Quiz on Chapter 7 - Custom Scholars
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Quiz on Chapter 7

question
The demand curve faced by a perfectly competitive firm is horizontal at the price determined in the market.
answer
True
question
If the firm is producing a quantity of output for which MC > MR, then the firm should increase production to increase its profits.
answer
False
question
A perfectly competitive firm should shut down production in the short run if price is less than average fixed cost.
answer
False
question
In a perfectly competitive market, the market demand curve is perfectly elastic.
Note that it asks about the market demand curve, not the demand curve facing a single firm.
answer
False
question
One of the assumptions upon which the theory of perfect competition is built is that each firm produces and sells a heterogeneous product.
answer
False
question
For the perfectly competitive firm, the demand curve and the marginal revenue curve are one and the same.
answer
True
question
In order for a firm to earn economic profits, price must exceed average total cost.
answer
True
question
A perfectly competitive firm is a price taker.
answer
True
question
In a perfectly competitive market, firms face no barriers to entry or exit.
answer
True
question
When a firm produces the quantity of output where price equals marginal cost, it has achieved resource allocative efficiency.
answer
True
question
Which of the following is not an assumption of the theory of perfect competition?
answer
Each firm produces and sells a differentiated product.
question
The demand curve facing a perfectly competitive firm
answer
is perfectly horizontal.
question
The perfectly competitive firm will seek to produce the level of output for which
answer
marginal cost equals marginal revenue.
question
Marginal revenue is
answer
the change in total revenue brought about by selling an additional unit of the good.
question
In long-run equilibrium, the perfectly competitive firm earns __________ economic profits.
answer
zero
question
Refer to Exhibit 22-8. What is the total cost of firm B at the profit-maximizing (or loss-minimizing) level of production?
Hint: look at the ATC that is the total cost curve.
answer
$1,650
question
Refer to Exhibit 22-9. Suppose that the market starts out at long-run competitive equilibrium with price equal to P1 and producing Q1 output, and then demand increases from D1 to D2. As a consequence, the typical profit-maximizing firm will
answer
increase quantity produced by (q2 - q1).
question
Refer to Exhibit 22-9. Following an increase in market demand from D1 to D2, the firm's profits in the short run will
answer
increase by less than (P2 - P1) times q2.
question
Refer to Exhibit 22-9. Assume that demand increases from D1 to D2; in the new long run equilibrium, price settles at a level between P1 and P2 This means that the industry in question is a(n) __________-cost industry.
answer
increasing
question
For a price taker, market equilibrium price is $50. At 1,000 units, MR = MC, ATC = $45, and AVC = $30. This price taker will
answer
earn $5,000 profits if it produces 1,000 units.
question
If, for a perfectly competitive firm, price is greater than average variable cost, then it follows that
answer
b and c

total revenue is greater than total variable cost.
the firm will lose more or earn less by shutting down in the short run than by continuing to produce.
question
Equilibrium price is $25 in a perfectly competitive market. For a perfectly competitive firm, MR = MC at 2,000 units of output. At 2,000 units, ATC is $33, and AVC is $27. The best policy for this firm is to __________ in the short run. Also, total fixed cost equals __________ and total variable cost equals __________ for this firm.
answer
shut down; $12,000; $54,000
question
Equilibrium price is $19 in a perfectly competitive market. For a perfectly competitive firm, MR = MC at 120 units of output. At 120 units, ATC is $11, and AVC is $8. The best policy for this firm is to __________ in the short run. Also, this firm earns __________ of __________ if it produces and sells 120 units. Finally, the difference between total revenue and total fixed cost for this firm is __________.
answer
continue to produce; profits; $960; $1,920
question
In long-run competitive equilibrium, firms
answer
have no incentive to make any changes.
question
A firm produces the quantity of output at which P = MC and P = ATC. It follows that the firm is
answer
resource allocative efficient and earns zero economic profit.
1 of 25
question
The demand curve faced by a perfectly competitive firm is horizontal at the price determined in the market.
answer
True
question
If the firm is producing a quantity of output for which MC > MR, then the firm should increase production to increase its profits.
answer
False
question
A perfectly competitive firm should shut down production in the short run if price is less than average fixed cost.
answer
False
question
In a perfectly competitive market, the market demand curve is perfectly elastic.
Note that it asks about the market demand curve, not the demand curve facing a single firm.
answer
False
question
One of the assumptions upon which the theory of perfect competition is built is that each firm produces and sells a heterogeneous product.
answer
False
question
For the perfectly competitive firm, the demand curve and the marginal revenue curve are one and the same.
answer
True
question
In order for a firm to earn economic profits, price must exceed average total cost.
answer
True
question
A perfectly competitive firm is a price taker.
answer
True
question
In a perfectly competitive market, firms face no barriers to entry or exit.
answer
True
question
When a firm produces the quantity of output where price equals marginal cost, it has achieved resource allocative efficiency.
answer
True
question
Which of the following is not an assumption of the theory of perfect competition?
answer
Each firm produces and sells a differentiated product.
question
The demand curve facing a perfectly competitive firm
answer
is perfectly horizontal.
question
The perfectly competitive firm will seek to produce the level of output for which
answer
marginal cost equals marginal revenue.
question
Marginal revenue is
answer
the change in total revenue brought about by selling an additional unit of the good.
question
In long-run equilibrium, the perfectly competitive firm earns __________ economic profits.
answer
zero
question
Refer to Exhibit 22-8. What is the total cost of firm B at the profit-maximizing (or loss-minimizing) level of production?
Hint: look at the ATC that is the total cost curve.
answer
$1,650
question
Refer to Exhibit 22-9. Suppose that the market starts out at long-run competitive equilibrium with price equal to P1 and producing Q1 output, and then demand increases from D1 to D2. As a consequence, the typical profit-maximizing firm will
answer
increase quantity produced by (q2 - q1).
question
Refer to Exhibit 22-9. Following an increase in market demand from D1 to D2, the firm's profits in the short run will
answer
increase by less than (P2 - P1) times q2.
question
Refer to Exhibit 22-9. Assume that demand increases from D1 to D2; in the new long run equilibrium, price settles at a level between P1 and P2 This means that the industry in question is a(n) __________-cost industry.
answer
increasing
question
For a price taker, market equilibrium price is $50. At 1,000 units, MR = MC, ATC = $45, and AVC = $30. This price taker will
answer
earn $5,000 profits if it produces 1,000 units.
question
If, for a perfectly competitive firm, price is greater than average variable cost, then it follows that
answer
b and c

total revenue is greater than total variable cost.
the firm will lose more or earn less by shutting down in the short run than by continuing to produce.
question
Equilibrium price is $25 in a perfectly competitive market. For a perfectly competitive firm, MR = MC at 2,000 units of output. At 2,000 units, ATC is $33, and AVC is $27. The best policy for this firm is to __________ in the short run. Also, total fixed cost equals __________ and total variable cost equals __________ for this firm.
answer
shut down; $12,000; $54,000
question
Equilibrium price is $19 in a perfectly competitive market. For a perfectly competitive firm, MR = MC at 120 units of output. At 120 units, ATC is $11, and AVC is $8. The best policy for this firm is to __________ in the short run. Also, this firm earns __________ of __________ if it produces and sells 120 units. Finally, the difference between total revenue and total fixed cost for this firm is __________.
answer
continue to produce; profits; $960; $1,920
question
In long-run competitive equilibrium, firms
answer
have no incentive to make any changes.
question
A firm produces the quantity of output at which P = MC and P = ATC. It follows that the firm is
answer
resource allocative efficient and earns zero economic profit.

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