1.Perfect competition is important to study because it:
a. is a theoretical extreme used for analysis.
b. is a realistic model of a few key markets.
c. is a realistic model of many different markets.
d. avoids all real-world problems and complexities.
2. The difference between total revenue and total cost is:
a. economic profit.
b. nominal revenue.
c. average revenue.
d. marginal revenue.
3. When a firm’s total revenue exceeds its total cost:
a. average revenue is less than average total cost.
b. total cost falls with increases in output.
c. total cost rises with increases in output.
d. marginal cost is negative.
4. The profit-maximizing level of output for a perfectly competitive firm in the short run occurs where:
a. marginal cost equals price.
b. marginal revenue equals price.
c. total revenue equals total cost.
d. average revenue equals average total cost.
5. In this exhibit (A Perfectly Competitive Firm in the Short Run), the firm will shut down in the short run if the price falls below:
a. 0G.
b. 0F.
c. 0E.
d. 0P.
6. A perfectly competitive firm will continue producing in the short run as long as it can cover its:
a. total cost.
b. average total cost.
c. average variable cost.
d. average fixed cost.
7. If some firms in a perfectly competitive industry are earning positive economic profits, then in the long run, the:
a. industry is in long-run equilibrium.
b. industry supply curve will shift to the right.
c. number of firms in the industry will not change.
d. number of firms in the industry will decrease.
8. Suppose that the market for candy canes operates under conditions of perfect competition, that it is initially in long-run equilibrium, and that the price of each candy cane is $0.10. Based on the information given, we can conclude that the average revenue for candy canes:
a. is less than $0.10.
b. equals $0.10.
c. is greater than $0.10.
d. It is not possible to answer based on the information given.
9. If a perfectly competitive industry is characterized by constant costs in the long run, its long-run:
a. marginal revenue curve is vertical.
b. marginal cost curve is vertical.
c. industry supply curve is horizontal.
d. average fixed cost curve is horizontal.
10. An increase in demand in a perfectly competitive industry characterized by constant costs will cause a/an:
a. permanent increase in price.
b. economic loss for firms.
c. increase in the quantity supplied in the short run and an increase in market supply in the long run.
d. decrease in firm’s marginal revenue.
11. A natural monopoly is most likely to result if a single firm:
a. is the only seller in a community.
b. is investor-owned, but is granted the exclusive right by the government to operate in a market.
c. experiences economies of scale over a wide range of output.
d. has gained control over a strategic input of an important production process.
12. A location-based monopoly is most likely to result if a single firm:
a. is the only seller in a small town or community.
b. is investor owned, but granted the exclusive right by the government to operate in a market.
c. experiences long-run increasing economies of scale over a wide range of output.
d. has gained control over a strategic input of an important production process.
13. Situations in which the more users of a product there are, the more useful the product becomes are called:
a. network effects.
b. monopolies.
c. conglomerates.
d. exclusive franchises.
14. A firm that faces a downward-sloping demand curve:
a. is a perfectly competitive firm.
b. is a price taker.
c. has some monopoly power.
d. cannot sell more at lower prices.
15. In this exhibit (Demand, Elasticity, and Total Revenue), when price is P and quantity is Q in Panel (a), which of the following is (are) true?
a. An increase in price will increase total revenue.
b. A decrease in price will increase total revenue.
c. P x Q is the maximum amount TR can be.
d. B and C are true.
16. Assume that Sandy Chip Products, Inc. is the world’s only producer of a special kind of computer chip. Its patents assure that it will continue to be the only producer for at least the next decade. Chip production requires clean water. The firm gets its water from a river, which is being polluted by paper mills located upstream. Sandy Chip therefore has to process the water before using it. A recently enacted pollution-control program, whereby the paper mills will be fined for polluting the river, will result in less pollution and thus lower Sandy Chip’s costs. Sandy Chip expects its marginal and average cost to fall by $20 per chip. With the reduction in its costs, Sandy Chip will probably:
a. lower its price by $20.
b. lower its price, but by less than $20.
c. lower its price, but by more than $20.
d. It is not possible to make a determination from the information given.
17. In this exhibit (Monopoly Model), when the firm is in equilibrium (that is, maximizing its economic profit), its total revenue is the area of rectangle:
a. SPDB.
b. IPDH.
c. 0SBJ.
d. 0PDJ.
18. Which of the following is true regarding monopoly?
a. Monopolies produce too much and charge too much from the standpoint of efficiency.
b. Monopolies usually are economically efficient because they have economic profits with which to work.
c. Monopolies produce too little and charge too much from the standpoint of efficiency.
d. Monopolies create an efficiency problem but are not associated with an equity problem.
19. In contrast to a monopoly firm, a perfectly competitive firm:
a. is a price taker.
b. faces a downward-sloping demand curve.
c. has only a moderate degree of monopoly power.
d. produces more than the efficient level of output.
20. A feature of monopoly that leads to unfavorable consequences is that it:
a. reduces income inequality.
b. sets marginal cost equal to marginal revenue rather than price.
c. produces more output than if perfectly competitive firms characterized the same industry.
d. charges a lower price than if perfectly competitive firms characterized the same industry.