Part A: What is Perfect Competition?

11.1 What is Perfect Competition?

1) Perfect competition arises if the ________ efficient scale of a single producer is ________ relative
to the demand for the good or service.
A) minimum; small
B) minimum; large
C) maximum; small
D) maximum; large
Answer:

2) Perfect competition is an industry with

A) a few firms producing identical goods.
B) a few firms producing goods that differ somewhat in quality.
C) many firms producing identical goods.
D) many firms producing goods that differ somewhat.
Answer:

3) In a perfectly competitive industry, there are

A) many buyers and many sellers.
B) many buyers, but there might be only one or two sellers.
C) many sellers, but there might be only one or two buyers.
D) one firm that sets the price for the others to follow.
Answer:

4) In perfect competition, the product of a single firm

A) has many perfect substitutes produced by other firms.
B) has many perfect complements produced by other firms.
C) is sold under many differing brand names.
D) is sold to different customers at different prices.
Answer:

5) In perfect competition, restrictions on entry into an industry

A) apply to both capital and labor.
B) apply to labor but not to capital.
C) apply to capital but not to labor.
D) do not exist.
Answer:

6) In perfect competition,
A) each firm can influence the price of the good.
B) there are few buyers.
C) there are significant restrictions on entry.
D) all firms in the market sell their product at the same price.
Answer:
7) The price elasticity of demand for any particular perfectly competitive firmʹs output is
A) less than 1.
B) 1.
C) equal to zero.
D) infinite.
Answer:

8) The demand for wheat from farm A is perfectly elastic because wheat from farm A is
A) a perfect complement for wheat from farm B.
B) a normal good.
C) a perfect substitute for wheat from farm B.
D) an inferior good.
Answer:

9) In perfect competition, the elasticity of demand for the product of a single firm is
A) 0.
B) between 0 and 1.
C) 1.
D) infinite.
Answer:

10) In perfect competition, the elasticity of demand for the product of a single firm is
A) zero because the firm produces a unique product.
B) zero because many other firms produce identical products.
C) infinite because the firm produces a unique product.
D) infinite because many other firms produce identical products.
Answer:

11) In perfect competition, each individual firm faces ________ demand curve.
A) an inelastic
B) an upward sloping
C) a perfectly elastic
D) a downward sloping
Answer:

12) In perfect competition, an individual firm

A) faces unitary elasticity of demand.
B) has a price elasticity of supply equal to one.
C) faces a perfectly elastic demand.
D) has perfectly elastic supply.
Answer:

13) If Steveʹs Apple Orchard, Inc. is a perfectly competitive firm, the demand for Steveʹs apples has
A) zero elasticity.
B) unitary elasticity.
C) elasticity equal to the price of apples.
D) infinite elasticity.
Answer:

14) In a perfectly competitive industry, the price elasticity of demand for the market demand is
________ and the price elasticity of demand for an individual firmʹs demand is ________.
A) infinite; infinite
B) less than infinite; infinite
C) infinite; less than infinite
D) less than infinite; less than infinite
Answer:

15) The market for fish is perfectly competitive. So, the price elasticity of demand for fish from a
single fishing boat
A) is less than the elasticity of demand for fish overall.
B) equals the elasticity of demand for fish overall.
C) is greater than the elasticity of demand for fish overall.
D) is sometimes greater than and sometimes less than the elasticity of demand for fish overall.
Answer:

16) In perfect competition, the price of the product is determined where the industry
A) elasticity of supply equals the industry elasticity of demand.
B) supply curve and industry demand curve intersect.
C) average variable cost equals the industry average total cost.
D) fixed cost is zero.
Answer:

17) Economists assume that a perfectly competitive firmʹs objective is to maximize its
A) quantity sold.
B) economic profit.
C) revenue.
D) output price.
Answer:

18) Total economic profit is

A) total revenue minus total opportunity cost.
B) total revenue divided by total cost.
C) marginal revenue minus marginal cost.
D) marginal revenue divided by marginal cost.
Answer:

19) The economic profit of a perfectly competitive firm

A) is less than its total revenue.
B) equals its total revenue.
C) is greater than its total revenue.
D) is less than its total revenue if its supply curve is inelastic and is greater than its total
revenue if its supply curve is elastic.
Answer:

20) In perfect competition, a firm that maximizes its economic profit will sell its good at a price that
is
A) below the market price.
B) at the market price.
C) above the market price.
D) below the market price if its supply curve is inelastic and above the market price if its
supply curve is elastic.
Answer:

21) The above figure shows a firmʹs total revenue line. The firm must be in a market with
A) perfect competition.
B) monopolistic competition.
C) monopoly.
D) oligopoly.
Answer:

22) For a perfectly competitive firm, curve A in the above figure is the firmʹs
A) total fixed cost curve.
B) average fixed cost curve.
C) average variable cost curve.
D) total revenue curve.
Answer:
23) The figure above portrays a total revenue curve for a perfectly competitive firm. Curve A is
straight because the firm
A) is a price taker.
B) faces constant returns to scale.
C) wants to maximize its profits.
D) has perfect information.
Answer:

24) The figure above portrays a total revenue curve for a perfectly competitive firm. The firmʹs
marginal revenue from selling a unit of output
A) equals $0.50.
B) equals $1.00.
C) equals $2.00.
D) cannot be determined.
Answer:

25) The figure above portrays a total revenue curve for a perfectly competitive firm. The price of the
product in this industry
A) equals $0.50.
B) equals $1.00.
C) equals $2.00.
D) cannot be determined.
Answer:

26) In the above figure showing a perfectly competitive firmʹs total revenue line, the firmʹs marginal
revenue
A) falls as output increases.
B) does not change as output increases.
C) rises as output increases.
D) cannot be determined.
Answer:

27) In the above table, if the firm sells 5 units of output, its total revenue is
A) $15.
B) $30.
C) $75.
D) $90.
Answer:

28) In the above table, if the quantity sold by the firm rises from 5 to 6, its marginal revenue is
A) $15.
B) $30.
C) $75.
D) $90.
Answer:

29) In the above table, if the quantity sold by the firm rises from 6 to 7, its marginal revenue is
A) $15.
B) $30.
C) $90.
D) $105.
Answer:

30) In perfect competition, the marginal revenue of an individual firm

A) is zero.
B) is positive but less than the price of the product.
C) equals the price of the product.
D) exceeds the price of the product.
Answer:

31) In the case of a perfectly competitive firm, the

A) price of the product falls when the quantity the firm sells doubles.
B) change in the firmʹs total revenue equals the price of the product multiplied by the change
in quantity sold.
C) firmʹs marginal revenue exceeds the price of the product.
D) firmʹs marginal revenue is less than average revenue.
Answer:

32) For any perfectly competitive firm, marginal revenue is

A) always greater than marginal cost.
B) equal to price.
C) always less than marginal cost.
D) all of the above
Answer:

33) In perfect competition, the firmʹs marginal revenue curve

A) cuts its demand curve from below, going from left to right.
B) cuts its demand curve from above, going from left to right.
C) always lies below its demand curve.
D) is the same as its demand curve.
Answer:
34) Based on the table above, what is the marginal revenue of the tenth unit of output?
A) $190
B) $100
C) $10
D) $9
Answer:

35) In the above figure, if the milk industry is perfectly competitive, then the firmʹs marginal
revenue curve is represented by
A) curve F.
B) curve G.
C) curve H.
D) curve I.
Answer:

36) Which of the following characterizes a perfectly competitive industry?

A) The industry demand curve is vertical.
B) The demand for each individual firmʹs product is perfectly elastic.
C) Each firm sets a different price.
D) Each firm produces a product slightly different from that of its competitors.
Answer:
37) The above figure shows the total revenue curve for Dizzy Discs. The demand curve for CDʹs
sold by Dizzy Discs
A) has negative slope.
B) has positive slope.
C) is horizontal.
D) is vertical.
Answer:

38) In perfect competition, ________.

A) there are restrictions on entry into the industry
B) firms in the industry have advantages over firms that plan to enter the industry
C) only firms know their competitorsʹ prices
D) there are many firms that sell identical products
Answer:

39) In perfect competition, each firm ________.

A) can influence the price that it charges
B) produces as much as it can
C) is a price taker
D) faces a perfectly inelastic demand for its product
Answer:

40) Economic profit is ________.

A) included in the firmʹs total opportunity cost
B) equal to normal profit minus total opportunity cost
C) equal to total revenue minus marginal cost
D) equal to total revenue minus total opportunity cost
Answer:
41) A competitive firmʹs total revenue minus its total opportunity cost equals its ________.
A) marginal revenue
B) economic profit
C) opportunity cost
D) normal profit
Answer:

42) The smallest quantity of output at which long-run average cost is at a minimum is a firmʹs ?
A) maximum efficient scale
B) profit-maximizing output point
C) minimum efficient scale
D) efficient output point
Answer:

43) The market for lawn services is perfectly competitive. Larryʹs Lawn Service cannot increase its
total revenue by raising its price because ________.
A) Larryʹs supply of lawn services is perfectly inelastic
B) the demand for Larryʹs services is perfectly inelastic
C) Larryʹs supply of lawn services is inelastic
D) the demand for Larryʹs services is perfectly elastic
Answer:

Part B: The Firmʹs Decisions in Perfect Competition

1) In the short run, a perfectly competitive firm decides
A) what price to charge.
B) what quantity to produce.
C) whether to stay in the industry or leave it.
D) all of the above.
Answer:

2) At a firmʹs break-even point, definitely its

A) total revenue equals its total opportunity cost.
B) marginal revenue exceeds its marginal cost.
C) marginal revenue equals its average variable cost.
D) marginal revenue equals its average fixed cost.
Answer:
3) When Sidneyʹs Sweaters, Inc. makes exactly zero economic profit, Sidney, the owner,
A) is taking a loss.
B) will shut down in the short run.
C) makes an income equal to his best alternative forgone income.
D) will boost output.
Answer:
4) The break-even point is defined as occurring at an output rate at which
A) total revenue equals total opportunity cost.
B) economic profit is maximized.
C) marginal revenue equals marginal cost.
D) total cost is minimized.
Answer:

5) In the above table, the price of the product is

A) $30.
B) $147.
C) $150.
D) $180.
Answer:

6) In the above table, the firm

A) must be in a perfectly competitive industry because its marginal revenue is constant.
B) must be in a perfectly competitive industry because its marginal cost curve eventually
rises.
C) cannot be in a perfectly competitive industry because its short-run economic profits are
greater than zero.
D) cannot be in a perfectly competitive industry because its long-run economic profits are
greater than zero.
Answer:

7) In the above table, the marginal revenue from the fourth unit of output is
A) $30.
B) $147.
C) $150.
D) $180.
Answer:
8) In the above table, if the firm produces 2 units of output, it will make an economic
A) profit of $9.
B) profit of $60.
C) loss of $9.
D) loss of $60.
Answer:

9) In the above table, the firmʹs total fixed cost of production is

A) $3.00.
B) $4.00.
C) $7.00.
D) $29.00.
Answer:

10) In the above table, the average fixed cost at 4 units of output is
A) $1.00.
B) $4.50.
C) $4.70.
D) $4.80.
Answer:

11) In the above table, the average variable cost at 2 units of output is
A) $1.00.
B) $2.00.
C) $4.00.
D) $4.80.
Answer:
12) In the above figure, by increasing its output from Q1 to Q2, the firm
A) reduces its marginal revenue.
B) increases its marginal revenue.
C) decreases its profit.
D) increases its profit.
Answer:

13) In the above figure, by increasing its output from Q2 to Q3, the firm
A) reduces its marginal revenue.
B) increases its marginal revenue.
C) decreases its profit.
D) increases its profit.
Answer:

14) The above figure illustrates a firmʹs total revenue and total cost curves. Which one of the
following statements is FALSE?
A) Economic profit is the vertical distance between the total revenue curve and the total cost
curve.
B) At output Q1 the firm makes zero economic profit.
C) At an output above Q3 the firm incurs an economic loss.
D) At output Q2 the firm incurs an economic loss.
Answer:

15) The feature of the above figure that indicates that the firm is a perfectly competitive firm is the
A) shape of the total cost curve.
B) shape of the total revenue curve.
C) fact that the total cost and total revenue curves are farthest apart at output is Q 2.
D) fact that the total cost and total revenue curves cross twice.
Answer:
16) Given the total cost and total revenue curves in the above figure, what are the output levels at
which the perfect competitor will earn economic profits?
A) from 0 to 30,000 bushels
B) from 0 to 60,000 bushels
C) between 30,000 and 80,000 bushels
D) over 80,000 bushels
Answer:

17) Given the total cost and total revenue curves in the above figure, what are the output levels at
which the perfect competitor will incur economic losses?
A) below 80,000 bushels
B) from 30,000 to 80,000 bushels
C) below 30,000 bushels and over 80,000 bushels
D) at 30,000 bushels and at 80,000 bushels
Answer:

18) Given the total cost and total revenue curves in the figure above, what is the profit-maximizing
output level?
A) 30,000 bushels
B) 60,000 bushels
C) 80,000 bushels
D) All output levels occur between 30,000 and 80,000 bushels are profit-maximizing output
levels.
Answer:
19) In the above figure, the firm is making an economic loss at
A) point a.
B) point c.
C) points b and d.
D) points a, b, and d.
Answer:

20) In the above figure, the firm is breaking even at points

A) a and c.
B) b and d.
C) c and d.
D) a and d.
Answer:

21) In the above figure, when the firm produces output corresponding to point c, the firmʹs marginal
cost
A) is less than its marginal revenue.
B) equals its marginal revenue.
C) exceeds its marginal revenue.
D) equals its average revenue.
Answer:

22) For a perfectly competitive firm, in a diagram with quantity on the horizontal axis and both total
revenue and total cost on the vertical axis, the firmʹs ________ is a straight line ________.
A) total cost curve; with zero slope
B) total revenue curve; with zero slope
C) total cost curve; through the origin
D) total revenue curve; through the origin
Answer:
23) A perfectly competitive firm maximizes its profit by producing the output at which its marginal
cost equals its
A) marginal revenue.
B) average total cost.
C) average variable cost.
D) average fixed cost.
Answer:

24) For a firm in perfect competition, a diagram shows quantity on the horizontal axis and both the
firmʹs marginal cost (MC) and its marginal revenue (MR) on the vertical axis. The firmʹs
profit-maximizing quantity occurs at the point where the
A) slope of the MC curve is zero.
B) MC and MR curves are parallel.
C) MC curve intersects the MR curve from below, going from left to right.
D) MC curve intersects the MR curve from above, going from left to right.
Answer:

25) A firm will expand the amount of output it produces as long as its
A) average total revenue exceeds its average total cost.
B) average total revenue exceeds its average variable cost.
C) marginal cost exceeds its marginal revenue.
D) marginal revenue exceeds its marginal cost.
Answer:

26) A perfectly competitive firm is producing at the point where its marginal cost equals its
marginal revenue. If the firm boosts its output, its total revenue will ________ and its profit will
________
A) rise; rise
B) rise; fall
C) fall; rise
D) fall; fall
Answer:

27) A perfectly competitive firm is producing at the point where its marginal cost equals its
marginal revenue. If the firm boosts its output, its revenue will
A) rise and its total variable cost will rise even more.
B) rise and its total variable cost will rise, but not by as much.
C) fall but its total variable cost will rise.
D) fall and its total variable cost will fall, but not by as much.
Answer:

28) A perfectly competitive firmʹs marginal revenue exceeds its marginal cost at its current output.
To increase its profit, the firm will
A) lower its price.
B) raise its price.
C) decrease its output.
D) increase its output.
Answer:

29) A perfectly competitive firmʹs marginal cost exceeds its marginal revenue at its current output.
To increase its profit, the firm will
A) lower its price.
B) raise its price.
C) decrease its output.
D) increase its output.
Answer:

30) A perfectly competitive firm is producing more than the profit-maximizing amount of its
product. You can conclude that its
A) total cost exceeds its total revenue.
B) average total cost exceeds the price of the product.
C) marginal revenue is less than the price of the product.
D) marginal cost exceeds the price of the product.
Answer:

31) In the above figure, the line represented by the ʺ2ʺ is the
A) average fixed cost.
B) average variable cost.
C) total cost.
D) average total cost.
Answer:
32) In the above figure, the line represented by the ʺ1ʺ is the
A) average fixed cost.
B) marginal revenue.
C) total cost.
D) average total cost.
Answer:

33) In the above figure, the line represented by the ʺ4ʺ is the
A) average fixed cost.
B) marginal revenue.
C) average total cost.
D) marginal cost.
Answer:

34) In the above figure, the firm will produce

A) 0 units.
B) 5 units.
C) 15 units
D) 20 units.
Answer:

35) In the above figure, the marginal cost of the last unit produced by the profit maximizing firm is
A) $5.
B) $10.
C) $15.
D) $20.
Answer:
36) In the above figure, the firmʹs total economic profit is equal to
A) $50.
B) $200.
C) $150.
D) MR - MC.
Answer:

37) The costs incurred even when no output is produced are called
A) fixed costs.
B) variable costs.
C) external costs.
D) marginal costs.
Answer:

38) A firmʹs shutdown point is the quantity and price at which the firmʹs total revenue just equals
its
A) total cost.
B) total variable cost.
C) total fixed cost.
D) marginal cost.
Answer:

39) A perfectly competitive firm shuts down if the price of its product is
A) greater than its minimum average variable cost.
B) less than its minimum average variable cost.
C) greater than its maximum variable cost.
D) less than its minimum total cost.
Answer:

40) The owners will shut down a perfectly competitive firm if the price of its good falls below its
minimum
A) average total cost.
B) average marginal cost.
C) average variable cost.
D) wage rate.
Answer:

41) A firm that shuts down and produces no output incurs a loss equal to its
A) total fixed costs.
B) total variable costs.
C) marginal costs.
D) marginal revenue.
Answer:
42) In the short run a perfectly competitive firm will
A) never shut down.
B) shut down if P < ATC.
C) shut down if P < AVC.
D) shut down if P > AFC.
Answer:

43) A perfectly competitive firm will shut down if its

A) total revenue is less than average fixed cost.
B) total revenue is less than fixed cost.
C) price is less than average variable cost.
D) price is less than total variable cost.
Answer:

44) A perfectly competitive firm will shut down rather than produce if its
A) price is less than average variable cost.
B) price is less than total variable cost.
C) total revenue is less than total cost.
D) price is less than marginal cost.
Answer:

45) In the short run, a perfectly competitive firm will shut down if
A) it incurs any economic loss.
B) price equals average cost.
C) total revenue is less than total variable cost.
D) total revenue is less than total fixed cost.
Answer:

46) In the short run, a firm will

A) not produce if its total revenue does not cover its total cost.
B) produce and incur an economic loss if its total revenue covered its total variable cost but
not its total cost.
C) produce and break even if its total revenue covered its total fixed cost but not its total
variable cost.
D) produce and earn an economic profit if its total revenue was equal to its total cost.
Answer:

47) By producing less, a firm can reduce

A) its fixed costs and its variable costs.
B) its fixed costs but not its variable costs.
C) its variable costs but not its fixed costs.
D) neither its variable costs nor its fixed costs.
Answer:
48) The shutdown point occurs at the level of output for which the ________ is at its minimum.
A) marginal cost
B) average variable cost
C) average fixed cost
D) total cost
Answer:

49) A perfectly competitive firm is more likely to shut down during a recession, when the demand
for its product declines, than during an economic expansion, because during the recession it
might be unable to cover its
A) fixed costs.
B) variable costs.
C) external costs.
D) depreciation due to machinery becoming obsolete.
Answer:

50) If the price of its product falls below the minimum point on the AVC curve, the best a perfectly
competitive firm can do is to
A) keep producing and incur an economic loss equal to its total variable cost.
B) keep producing and incur an economic loss equal to its total fixed cost.
C) shut down and incur an economic loss equal to its total variable cost.
D) shut down and incur an economic loss equal to its total fixed cost.
Answer:

51) If the price of its product just equals the average variable cost of production for a
competitive
firm,
A) total revenue equals total fixed cost and the firmʹs loss equals total variable cost.
B) total revenue equals total variable cost and the firmʹs loss equals total fixed cost.
C) total fixed cost is zero.
D) total variable cost equals total fixed cost.
Answer:
52) Based on the table above which shows Chipʹs costs, if rice sells for $600 a ton, Chipʹs
profit-maximizing output is
A) less than one ton.
B) between two and three tons.
C) between three and four tons.
D) between one and two tons.
Answer:

53) Based on the table above which shows Chipʹs costs, if rice sells for $600 a ton, Chip will
A) shut down because he incurs an economic loss.
B) shut down because the price is below his minimum average variable cost.
C) stay open because he earns an economic profit.
D) stay open because the price is above his minimum average variable cost.
Answer:

54) Based on the table above which shows Chipʹs costs, if rice sells for $600 a ton, Chip
A) earns an economic profit and should stay open in the short run.
B) earns an economic profit, but should shut down in the short run.
C) incurs an economic loss, but should stay open in the short run.
D) incurs an economic loss and should shut down in the short run.
Answer:

55) Based on the table above which shows Chipʹs costs, if Chip shuts down in the short run, his total
cost will be
A) $0.
B) $1,000.
C) $1,200.
D) $4,000.
Answer:

56) Based on the table above which shows Chipʹs costs, if Chip shuts down in the short run, his
economic loss will be
A) $0. B) $1,000.
C) $1,200. D) $4,000.
Answer:
57) The table above shows output and costs of Evanʹs Subs, a typical perfectly competitive firm in a
local market for sandwiches. Evanʹs fixed cost is $9 per hour. The current market price of a
sandwich is $6. What is Evanʹs marginal revenue from the 2nd sandwich sold?
A) $10.00
B) $13.50
C) $3.00
D) $6.00
Answer:

58) The table above shows output and costs of Evanʹs Subs, a typical perfectly competitive firm in a
local market for sandwiches. Evanʹs fixed cost is $9 per hour. The current market price of a
sandwich is $6. If Evanʹs sells the 5th sandwich, the marginal cost is ________ the marginal
revenue, so the firmʹs profit ________.
A) greater than; decreases
B) greater than; increases
C) less than; increases
D) less than; decreases
Answer:

59) The table above shows output and costs of Evanʹs Subs, a typical perfectly competitive firm in a
local market for sandwiches. Evanʹs fixed cost is $9 per hour. The current market price of a
sandwich is $6. What quantity of sandwiches produced will maximize Evanʹs economic profit
in the short run?
A) 2 sandwiches per hour
B) 3 sandwiches per hour
C) 4 sandwiches per hour
D) 5 sandwiches per hour
Answer:

60) The table above shows output and costs of Evanʹs Subs, a typical perfectly competitive firm in a
local market for sandwiches. Evanʹs fixed cost is $9 per hour. The current market price of a
sandwich is $6. What is Evanʹs maximum short-run economic profit?
A) $6 per hour
B) $1 per hour
C) -$6 per hour
D) zero
Answer:
61) The table above shows output and costs of Evanʹs Subs, a typical perfectly competitive firm in a
local market for sandwiches. Evanʹs fixed cost is $9 per hour. The current market price of a
sandwich is $6. What is Evanʹs shut-down price?
A) $6 per sandwich
B) $4 per sandwich
C) $3 per sandwich
D) $5 per sandwich
Answer:

62) The table above shows output and costs of Evanʹs Subs, a typical perfectly competitive firm in a
local market for sandwiches. Evanʹs fixed cost is $9 per hour. The current market price of a
sandwich is $6. If the market price does not change, Evanʹs will
A) continue to operate in the short run, but will exit the industry in the long run.
B) continue to operate in the short run and in the long run.
C) shut down.
D) increase its production in the long run.
Answer:

63) In the above figure, if the price is P1, the firm will produce
A) nothing.
B) where MC equals ATC.
C) where MC equals P1.
D) where ATC equals P1.
Answer:
64) In the above figure, if the price is P1, the firm maximizes its profit by producing
A) nothing.
B) where MC equals ATC.
C) where MC equals P1.
D) where ATC equals P1.
Answer:

65) In the above figure, if the firm increases its output from Q1 to Q2, it will
A) reduce its marginal revenue.
B) increase its marginal revenue.
C) decrease its profit.
D) increase its profit.
Answer:

66) In the above figure, if the firm increases its output from Q2 to Q3, it will
A) reduce its marginal revenue.
B) increase its marginal revenue.
C) decrease its profit.
D) increase its profit.
Answer:

67) In the above figure, if the price is P1 and the firm produces Q2, it is
A) making an economic profit.
B) incurring an economic loss.
C) breaking even.
D) More information is needed to determine whether the firm is earning an economic profit, a
normal profit, of is incurring an economic loss.
Answer:

68) In the above figure, if the price is P1 and the firm produced Q1, the firmʹs economic profit is
________ than if it produced Q2 and ________ than if it produced Q3.
A) less; less
B) less; more
C) more; less
D) more; more
Answer:

69) In the above figure, if the price is P1 and the firm produced Q3, the firmʹs economic profit is
________ than if it produced Q1 and ________ than if it produced Q2.
A) less; less
B) less; more
C) more; less
D) more; more
Answer:
70) A perfectly competitive firm will have an economic profit of zero if, at its profit-maximizing
output, its marginal revenue equals its
A) average total cost.
B) marginal cost.
C) average variable cost.
D) average fixed cost.
Answer:

71) Consider the perfectly competitive firm in the figure above. At the profit maximizing level of
output, the firm will
A) earn an economic profit equal to the area ABCD.
B) incur an economic loss equal to the area ABCD.
C) earn a normal profit.
D) earn an economic profit equal to the area AECD.
Answer:
72) Consider the perfectly competitive firm in the above figure. The profit maximizing level of
output for the firm is equal to
A) 0 units.
B) 14 units.
C) 17 units.
D) 19 units.
Answer:

73) Consider the perfectly competitive firm in the above figure. At the profit maximizing level of
output, the firm is earning
A) an economic loss equal to $119.00.
B) an economic loss equal to $123.50.
C) an economic loss equal to $187.00.
D) a normal profit.
Answer:

74) Consider the perfectly competitive firm in the above figure. The shutdown point occurs at a
price of
A) $11.00.
B) $12.00.
C) $16.00.
D) $22.00.
Answer:

75) Consider the perfectly competitive firm in the above figure. What will the firm choose to do in
the short-run and why?
A) shut down because the firm incurs an economic loss
B) stay in business because the firm is making an economic profit
C) stay in business because the firmʹs economic loss is less than fixed costs
D) stay in business because it is earning a normal profit
Answer:
76) Consider the perfectly competitive firm in the above figure. At what price will long-run
equilibrium occur?
A) $11
B) $12
C) $22
D) $23
Answer:

77) A perfectly competitive firmʹs short-run supply curve is the same as its
A) ATC curve.
B) MR curve.
C) AVC curve.
D) MC curve above the minimum of the AVC curve.
Answer:

78) The short-run supply curve for a perfectly competitive firm is its
A) marginal cost curve above the horizontal axis.
B) marginal cost curve above its shutdown point.
C) average cost curve above the horizontal axis.
D) average cost curve above its shutdown point.
Answer:

79) The short-run supply curve for a perfectly competitive firm is its marginal cost curve
A) above the horizontal axis.
B) above its shutdown point.
C) below its shutdown point.
D) everywhere.
Answer:

80) The short-run supply curve for a perfectly competitive firm is its marginal cost curve above the
minimum point on the
A) average fixed cost curve.
B) average variable cost curve.
C) average total cost curve.
D) demand curve.
Answer:

81) A perfectly competitive firmʹs supply curve is made up of its marginal cost curve at all points
above its minimum
A) average total cost curve.
B) average fixed cost curve.
C) price.
D) average variable cost curve.
Answer:
82) The firmʹs supply curve is its
A) marginal cost curve, at all points above the minimum average variable cost curve.
B) marginal cost curve, at all points above the minimum average fixed cost curve.
C) marginal cost curve, at all points above the minimum average total cost curve.
D) marginal revenue curve, at all points above the minimum average total cost curve.
Answer:

83) The figure above shows short-run cost curves for a perfectly competitive firm. If the price of the
product is $8, in the short run the firm will
A) earn a normal profit.
B) earn an economic profit.
C) incur an economic loss.
D) None of the above answers is correct because more information is needed to determine the
firmʹs profit or loss.
Answer:

84) The figure above shows short-run cost curves for a perfectly competitive firm. If the price of the
product is $8 and the firm does not shut down, the firmʹs output in the short run
A) will be 0.
B) will be between 0 and 10.
C) will be 10 or higher.
D) cannot be determined without more information.
Answer:
85) The figure above represents a firm in a perfectly competitive market. The firm will shut down if
price falls below
A) P1.
B) P2.
C) P3.
D) P4.
Answer:

86) The figure above represents a firm in a perfectly competitive market. If the firm does not shut
down, the least amount of output that it will produce is
A) less than 5 units.
B) 5 units.
C) 8 units.
D) 10 units.
Answer:

87) The figure above represents a firm in a perfectly competitive market. If the price rises from P3 to
P4 then output will increase by
A) 0 units.
B) 1 unit.
C) 2 units.
D) 3 units.
Answer:

88) The figure above represents a firm in a perfectly competitive market. The firmʹs supply curve is
the curved line linking
A) point a to point c and stopping at point c.
B) point b to point d and continuing on past point d along the MC curve.
C) point b to point f and stopping at point f.
D) point c to point e and continuing on past point e along the ATC curve.
89) In the above figure, the vertical distance between the ATC and AVC curves is
A) the marginal cost.
B) the total cost.
C) the average fixed costs.
D) None of the above answers are correct.
Answer:

90) In the above figure, if the price is $16, the profit maximizing firm will
A) produce 50 units.
B) produce 35 units.
C) produce 10 units.
D) choose not to produce.
Answer:

91) In the above figure, if the price is $12, the profit maximizing firm will have an economic profit
A) of less than $100 but more than $0.
B) of more than $100.
C) that is negative, that is, it will have an economic loss.
D) of zero, that is, it will break even with a normal profit.
Answer:

92) In the above figure, if the price is $10, the profit maximizing firm will
A) produce 40 units.
B) produce 25 units.
C) produce 10 units.
D) choose not to produce.
Answer:
93) Using the above figure, of the prices below, which price enables the firm to earn the maximum
economic profit?
A) $4 per unit.
B) $10 per unit.
C) $12 per unit.
D) $16 per unit.
Answer:

94) In the above figure, at any price between $8 per unit to $12 per unit, how many units will the
profit maximizing firm produce?
A) None, because the producer will never choose to operate at a loss.
B) Less than 20 because this will reduce marginal cost.
C) Between 20 and 30, because variable costs are covered so the firmʹs losses will be
minimized by producing rather than shutting down.
D) More than 30, because variable costs are covered so that the producer can earn economic
profits.
Answer:

95) In the above figure, below what minimum price will the firm shutdown rather than produce?
A) for any price less than $16 per unit
B) for any price less than $12 per unit
C) for any price less than $8 per unit
D) for any price less than $4 per unit
Answer:

96) In the above figure, at a price of $4 per unit, the firm will
A) shut down because its total revenue is less than its variable costs.
B) incur an economic loss.
C) produce 5 units.
D) Both answers A and B are correct.
Answer:

97) In a perfectly competitive industry, the industry supply curve is the sum of the
A) supply curves of all the individual firms.
B) average variable cost curves of all the individual firms.
C) average total cost curves of all the individual firms.
D) average fixed cost curves of all the individual firms.
Answer:
98) Paul runs a shop that sells printers. Paul is a perfect competitor and can sell each printer for a
price of $300. The marginal cost of selling one printer a day is $200; the marginal cost of selling a
second printer is $250; and the marginal cost of selling a third printer is $350. To maximize his
profit, Paul should sell
A) one printer a day.
B) two printers a day.
C) three printers a day.
D) more than three printers a day.
Answer:

99) Because of a decrease in the wage rate it must pay, a perfectly competitive firmʹs marginal costs
decrease but its demand curve stays the same. As a result, the firm
A) decreases the amount of output it produces and raises its price.
B) increases the amount of output it produces and lowers it price.
C) increases the amount of output it produces and does not change its price.
D) decreases the amount of output it produces and lowers its price.
Answer:

100) For prices above the minimum average variable cost, a perfectly competitive firmʹs supply curve
is
A) horizontal at the market price.
B) vertical at zero output.
C) the same as its marginal cost curve.
D) the same as its average variable cost curve.
Answer:

101) A perfectly competitive firm is definitely earning an economic profit when

A) MR < MC.
B) P > ATC.
C) P < ATC.
D) P > AVC.
Answer:

102) In the short run, a perfectly competitive firm can

A) earn an economic profit.
B) earn a normal profit.
C) incur an economic loss.
D) earn an economic profit, earn a normal profit, or incur an economic loss.
Answer:
103) In the figure above, a firm is operating at point A on the graph. At point A, the firmʹs average
cost curve
A) has negative slope.
B) has positive slope.
C) is horizontal.
D) is vertical.
Answer:
104) Carolʹs Candies is producing 150 boxes of candy a day. Carolʹs marginal revenue and marginal
cost curves are shown in the figure above. To increase her profit, Carol should
A) increase her output.
B) decrease her output.
C) maintain the current level of output because it gives her the maximum profit.
D) Not enough information is given to determine if Carol should increase, decrease, or not
change her level of output.
Answer:

105) In the short run, perfectly competitive firms ________ but in the long run, perfectly competitive
firms make ________.
A) make economic losses; economic losses
B) can incur economic losses; positive economic profits
C) must positive economic profits; positive economic profits
D) can incur economic losses; zero economic profit
Answer:

106) In perfect competition, at al levels of output the market price is the same as the firmʹs ________.
A) marginal revenue
B) normal profit
C) average variable cost
D) fixed cost
Answer:

107) When a perfectly competitive firm produces the profit-maximizing output and it is at its
shutdown point, the firmʹs ________.
A) marginal revenue equals its average fixed cost
B) total revenue equals its total variable cost
C) marginal cost is less than its average variable cost
D) total revenue is less than its total variable cost
Answer:

108) In a perfectly competitive industry when the plant size of each firm and the number of firms
remain constant, the quantity supplied by all firms at each price is shown on the ________.
A) vertical supply curve at the shutdown point
B) short-run industry supply curve
C) horizontal firm supply curve at the market price
D) horizontal industry supply curve at the shutdown point
Answer:

109) In perfect competition, a firm maximizes its economic profit if it produces the output at which
________.
A) total revenue equals total cost
B) price equals marginal cost
C) price equals average cost
D) economic profit equals zero in the short run
Answer:

110) Charlieʹs Chimps is a perfectly competitive firm that produces cuddly chimps for children. The
market price of a chimp is $10, and Charlieʹs produces 100 chimps at a marginal cost of $9 a
chimp. Charlieʹs ________.
A) is maximizing its profit
B) will maximize its profit if it produces more than 100 chimps
C) will maximize its profit if it lowers the price to $9 a chimp
D) will maximize its profit if it produces fewer than 100 chimps
Answer:

111) The short-run industry supply curve is ________.

A) vertical at the quantity at which firms will shut down
B) horizontal at the price at which firms will shut down
C) is downward sloping at the price at which firms will shut down
D) shows the total revenue at each possible market price
Answer:

112) Sadieʹs Cleaning Services is a perfectly competitive firm that currently cleans 20 offices an
evening. Sadieʹs marginal cost is greater than the price it charges. Sadieʹs will increase its profit
if it cleans ________.
A) more than 20 offices an evening
B) fewer than 20 offices an evening
C) more than 20 offices an evening and charges a higher price
D) 20 offices an evening but increases its price
Answer:

113) The table above shows the total cost incurred by Sueʹs Coat Shop, a perfectly competitive firm. If
the market price of a coat is $285, Sueʹs will maximize economic profit by selling ________ coats
a day.
A) 7
B) 11
C) 8
D) 9
Answer:

114) Tammy sells woolen hats in a perfectly competitive market. The marginal cost of producing 1
hat is $24. The marginal cost of producing a second hat is $26 and the marginal cost of
producing a third hat is $28. The market price of a hat is $26. To maximize profit, Tammy
produces ________ a day.
A) 1 hat
B) 3 hats
C) 2 hats
D) as many hats as possible
Answer:

115) The figure above shows Mollieʹs Mugsʹ costs of producing mugs. The mug market is perfectly
competitive. If the market price of a mug falls to $5 and Mollieʹs shuts down temporarily, its
total variable cost is ________ an hour and it incurs an economic loss of ________ an hour.
A) $160; $280
B) $8; $14
C) $0; $120
D) $0; $6
Answer:

116) If the market price in a perfectly competitive industry is less than a firmʹs minimum average
variable cost, then the firmʹs total revenue will always ________.
A) exceed its total fixed cost
B) be less than its total economic loss
C) equal its total cost
D) be less than its total variable cost
Answer:

117) The figure illustrates the short-run costs of Paulʹs Picture Frames Inc. The picture frame market
is perfectly competitive and the market price is $30 a frame. Paul produces ________ frames
each week, makes ________ of total revenue, and makes zero ________ profit.
A) 200; $4,000; economic
B) 300; $9,000; normal
C) 200; $4,000; normal
D) 300; $9,000; economic
Answer:
118) The donut market is perfectly competitive. The figure shows the costs of a typical donut
producer. In the short run, the donut producerʹs supply curve is the curve running from point
________ to point E.
A) A
B) B
C) C
D) D
Answer:

119) The first table shows the market demand schedule for CDs, and the second table shows the cost
structure of each firm. The CD market is perfectly competitive and there are 100 identical firms.
The market price of a CD is ________, and ________ CDs are produced and sold.
A) $9.00; 20,000
B) $9.50; 15,000
C) $10.00; 10,000
D) $8.50; 24,000
Answer:
Part C: Output, Price, and Profit in Perfect Competition
1) If there are 1,000 rutabaga farms, all perfectly competitive, an increase in the price of fertilizer
used for growing rutabagas will
A) have no effect on the total quantity of rutabagas supplied, because no farm has enough
market power to raise the price.
B) have no effect on the total quantity of rutabagas supplied, because each farmʹs supply
curve is a vertical line.
C) decrease the total quantity of rutabagas supplied, because each farmʹs supply curve shifts
leftward.
D) reduce the total quantity of rutabagas supplied, because each farmʹs supply curve is a
horizontal line and will shift upward.
Answer:

2) In the above figure, if the price is P1, the firm is

A) making an economic profit.
B) incurring an economic loss.
C) earning a normal profit.
D) earning enough revenue to pay all of its opportunity costs.
Answer:

3) Suppose the cost curves in the above figure apply to all firms in the industry. Then, if the initial
price is P1, in the long run the market
A) demand will increase.
B) demand will decrease.
C) supply will increase.
D) supply will decrease.
Answer:

4) Suppose the cost curves in the above figure apply to all firms in the industry. If the initial price
is P1, firms are ________ and some firms will ________ the industry.
A) making an economic profit; leave
B) making an economic profit; enter
C) incurring an economic loss; leave
D) incurring an economic loss; enter
Answer:

5) New reports indicate that eating turnips helps people remain healthy. The news shifts the
demand curve for turnips rightward. In response, new farms enter the turnip industry. During
the period in which the new farms are entering, the price of a turnip ________ and the profit of
each existing firm ________.
A) rises; rises
B) rises; falls
C) falls; rises
D) falls; falls
Answer:

6) If perfectly competitive firms exit an industry, the

A) industry supply curve shifts leftward.
B) price of the good or service falls.
C) profits of the remaining firms decrease.
D) output of the industry increases.
Answer:

7) As perfectly competitive firms leave an industry because they are incurring an economic loss,
the price of the good ________ and the economic loss of each remaining firm ________.
A) rises; increases
B) rises; decreases
C) falls; increases
D) falls; decreases
Answer:

8) In a perfectly competitive industry, a permanent decrease in demand initially brings a lower

price, economic
A) loss, and entry into the industry.
B) loss, and exit from the industry.
C) profit, and entry into the industry.
D) profit, and exit from the industry.
Answer:
9) In the above figure, the firmʹs initial average total cost curve is SRAC with an initial marginal
cost curve of MC. The price of the product is P1. In the short run the firm will produce output
equal to the amount
A) Q1.
B) Q2.
C) Q3.
D) Q4.
Answer:

10) In the above figure, the firmʹs initial average total cost curve is SRAC. If the price is P1, in the
long run the firm will
A) reduce its plant size.
B) retain the same plant size.
C) expand its plant size.
D) exit the industry.
Answer:

11) In the above figure when the firm has reached its long-run equilibrium position, it will produce
output equal to the amount
A) Q1.
B) Q2.
C) Q3.
D) Q4.
Answer:
12) If the cost curves shown in the above figure apply to all firms in the industry and the initial
price is P1, in the long run the price will be
A) zero.
B) less than P1.
C) equal to P1.
D) greater than P1.
Answer:

13) In a perfectly competitive industry, a permanent increase in demand initially brings a higher
price, economic
A) loss, and entry into the industry.
B) loss, and exit from the industry.
C) profit, and entry into the industry.
D) profit, and exit from the industry.
Answer:

14) In the long run, fixed costs are

A) zero and variable costs are zero.
B) zero and variable costs are positive.
C) positive and variable costs are zero.
D) positive and variable costs are positive.
Answer:

15) In the long run, the economic profit of a firm in a perfectly competitive industry
A) will be above zero.
B) will be below zero.
C) will equal zero.
D) can be above, below, or equal to zero.
Answer:

16) Suppose firms in a perfectly competitive industry are suffering an economic loss. Over time,
A) other firms enter the industry, so the price rises and the economic loss decreases.
B) some firms leave the industry, so the price rises and the economic loss decreases.
C) other firms enter the industry, so the price falls and the economic loss decreases.
D) some firms leave the industry, so the price falls and the economic loss decreases.
Answer:

17) As firms enter a perfectly competitive industry, the price

A) falls and the existing firmsʹ economic profits do not change.
B) rises and the existing firmsʹ economic profits decrease.
C) falls and the existing firmsʹ economic profits decrease.
D) falls and the existing firmsʹ economic losses do not change.
Answer:

18) In the long run, a perfectly competitive firm can

A) earn an economic profit.
B) earn a normal profit.
C) incur an economic loss.
D) earn an economic profit, earn a normal profit, or incur an economic loss.
Answer:

19) Joeʹs Shiny Shoes is a firm that operates in a perfectly competitive market. The figure above
shows Joeʹs cost and revenue curves. If the number of firms in the shoe market decreases, Joe
will
A) decrease his production.
B) increase his production.
C) have an MR curve with positive slope.
D) have an MR curve with negative slope.
Answer:

20) If firms in a competitive industry are making ________ then there is ________ for firms to
________ the industry.
A) economic losses; an incentive; exit
B) economic losses; no incentive; exit
C) economic profits; no incentive; enter
D) normal profits; an incentive; exit
Answer:

21) Today, firms in a perfectly competitive industry are making an economic profit. In the long run,
firms will ________ the industry until all firms in the industry are ________.
A) exit; covering only their total fixed costs
B) enter; making zero economic profit
C) exit; producing at the minimum point on their long-run average cost curve
D) enter; making zero normal profit
Answer:

22) When some firms enter a perfectly competitive industry in which firms are earning an economic
profit, the short-run industry supply curve shifts ________, the market price ________, and each
firmʹs economic profit ________.
A) leftward; rises; decreases
B) rightward; rises; increases
C) rightward; falls; decreases
D) leftward; falls; decreases
Answer:

23) The figure above shows the costs for the typical grower in the perfectly competitive turnip
industry. Currently, the price is $1,000 for a ton of turnips. In the long run, the industry supply
of turnips will ________.
A) decrease and the price of a ton of turnips will fall to $600
B) increase and the turnip growerʹs economic profit will increase
C) increase and the turnip growerʹs economic profit will decrease
D) decrease and the price of a ton of turnips will rise to $1,200
Answer:
24) The figure above shows the costs for the typical grower in the perfectly competitive turnip
industry. Currently, the price of a ton of turnips is $1,200. The demand for turnips increases
permanently. The turnip industry experiences neither external economies nor external
diseconomies. In the long run, the price of a ton of turnips ________.
A) increases so it is above $1,200
B) is $1,200 and turnip growers will make normal profit
C) decreases so it is below $1,200, and turnip growers will make normal profit
D) decreases so it is below $1,200 and the turnip growers earn an economic profit
Answer:

25) The apple industry is perfectly competitive and is in long-run equilibrium. Now a disease kills
50 percent of the apple orchards. In the short run, the price of a bag of apples ________ and the
remaining apple growers make ________ profits. In the long run, the ________.
A) increases; normal; price of apples will return to their original level
B) remains the same; normal; orchards will be replanted and growers will make normal
profits
C) increases; normal; orchards will be replanted and economic profit will return to zero
D) increases; positive economic; orchards will be replanted and economic profit will return to
zero
Answer:

Part D: Changing Tastes and Advancing Technology

1) Assuming long-run external diseconomies exist, when demand increases in a perfectly
competitive market, in the long run the price of the product ________ the initial price (before the
increase in demand) and the quantity ________.
A) equals; increases
B) equals; decreases
C) rises above; increases
D) falls below; decreases
Answer:

2) Assuming long-run external economies exist, when demand increases in a perfectly competitive
market, in the long run, the price of the product ________ the initial price (before the increase in
demand) and the quantity ________.
A) equals; increases
B) equals the; decreases
C) rises above; increases
D) falls below; increases
Answer:
3) In a perfectly competitive market, if there are no external economies or diseconomies, an
increase in demand
A) raises the price in the long run.
B) leaves the price the same in the long run.
C) lowers the price in the long run.
D) raises average cost in the long run.
Answer:

4) If there are external economies, as demand increases,

A) the price falls in the long run.
B) the price rises in the long run.
C) firms exit from the industry in the long run.
D) output decreases in the long run.
Answer:

5) External economies are factors beyond the control of an individual firm that ________ as the
total industry output increases.
A) lower its costs
B) raise its costs
C) raise its marginal revenue
D) lower its profit
Answer:

6) A long-run supply curve for a perfectly competitive industry can slope upward because of
A) external economies.
B) external diseconomies.
C) diminishing marginal returns.
D) economic profit.
Answer:
7) The curve LS0 in the above figure is the long-run supply curve of a perfectly competitive
industry. The short-run industry supply curve shifts from S0 to S2 as the
A) number of firms decreases.
B) number of firms increases.
C) external economies rise.
D) wage rate falls.
Answer:

8) The curve LS0 in the above figure is the long-run supply curve of a perfectly competitive
industry. As the demand curve shifts rightward, the industry exhibits
A) external economies.
B) external diseconomies.
C) neither external economies nor external diseconomies.
D) technological advancement.
Answer:

9) Congestion of airports and airspace causes the airline industry to experience external
A) economies and have a long-run supply curve with negative slope.
B) economies and have a long-run supply curve with positive slope.
C) diseconomies and have a long-run supply curve with negative slope.
D) diseconomies and have a long-run supply curve with positive slope.
Answer:

10) Assuming long-run external economies exist, when demand increases in a perfectly competitive
market, in the long run the average total cost curve for a typical firm
A) shifts downward.
B) shifts upward.
C) stays the same.
D) is no longer U-shaped.
Answer:
11) If the long-run supply curve for a perfectly competitive industry has a positive slope, the
industry experiences
A) external economies.
B) external diseconomies.
C) internal economies.
D) internal diseconomies.
Answer:

12) If the long-run supply curve for a perfectly competitive industry has a negative slope, the
industry experiences
A) external economies.
B) external diseconomies.
C) internal economies.
D) internal diseconomies.
Answer:

13) The figure above shows a typical perfectly competitive corn farm, whose marginal cost curve is
MC and average total cost curve is ATC. The market is initially in a long-run equilibrium,
where the price is $3.00 per bushel. Then, the market demand for corn decreases and, in the
short run, the price falls to $2.50 per bushel. Corn production is a constant-cost industry. In the
new short-run equilibrium, the farm produces ________ bushels of corn and sells corn at
________ per bushel.
A) 250,000; $3.00
B) 250,000; $2.50
C) 300,000; $2.50
D) 200,000; $2.50
Answer:
14) The figure above shows a typical perfectly competitive corn farm, whose marginal cost curve is
MC and average total cost curve is ATC. The market is initially in a long-run equilibrium,
where the price is $3.00 per bushel. Then, the market demand for corn decreases and, in the
short run, the price falls to $2.50 per bushel. Corn production is a constant-cost industry. In the
new short-run equilibrium, the farm
A) incurs an economic loss of between $1 and $40,000.
B) receives zero economic profit.
C) incurs an economic loss of between $40,001 and $130,000.
D) incurs an economic loss of more than $130,001.
Answer:

15) The figure above shows a typical perfectly competitive corn farm, whose marginal cost curve is
MC and average total cost curve is ATC. The market is initially in a long-run equilibrium,
where the price is $3.00 per bushel. Then, the market demand for corn decreases and, in the
short run, the price falls to $2.50 per bushel. Corn production is a constant-cost industry. In the
long run, the price of corn is ________ and a typical farm produces ________ bushels of corn.
A) $2.00; 200,000
B) $3.50; 250,000
C) $2.50; 250,000
D) $3.00; 300,000
Answer:

16) The figure above shows a typical perfectly competitive corn farm, whose marginal cost curve is
MC and average total cost curve is ATC. Assuming there are no changes in technology, in the
long run the lowest possible for corn is ________ per bushel.
A) $2.50
B) $2.00
C) $3.00
D) $3.50
Answer:

17) The demand for a product produced in a perfectly competitive market permanently increases.
In the short run the price
A) rises and each firm produces less output.
B) rises and each firm produces more output.
C) does not change as new firms enter the industry.
D) does not change because each firm produces more output.
Answer:

18) If there are external diseconomies in an industry, in the long run, after a permanent increase in
demand, the price
A) will be higher than it was initially before the increase in demand.
B) will be lower than it was initially before the increase in demand.
C) will be the same as it was initially before the increase in demand.
D) may be higher or lower than it was initially before the increase in demand, depending on
whether or not the firms are earning an economic profit.
Answer:

19) To which of the following situations does the term ʺexternal diseconomies ʺ apply?
A) The firmʹs MC curve falls as more output is produced.
B) The firmʹs ATC curve slopes upward as the firm produces more output.
C) Increases in an industryʹs output reduce the costs of the firms in an industry.
D) Increases in an industryʹs output raise the costs of the firms in an industry.
Answer:

20) The presence of external economies ________ each firmʹs total costs as the industry output
________ and the presence of external diseconomies ________ each firmʹs total costs as industry
output ________.
A) lower; increases; lower; decreases
B) lower; increases; lower; increases
C) lower; decreases; lower; increases
D) raise; increases; lower; increases
Answer:

21) The ________ how the quantity supplied by an industry changes as the market price changes
when firms have made all possible adjustments.
A) individual firmsʹ supply curves show
B) individual firmsʹ marginal cost curves show
C) long-run industry supply curve shows
D) short-run industry supply curve shows
Answer:

22) The industry that produces zangs is in long-run equilibrium. Then the demand for zangs
increases permanently. As a result, firms in the industry will ________. Some firms will
________ the industry, and the industry supply curve will shift ________.
A) make economic profits; enter; rightward
B) make normal profits; exit; leftward
C) incur economic losses; exit; rightward
D) incur economic losses; exit; leftward
Answer:

23) If the long-run industry supply in a perfectly competitive industry is downward sloping, then
the industry experiences ________ and as the industry expands the price ________.
A) external diseconomies; falls
B) external economies; falls
C) external diseconomies; rises
D) external economies; rises
Answer:
24) Initially, a perfectly competitive industry that has 1,000 firms is in long-run equilibrium. Then
100 firms in the industry adopt a new technology that reduces the average cost of producing the
good. In the short run, the price ________, firms with the new technology make ________
profits, and firms with the old technology ________.
A) remains the same; normal; incur economic losses
B) falls; positive economic; incur economic losses
C) remains the same; positive economic; make normal profit
D) remains the same; positive economic; incur economic losses
Answer:

25) A perfectly competitive industry is in long-run equilibrium. Some firms in the industry adopt
new technology that reduces the average total cost of producing the good. In the long run, the
price is ________, firms with the new technology make ________ profits, and firms with the old
technology ________.
A) lower; normal; exit the industry
B) constant; economic; make normal profit
C) lower; normal; switch to the new technology or exit the industry
D) constant; normal; exit the industry
Answer:

Part E: Competition and Efficiency

1) An example of an external cost is
A) pollution.
B) the price that a firm pays for a consultantʹs advice.
C) the price that a consumer pays for a new car.
D) the damage created by a tornado.
Answer:

2) In a competitive market, the market demand curve measures the ________ if ________ exist and
the market supply curve measures the ________ if ________ exist.
A) consumersʹ marginal benefit; external benefits; firmsʹ marginal benefit; external benefits
B) marginal social benefit; external benefits; marginal social cost; external costs
C) marginal social benefit; no external benefits; marginal social cost; no external costs
D) firmsʹ marginal benefit; external benefits; consumersʹ marginal cost; external costs
Answer:

3) When the price equals the consumersʹ marginal benefit and the producersʹ marginal cost, the
gains from trade are ________.
A) zero
B) minimized
C) less than when price is greater than consumersʹ marginal benefit
D) maximized
Answer:
4) Consumer surplus ________.
A) equals total revenue minus marginal cost
B) is maximized when the market outcome is efficient
C) equals total revenue minus opportunity cost
D) plus producer surplus equals the gains from trade
Answer:

5) Perfect competition achieves efficiency if ________.

A) there are no external benefits and no external costs
B) producer surplus equals zero
C) consumer surplus is greater than producer surplus
D) marginal benefit is greater than marginal cost
Answer: