1. Which of the following is not an assumption of the theory of perfect competition?
a. There are many sellers and many buyers, none of which is large in
... [Show More] relation to total sales or purchases.
b. Each firm produces and sells a differentiated product.
c. Buyers and sellers have all relevant information with respect to prices, product quality, and sources of supply.
d. There is easy entry and exit.
b
2. Examples of perfect competition include
a. some agricultural markets.
b. the soft drink market.
c. the stock market.
d. a and c
e. a, b, and c
d
3. The theory of perfect competition generally assumes that
a. sellers act independently of other sellers, but buyers do not act independently of other buyers.
b. buyers act independently of other buyers, but sellers do not act independently of other sellers.
c. buyers and sellers act independently of other buyers and sellers.
d. neither buyers nor sellers act independently of other buyers and sellers.
c
4. In the theory of perfect competition,
a. sellers of the product are not influenced by other sellers and therefore have virtually complete control over the production and pricing of their product.
b. buyers of the product may have a preference as to whom they purchase from based on brand loyalty.
c. buyers and sellers of the product know everything that there is to know about the product.
d. it can be quite expensive for a firm to enter this type of market, but once the firm is established, it will be a profitable venture.
c
5. Does a real-world market have to meet all the assumptions of the theory of perfect competition before it is considered a perfectly competitive market?
a. No, probably no real-world market meets all the assumptions of the theory of perfect competition. All that is necessary is that a real-world market behave as if it satisfies all the assumptions.
b. Yes, if a real-world market does not meet the assumptions, then it cannot be considered a perfectly competitive market.
c. Yes, unless it is a new market such as the computer market. New markets are not held to the same assumptions as old, more established markets.
d. No, but it does have to meet the assumption of producing and selling a homogeneous product. It does not have to fully meet the other assumptions.
a
6. Perfectly competitive industries are
a. difficult to enter because there are already so many producers in the industry.
b. not particularly appealing or attractive to enter because there tend to be so many buyers that it is difficult to deal with them.
c. relatively easy to enter but not so easy to exit from.
d. a and b
e. none of the above
e
7. A "price taker" is a firm that
a. does not have the ability to control the price of the product it sells.
b. does have the ability, although limited, to control the price of the product it sells.
c. can raise the price of the product it sells and still sell some units of its product.
d. sells a differentiated product.
e. none of the above
a
8. Perfectly competitive firms are price takers for all of the following reasons except that
a. each firm is quite small relative to the total market supply.
b. buyers and sellers have all the necessary information about prices, etc.
c. the product is homogeneous.
d. barriers to exit force firms to sell at the market price.
d
9. Which of the following is probably the worst example of a perfectly competitive market?
a. the market for corn
b. the market for automobiles
c. the stock market
d. the market for wheat
b
10. The demand curve for a perfectly competitive firm
a. is downward sloping.
b. is upward sloping.
c. is perfectly horizontal.
d. is perfectly vertical.
e. may be downward or upward sloping, depending upon the type of product offered for sale.
c
11. The market demand curve in a perfectly competitive market is
a. downward sloping.
b. upward sloping.
c. perfectly horizontal.
d. perfectly vertical.
e. downward or upward sloping depending upon the type of product offered for sale.
a
12. In the theory of perfect competition,
a. the market demand curve is horizontal.
b. the single firm's demand curve is horizontal.
c. the single firm's demand curve is downward sloping.
d. a and b
e. a and c
b
13. Which of the following statements is false?
a. The perfectly competitive firm's demand curve is horizontal at the market price.
b. The theory of perfect competition is completely and accurately descriptive of most realworld firms.
c. If Firm X does not strictly meet all the assumptions of the theory of perfect competition, but behaves as if it does, then the theory of perfect competition is relevant to it.
d. In perfect competition, the market price is established at the intersection of the market demand and market supply curves.
b
14. The price at which a perfectly competitive firm sells its product is determined by
a. the individual seller based on his costs of production and his profit margin.
b. all sellers and buyers of the product, collectively.
c. the buyers of the product, because there are so many sellers that they cannot agree on a price.
d. the government, because there are so many buyers and sellers of the product that together they cannot agree on the price.
b
15. The perfectly competitive firm will seek to produce the output level for which
a. average variable cost is at a minimum.
b. average total cost is at a minimum.
c. average fixed cost is at a minimum.
d. marginal cost equals marginal revenue.
d
16. Marginal revenue is
a. total revenue divided by the quantity of output.
b. total profit minus total costs.
c. the change in total output brought about by using an additional unit of a variable input.
d. the change in total revenue brought about by selling an additional unit of the good.
e. the change in total revenue minus the change in total costs.
d
17. For a perfectly competitive firm,
a. the marginal revenue curve and the demand curve are the same.
b. the marginal revenue curve and the marginal cost curve are the same.
c. the supply curve and the marginal revenue curve are the same.
d. the demand curve and the marginal cost curve are the same.
e. none of the above
a
18. Refer to Exhibit 9-1. The dollar amounts that go in blanks A and B are, respectively,
a. $1 and $12.
b. $12 and $12.
c. $12 and $10.
d. $12 and $11.
b
19. Refer to Exhibit 9-1. The data are relevant to a perfectly competitive firm because
a. its total revenue is different at different levels of quantities sold.
b. its total revenue is the same at all levels of quantities sold.
c. it doesn't have to lower price to sell additional units of the product.
d. marginal revenue is greater than price.
c
20. Refer to Exhibit 9-1. The data are relevant to a perfectly competitive firm because
a. its total revenue is different at different levels of quantities sold.
b. its marginal revenue is the same at all quantities sold.
c. it must lower price to sell additional units of its product.
d. marginal revenue is greater than price.
b
21. A perfectly competitive firm will increase its production as long as
a. total revenue is less than total cost.
b. the total revenue curve is rising.
c. marginal revenue is greater than marginal cost.
d. the marginal revenue curve is rising.
c
22. For a perfectly competitive firm, profit maximization or loss minimization occurs at the output at which
a. MR = MC.
b. MR = AVC.
c. P = ATC.
d. MR = ATC.
a
23. If MR > MC, then
a. profits will be at their maximum.
b. the firm is producing too much of the good to be maximizing profits.
c. the firm can increase its profits or minimize its losses by increasing output.
d. the firm is necessarily incurring losses.
c
24. If, for the last unit of a good produced by a perfectly competitive firm, MR > MC, then in producing that unit the firm
a. added more to total costs than it added to total revenue.
b. added more to total revenue than it added to total costs.
c. added an equal amount to both total revenue and total costs.
d. maximized profits or minimized losses.
b
25. Refer to Exhibit 9-2. What quantity does the profit-maximizing or loss-minimizing firm produce?
a. Q1, where "what is coming in" on the last unit is greater than "what is going out."
b. Q2, where the difference between "what is coming in" on the last unit and "what is going out" is zero.
c. Q3, where marginal cost is greater than marginal revenue.
d. Q4, which maximizes the excess of marginal cost over marginal revenue.
b
26. Refer to Exhibit 9-2. If the firm produces the quantity of output at which marginal revenue (MR) equals marginal cost (MC), is it guaranteed maximum profit or minimized loss?
a. Yes, when MR = MC, it follows that MR - MC = 0, and thus the firm maximizes profit and minimizes losses.
b. No, at the quantity of output at which MR = MC, it could be the case that average variable cost is greater than price and the firm would do better to shut down.
c. Yes, when the firm produces the quantity at which MR = MC, it has maximized both revenue and profit.
d. Yes, because if the MC curve is rising, the average total cost curve always lies below it and thus profit is earned.
b
27. Refer to Exhibit 9-2. For the firm that faces the demand curve in the exhibit,
a. marginal revenue is constant.
b. price equals marginal revenue.
c. if the firm maximizes profits, it produces the quantity of output at which price equals marginal cost.
d. a and c
e. a, b, and c
e
28. Refer to Exhibit 9-3. What quantity of output would the profit-maximizing firm produce?
a. 41 units
b. 42 units
c. 43 units
d. 45 units
e. none of the above
d
29. Refer to Exhibit 9-3. What is the gain in profit from producing 45 units of the product rather than producing 42 units?
a. $40
b. $30
c. $10
d. $20
e. $0
c
30. Refer to Exhibit 9-3. What is the maximum profit?
a. $50
b. $40
c. $20
d. $378
a
31. Refer to Exhibit 9-3. Is it possible for the firm to produce "too much"?
a. Any quantity above 42 units is too much.
b. Any quantity above 44 units is too much.
c. Any quantity above 45 units is too much.
d. It is not possible in the range of 40-47 units shown.
c
32. Consider the following data: equilibrium price = $9, quantity of output produced = 100 units, average total cost = $8, and average variable cost $6. Given this, total revenue is __________, total cost is __________, and fixed cost is __________.
a. $600; $800; $100
b. $900; $700; $800
c. $900; $800; $200
d. $900; $800; $600
e. none of the above
c
33. In the short-run, if P < ATC, a perfectly competitive firm should
a. increase production to the output level at which P = ATC.
b. continue producing at a loss.
c. shut down.
d. continue producing at a profit.
e. There is not enough information to answer the question.
e
34. Consider the following data: equilibrium price = $10, quantity of output produced = 100 units, average total cost = $8, and average variable cost = $7. What will the firm do and why?
a. Shut down in the short run, because it is taking a loss of $200.
b. Continue to produce in the short run, because price is greater than average variable cost.
c. Shut down in the short run, because average variable cost is less than average total cost.
d. Continue to produce in the short run, because firms are always stuck with having to produce in the short run.
b
35. The perfectly competitive firm will produce in the
a. short run if price is below average variable cost.
b. long run if price is below average variable cost.
c. short run if price is below average total cost but above average variable cost.
d. long run if price is below average total cost but above average variable cost.
c
36. Consider the following data: equilibrium price = $7.50, quantity of output produced = 100 units, average total cost = $9, and average variable cost = $8. What will the firm do and why?
a. Shut down in the short run, because price is below average variable cost.
b. Shut down in the short run, because it will be taking a loss of $50.
c. Continue to produce in the short run, because price is greater than average variable cost.
d. Continue to produce in the short run, because firms are always stuck with having to produce in the short run.
e. none of the above
a
37. In order for a firm to continue producing, price must exceed __________ and total revenue must exceed __________.
a. marginal cost, total cost
b. ATC; total cost
c. AFC; total fixed cost
d. AVC; total variable costs
e. price; total cost
d [Show Less]