Econ 101: Exam 3 Questions (Part 2)

Which of the following statements is NOT characteristic of perfect competition? A) All firms produce the same standardized product. B) There are many producers, and each has only a small market share. C) There are many producers; one firm has a 25% market share, and all of the remaining firms have a market share of less than 2% each. D) There are no obstacles to entry into or exit from the industry.

C) There are many producers; one firm has a 25% market share, and all of the remaining firms have a market share of less than 2% each.

A perfectly competitive industry is said to be efficient because the: A) marginal cost of production of the last unit of output is minimized. B) product is standardized across firms in the industry. C) average total cost of production of the industry's output is minimized. D) market price of the good is equal to economic profit for all firms in the industry

C) average total cost of production of the industry's output is minimized.

In a perfectly competitive industry, the market demand curve is usually: A) perfectly inelastic. B) perfectly elastic. C) downward-sloping. D) relatively elastic.

C) downward-sloping.

Economic profits in a perfectly competitive industry encourage firms to _____ the industry, and losses encourage firms to _____ the industry. A) exit; enter B) enter; enter C) enter; exit D) exit; exit

C) enter; exit

A curve that shows the quantity of a good or service supplied at various prices after all long-run adjustments to a price change have been completed is a long-run _____ curve. A) marginal revenue B) marginal cost C) industry supply D) production

C) industry supply

The short-run supply curve for a perfectly competitive firm is its: A) demand curve above its marginal revenue curve. B) marginal revenue curve to the right of its marginal cost curve. C) marginal cost curve above its average variable cost curve. D) average total cost curve below its marginal cost curve.

C) marginal cost curve above its average variable cost curve.

In the model of perfect competition: A) the consumer is at the mercy of powerful firms that can set prices wherever they prefer. B) individual firms can influence the price, but only slightly. C) no individual or firm has enough power to affect price. D) the price is determined by how many years are left in the product's patent

C) no individual or firm has enough power to affect price.

If a perfectly competitive gardening shop sells 30 evergreen bushes at $10 per bush, its marginal revenue is: A) $10. B) more than $10. C) less than $10. D)$300.

A) $10.

Mikail's perfectly competitive camera memory card-producing factory is making positive economic profits. If the price of memory cards is $9, if Mikail's output is 3,000 cards a month, and if his monthly average total cost is $7, what are his monthly profits? A) $6,000 B) $27,000 C) $21,000 D) $2

A) $6,000

Which of the following is TRUE? A) If price falls below average variable cost, the firm will shut down in the short run. B) Total revenue and marginal revenue are the same in perfect competition. C) Economic profit per unit is found by subtracting MC from price. D) Economic profit is always positive in the long run

A) If price falls below average variable cost, the firm will shut down in the short run.

Zoe's Bakery determines that P < ATC and P > AVC. In the short run, Zoe should: A) continue to operate even though she is taking an economic loss. B) continue to operate, as she is making an economic profit. C) shut down immediately, as she is taking an economic loss. D) raise the price until she has maximized her profits.

A) continue to operate even though she is taking an economic loss.

Suppose that the market for haircuts in a community is perfectly competitive and that the market is initially in long-run equilibrium. Subsequently, an increase in population increases the demand for haircuts. In the short run, the typical firm is likely to: A) earn an economic profit. B) incur an economic loss. C) have no change in its economic profit. D) have neither an economic profit nor an economic loss.

A) earn an economic profit.

In perfect competition, the assumption of easy entry and exit implies that in the _____ run all firms in the industry will earn _____ economic profits. A) long; zero B) short; positive C) short; zero D) long; positive

A) long; zero

A perfectly competitive firm will maximize profits when the: A) marginal revenue equals marginal cost. B) marginal revenue is lower than average variable cost. C) price is lower than marginal cost. D) price is higher than marginal cost.

A) marginal revenue equals marginal cost.

A perfectly competitive firm is a: A) price taker. B) price searcher. C) cost maximizer. D) quantity taker.

A) price taker.

The lowest point on a perfectly competitive firm's short-run supply curve corresponds to the minimum point on the _____ curve. A) ATC B) AVC C) AFC D) MC

B) AVC

In the short run, a perfectly competitive firm produces output and earns ZERO economic profit if: A) P < ATC. B) P = ATC. C) P < MC. D) P > ATC.

B) P = ATC.

Which of the following is TRUE? A) Profit per unit is price minus MC. B) Total economic profit is per-unit profit times quantity. C) If price is less than ATC, the firm will break even in the short run. D) If price is less than marginal cost, the perfectly competitive firm should raise the price and increase output.

B) Total economic profit is per-unit profit times quantity.

In perfectly competitive long-run equilibrium: A) all firms make positive economic profits. B) all firms produce at the minimum point of their average total cost curves. C) the industry supply curve must be upward-sloping. D) all firms face the same price, but the value of marginal cost will vary directly with firm size.

B) all firms produce at the minimum point of their average total cost curves.

Suppose that the market for haircuts in a community is a perfectly competitive constant-cost industry and that the market is initially in long-run equilibrium. Subsequently, an increase in population increases the demand for haircuts. In the long run, firms will _____ the market, driving the price of haircuts _____ and the profits of individual firms _____. A) enter; up; back to zero B) enter; down; back to zero C) leave; up; up D) leave; up; back to zero

B) enter; down; back to zero

Marginal revenue: A) is the slope of the average revenue curve. B) equals the market price in perfect competition. C) is the change in quantity divided by the change in total revenue. D) is the price divided by the change in quantity.

B) equals the market price in perfect competition.

If firms are making positive economic profits in the short run, then in the long run: A) the short-run industry supply curve will shift leftward. B) firms will enter the industry. C) industry output will rise and the price will rise. D) firms will leave the industry.

B) firms will enter the industry.

The demand curve for a perfectly competitive firm is: A) perfectly inelastic. B) perfectly elastic. C) downward-sloping. D) relatively but not perfectly elastic.

B) perfectly elastic.

If the price is greater than average total cost at the profit-maximizing quantity of output in the short run, a perfectly competitive firm will: A) produce at a loss. B) produce at a profit. C) shut down production. D) produce more than the profit-maximizing quantity

B) produce at a profit.

If a Florida strawberry wholesaler operates in a perfectly competitive market, that wholesaler will have a _____ share of the market, and consumers will consider her strawberries and her competitors' strawberries to be _____. Therefore, _____ advertising will take place in this market. A) large; standardized; no B) small; standardized; little or no C) small; differentiated; no D) large; differentiated; extensive

B) small; standardized; little or no

During the summer, Alex runs a mowing service, and lawn mowing is a perfectly competitive industry. In the short run, Alex will shut down if: A) the total revenues can't cover fixed costs. B) the total revenues can't cover variable costs. C) the total revenues can't cover total costs. D) the price exceeds the average total cost.

B) the total revenues can't cover variable costs.

Which of the following is MOST likely to cause firms to exit a perfectly competitive industry? A) Consumer tastes and preferences for this product get stronger. B) A technological advance allows all firms to produce more efficiently. C) The price of a key variable input falls. D) Consumer income falls.

D) Consumer income falls.

Consider a perfectly competitive firm in the short run. Assume that it is sustaining economic losses but continues to produce at the profit-maximizing (loss-minimizing) output. Which statement is FALSE? A) Marginal cost is less than average total cost. B) Marginal cost is equal to marginal revenue. C) Price is equal to marginal cost. D) Marginal cost is less than average variable cost.

D) Marginal cost is less than average variable cost.

Which of the following is NOT a characteristic of a perfectly competitive industry? A) Firms seek to maximize profits. B) Profits may be positive in the short run. C) There are many firms. D) Products are differentiated.

D) Products are differentiated.

Zoe's Bakery operates in a perfectly competitive industry and has standard cost curves. The variable costs at Zoe's Bakery increase, so all of the cost curves (except fixed cost) shift upward. The demand for Zoe's pastries does not change, nor does the firm shut down. To maximize profits after the variable cost increase, Zoe's Bakery will _____ its price and _____ its level of production. A) raise; increase B) decrease; increase C) raise; decrease D) do nothing to; decrease

D) do nothing to; decrease

People in the eastern part of Beirut are prevented by border guards from traveling to the western part of Beirut to shop for or sell food. This situation violates the perfect competition assumption of: A) price-setting behavior. B) a small number of buyers and sellers. C) differentiated goods. D) ease of entry and exit.

D) ease of entry and exit.

Marginal revenue is a firm's: A) ratio of profit to quantity. B) ratio of average revenue to quantity. C) price per unit times the number of units sold. D) increase in total revenue when it sells an additional unit of output

D) increase in total revenue when it sells an additional unit of output

The competitive model assumes all of the following EXCEPT: A) a large number of buyers. B) easy entry to and exit from the market. C) standardized product. D) patents and copyrights that serve as barriers to entry into the industry.

D) patents and copyrights that serve as barriers to entry into the industry.

The perfectly competitive model assumes all of the following EXCEPT: A) a great number of buyers. B) easy entry to and exit from the market. C) a standardized product. D) that firms attempt to maximize their total revenue

D) that firms attempt to maximize their total revenue

The break-even price for a perfectly competitive firm is equal to: A) the minimum value of average variable cost. B) the marginal revenue, provided that marginal revenue is equal to marginal cost. C) the average fixed cost at the given output level. D) the minimum value of average total cost.

D) the minimum value of average total cost.

The equilibrium price of a guidebook is $35 in the perfectly competitive guidebook industry. Our firm produces 10,000 guidebooks for an average total cost of $38, marginal cost of $30, and average variable cost of $30. Our firm should: A) raise the price of guidebooks, because the firm is losing money. B) keep output the same, because the firm is producing at minimum average variable cost. C) produce more guidebooks, because the next guidebook produced increases profit by $5. D) shut down, because the firm is losing money.

C) produce more guidebooks, because the next guidebook produced increases profit by $5

A perfectly competitive small organic farm produces 1,000 cauliflower heads in the short run. Its ATC = $6 and AFC = $2. The market price is $3 per head and is equal to MC. To maximize profits or minimize losses, this farm should: A) increase output. B) reduce output but continue to produce. C) shut down. D) do nothing; the firm is already maximizing profits.

C) shut down.