Quiz #10

In a constant cost industry, the long-run industry supply curve is: vertical. horizontal. upward-sloping. downward-sloping.

horizontal.

If a competitive firm produces at the point where the marginal cost curve intersects the average total cost curve at its minimum point, the firm will earn: positive economic profits. zero economic profit. zero accounting profit. a short-run loss.

zero economic profit.

For a perfectly competitive firm, marginal revenue is equal to: cost price divided by quantity. price. total revenue minus total cost.

price.

A firm in a perfectly competitive market will maximize its profits by: setting its price below the market price. producing at the point where marginal revenue equals marginal cost. producing at the point where average variable cost is minimized. producing at the point where average total cost is minimized.

producing at the point where marginal revenue equals marginal cost.

Why, if competitive firms are earning economic profits in the short run, are they unable to earn them in the long run? Firms enter and exit in the short run, which allows the firm to generate an economic profit in the short run. Firms enter and exit in the long run, which allows the firm to generate an economic profit in the long run. Due to the entry and exit of firms in the long run, firms only have the opportunity to make an economic profit in the short run. Due to the excessive entry and exit of firms in the short run, firms only have the opportunity to make a positive profits in the long run.

Due to the entry and exit of firms in the long run, firms only have the opportunity to make an economic profit in the short run.

Suppose that firms in the perfectly competitive potato-growing industry are earning economic profits. According to economic theory, what is likely to happen? The costs of the firms will increase, eventually eliminating the profit. The existence of profits will lead to a drop in the demand for potatoes. More firms will enter the market, thereby increasing the industry supply and lowering the market price. More firms will enter the market, thereby decreasing the industry supply and raising the market price.

More firms will enter the market, thereby increasing the industry supply and lowering the market price.

See Quiz #10, Question #3 for cost curves question

See Quiz #10, Question #3 for cost curves question

See Quiz #10, Question #4 for cost curves question

See Quiz #10, Question #4 for cost curves question

See Quiz #10, Question #8 for cost curves question

See Quiz #10, Question #8 for cost curves question

Which of the following would be considered a perfectly competitive industry? The automobile industry in which there are a handful of companies that produce cars. The oil industry, which is an industry that requires a lot of money, equipment, and know-how to enter the industry. The soybean industry in which the product is uniform and there are many buyers and sellers. The ready-to-eat-cereal industry where there are many variations in the types of cereal sold.

The soybean industry in which the product is uniform and there are many buyers and sellers.

The long-run industry supply curve can slope downward if costs are: constant. increasing. decreasing. infinite.

decreasing.

The optimal output rule says that firms maximize profits by choosing output such that: marginal revenue = marginal cost. total revenue = total cost. price = minimum of the average cost. marginal revenue = average cost.

marginal revenue = marginal cost.

Which market structure has a differentiated product and many buyers and sellers with some control over price? perfect competition monopolistic competition oligopoly monopoly

monopolistic competition

Which market structure has one firm selling a product with no close substitutes? perfect competition monopolistic competition oligopoly monopoly

monopoly

If costs are constant in the industry so that each firm faces the same cost structure, then the long-run industry supply curve is: perfectly elastic. perfectly inelastic. unit elastic. somewhat inelastic.

perfectly elastic.

The demand curve for an individual firm in a perfectly competitive industry is: perfectly inelastic. unit elastic. perfectly elastic. zero elastic.

perfectly elastic.

In today's U.S. economy, which of the following industries has firms that typically act as a monopoly for an extended period of time? pharmaceuticals fast food restaurants accounting services hair salons

pharmaceuticals

A firm breaks even when: price = marginal cost. price = marginal revenue. marginal cost = average total cost. price = average total cost.

price = average total cost.

Perfectly competitive firms demonstrate allocative efficiency because they produce at the point where: average total cost (ATC) is minimized. price equals marginal cost. economic profit is zero. fixed costs are zero.

price equals marginal cost.

A firm will choose to shut down in the short run when: price is above the minimum point of average variable cost (AVC) but below the minimum point of average total cost (ATC). price is below the minimum point of AVC. marginal cost begins to increase. total revenue is not sufficient to cover total cost but is adequate to cover fixed cost.

price is below the minimum point of AVC.

If a perfectly competitive firm finds itself in the situation of incurring a loss, it will: eliminate the loss by raising its selling price. lower its selling price in order to sell more units. always shut down immediately. select a strategy for minimizing the loss.

select a strategy for minimizing the loss.

Suppose that Prince Pückler's Ice Cream sells 100 cones each day. It sells the cones for $3, its average variable cost is $2.50, marginal cost is $3, and the average total cost is $3.10. From this we know: the firm is not producing according to the optimal output rule. the firm is suffering a loss. the firm should shut down. the firm is making positive economic profits.

the firm is suffering a loss.

For a competitive firm, the portion of the marginal cost (MC) curve that exists above the minimum point on the average variable cost (AVC) curve is actually: the firm's short-run demand curve. the firm's long-run demand curve. the firm's average total costs curve. the firm's short-run supply curve.

the firm's short-run supply curve.

The perfectly competitive firm's short-run supply curve is: the average total cost curve above the minimum of average total cost. the average variable cost curve above the minimum of average total cost. the marginal cost curve above the minimum of average total cost. the marginal cost curve above the minimum of average variable cost.

the marginal cost curve above the minimum of average variable cost.

A perfectly competitive tomato industry is in long-run equilibrium. Now suppose that a study shows that eating too many tomatoes can be harmful. In the long run: the supply of tomatoes will decrease and the market price will increase. the supply of tomatoes will decrease and the market price will decrease. total market output will increase and the market price will increase. the supply of tomatoes will decrease and the market price will return to equilibrium.

the supply of tomatoes will decrease and the market price will increase.

In an increasing cost industry, the long run industry supply curve is: vertical. horizontal. upward-sloping. downward-sloping.

upward-sloping.