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| 1 | |
Compared to the downward-sloping demand curve for the output of a competitive industry, a single firm operating in that industry faces: |
| | A) | a perfectly inelastic demand curve |
| | B) | a perfectly elastic demand curve |
| | C) | a unit elastic demand curve |
| | D) | a downward-sloping marginal revenue curve |
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| 2 | |
Which of the following is a characteristic of equilibrium in long-run competitive markets? |
| | A) | Consumer surplus is minimized |
| | B) | Producer surplus exceeds consumer surplus |
| | C) | Combined consumer and producer surplus is maximized |
| | D) | The difference between producer surplus and consumer surplus is maximized |
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| 3 | |
Use the following diagram to answer the next question.
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At which of the following prices will the firm produce a positive amount but incur a loss? |
| | A) | P1 |
| | B) | P2 |
| | C) | P3 |
| | D) | P3 and P4 |
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| 4 | |
Answer the next question on the basis of the following cost data for a competitive firm.
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Refer to the above data. If the market price is $35 and the firm produces its optimal amount, it will: |
| | A) | realize a $5 profit |
| | B) | realize a $50 profit |
| | C) | incur a $5 loss |
| | D) | incur a $55 loss |
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| 5 | |
Competitive firms maximize: |
| | A) | total profits by producing where price exceeds average total cost by the greatest amount |
| | B) | per unit profits by producing where marginal revenue equals marginal cost |
| | C) | total profits by producing where price equals marginal cost |
| | D) | market share by producing where price equals average total cost |
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| 6 | |
Suppose a decrease in product demand occurs in a decreasing-cost industry. Compared to the original equilibrium the new long-run competitive equilibrium will entail: |
| | A) | a higher price and a higher total output |
| | B) | a lower price and a lower total output |
| | C) | a higher price and a lower total output |
| | D) | a lower price and a higher total output |
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| 7 | |
A competitive firm is currently producing 2000 units per month at a total cost of $12,000. Its fixed costs are $1,000 and its marginal cost is $5. If the market price is $5.60, this firm: |
| | A) | should shut down |
| | B) | should increase production |
| | C) | is making an economic profit, but not an accounting profit |
| | D) | is maximizing profits |
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| 8 | |
For all values above minimum average variable cost, a competitive firm's: |
| | A) | supply curve is coincident with its marginal cost curve |
| | B) | supply curve is coincident with its average total cost curve |
| | C) | demand curve is coincident with its average total cost curve |
| | D) | demand curve is coincident with its supply curve |
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| 9 | |
Use the following diagrams to answer the next question.
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Refer to the above diagrams, which pertain to a purely competitive firm and the industry in which it operates. In the long run we should expect: |
| | A) | new firms to enter, market demand to rise, and price to fall |
| | B) | demand to increase, and price to rise |
| | C) | input prices to fall, supply to increase, and price to fall |
| | D) | some firms to exit, supply to decrease, and price to rise |
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| 10 | |
In the long run, competitive markets achieve: |
| | A) | allocative efficiency because P = min ATC but not productive efficiency because P > min AVC |
| | B) | allocative efficiency because P = MC and productive efficiency because P = min ATC |
| | C) | productive efficiency because P = min ATC but not allocative efficiency because P > MR |
| | D) | neither productive nor allocative efficiency |
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