CHAPTER 9: COMPETITIVE MARKET

Consider the market structure of perfect competition. What does the lack of entry barriers indicate? A All firms will end up producing a unique and different product B There are no significant obstacles preventing firms from entering and leaving the industry C No new firms can enter an already-established industry D Firms can enter the industry easily but cannot exit the industry easily

B

Which of the following is a characteristic of perfect competition? A Differentiated products B A small number of firms competing C Easy entry for firms D None of the above

C

Assume that competitive firms and a competitive market are in long-run equilibrium. Assume a constant cost industry. In the short-run, an increase in demand will cause firm output to ______________ and the market price to ______________. A Increase; increase B Remain the same; increase C Remain the same; remain the same D Increase; remain the same

A

The addition of a single firm in a competitive market will cause the market ______________ to ______________. A Demand; increase B Demand; decrease C Supply; increase D Supply; decrease E Supply and demand; not change

C

Accountants tell a franchise owner that she earned $30,000 in profits last year. The owner knows that most of her business acquaintances earned at least $70,000 in profits is similar franchises. Which of the following is true? Her firm earned an economic __________. A Profit of $30,000 B Profit of $100,000 C Loss of $100,000 D Loss of $40,000

D

In the theory of firm behavior, we assume that firms attempt to maximize _________. A Total revenue B Marginal revenue C The number of customers D Total economic profits

D

In the case of an increase in demand, what will happen to the economic profits of the typical competitive firm? Economic profits will ________. A Not change B Increase C Decrease D Cannot tell

b

In the case of an increase in fixed costs, what will happen to the economic profits of the typical competitive firm? Economic profits will ________. A Not change B Increase C Decrease D Cannot tell

c

In the short run, how will an increase in fixed costs affect the output of a typical firm in a competitive market? A An increase in output B A decrease in output C No change in output D Cannot tell

c

In perfect competition, the demand curve for an individual's firm product is _________. A Downward sloping B Relatively elastic C Perfectly inelastic D Perfectly elastic

d

Which of the following is NOT true regarding perfectly competitive markets? A It is difficult or impossible for a firm to enter and compete in the market B All firms in the market are price takers C Homogenous goods are sold by the firms D The market contains many buyers and sellers

A

Consider the effect on costs of an increase in wages in an economy. What is the increase likely to do? A Increase short-run average costs, but not increase long-run average costs. B Increase short-run average costs and long-run average costs. C Increase long-run average costs, but not increase short-run average costs. D Increase neither short-run or long-run average costs, businesses will use less labor and more capital.

B

Assume a constant-cost industry in a competitive market. What are the long-term effects of the following change? An increase in the demand for the good will ______________ the equilibrium price and ______________ equilibrium quantity in the goods' market. A Increase; increase B Increase; decrease C Decrease; not change D Not change; increase

D

Assume a decreasing-cost industry in a competitive market. What are the long term effects of the following change? An increase in the demand for the good will ______________ the equilibrium price and ______________ equilibrium quantity in the goods' market. A Increase; increase B Increase; decrease C Decrease; not change D Decrease; increase

D

Assume that competitive firms and a competitive market are in long-run equilibrium. What will happen in the long run in that same constant cost industry? Prices will ______________ and the market output will ______________ when compared to the levels prior to the increase in demand. A Have increased; have increased B Remain the same; remain the same C Have increased; remain the same D Remain the same; have increased

D

Which of the following is not true regarding a firm in perfectly competition? A The firm's marginal revenue function is equal to the market price. B The market demand and supply curves determine the market price. C The demand curve for a single firm's product is horizontal. D A single firm can influence the demand for its product by advertising.

D

Select all implicit costs from the list below. A Wages B Raw materials C Revenues D Rent E Profit earned in similar businesses

E

Consider a perfectly competitive firm. When the market price is greater than both the firm's marginal cost and average variable cost, the firm ________. A Is maximizing profits B Should shut down C Should increase its level of output D Should reduce its level of output

c

Assume a constant-cost industry in a competitive market. What are the long-term effects of the following change? An increase in fixed costs will ______________ the equilibrium price and ______________ equilibrium quantity in the market. A Not change; not change B Increase; decrease C Decrease; increase D Not change; increase

B

In a perfectly competitive industry, the industry demand curve is __________. A Upward sloping B Downward sloping C Horizontal D Vertical

B

Economic profits are ______________ than accounting profits. A Always less B Always more C Sometimes more D Sometimes less

A

For a firm in a perfectly competitive market, average revenue equals ________. A The market price B Average total cost C Fixed cost D Price divided by quantity

A

In the short run, perfectly competitive firms will produce where which of the following is true? A Marginal revenue is less than price B Price equals marginal cost C Price equals average cost D Average cost is a minimum

B

A perfectly competitive firm will maximize profits at the output level where which of the following is true? A Average cost is equal to marginal revenue B Marginal cost is total revenue C Marginal cost is equal to marginal revenue D Average total cost is equal to average revenue

C

Given all the characteristics of perfect competition, which of the following is the main factor that affects consumers' decisions on which firm to purchase a good from? A Opinions of friends B Quality of the good C Price D Reputation of the firm

C

What are economic profits at a firm's break-even point? A Positive and equal to fixed costs B Positive and equal to opportunity costs C Negative D Zero

D

In the short run, how will an increase in demand affect the output of a typical firm in a competitive market? A An increase in output B A decrease in output C No change in output D Cannot tell

a

Accounting profits at a firm's economic profit break-even point are ________. A Positive B Negative C Zero D Equal to the firm's total revenue

A

Assume that competitive firms and a competitive market are in long-run equilibrium. What will happen in the long run as a result of that increase in variable costs in the previous question? Firms will ______________ because profits have ______________. A Enter; decreased B Enter; increased C Exit; decreased D Exit; increased

C

Which of the following is true for a single firm in a perfectly competitive industry? A P = ATC B MR = AVC C P = MR D P > MR

C

A single firm in a perfectly competitive market is a _________. A Price-taker B Price-maker C Quantity-taker D Quality-maker

A

If a perfectly competitive industry is in long-run equilibrium, then which of the following is true? A Price equals minimum average cost. B Price equals minimum marginal cost C Accounting profits for all firms are zero D Economic profits for all firms are positive

A

If accounting profits equal $10 million for a firm and the owners could likely earn $7 million in a similar business, the firm's economic profit is ________. A $3 million B $7 million C $10 million D $13 million

A

In the short run, how will a decrease in variable costs affect the output of a typical firm in a competitive market? A An increase in output B A decrease in output C No change in output D Cannot tell

A

The clothing and attire retail market has seen an increased number of firms entering the industry. Thus, there is a lot of competition in markets for many types of clothing. What is the result of this high amount of competition? A Individual buyers and sellers cannot affect the market price. B Firms have a lot of flexibility in pricing their products. C One individual firm can determine the market price. D Some firms must necessarily leave since the prices will be too low.

A

When a firm earns zero economic profits, it does which of the following? A Has a positive accounting profit B Has a negative accounting profit C Cannot continue to produce and should shut down D Has opportunity costs that are larger than accounting profits

A

Assume that competitive firms and a competitive market are in long-run equilibrium. In the short run, what will be the effects of an increase in variable costs on the output of a typical firm in a competitive market? A An increase in output B A decrease in output C No change in output D Cannot tell

A AND B

Select all explicit costs from the list below. Multiple answers: You can select more than one option A Wages B Raw materials C Revenues D Rent E Profit earned in similar businesses

A B and D

Assume that competitive firms and a competitive market are in long-run equilibrium. In the short run, what will be the effects of an increase in fixed costs on the output of a typical firm in a competitive market? A An increase in output B A decrease in output C No change in output D Cannot tell

C

Assume that competitive firms and a competitive market are in long-run equilibrium. What will happen in the long run if fixed costs increase? Firms will ______________ because economic profits have ______________. A Enter; decreased B Enter; increased C Exit; decreased D Exit; increased

C

In a perfectly competitive market, a single firm that sets its price a small amount above the market price will do which of the following? A Make lower profits than other firms, but the exact amount less depends on the elasticity of demand for the product B Have lower revenues but receive zero economic profits C Not sell any units at all D Earn profits higher than other firms as long as the other firms continued to charge the market price

C

Why can't a single firm in a perfectly competitive industry influence the market price? A Its costs are too high B It is not allowed to advertise C Its production level is too small to affect the market D It is a price make

C

If all firms in a perfectly competitive industry are required to adopt antipollution devices, the long-run results would be that the firms would be earning ______________ and the industry will be producing ______________ amounts of output. A Economic losses; greater B Zero economic profits; greater C Economic losses; smaller D Zero economic profits; smaller E Economic profits; greater

D