Question 1

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

Accepted Answer

A)   Firms exit from the industry, driving up the market price.
B)   Firms exit from the industry, driving down the market price.
C)   No change in the number of firms in the industry and no change in the market price.
D)   Firms enter the industry, driving down the market price.

Question 2

If the products of two firms are homogeneous, then they

Accepted Answer

A)   Are perfect substitutes.
B)   Differ from each other.
C)   Must be used together.
D)   Are costless to produce. A

Question 3

The market supply curve in a perfectly competitive market is usually

Accepted Answer

A)   Downward-sloping.
B)   Horizontal.
C)   Vertical.
D)   Upward-sloping.

Question 4

Refer to Figure 23.5 for a perfectly competitive firm.Which of the following is not true for this firm at a price of $200?

Accepted Answer

A)   The firm is using the fewest resources possible to produce each unit of output.
B)   The firm is practicing marginal cost pricing.
C)   The price is a reflection of the highest-valued good that could have been produced with the resources the firm used for the last unit it produced.
D)   The firm should leave this market in an effort to earn economic profits.

Question 5

The equilibrium price in a competitive market

Accepted Answer

A)   Ensures that anyone who wants the good can get it.
B)   Equates the demand for goods with the supply of goods.
C)   Remains unchanged forever.
D)   Remains unchanged only if demand doesn't change.

Question 6

If price is below the long-run competitive equilibrium level, there will be

Accepted Answer

A)   Greater demand.
B)   Positive economic profits.
C)   Greater output.
D)   Exit of firms from the market.

Question 7

Perfectly competitive markets are responsive to the demand of consumers.

Accepted Answer

A) True 
 B)False

Question 8

A perfectly competitive market results in efficiency because

Accepted Answer

A)   Price is driven down to minimum ATC.
B)   Price rises high enough to equal marginal cost.
C)   Zero economic profit is achieved.
D)   MC < P.

Question 9

The exit of firms from a market, ceteris paribus,

Accepted Answer

A)   Shifts the market supply curve to the right.
B)   Reduces the economic losses of remaining firms in the market.
C)   Increases the equilibrium output in the market.
D)   Shifts the market demand curve to the left.

Question 10

If two products are homogeneous, then they

Accepted Answer

A)   Are identical.
B)   Differ from each other.
C)   Must be used together.
D)   Are similar to each other.

Question 11

One In the News article "IBM Forced to Halt PCjr Output Next Month" indicates all of the following except:

Accepted Answer

A)   Competitive pressure forced IBM to discontinue a particular PC model
B)   IBM pushed the price down to no avail
C)   IBM attempted to price below average total cost
D)   IBM launched the product with a $40 million dollar advertising campaign

Question 12

Patents are a barrier to entry.

Accepted Answer

A) True 
 B)False

Question 13

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. C

Question 14

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.

Question 15

If a firm finds that its marginal cost is greater than its price, it

Accepted Answer

A)   Should reduce production.
B)   Is maximizing its profit.
C)   Should increase production.
D)   Is maximizing its total revenue.

Question 16

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 17

Technological improvements cause

Accepted Answer

A)   New firms to enter but existing firms to continue producing their old output levels.
B)   Some firms to exit but the remaining firms to produce more output.
C)   Existing firms to produce more output.
D)   Existing firms to continue producing their old output levels but to lower the price of the products.

Question 18

In which of the following cases would entry and exit cease?

Accepted Answer

A)   P > short-run ATC.
B)   P = long-run ATC.
C)   P > long-run ATC.
D)   P < long-run ATC.

Question 19

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 20

In a competitive market,

Accepted Answer

A)   Buyers don't have market power but sellers do.
B)   Sellers don't have market power but buyers do.
C)   Neither buyers nor sellers have market power.
D)   Buyers and sellers both have market power. C

Exam 9: Competitive Markets

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

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If the products of two firms are homogeneous, then they

Correct AnswerverifiedA

The market supply curve in a perfectly competitive market is usually

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Refer to Figure 23.5 for a perfectly competitive firm.Which of the following is not true for this firm at a price of $200?

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The equilibrium price in a competitive market

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If price is below the long-run competitive equilibrium level, there will be

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Perfectly competitive markets are responsive to the demand of consumers.

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A perfectly competitive market results in efficiency because

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The exit of firms from a market, ceteris paribus,

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If two products are homogeneous, then they

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One In the News article "IBM Forced to Halt PCjr Output Next Month" indicates all of the following except:

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Patents are a barrier to entry.

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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 AnswerverifiedC

A competitive market creates strong pressure for technological innovation that

Correct AnswerverifiedShow Answer

If a firm finds that its marginal cost is greater than its price, it

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

Technological improvements cause

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In which of the following cases would entry and exit cease?

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

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In a competitive market,

Correct AnswerverifiedC

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A

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C

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C