Multiple Choice
Identify the
choice that best completes the statement or answers the question.
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1.
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Which statement is not true? Market structures
a. | are partly determined by the existence of entry and exit
barriers. | b. | are determined by government regulation. | c. | are partly
determined the number of firms in the industry | d. | influence the forms of competition among
firms | e. | affect product prices or quantity of output |
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2.
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In perfect competition, each firm's output is a large fraction of total
market supply.
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3.
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Which of the following firms is most likely to be a perfectly competitive
firm?
a. | one of the three largest U.S. automakers | b. | one of the
"Seven Sisters" oil producers | c. | a public school operated by the
government | d. | a soybean farmer | e. | a manufacturer of
refrigerators |
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4.
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Which of the following is not true of a perfectly competitive
market?
a. | There are many firms in the market. | b. | Firms face significant barriers to
entry. | c. | Economic profit is zero in the long-run. | d. | Each firm tries to
maximize it’s profits by choosing the quantity it wants to sell. | e. | Each firm makes
essentially the same product as every other firm in the market. |
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5.
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Perfectly competitive firms respond in the short-run to changing market
conditions by varying their
a. | price | b. | output | c. | market
share | d. | information | e. | advertising
campaigns |
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6.
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The golden rule of profit maximization states that firms maximize profit by
producing at the rate of output where price equals marginal cost.
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7.
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The golden rule of profit maximization states that firms maximize profit by
producing at the rate of output where price equals average total cost.
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8.
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Suppose the market for coffee in downtown Chicago is perfectly competitive. What
is true of demand in this market?
a. | The demand curve facing each seller is perfectly elastic. | b. | The demand curve
facing each seller is perfectly inelastic. | c. | The market demand curve is perfectly
elastic. | d. | The market demand curve is perfectly inelastic. | e. | The market demand
curve is elastic. |
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9.
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The demand curve facing an individual perfectly competitive firm is
a. | perfectly elastic | b. | perfectly inelastic | c. | unit
elastic | d. | downward-sloping | e. | identical to the industry demand
curve |
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10.
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For a perfectly competitive firm, price is identical to marginal revenue at
every quantity.
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11.
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At which price and quantity is profit maximized for the perfectly competitive
firm represented in Exhibit 0124?
a. | $40 and 80 | b. | $8 and 70 | c. | $4 and
40 | d. | $40 and 70 | e. | $8 and zero
output |
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12.
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Consider Exhibit 0124. If all the many firms in this market have similar
cost curves to the ones shown and the market is perfectly competitive, then we should expect that the
long-run stable price in the market and the output of each firm will be:
a. | $8 and 70 units | b. | $8 and 80 units | c. | $4 and 40
units | d. | $10 and 80 units | e. | $10 and 50
units |
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13.
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Which of the following statements about the perfectly competitive firm
represented in Exhibit 0131 is false?
a. | Short-run losses are minimized at output level q* because MR = MC
there. | b. | The firm should shut down in the short run. | c. | If the firm shuts
down in the short run, it will suffer a loss equal to the amount of its fixed
cost. | d. | If the firm operates in the short run, it will suffer a loss greater than the amount
of its fixed cost. | e. | If the firm operates in the short run, it will
suffer a loss equal to the amount of its fixed cost plus the uncovered portion of its variable
cost. |
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14.
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Economic profits in a competitive industry are signals that
a. | attract new firms into the industry | b. | prevent firms from adopting newer
technologies | c. | encourage existing firms to continue to operate inefficiently | d. | indicate that
business conditions are improving | e. | cause the industry's resources to be used
in lower valued uses |
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15.
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The perfectly competitive firewood industry is composed of 1,000 identical
consumers and 1,000 identical firms. Exhibit 0120 shows cost data for one firm and demand data for
one consumer. What is the equilibrium price?
a. | $60 | b. | $80 | c. | $100 | d. | $120 | e. | It is impossible to
determine the equilibrium price because there is no information on market demand or
supply. |
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16.
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Consider Exhibit 0135. If the market price is $21, this perfectly competitive
firm will
a. | earn profits of $3.00 | b. | earn profits of $2 | c. | earn profits of
$1 | d. | incur a loss of $10 | e. | break even |
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17.
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For perfectly competitive firms, what is the relationship among market price
(P), average revenue (AR), and marginal revenue (MR)?
a. | P = AR = MR | b. | P > AR = MR | c. | P = AR >
MR | d. | P = AR < MR | e. | P < AR = MR |
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18.
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Consider Exhibit 0122. If the market in which this firm competes is perfectly
competitive, then
a. | this is only a temporary result - prices are likely to fall as new firms enter the
market | b. | this is only a temporary result - prices are likely to rise as some firms exit the
market | c. | this is the long-run outcome | d. | this is only a temporary result - prices are
likely to fall as some firms exit the market | e. | this is only a temporary result - prices are
likely to rise as new firms enter the market |
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19.
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If the price-taking firm in Exhibit 0126 is currently producing 14 units, then
to maximize profits in the short run, it should
a. | keep producing 14 units | b. | decrease production to 12
units | c. | decrease production to 6 units | d. | decrease production to 8
units | e. | shut down |
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20.
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If all the firms in the industry are like the price-taking firm in Exhibit 0126,
then we should expect that over time prices will _______ and firms will ______ the industry.
a. | drop; enter | b. | drop; exit | c. | rise;
enter | d. | rise; exit | e. | stay unchanged; neither exit nor
enter |
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21.
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Firms achieve productive efficiency by
a. | striving to minimize fixed cost | b. | striving to maximize
revenue | c. | producing at their minimum average cost | d. | producing at their
minimum long-run marginal cost | e. | producing the output consumers want
most |
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22.
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Firms in perfect competition achieve _________ efficiency in the
long-run.
a. | productive and allocative | b. | productive | c. | allocative | d. | neither productive nor
allocative |
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