CH 13. Name: Class: Date: Multiple Choice Identify the choice that best completes the statement or answers the question.

Transcription

1 Class: Date: CH 13 Multiple Choice Identify the choice that best completes the statement or answers the question. 1. One requirement for an industry to be perfectly competitive is that a. sellers and buyers have imperfect information about prices. b. established firms have no advantage over new firms. c. established firms have a significant advantage over new firms. d. different firms produce widely different products. e. many firms produce slightly different products. 2. In which market structure does one firm sell a good or service with no close substitutes and there is a barrier blocking the entry of new firms? a. only monopoly b. only oligopoly c. perfect competition d. monopolistic competition e. either monopoly or oligopoly 3. A market is classified as monopolistically competitive when a. there is a barrier that blocks entry by other firms. b. a small number of firms compete. c. many firms produce the same product. d. many firms produce a slightly differentiated product. e. there is one firm that sells a good or service with no close substitutes. 4. In which market structure is there a large number of firms producing slightly differentiated products? a. monopoly b. oligopoly c. only perfect competition d. only monopolistic competition e. either perfect competition or monopolistic competition 5. In which market structure are there a small number of firms competing? a. only monopoly b. only oligopoly c. perfect competition d. monopolistic competition e. either monopoly or oligopoly 6. Economic profit equals the firm's total revenue minus the a. opportunity costs of production. b. fixed costs of production. c. variable costs of production. d. normal profit. e. economic loss. 7. Normal profit is defined as a. the same thing as economic profit. b. the return to entrepreneurship. c. total revenue minus the total opportunity cost of production. d. the point of profit when total revenue is maximized. e. part of the firm's total revenue. 1

2 8. A perfectly competitive firm can a. sell all of its output at the prevailing market price. b. sell at a higher price to customers willing to pay more. c. raise its price in order to increase its total revenue. d. sell additional output only by lowering its price. e. usually not sell all the output it produces, but still "over-produces" because there are some periods when it can sell the extra output at very profitable prices. 9. In central Florida during the spring, strawberry growers are price takers. The reason these growers are price takers is because there are strawberry growers in this area. a. many b. more than one or two but not many c. one or two d. no e. Both answer C and answer D are correct. 10. The market demand curve in a perfectly competitive market is and the demand curve for a perfectly competitive firm's output is. a. downward sloping; downward sloping b. downward sloping; horizontal c. horizontal; downward sloping d. horizontal; horizontal e. downward sloping; upward sloping 11. In the short run, a perfectly competitive firm must decide a. the price to charge for its product, and the level of output that will maximize its economic profits or minimize its economic losses. b. only the level of output that will maximize its economic profits or minimize its economic losses because the price is determined in the market. c. only the price to charge for its product that will to maximize its economic profits or minimize its economic losses because the quantity is determined in the market. d. whether or not it should advertise. e. neither its price nor the quantity it will produce because both are determined in the market. 12. As a perfectly competitive wheat farmer's output increases, the farmer's a. total revenue increases, but so does total cost, so that if output is increased enough, the farmer suffers an economic loss. b. total revenue decreases and total cost increases, both thereby decreasing the farmer's profit. c. total revenue does not change but total cost increases, thereby decreasing the farmer's profit. d. marginal revenue increases, but so does marginal cost so that the farmer's profit increases. e. total profit always increases. 13. Jennifer's Bakery Shop produces baked goods in a perfectly competitive market. If Jennifer decides to produce her 100th batch of cookies, the marginal cost is $120. She can sell this batch of cookies at a market price of $110. To maximize her profit, Jennifer should a. not produce this additional batch. b. produce this batch of cookies because they will help lower her average fixed cost. c. charge $120 for this batch. d. shut down. e. produce this batch of cookies because their MR exceeds their MC. 2

3 14. If a perfectly competitive firm finds that the price exceeds its ATC, then the firm a. will raise its price to increase its economic profit. b. will lower its price to increase its economic profit. c. is earning an economic profit. d. is incurring an economic loss. e. is earning only a normal profit. 15. For a perfectly competitive sugar producer in Haiti, a short-run economic profit will occur if the price of each ton of sugar sold is a. greater than the average total cost of producing sugar. b. equal to the average total cost of producing sugar. c. less than the average total cost of producing sugar. d. rising as more sugar is sold. e. greater than the marginal revenue of each ton of sugar. 16. For a perfectly competitive syrup producer whose average total cost curve does not change, an economic profit could turn into an economic loss if the a. market demand for syrup decreases. b. marginal cost curve shifts downward. c. market demand for syrup does not change. d. market demand for syrup increases. e. price of syrup rises. 17. The figure above shows a perfectly competitive firm. If the market price is $40 per unit, then the firm produces units and has an economic profit that is. a. more than 45; more than $400 b. 40; more than $400 c. 40; less than $400 d. 30; equal to zero because the firm earns a normal profit e. 30; more than $250 3

4 18. When new firms enter the perfectly competitive Miami bagel market, the market a. supply curve shifts leftward. b. supply curve does not change. c. demand curve shifts rightward. d. supply curve shifts rightward. e. demand curve shifts leftward. 19. Suppose a perfectly competitive market is in long-run equilibrium and then there is a permanent increase in the demand for that product. The new long-run equilibrium will have a. fewer firms in the market. b. more firms in the market. c. the same number of firms in the market. d. probably a different number of firms, but it is not possible to determine if there will be more or fewer firms. e. a permanent decrease in supply. 20. The example of personal computers in the United States in the 1980s and early 1990s exemplifies the a. exit of firms when prices fall. b. entry of firms when a firm has a positive economic profit. c. exit of firms when new firms enter a market. d. entry of firms whenever normal profits are greater than zero. e. exit of firms when prices rise. 21. Catfish farming is a perfectly competitive industry. Catfish farmers suffered tremendous economic losses in the late 1990s. As a result, a. eventually some new catfish farmers entered the market. b. eventually some catfish farmers exited the market. c. no catfish farmers entered or exited this market. d. the supply of catfish increased in e. new demanders entered the market after some firms had exited. 22. Keith is a perfectly competitive carnation grower. The market price is $2 per dozen carnations. Keith's average total cost to grow carnations is $2.50 per dozen. In the long run, Keith will a. raise his price to more than $2.50 per dozen carnations. b. raise his price to $2.50 per dozen carnations. c. exit the industry if the price and his costs do not change. d. incur an economic loss. e. continue to earn an economic profit. 23. If the technology associated with producing fiber-optic cable continues to advance, over time the cost of producing fiber-optic cable will a. decrease, firms that use the new technology will earn an economic profit, and in the long run new firms will enter the market. b. decrease, firms that use the new technology will incur an economic loss, and in the long run some firms will exit the industry. c. increase, firms that use the new technology will earn an economic profit, and in the long run new firms will enter the market. d. increase, firms that use the new technology will incur an economic loss, and in the long run some firms will exit the industry. e. decrease, firms that do not use the new technology will earn an economic profit, and in the long run new firms will enter the market. 4

5 24. If firms in a perfectly competitive industry are earning an economic profit and new firms enter the industry, then a. consumer surplus decreases. b. the existing firms' economic profit decreases. c. there must be external benefits to consumption of the good. d. the new firms must incur an economic loss. e. Both answer A and answer B are correct. 25. Suppose that each of 10,000 perfectly competitive firm in an industry produces 1,000 units of a good and earns an economic profit when the price of the good is $10. In the long run, definitely a. each firm increases its production above 1,000 units. b. the number of firms is more than 10,000. c. consumer surplus decreases. d. producer surplus increases. e. the number of firms is less than 10, Perfect competition is a. almost free from competition and firms earn large profits. b. dominated by fierce advertising campaigns. c. highly competitive and firms find it impossible to earn an economic profit in the long run. d. marked by firms continuously trying to change their products so that consumers prefer their product to their competitors' products. e. a market that has many sellers but is controlled by only a few sellers. 27. Perfect competition is characterized by all of the following EXCEPT a. a large number of buyers and sellers. b. no restrictions on entry into or exit from the industry. c. considerable advertising by individual firms. d. well-informed buyers and sellers with respect to prices. e. firms produce an identical product. 28. Which of the following market types has the fewest number of firms? a. perfect competition b. monopolistic competition c. oligopoly d. monopoly e. perfect competition and monopolistic competition 29. A price-taking firm a. sets the product's price to whatever level the owner decides upon. b. talks to rival firms to determine the best price for all of them to charge. c. cannot influence the price of the product it sells. d. asks the government to set the price of its product. e. takes whichever of the many market prices it prefers. 30. Suppose Pat's Paints is a perfectly competitive firm. If Pat's Paints' marginal revenue equals $5 per can, and Pat decides to sell 100 cans of paint, Pat's total revenue equals a. $5. b. $100. c. $500. d. $20. e. Information on the price of a can of paint is needed to answer the question. 5

6 31. If the wheat industry is perfectly competitive with a market price of $4 per bushel and Farmer Brown charged $5 per bushel, how many bushels would Farmer Brown sell? a. some, but fewer than he would at a price of $4 b. more than he would at a price of $4 c. just as many as he would at a price of $4 d. none e. More information is needed about the prices charged by the other perfectly competitive wheat farmers. 32. If the market price of a product is $14 and all sellers are price takers, then which of the following is correct? a. Each seller's total revenue line is graphed as an upward-sloping straight line. b. The demand curve for each seller's product is a downward-sloping straight line. c. Each seller can earn more total revenue by raising the price he or she charges above $14. d. The demand curve for each seller's product is a downward-sloping but not necessarily a straight line. e. Each seller's total revenue is graphed as an upside-down U-shaped curve. 33. In the above, a marginal revenue curve for a perfectly competitive firm is shown in Figure. a. W b. X c. Y d. Z e. X and Figure Z 6

7 34. The above table has the total revenue and total cost schedule for Omar, a perfectly competitive grower of rutabagas. When Omar maximizes his profit, Omar's profit equals a. $80. b. $11. c. $30. d. $16. e. $ Under which of the following conditions will a profit-maximizing perfectly competitive firm shut down in the short run? a. when it is earning a normal profit b. whenever its marginal cost is less than its marginal revenue c. when the price is less than its minimum average variable cost d. whenever its total cost is greater than its total revenue e. when the price is less than its minimum average total cost 36. The firm's supply curve is its a. marginal cost curve above the average variable cost curve. b. marginal cost curve below the average variable cost curve. c. average variable cost curve above the marginal cost curve. d. average total cost curve above the marginal cost curve. e. marginal revenue curve above the average total cost curve. 37. A perfectly competitive firm is a price taker because a. many other firms produce the same product. b. only one firm produces the product. c. many firms produce a slightly differentiated product. d. a few firms compete. e. it faces a vertical demand curve. 38. The demand curve faced by a perfectly competitive firm is a. horizontal. b. vertical. c. downward sloping. d. upward sloping. e. U-shaped. 7

8 39. One part of a perfectly competitive trout farm's supply curve is its a. marginal cost curve below the shutdown point. b. entire marginal cost curve. c. marginal cost curve above the shutdown point. d. average variable cost curve above the shutdown point. e. marginal revenue curve above the demand curve. 40. If there are 1,000 identical rice farmers who are each willing to supply 200 bushels of rice at $2 per bushel, what price and quantity combination is a point on the market supply curve for rice? a. $2 and 200 bushels b. $2 and 200,000 bushels c. $2,000 and 200,000 bushels d. $2,000 and 1,000 bushels e. $2 and 1,000 farmers 41. A perfectly competitive firm is producing 50 units of output, which it sells at the market price of $23 per unit. The firm's average total cost is $20. What is the firm's total revenue? a. $23 b. $150 c. $1,000 d. $1,150 e. $ If a perfectly competitive seller is maximizing profit and is earning only a normal profit, which of the following will this seller do? a. go to work in the next-best earning opportunity b. shut down, with a loss equal to total fixed cost c. continue at the current output, earning a normal profit d. increase production in order to earn an economic profit e. remain open but decrease production in order to earn an economic profit 43. If a perfectly competitive firm is maximizing its profit and earning an economic profit, then i. price equals marginal revenue ii. marginal revenue equals marginal cost iii. price is greater than average total cost a. i only b. i and ii only c. ii and iii only d. i and iii only e. i, ii, and iii 44. In the long run, a perfectly competitive firm a. can make either an economic profit or a normal profit. b. must suffer an economic loss. c. must earn a normal profit. d. might make an economic profit, an economic loss, or a normal profit. e. must earn an economic profit. 45. If new firms enter a perfectly competitive industry, the market supply a. does not change. b. becomes more price elastic. c. becomes more price inelastic. d. increases. e. decreases because each firm produces less than before the entry. 8

9 46. In the long run, new firms enter a perfectly competitive market when a. normal profits are greater than zero. b. economic profits are equal to zero. c. normal profits are equal to zero. d. economic profits are greater than zero. e. the existing firms are weak because they are incurring economic losses. 47. In a perfectly competitive market, if firms are earning an economic profit, the economic profit a. attracts entry by more firms, which lowers the market price. b. can be earned both in the short run and the long run. c. is less than the normal profit. d. leads to a decrease in market demand. e. generally leads to firms exiting as they seek higher profit in other markets. 48. If firms in a perfectly competitive market are earning an economic profit, then a. the market is in its long-run equilibrium. b. new firms enter the market and the equilibrium profit of the initial firms decreases. c. new firms enter the market and the equilibrium profit of the initial firms increases. d. firms exit the market and the equilibrium profit of the remaining firms decreases. e. firms exit the market and the equilibrium profit of the remaining firms increases. 49. If firms in a perfectly competitive market have economic losses, then as time passes firms and the market. a. enter; demand curve shifts leftward b. enter; supply curve shifts rightward c. exit; demand curve shifts leftward d. exit; supply curve shifts rightward e. exit; supply curve shifts leftward 50. In the long run, a firm in a perfectly competitive market will a. earn zero economic profit, that is, it will earn a normal profit. b. earn zero normal profit but it will earn an economic profit. c. remove all competitors and become a monopolistically competitive firm. d. incur an economic normal loss but not earn a positive economic profit. e. remove all competitors and become a monopoly. 9