is perfectly competitive). D. The WHAT to produce question is being answered efficiently.

The goods and services that society is giving up (the opportunity cost) are more valuable than the cereal being produced.

If catfish farmers expect catfish prices to fall in the future, then right now A. There will be a movement down along the market supply curve for catfish. B. There will be a movement up along the market supply curve for catfish. C. The market supply curve for catfish will shift to the left. D. The market supply curve for catfish will shift to the right

The market supply curve for catfish will shift to the right

Which of the following is a production decision? A. Whether to enter or exit an industry. B. Whether to increase or decrease plant capacity. C. Whether to increase or decrease output. D. Whether to share information with a competitor.

Whether to increase or decrease output.

The competitive market model is important because A. It characterizes all the markets in the U.S. economy. B. It shows how laissez faire can overcome market failures. C. All industries function much like the competitive model. D. It shows that firms can earn economic profits in the long run.

All industries function much like the competitive model.

Which of the following is least likely to occur during the long run in a perfectly competitive market experiencing economic profits? A. A rightward shift in the market supply curve. B. An increase in the market quantity demanded. C. An increase in marginal revenue. D. A decline in the ATC and MC curves.

An increase in marginal revenue.

Which of the following is a consequence of competition? A. An unrelenting squeeze on prices and profit. B. Positive economic profit in the long run. C. Elimination of the most efficient firms. D. Price-gouging behavior.

An unrelenting squeeze on prices and profit.

If two products are homogeneous, then they A. Are identical. B. Differ from each other. C. Must be used together. D. Are similar to each other

Are identical.

Profit per unit is maximized when the firm produces the output where A. The ATC is minimized. B. MC equals MR. C. The MC is minimized. D. Demand equals MC.

The ATC is minimized.

When economic profits exist in the market for a particular product, this is a signal to producers that A. Consumers would like more scarce resources devoted to the production of this product. B. The market is oversupplied with this product. C. The best mix of goods and services is being produced with society's scarce resources. D. Price is at the minimum of the ATC curve.

Consumers would like more scarce resources devoted to the production of this product.

In long-run perfectly competitive equilibrium, marginal cost A. Is greater than ATC. B. Is less than ATC. C. Equals the minimum of the ATC. D. Equals the minimum of the AVC.

Equals the minimum of the ATC.

If long-run economic losses are being experienced in a competitive market, A. More firms will enter the market. B. The market supply curve will shift to the right. C. Equilibrium price will rise as firms exit. D. Normal profit will fall to zero as firms enter.

Equilibrium price will rise as firms exit.

Technological improvements cause A. New firms to enter but existing firms to continue producing their old output levels. B. Some firms to exit but the remaining firms to produce more output. C. Existing firms to produce more output. D. Existing firms to continue producing their old output levels but to lower the price of the products

Existing firms to produce more output.

If price is above the long-run competitive equilibrium level, A. Firms will enter the market. B. Firms will shut down. C. Firms will incur losses. D. The market supply will shift to the left.

Firms will enter the market.

The market structure of the computer industry A. Was originally a monopoly. B. Was originally perfectly competitive. C. Has become more competitive over time. D. Has become less competitive over time.

Has become more competitive over time.

Which of the following is not a characteristic of a perfectly competitive market? A. Zero economic profit in the long run. B. Perfect information. C. Homogeneous products. D. High barriers.

High barriers.

Which of the following is characteristic of a perfectly competitive market? A. Long-run economic profit. B. High barriers to entry. C.Identical products. D. A small number of firms.

Identical products.

A competitive market creates strong pressure for technological innovation that A. Allows the firm to raise the price of its product. B. Provides the firm with more market power. C. Shifts the firm's demand curve to the right. D. Shifts the supply curve to the right.

Shifts the supply curve to the right.

If a firm finds that its marginal cost is greater than its price, it A. Should reduce production. B. Is maximizing its profit. C. Should increase production. D. Is maximizing its total revenue

Should reduce production.

To determine the market supply, the quantities A. Demanded at each price by each demander are added together. B. Supplied at each price by each supplier are added together. C. Demanded at each price by each demander and supplied at each price by each supplier are added together. D.Demanded at each price by each demander are subtracted from the quantities supplied at each price by each supplier.

Supplied at each price by each supplier are added together.

Economic losses are a signal to producers A. That they are using resources in the most efficient way. B. That they are not using resources in the best way. C. That consumer demand is being satisfied. D. That consumers are content with the allocation of resources.

That they are not using resources in the best way.

If someone invents a better way to produce frozen pizzas, then A. The market supply curve for frozen pizzas will shift to the right. B. The market supply curve for frozen pizzas will shift to the left. C. There will be a movement up along the market supply curve for frozen pizzas. D. There will be a movement down along the market supply curve for frozen pizzas

The market supply curve for frozen pizzas will shift to the right.

If the price of ricotta cheese, an ingredient in lasagna, increases, then A. The market supply curve for lasagna will shift to the right. B. The market supply curve for lasagna will shift to the left. C. There will be a movement up along the market supply curve for lasagna. D. There will be a movement down along the market supply curve for lasagna.

The market supply curve for lasagna will shift to the left.

If a new sushi restaurant opens, then A. The market supply curve for sushi will shift to the right. B. The market supply curve for sushi will shift to the left. C. There will be a movement up along the market supply curve for sushi. D. There will be a movement down along the market supply curve for sushi.

The market supply curve for sushi will shift to the right.

Which of the following is a determinant of market supply but not the supply curve of an individual firm? A. The price of factor inputs. B. Expectations. C. The number of firms in the market. D. Technology

The number of firms in the market.

Marginal cost pricing results in the most desirable mix of goods and services from the consumer's standpoint because A. Firms are forced to produce at the most technically efficient output level. B. Economic profits are zero. C. Prices are forced down to the lowest possible level. D. The prices consumers pay are a reflection of the value of the goods and services given up.

The prices consumers pay are a reflection of the value of the goods and services given up.

In a perfectly competitive industry, economic profit A. Can persist in the long run because of barriers to entry. B. Can persist in the long run because of homogeneous products. C. Will always be negative in the long run because of ease of entry. D. Will approach zero in the long run as more firms enter the market.

Will approach zero in the long run as more firms enter the market.