Question 1

Minimizing average total cost always leads to the maximization of total profit.

Accepted Answer

A) True 
 B)False

Question 2

To maximize profits,a competitive firm will seek to expand output until

Accepted Answer

A)  Total revenue equals total cost.
B)  The elasticity of demand equals 1.
C)  Price equals marginal cost.
D)  Price equals $0.

Question 3

Refer to Figure 23.1 for a perfectly competitive firm.In the long run,this firm would stay in this market only if the market price was equal to or higher than

Accepted Answer

A)  $5.
B)  $10.
C)  $15.
D)  $20.

Question 4

Refer to Figure 23.6 for a perfectly competitive firm.Assuming that points A,B,C and D are all above AVC,this firm will maximize profits by producing the level of output that corresponds to point

Accepted Answer

A)  A.
B)  B.
C)  C.
D)  D.

Question 5

Explain why economic profits in all perfectly competitive markets will tend toward zero in the long run.

Accepted Answer

In markets experiencing economic profits...

Question 6

Diagram a model of a perfectly competitive market and a separate model of a firm experiencing economic profits.Explain and illustrate on your models the changes that take place in the long run.Be sure to explain why any changes take place.

Accepted Answer

Additional firms,in pursuit of higher pr...

Question 7

Which characteristic of competitive markets permits society to answer the WHAT to produce question efficiently?

Accepted Answer

A)  Marginal cost pricing.
B)  Average cost pricing.
C)  Minimum cost pricing.
D)  Total cost pricing.

Question 8

A competitive market creates strong pressure for technological innovation that

Accepted Answer

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. D

Question 9

Market supply is the horizontal sum of the individual MC curves above the AVC in a perfectly competitive market.

Accepted Answer

A) True 
 B)False

Question 10

The exit of firms from a market,ceteris paribus,

Accepted Answer

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. C

Question 11

In Figure 23.3,diagram "a" presents the cost curves that are relevant to a firm's production decision,and diagram "b" shows the market demand and supply curves for the market.Use both diagrams to answer the following question: In Figure 23.3,at a price of p1 in the long run

Accepted Answer

A)  Firms will enter the market.
B)  Economic profits equal zero.
C)  Firms will exit the market.
D)  P = ATC.

Question 12

A necessary condition for the operation of a perfectly competitive market is free entry and exit from the market.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following is true about a competitive market supply curve?

Accepted Answer

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.

Question 14

Refer to Figure 23.2 for a perfectly competitive firm.Given the current market price of $100,we expect to see

Accepted Answer

A)  Entry into this industry.
B)  Exit from this industry.
C)  No change in the number of firms in this industry.
D)  Costs rise to absorb the profits earned by the firms in the industry.

Question 15

As in other industries,the market structure of the computer industry has evolved over time.It began as a monopoly and then became perfectly competitive.

Accepted Answer

A) True 
 B)False

Question 16

In a perfectly competitive industry,economic profit

Accepted Answer

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.

Question 17

Exit and shutdown mean the same thing.

Accepted Answer

A) True 
 B)False

Question 18

When P < ATC in the long run,a perfectly competitive firm experiences economic profit and new firms will enter the market.

Accepted Answer

A) True 
 B)False

Question 19

In Figure 23.3,diagram "a" presents the cost curves that are relevant to a firm's production decision,and diagram "b" shows the market demand and supply curves for the market.Use both diagrams to answer the following question: In Figure 23.3,if market demand is at D1,the firm should

Accepted Answer

A)  Leave the market.
B)  Produce q1.
C)  Shut down.
D)  Do any of the above depending on the position of the AVC and the length of the time period.

Question 20

One World View article is titled "Competition Shrinks India's Phone Bills." Competitive forces typically force companies to

Accepted Answer

A)  Cut prices and reduce product quality.
B)  Improve product quality and reduce service.
C)  Improve service and raise prices.
D)  Cut prices,improve product quality,and improve service. D

Exam 23: Competitive Markets

Minimizing average total cost always leads to the maximization of total profit.

Correct AnswerverifiedShow Answer

To maximize profits,a competitive firm will seek to expand output until

Correct AnswerverifiedShow Answer

Refer to Figure 23.1 for a perfectly competitive firm.In the long run,this firm would stay in this market only if the market price was equal to or higher than

Correct AnswerverifiedShow Answer

Refer to Figure 23.6 for a perfectly competitive firm.Assuming that points A,B,C and D are all above AVC,this firm will maximize profits by producing the level of output that corresponds to point

Correct AnswerverifiedShow Answer

Explain why economic profits in all perfectly competitive markets will tend toward zero in the long run.

Correct AnswerverifiedIn markets experiencing economic profits...View AnswerShow Answer

Diagram a model of a perfectly competitive market and a separate model of a firm experiencing economic profits.Explain and illustrate on your models the changes that take place in the long run.Be sure to explain why any changes take place.

Correct AnswerverifiedAdditional firms,in pursuit of higher pr...View AnswerShow Answer

Which characteristic of competitive markets permits society to answer the WHAT to produce question efficiently?

Correct AnswerverifiedShow Answer

A competitive market creates strong pressure for technological innovation that

Correct AnswerverifiedD

Market supply is the horizontal sum of the individual MC curves above the AVC in a perfectly competitive market.

Correct AnswerverifiedShow Answer

The exit of firms from a market,ceteris paribus,

Correct AnswerverifiedC

In Figure 23.3,diagram "a" presents the cost curves that are relevant to a firm's production decision,and diagram "b" shows the market demand and supply curves for the market.Use both diagrams to answer the following question: In Figure 23.3,at a price of p1 in the long run

Correct AnswerverifiedShow Answer

A necessary condition for the operation of a perfectly competitive market is free entry and exit from the market.

Correct AnswerverifiedShow Answer

Which of the following is true about a competitive market supply curve?

Correct AnswerverifiedShow Answer

Refer to Figure 23.2 for a perfectly competitive firm.Given the current market price of $100,we expect to see

Correct AnswerverifiedShow Answer

As in other industries,the market structure of the computer industry has evolved over time.It began as a monopoly and then became perfectly competitive.

Correct AnswerverifiedShow Answer

In a perfectly competitive industry,economic profit

Correct AnswerverifiedShow Answer

Exit and shutdown mean the same thing.

Correct AnswerverifiedShow Answer

When P < ATC in the long run,a perfectly competitive firm experiences economic profit and new firms will enter the market.

Correct AnswerverifiedShow Answer

In Figure 23.3,diagram "a" presents the cost curves that are relevant to a firm's production decision,and diagram "b" shows the market demand and supply curves for the market.Use both diagrams to answer the following question: In Figure 23.3,if market demand is at D1,the firm should

Correct AnswerverifiedShow Answer

One World View article is titled "Competition Shrinks India's Phone Bills." Competitive forces typically force companies to

Correct AnswerverifiedD

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In markets experiencing economic profits...
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Additional firms,in pursuit of higher pr...
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D

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C

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D