Complete Test Bank Ch10 The Firm And The Industry Under - Microeconomics Principles and Policy 14e | Test Bank by Baumol by William J. Baumol. DOCX document preview.
Indicate whether the statement is true or false. |
1. Once a firm’s marginal revenue curve is known, the output level can be determined.
|
2. A perfectly competitive firm will not operate where MC = MR but at MC = AC.
|
3. In perfect competition, a firm’s marginal revenue equals the price of the product.
|
4. Perfectly competitive markets feature relatively high barriers to entry.
|
5. A perfectly competitive firm has a horizontal demand curve because it can sell as much as it wants at the market price.
|
6. Total profit of a competitive firm can be found by multiplying profit per unit and units sold.
|
7. The implications of the zero economic profit condition in a perfectly competitive market implies that the opportunity cost of capital is integrated into the firm’s cost relationships.
|
8. For a perfectly competitive firm, the long-run supply curve is the long-run average cost curve.
|
9. In the long run, any firm may enter or leave a perfectly competitive market.
|
10. The demand curve of a perfectly competitive firm is vertical.
|
11. In the short run, a perfectly competitive firm can make a profit, a loss, or go out of business.
|
12. The market demand curve in perfect competition is horizontal.
|
13. Perfect competition requires that three conditions be satisfied.
|
14. Under the theory of perfect competition, firms and buyers know the availability and prices associated with all products in the market.
|
15. In perfect competition, there are differences in the products sold by various firms.
|
16. Economic profit equals gross earnings minus the firm’s direct costs.
|
17. In a long-run equilibrium in a perfectly competitive market, firms are selling at a price equal to marginal cost.
|
18. As long as TVC < TR, a firm will have a positive level of output in the short run.
|
19. A perfectly competitive firm’s short-run supply is infinite at the market price.
|
20. In perfectly competitive markets, some buyers do not have full information about the products available.
|
21. It is relatively easy for a firm to enter a perfectly competitive market.
|
22. A perfectly competitive firm may, under some circumstances, be able to affect the market price.
|
23. A firm that is earning zero economic profit should go out of business.
|
24. A perfectly competitive firm is a “price taker” because it cannot sell its product for more than the market price.
|
25. A perfectly competitive firm is a “price maker.”
|
26. In the short run, a firm may have accounting losses and remain in operation.
|
27. Perfect competition forms one extreme of the market structure spectrum.
|
28. Firms in a perfectly competitive market produce at minimum average cost in the short run and the long run.
|
29. For a firm in a perfectly competitive market, its short-run supply curve is that portion of the MC curve above where it intersects with the average total cost curve.
|
30. In perfect competition, a firm’s marginal revenue is the same as the demand curve at high levels of output.
|
31. Perfect competition is characterized by numerous products with well-known brand names.
|
32. In a long-run equilibrium in a perfectly competitive market, the average firm earns positive economic profits.
|
33. The market for toothpaste is a good example of perfect competition.
|
34. In the long run, a perfectly competitive firm maximizes profit so P = MC = AC.
|
35. In long-run equilibrium, a firm in perfect competition has no economic profit.
|
36. A firm will not choose to produce if total variable costs exceed total revenue.
|
37. The entry of new firms into a perfectly competitive market shifts the demand curve outward.
|
38. Perfectly competitive markets are not the best at producing the goods that are desired by consumers.
|
39. Perfectly competitive firms are known for being “price makers.”
|
40. The short-run equilibrium output of a competitive firm is found by equating marginal cost with price.
|
41. In the short run, if price is below AC, maximizing profits really means minimizing total losses.
|
42. In long-run equilibrium in perfect competition, every firm is producing at minimum average cost.
|
43. In perfectly competitive markets, firms operate where MC = MR and because of this, they are not making any economic profit.
|
44. The short-run market demand curve in perfect competition is positively sloped.
|
45. In the short run, a perfectly competitive firm can make a profit, a loss, or shut down.
|
46. In the long run, a perfectly competitive firm earns no accounting profits.
|
47. Zero economic profit means that the firm’s owners receive no compensation for their investment.
|
48. An industry supply curve is the horizontal summation of the supply curves of all of the individual firms.
|
49. Perfect competition is an ideal market structure.
|
50. In a long-run equilibrium in a perfectly competitive market, firms are selling at a price equal to average cost.
|
51. Using only marginal revenue and marginal cost, we can determine whether a firm is incurring a profit or a loss.
|
52. A firm that knows the market price for its product and its costs can determine how much output that they wish to produce.
|
53. In the short run, the lowest price that a perfectly competitive firm will accept without closing its doors is found by examining the average variable cost curve.
|
54. If a firm sells its output at a price greater than AVC, it will earn economic profit.
|
55. Firms in perfectly competitive markets are confined to making profits in the short run, but never a loss.
|
56. In the short run, a perfectly competitive firm can either make a profit or exit the market.
|
57. It pays the firm to produce only if total variable costs exceed total revenue.
|
58. Under perfect competition, firms are relatively ignorant of the actions of their competitors.
|
59. Zero profit in the economic sense means that firms are earning a normal rate of return.
|
60. A perfectly competitive firm can maximize profits by producing the quantity at which MR exceeds MC by the greatest amount.
|
61. A price taking firm is able to sell its product just slightly above the current market price.
|
62. A firm operating at MC = MR must be making a profit.
|
63. A price taking firm’s short-run supply curve is perfectly elastic at the market price.
|
64. The short-run supply curve for the perfectly competitive firm is that part of the marginal cost curve that lies above the average fixed cost curve.
|
65. The opportunity cost of a given investment is the potential earnings forfeited by tying up money in the investment.
|
66. If a firm sells its output at a price greater than AC, it will earn economic profit.
|
67. For a perfectly competitive firm, the long-run supply curve is its long-run marginal cost curve.
|
68. Perfect competition is characterized by numerous firms.
|
69. Perfectly competitive markets have absolutely no drawbacks.
|
70. In the short run, only a limited number of new firms may enter a perfectly competitive market.
|
71. The short-run supply curve for a perfectly competitive firm is that portion of the MC curve above the AVC curve.
|
72. Subsidizing firms that pollute will reduce pollution in the long run.
|
73. Perfectly competitive markets are not the most efficient type.
|
74. In the short run if TR < TC, a perfectly competitive firm will always shut down.
|
75. The number of firms in a perfectly competitive industry is not fixed in the long run.
|
76. A firm that is operating at a loss may continue to operate for a while because of costs that it will still have to pay even if production ceases.
|
77. In the long run, a perfectly competitive industry tends to develop differentiated products.
|
Indicate the answer choice that best completes the statement or answers the question. |
78. At a firm’s profit-maximizing level of output, its price is $200 and its short-run average total cost is $225. The firm
|
79. Firms in perfect competition are often described as price
|
80. In long-run equilibrium under perfect competition,
|
81. The short-run supply curve of a perfectly competitive firm
|
82. The entry of new firms into an industry will very likely
|
83. For a perfectly competitive firm, marginal revenue equals average revenue because the
|
84. The most efficient market structure in the long run is
|
85. For a competitive firm, if at least some portion of its short-run average cost curve lies below the price of the product, we can conclude that the firm
|
86. The short run for the industry is defined as a period
|
Figure 10-8  |
87. In the long run, the perfectly competitive firm in Figure 10-8 will leave the industry if the price falls below
|
88. The exit of existing firms from an industry will very likely
|
89. Under perfect competition, a firm’s
|
90. Entry by new firms into a perfectly competitive industry
|
91. Which of the following is a characteristic of perfect competition?
|
92. For a perfectly competitive firm, the short-run supply curve has an output level that is
|
Figure 10-7  |
93. In Figure 10-7, output at which point represents short-run but not long-run equilibrium?
|
94. When new farmers enter the wheat industry, the equilibrium price of wheat
|
95. A firm in short-run equilibrium always earns positive profits if
|
96. In determining whether a market meets the conditions for perfect competition, it is necessary to
|
97. In perfect competition, an increase in fixed costs will eventually cause all except
|
98. A perfectly competitive firm should continue to expand output whenever
|
99. The process of adjustment to a new long-run equilibrium in a perfectly competitive industry is not complete if
|
Figure 10-1  |
100. Suppose a perfectly competitive firm’s situation is shown in Figure 10-1 and the firm is currently producing at B. What should the firm do in this situation?
|
101. The result that perfectly competitive firms produce at the lowest per-unit cost is derived from the assumptions of
|
102. The perfectly competitive widget industry is in long-run equilibrium. A profit-maximizing manufacturer receives total revenue of $55,000. He uses his labor, $15,000 worth of wire, and $15,000 worth of steel to make the widgets. The manufacturer
|
103. The perfectly competitive firm’s short-run shutdown rule is to shut down immediately if
|
Figure 10-6  |
104. In Figure 10-6, the price at long-run equilibrium is
|
105. Which of the following characteristics does not fit a perfectly competitive market?
|
Figure 10-1 |
106. If the perfectly competitive firm depicted in Figure 10-1 is currently producing at C, its profits
|
Table 10-2
|
107. Refer to Table 10-2. Which firm is better off staying in business in the short run?
|
108. If the price is less that the firm’s AVC, the firm’s output
|
109. A tax on polluting firms
|
110. A firm will shut down in the short run if
|
Exhibit 10-1 |
111. If the market price of wangdoodles is $15 each, the profit-maximizing producer whose short-run cost curves are given in Exhibit 10-1 should produce ____ wangdoodles.
|
112. The demand curve in the perfectly competitive industry
|
113. The process of adjustment to a new long-run equilibrium in a perfectly competitive industry is complete when
|
114. A firm will shut down in the short run if
|
Figure 10-7 |
115. In Figure 10-7, through which point must a horizontal demand curve pass to yield a long-run equilibrium?
|
116. The difference between zero accounting profit and zero economic profit is that
|
117. A perfectly competitive firm is a price
|
118. The market for a perfectly competitive industry clears at a price of $3, and the minimum average cost for all firms is $2.50. In the long run, we would expect an increase in
|
Figure 10-1 |
119. Suppose a perfectly competitive firm’s situation is shown in Figure 10-1 and the firm is currently producing at D. What can be said about this situation?
|
Figure 10-2  |
120. Figure 10-2 shows demand and short-run cost curves for a perfectly competitive firm. At its profit-maximizing output, the firm’s total ____ is represented by area ____.
|
121. Which of the following observations is not true?
|
122. Which of the following statements is not true in a perfectly competitive industry in long-run equilibrium?
|
123. Which of the following is closest to the economist’s definition of perfect competition?
|
124. Firms will continue to enter a perfectly competitive industry until
|
Figure 10-5  |
125. Figure 10-5 shows the short-run cost relationships for a perfectly competitive firm. Based on this diagram, which point would not be on the firm’s short-run supply curve?
|
126. If the objective of economic policy is to decrease the amount of pollution by an industry in the long run, the
|
127. The short-run supply curve of the perfectly competitive industry is found by summing the
|
128. A subsidy to firms intended to reduce pollution in an industry would
|
129. The entry of firms into a perfectly competitive industry causes the supply curve to
|
130. The perfectly competitive firm has no influence over price because
|
131. A perfectly competitive firm should continue to expand output until
|
132. The short-run supply curve of the perfectly competitive firm is the firm’s
|
133. A perfectly competitive firm will always maximize profits by producing where
|
134. The strength of the competition faced by a company can profoundly affect its
|
Figure 10-1 |
135. If the profit-maximizing firm depicted in Figure 10-1 is perfectly competitive, how much output should it produce?
|
136. A firm in a perfectly competitive industry
|
137. A market
|
138. We expect the demand curve in the perfectly competitive industry to be
|
139. A firm can stay in business while taking a loss in the short run as long as it covers its
|
140. Which requirement for perfect competition rules out trade associations or other collusive arrangements in which firms work together to influence price?
|
Exhibit 10-1 |
141. The firm whose short-run cost curves are given in Exhibit 10-1 has a long-run fixed cost of
|
142. Zero economic profits for a perfectly competitive firm in the long run means
|
143. In a perfectly competitive industry, influence over price is exerted by
|
Figure 10-4  |
144. Figure 10-4 shows the industry’s supply and demand curves in panel (1) and the cost curves of a firm in the industry in panel (2). At S3, the firm is
|
145. If a perfectly competitive industry is in long-run equilibrium, firms maximize profits, and the process of entry and exit results in
|
146. In perfect competition, an increase in the firm’s fixed costs lead to
|
Figure 10-3  |
147. In Figure 10-3, the profit maximizing firm will operate at a level of
|
148. If a firm shuts down, its
|
149. When a firm faces a horizontal demand curve,
|
150. Which of the following is a characteristic of a perfectly competitive market?
|
151. If you must determine the long-run equilibrium output of a perfectly competitive firm and you are permitted to see only one curve, which of the following curves is most helpful?
|
Table 10-1
|
152. In Table 10-1 are the short-run cost schedules of a perfectly competitive firm. Below what price would the firm choose to shut down?
|
Figure 10-8 |
153. Figure 10-8 displays the cost curves of a perfectly competitive firm. Profits at a price of $10 would be approximately
|
Figure 10-4 |
154. Figure 10-4 shows the industry’s supply and demand curves in panel (1) and the cost curves of a firm in the industry in panel (2). At S2, the firm is
|
155. A firm will shut down in the short run if
|
156. To determine whether a market is perfectly competitive, economists examine the
|
157. The long-run industry supply curve in perfect competition is derived from the
|
Table 10-1
|
158. In Table 10-1 the short-run cost schedules of a perfectly competitive firm are shown. Suppose that the market price of output is $20, the firm will produce ____ units and earn a profit of ____.
|
159. When a firm leaves a perfectly competitive industry,
|
160. Long-run average cost of the perfectly competitive firm includes the
|
Figure 10-6 |
161. In Figure 10-6, if the current market price is at $10, then in the long-run equilibrium
|
162. Economists study perfect competition
|
163. At a perfectly competitive firm’s short-run equilibrium level of output,
|
164. If a firm shuts down in the short run, its losses are equal to
|
165. At a perfectly competitive firm’s profit-maximizing level of output, its total revenue is $200 and its short-run variable cost is $225. The firm
|
166. If government forced a firm to charge a price equal to marginal cost in a situation where there are scale economies,
|
167. In short-run equilibrium, a perfectly competitive firm
|
Figure 10-8 |
168. For the perfectly competitive firm in Figure 10-8, what is the long-run price and quantity?
|
169. A perfectly competitive firm would be willing to remain in the industry in the long run at zero economic profit because
|
170. Which of the following markets most closely resembles the characteristics of a perfectly competitive market?
|
171. An increase in market demand will cause an increase in industry output in the long run because
|
172. Helga owns Viking, Inc., started with her $100,000 inheritance. Helga’s accountant informs her that her firm earned a profit of $100,000 last year, and that if she chooses to invest the money she can expect a 10 percent return. If Helga did not run Viking, she would not work. What were Helga’s economic profits last year?
|
173. If a competitive firm’s short-run average cost curve lies above the price of the product, we can conclude that the firm
|
174. The market for a perfectly competitive industry has an equilibrium price of $5 and the minimum average cost for the firms in this market is $3. In the long run, we would expect
|
Figure 10-8 |
175. In the short run, the firm in Figure 10-8 will shut down if the price falls below
|
176. Which of the following decisions cannot be taken by a firm in a perfectly competitive market?
|
Figure 10-9  |
177. Figure 10-9 shows supply and demand conditions in a perfectly competitive industry and for a firm in that industry. Assume the industry initially has supply curve S1 and demand curve D1. If demand shifts to D2, then in the short run price will
|
178. When the market is in long-run equilibrium in a perfectly competitive market, this implies that in the long run means
|
179. At its long-run equilibrium level of output, the demand curve facing an individual perfectly competitive firm is tangent to its
|
180. Which of the following statements concerning equilibrium in the long run is not true?
|
181. When a perfectly competitive industry is in long-run equilibrium, firms maximize profits, and entry forces the price down
|
182. Perfect competition is the term used to describe
|
Figure 10-1 |
183. A firm earns a profit of exactly zero at its optimal output level only if
|
184. In the short run, perfectly competitive firms can
|
185. The long run for the industry is defined as a period of time long enough for
|
186. Which of the following most resembles a perfectly competitive market?
|
187. The supply curve for a perfectly competitive industry is obtained by
|
188. A perfectly competitive industry in long-run equilibrium is described as efficient because firms
|
189. For a perfectly competitive firm in the short run, if the following conditions are true, P = MR = MC > AC, then
|
190. Richard Bland quit his job as an accounting professor to start his own restaurant. He gave up a salary of $50,000 per year and withdrew $100,000 in bank CDs earning 5 percent to buy a building and equipment. In the restaurant’s first year it had direct expenses of $75,000 and revenues of $150,000. The restaurant’s economic profit was
|
191. What is the nature of the elasticity of the demand curve faced by perfectly competitive firm?
|
192. The long-run supply curve of an industry equals the industry’s
|
193. A firm facing a horizontal demand curve
|
194. Regardless of quantity in long-run equilibrium, the industry price cannot exceed the
|
Figure 10-5 |
195. In Figure 10-5, points which lie on the firm’s short-run supply curve are
|
196. In long-run equilibrium, the perfectly competitive firm produces
|
197. Firms entering a perfectly competitive industry will cause the price of the product to
|
Figure 10-5 |
198. Figure 10-5 shows supply and demand conditions in a perfectly competitive industry and for a firm in that industry. At point C, the firm would
|
199. Perfectly competitive firms ____ earn zero economic profit in long-run equilibrium because ____.
|
200. In the short run, perfectly competitive firms will determine whether to continue producing the current output, reduce output, or increase output based on the relationship between
|
201. In a market with perfectly competitive firms, the market demand curve is usually ____ and the demand curve facing each individual firm ____.
|
202. If the price falls below minimum SRAVC, the quantity supplied by the firm will be
|
203. One of the following is not a characteristic of perfect competition. Which is it?
|
204. The quantity that a firm will supply in the short run
|
Figure 10-3 |
205. In Figure 10-3, the perfectly competitive firm is realizing a
|
206. Under perfect competition, regarding short-run profit, a firm may find itself losing money. This is true because
|
Figure 10-2 |
207. Figure 10-2 shows demand and short-run cost curves for a perfectly competitive firm. At its profit-maximizing level of output, the firm’s short-run TC is represented by area
|
208. In perfect competition, marginal revenue always equals
|
209. If the opportunity cost of capital is below the rate of return to capital in the perfectly competitive beauty salon industry,
|
Figure 10-4 |
210. Figure 10-4 shows the industry’s supply and demand curves in panel (1) and the cost curves of a firm in the industry in panel (2). At S1, the firm is
|
211. When a firm shuts down,
|
Figure 10-2 |
212. Figure 10-2 shows demand and short-run cost curves for a perfectly competitive firm. In the short run, this firm would
|
213. Which of the following is not a characteristic of perfect competition?
|
Table 10-1
|
214. In Table 10-1 are the short-run cost schedules of a perfectly competitive firm. If the market price of output is $50, the firm will produce ____ units and earn a profit of ____.
|
215. Why does the supply curve of the perfectly competitive industry shift to the right whenever a new firm enters the industry? |
216. Illustrate the cost curves and average revenue (demand) curve for the perfectly competitive firm in long-run equilibrium. |
217. A firm’s minimum AC is $10, its minimum AVC $7. Show this firm’s short-run supply curve, explaining how you obtained it. |
218. A firm sells in a competitive market in which price is $12. Its marginal cost is 6 + 0.25Q. Determine the profit-maximizing level of output. |
219. Define the following terms and explain their importance to the study of economics. a. marginal cost b. marginal revenue c. short-run equilibrium d. supply curve of the firm e. economic profit |
220. Draw a graph showing the typical competitive firm losing money but continuing to operate. Explain why the firm continues to operate rather than shut down. |
221. Describe the process that would occur in the long run in a competitive industry if there were economic profits. Illustrate this with a diagram. |
222. Why doesn’t a perfectly competitive firm charge a price slightly higher than the industry price in order to earn extra profit? |
223. Profits or losses must be temporary for perfectly competitive firms. Why? |
224. Explain why Adam Smith believed that competitive markets are a key component of achieving the gains from the invisible hand. |
225. What are the assumptions of the model of perfect competition? Explain why each is important for short-run and long-run equilibrium. |
226. How does a firm that is losing money in the short run decide whether to shut down or continue to produce to minimize its losses? |
227. What is the difference between the short run and the long run as economists define the two? |
228. The demand curve for the perfectly competitive industry normally slopes downward, unlike the perfect competitive firm. Why? |
229. Explain the reasoning behind the shutdown rules. When is it appropriate to operate with a loss? |
230. What happens to the price of the product and total revenue for a perfectly competitive firm if it doubles the amount of output it supplies in the market? |
231. There are currently 1,000 firms in a competitive industry. Minimum long-run average cost is $80 and price $100. Explain what will happen to price, profit, and the number of firms in this industry over time. |
232. Why do economists consider perfect competition to be the most efficient market structure? |
233. To own a taxicab in New York City, you must own a medallion. New York City regulates the number of official cabs by limiting the number of medallions. Explain why the New York cab industry is not competitive by reviewing the four conditions necessary for competition. NYC violates which one? |
234. What is the difference between the accountant’s concept of profit and the economist’s view of profit? |
235. Draw a graph illustrating the relationship between the demand curve of the perfectly competitive firm and the perfectly competitive industry. Label all curves and axes correctly. |
236. Show what happens to the industry equilibrium when new firms enter a perfectly competitive market in the long run. |
237. Why study perfect competition, if it rarely exists? |
238. We don’t need to draw separate curves for demand, average revenue, and marginal revenue curves for a perfectly competitive firm. Why? |
239. Graphically show a firm earning a profit; shade the appropriate profit rectangle. Explain how the profit formula represented by the rectangle is analogous to TR − TC. |
240. If there are no profits in competitive equilibrium, why do firms produce? How can they stay in business? |
241. Explain why taxes on pollutants reduce pollution while subsidies to firms cutting their pollutants actually increase pollution. |
242. Draw a graph illustrating a competitive firm in short-run equilibrium that is earning an economic profit. Be sure to label all curves and axes correctly. |
243. Perfect competition displays the market mechanism at its best in many respects, yet most markets in operation today are monopolistic or oligopolistic, composed of a few large firms. Should government regulation break up those large firms into several smaller firms to try to achieve perfect competition? Why or why not? |
244. Sally Rand owns a ceiling fan company. She sells 1,000 ceiling fans at $50 each. Each fan costs her $20. She uses her own money to buy the fans; she withdraws the money from her savings account where it earns 5 percent interest. Before going into the ceiling fan business, she worked as a fan-dancer at $25,000 a year. Should Sally remain in business? |
245. What is the relationship between the long-run industry supply curve and the short-run supply curve in a perfectly competitive market? |
246. Give a complete but concise definition of the following terms. a. perfect competition b. perfectly competitive firm's demand curve c. shutdown point d. long-run equilibrium in perfect competition |
247. Explain how the short-run supply curve of the competitive firm is derived. |
248. What makes the demand curve of the perfectly competitive firm uniquely different from that of firms in other kinds of market structures? |
249. Explain how the short-run industry supply curve for a perfectly competitive market is derived. |
250. A firm sells in a competitive market in which price is $10. Its marginal cost is 2 + 0.5Q. Determine the profit-maximizing level of output. |
251. If the typical firm’s minimum average variable cost is $10 at an output of 50 units, if marginal cost is $20 at 70 units, and there are 1,000 firms in the industry, sketch supply curves for the typical firm and for the industry as a whole. |
252. Why doesn’t a competitive firm reduce its price below the industry price to increase sales? |
253. If a firm has short-run losses, will it stay open? Under what conditions will a firm close in the short run? Explain. |
Document Information
Connected Book
Microeconomics Principles and Policy 14e | Test Bank by Baumol
By William J. Baumol
Explore recommendations drawn directly from what you're reading
Chapter 8 Output Price And Profit The Importance Of Marginal Analysis
DOCX Ch. 8
Chapter 9 Financial Markets & Economy
DOCX Ch. 9
Chapter 10 The Firm And The Industry Under Perfect Competition
DOCX Ch. 10 Current
Chapter 11 The Case For Free Markets The Price System
DOCX Ch. 11
Chapter 12 Monopoly
DOCX Ch. 12