Question 1

A subsidy to firms intended to reduce pollution in an industry would

Accepted Answer

A)  shift the LRAC curve upward.
B)  have the same impact on the firm as a tax.
C)  likely drive some existing firms from the industry.
D)  likely have the paradoxical effect of increasing pollution in the industry in the long run.E) B) and C)
F) A) and B)

Question 2

A firm in short-run equilibrium always earns positive profits if

Accepted Answer

A)  AC > P > AVC.
B)  AR > AC.
C)  MR = MC.
D)  AC > MC.E) C) and D)
F) A) and B)

Question 3

In long-run equilibrium, the perfectly competitive firm produces

Accepted Answer

A)  where P = MC = AC.
B)  at the lowest point on its long-run average cost curve.
C)  where its long-run average cost curve is tangent to its horizontal demand curve.
D)  All of the responses are correct.E) All of the above
F) None of the above

Question 4

A firm that knows the market price for its product and its costs can determine how much output that they wish to produce.

Accepted Answer

A) True 
 B)False

Question 5

In perfect competition, there are differences in the products sold by various firms.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following statements concerning equilibrium in the long run is not true?

Accepted Answer

A)  Most firms earn economic profits in the long run.
B)  The firm can vary its plant size in the long run.
C)  Economic profits are eliminated as new firms enter the industry in the long run.
D)  For firms in long-run equilibrium, P = MC = AC.E) B) and D)
F) None of the above

Question 7

The perfectly competitive firm has no influence over price because

Accepted Answer

A)  its output is so insignificant relative to the market as a whole.
B)  antitrust laws constrain perfectly competitive firms.
C)  consumers establish the prices of products.
D)  it doesn't know its demand curve.E) B) and D)
F) B) and C)

Question 8

Figure 10-8 ​

In the short run, the firm in Figure 10-8 will shut down if the price falls below

Accepted Answer

A)  $8.
B)  $6.
C)  $5.
D)  $1.E) All of the above
F) C) and D)

Question 9

The exit of existing firms from an industry will very likely

Accepted Answer

A)  shift the industry supply curve to the left.
B)  cause the market price to rise.
C)  eliminate the losses of existing firms in the industry.
D)  All of the responses are correct.E) C) and D)
F) All of the above

Question 10

Explain the reasoning behind the shutdown rules. When is it appropriate to operate with a loss?

Accepted Answer

1. The firm will make a profit if total ...

Question 11

The result that perfectly competitive firms produce at the lowest per-unit cost is derived from the assumptions of

Accepted Answer

A)  homogeneous products.
B)  few sellers.
C)  firms facing horizontal demand curves.
D)  free entry and exit.E) All of the above
F) B) and C)

Question 12

When the market is in long-run equilibrium in a perfectly competitive market, this implies that in the long run means

Accepted Answer

A)  no firm in the industry has an incentive to exit.
B)  no firm outside the industry has an incentive to enter.
C)  no firm in the industry has an incentive to increase or decrease its output.
D)  all of these conditions are met in the long run equilibrium.E) B) and C)
F) A) and D)

Question 13

Figure 10-2 ​

Figure 10-2 shows demand and short-run cost curves for a perfectly competitive firm. In the short run, this firm would

Accepted Answer

A)  earn positive economic profits.
B)  earn economic losses.
C)  go out of business.
D)  Cannot be determined with the information given.E) A) and B)
F) A) and C)

Question 14

Draw a graph illustrating the relationship between the demand curve of the perfectly competitive firm and the perfectly competitive industry. Label all curves and axes correctly.

Accepted Answer

The diagram of the firm and in...

Question 15

The long-run supply curve of an industry equals the industry's

Accepted Answer

A)  long-run marginal cost curve.
B)  the horizontal sum of all firms' supply curves at any point in time.
C)  long-run average cost curve.
D)  long-run total variable cost curve.E) C) and D)
F) A) and B)

Question 16

Which requirement for perfect competition rules out trade associations or other collusive arrangements in which firms work together to influence price?

Accepted Answer

A)  Freedom of entry and exit
B)  Homogeneity of product
C)  Perfect information
D)  Numerous small firms and customersE) A) and B)
F) A) and C)

Question 17

A perfectly competitive firm has a horizontal demand curve because it can sell as much as it wants at the market price.

Accepted Answer

A) True 
 B)False

Question 18

Define the following terms and explain their importance to the study of economics. 
a. marginal cost 
b. marginal revenue 
c. short-run equilibrium 
d. supply curve of the firm 
e. economic profit

Accepted Answer

a. Marginal cost is the cost to the firm...

Question 19

Table 10-1  In Table 10-1 the short-run cost schedules of a perfectly competitive firm are shown. Suppose that the market price of output is $20, the firm will produce ____ units and earn a profit of ____.

Accepted Answer

A)  6; $7.02
B)  6; $112,98
C)  8; $160
D)  4; $19E) A) and D)
F) None of the above

Question 20

In the short run, a perfectly competitive firm can either make a profit or exit the market.

Accepted Answer

A) True 
 B)False

Exam 10: The Firm and the Industry Under Perfect Competition

A firm in short-run equilibrium always earns positive profits if

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A subsidy to firms intended to reduce pollution in an industry would

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In long-run equilibrium, the perfectly competitive firm produces

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In the short run, a perfectly competitive firm can either make a profit or exit the market.

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The long-run supply curve of an industry equals the industry's

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A perfectly competitive firm has a horizontal demand curve because it can sell as much as it wants at the market price.

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In perfect competition, there are differences in the products sold by various firms.

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The perfectly competitive firm has no influence over price because

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The result that perfectly competitive firms produce at the lowest per-unit cost is derived from the assumptions of

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Which of the following statements concerning equilibrium in the long run is not true?

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Explain the reasoning behind the shutdown rules. When is it appropriate to operate with a loss?

Correct Answerverified1. The firm will make a profit if total ...View AnswerShow Answer

Figure 10-2 ​ Figure 10-2 shows demand and short-run cost curves for a perfectly competitive firm. In the short run, this firm would

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Which requirement for perfect competition rules out trade associations or other collusive arrangements in which firms work together to influence price?

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Table 10-1 In Table 10-1 the short-run cost schedules of a perfectly competitive firm are shown. Suppose that the market price of output is $20, the firm will produce ____ units and earn a profit of ____.

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Figure 10-8 ​ In the short run, the firm in Figure 10-8 will shut down if the price falls below

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Draw a graph illustrating the relationship between the demand curve of the perfectly competitive firm and the perfectly competitive industry. Label all curves and axes correctly.

Correct AnswerverifiedThe diagram of the firm and in...View AnswerShow Answer

When the market is in long-run equilibrium in a perfectly competitive market, this implies that in the long run means

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Define the following terms and explain their importance to the study of economics. a. marginal cost b. marginal revenue c. short-run equilibrium d. supply curve of the firm e. economic profit

Correct Answerverifieda. Marginal cost is the cost to the firm...View AnswerShow Answer

A firm that knows the market price for its product and its costs can determine how much output that they wish to produce.

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The exit of existing firms from an industry will very likely

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1. The firm will make a profit if total ...
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Figure 10-2 Figure 10-2 shows demand and short-run cost curves for a perfectly competitive firm. In the short run, this firm would

Correct Answer
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Table 10-1 In Table 10-1 the short-run cost schedules of a perfectly competitive firm are shown. Suppose that the market price of output is $20, the firm will produce units and earn a profit of .

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Figure 10-8 In the short run, the firm in Figure 10-8 will shut down if the price falls below

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The diagram of the firm and in...
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a. Marginal cost is the cost to the firm...
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