Econ 2301 Bishop Chapter 7

A perfectly competitive firm is a:

B.price taker

Which of the following best resembles a perfectly competitive market?

A.the stock market

Which of the following is a characteristic of perfect competition?

B.homogeneous product

Perfect competition is the term used to describe:

B.an industry in which numerous price-taking firms produce identical products.

The perfectly competitive model assumes that:

C.firms can enter and exit the industry with relative ease.

Which of the following is true about perfect competition?

A.Since a perfectly competitive seller can sell all she wants at the market price, her firm’s demand curve is horizontal at the market price over the entire range of output that she could possibly produce. B.Because perfectly competitive markets have many buyers and sellers, each firm is so small in relation to the industry that its production decisions have no practical impact on the market. C. Because consumers believe that all firms in a perfectly competitive market sell identical (homogeneous) products, the products of all the firms are perfect substitutes. D. Perfectly competitive markets have easy entry and exit. E. All of the above are true about perfect competition*

Which of the following is true of perfectly competitive firms?

A. It is difficult for entrepreneurs to become suppliers of a product in a perfectly competitive market structure. B. A perfectly competitive firm has a perfectly elastic supply curve. C. In a perfectly competitive market, an individual seller can change his price and it will not alter the output he sells. D.* All of the above are true. E. None of the above are true.

A perfectly competitive firm faces a demand curve that is:

B.horizontal and perfectly elastic.

A competitive firm facing a perfectly elastic demand curve can:

C. sell all of its output at the market price.

A perfectly competitive firm has no influence over price because:

A.its output is insignificant relative to the market as a whole.

A firm facing a horizontal demand curve:

D.is characterized by all of the above.

In a perfectly competitive industry, influence over price is exerted by:

A. individual sellers. B. individual buyers. C. the largest firms. D. the forces of supply and demand.

Which of the following is false of perfectly competitive firms?

C.Because perfectly competitive firms are price takers, each firm’s demand curve remains unchanged even when the market price changes.

The horizontal demand curve facing an individual firm in a perfectly competitive market:

B.is a reflection of the firm’s small size relative to the total market.

If the market demand curve in a perfectly competitive industry shifts right, the demand curve for each existing firm will:

A.shift up.

Firms will continue to enter a competitive industry until:

C.any economic profits have been competed away.

If new entry occurs in a perfectly competitive industry, the demand curve for each existing firm will:

B.shift down.

If perfectly competitive industry B is currently realizing economic profits, we would expect that:

C.industry output will rise, good B will fall in price, and economic profits will tend to disappear.

When perfectly competitive firms in an industry are earning positive economic profits,

B.we would expect stability in the industry, since it is in long run equilibrium.

If a perfectly competitive industry is neither expanding nor contracting, we would typically expect that:

A. accounting profits to be zero. B. economic profits to be zero. C. the price of the good will be stable D. both a. and c. would be true. E. both b. and c. would be true.*

If the long-run industry supply curve in a perfectly competitive market slopes upward, then very likely input prices will ____ as industry output expands.

A.increase

If input costs remain the same as industry output expands, what would you expect to be the long-run impact of an increase in demand on an industry currently in long-run equilibrium?

A. There will be more firms but the price will remain the same.

Extractive industries such as farming, mining, or lumbering typically:

D. are considered to be increasing cost industries.

If your company is in the range of output where it experiences economies of scale, you know:

A. a 5 percent increase in all inputs will increase output by more than 5 percent.

Which of the following is true about the long run operations of perfectly competitive firms?

A. They produce with productive efficiency. B. They produce with allocative efficiency. C. They earn zero economic profits. D. They earn a fair rate of return. E. all of the above*

Which market structure is characterized by many sellers, easy entry, and homogeneous products?

A.perfect competition

Which of the following is a characteristic of perfect competition?

A.substantial barriers to entry B.differentiated products C.few sellers D.significant market power by firms E.none of the above*

Which of the following is a characteristic of perfect competition?

A.zero barriers to entry B.homogeneous products C.many sellers D.many buyers E.all of the above*

Which of the following most closely resembles a perfectly competitive market?

C.the wheat market

Which one of the following is NOT a characteristic of a perfectly competitive market?

A.Firms advertise in order to distinguish their products and increase market share.

Firms in perfectly competitive markets:

A.are price takers

A firm that is a price taker:

D.will lose all sales if it prices its product in excess of the market equilibrium price.

The demand curve facing a perfectly competitive firm is:

B.perfectly elastic

If the market demand curve in a perfectly competitive industry shifts left, the demand curve for each existing firm will:

B.shift down.

Marginal revenue for a perfectly competitive firm equals:

B.average revenue at all levels of output.

A perfectly competitive firm seeking to maximize its profits would want to maximize the difference between:

B.its total revenue and its total cost.

Which of the following is true?

A.The objective of the firm is to maximize profits, by producing the amount that maximizes the difference between its total revenues and total cost.* B.The objective of the firm is to maximize profits, by producing the amount that maximizes the difference between its average revenue and average total cost. C.The objective of the firm is to maximize profits, by producing the amount that maximizes the difference between its average revenue and average variable cost. D.The objective of the firm is to maximize profits, by producing the amount that maximizes the difference between its marginal revenue and marginal cost. E.None of the above is true.

Which of the following is true?

A.The objective of the firm is to maximize profits, by producing the amount that equates total revenue and total cost. B.The objective of the firm is to maximize profits, by producing the amount that equates average revenue and average total cost. C.The objective of the firm is to maximize profits, by producing the amount that equates average revenue and average variable cost. D.The objective of the firm is to maximize profits, by producing the amount that equates marginal revenue and marginal cost.*

Assume that the equilibrium price in a perfectly competitive industry is $4.25. If a firm in this industry produced and sold 10 units with an average total cost of $5.00, the result would be:

D.a loss of $7.50 Assuming that the equilibrium price in a perfectly competitive industry is $4.25, if a firm in this industry produced and sold 10 units with an average total cost of $5.00, the result would be a loss of $ 7.50 Data given: p = $ 4.25; q = 10 units; ATC = $ 5.00 Since p = AR = $ 4.25, then TR = q x p = 10 x $ 4.25 = $ 42.50 Since ATC = $ 5.00, then TC = q x ATC = 10 x $ 4.25 = $ 50.00 Since Profits = TR – TC, then Profits = $ 42.50 – $ 50.00 = – $ 7.50 (a loss)

When price exceeds average variable cost for a firm, it is possible that:

A.it is earning an economic profit. B.it is breaking even. C.it is suffering an economic loss. D.any of the above is true.*

A profit-maximizing, price-taking firm should cease production whenever:

D.the price is less than minimum average variable cost.

When the marginal cost of a price-taking firm is less than the market price of its product, the firm should:

A.expand output (provided that price is not less than average variable cost).

"I’m losing money, but since my fixed costs are so high, I simply cannot afford to shut down." If the firm were attempting to maximize profit, this decision may be:

C.correct if the firm is covering all of its variable costs and expects the price of its product to rise in the near future.

A profit maximizing perfectly competitive firm would never operate at an output level where

A.it would not cover all of its variable costs

In the short run, if a firm’s price is greater than its AVC but less than its ATC, the firm should:

D.continue operating even though it is generating an economic loss.

When economic profits are positive in a perfectly competitive industry,

B.we would expect the market supply curve to shift to the right as a result.

A perfectly competitive firm cannot make economic profits in the long run because:

B.there are no barriers to entry into the industry.

During a period when new entrants are being attracted to an industry, we would expect that:

A.economic profits are positive. B.economic profits are falling. C.economic profits are rising. D.both a. and b. are true.*

In short run equilibrium in a perfectly competitive industry whose firms are earning economic profits, a firm:
A.has no incentive to change its output.

D.has no incentive to leave the industry.

The shape of the long-run industry supply curve in a perfectly competitive industry is largely determined by:

B.the price of inputs as the industry expands.