Econ 1B - Principles of Microeconomics » Spring 2023 » Chapter 12 Problem Set

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Question #1
When perfect competition prevails, which of the following characteristics of firms are we likely to observe?
A.   They are all price takers.
B.   They all try to operate where price equals total cost.
C.   They all try to operate where price equals average variable cost.
D.   None of them ever has diminishing marginal returns.
Question #2
Suppose that some firms in a perfectly competitive industry are earning positive economic profits. In the long run, the:
A.   industry supply curve will shift to the left.
B.   number of firms in the industry will not change.
C.   industry is in equilibrium.
D.   number of firms in the industry will increase.
Question #3
A perfectly competitive industry is said to be efficient because the:
A.   average total cost of production of the industry's output is minimized.
B.   market price of the good is equal to economic profit for all firms in the industry.
C.   marginal cost of production of the last unit of output is minimized.
D.   product is standardized across firms in the industry.
Question #4
If a perfectly competitive firm decreases production from 11 units to 10 units and the market price is $20 per unit, total revenue for 10 units is:
A.   $200.
B.   $20.
C.   $210.
D.   $10.
Question #5
Perfect competition is characterized by:
A.   the inability of any one firm to influence price.
B.   rivalry in advertising.
C.   widely recognized brands.
D.   fierce quality competition.
Question #6
Which of the following is MOST likely to cause firms to exit a perfectly competitive industry?
A.   A technological advance allows all firms to produce more efficiently.
B.   Consumer income falls.
C.   Consumer tastes and preferences for this product get stronger.
D.   The price of a key variable input falls.
Question #7
If a perfectly competitive firm is producing a quantity where P > MC, then the firm can increase profit by:
A.   making no change in output or price because it is already maximizing profit.
B.   decreasing the price.
C.   increasing production.
D.   increasing the price.
Question #8
A perfectly competitive firm will earn a profit and will continue producing the profit-maximizing quantity of output in the short run if the price is:
A.   greater than average variable cost but less than average total cost.
B.   less than marginal cost.
C.   greater than average total cost.
D.   less than the average fixed cost.
Question #9
If a perfectly competitive firm sells 10 units of output at $30 per unit, its marginal revenue is:
A.   $10.
B.   $300.
C.   more than $30.
D.   $30.
Question #10
In the short run, if P < AVC at the quantity where MR = MC, a perfectly competitive firm produces _____ and takes an economic _____.
A.   output; profit
B.   output; loss
C.   no output; loss
D.   no output; profit
Question #11
If the price is greater than the average variable cost and less than the average total cost at the profit-maximizing quantity of output in the short run, a perfectly competitive firm will:
A.   produce more than the profit-maximizing quantity.
B.   produce at an economic loss.
C.   produce at an economic profit.
D.   shut down production.
Question #12
The perfectly competitive model assumes all of the following EXCEPT:
A.   easy entry to and exit from the market.
B.   that firms attempt to maximize their total revenue.
C.   a great number of buyers.
D.   a standardized product.
Question #13
If firms are taking economic losses in the short run, firms will leave the industry, industry output will _____, and economic losses will _____ in the long run.
A.   rise; rise
B.   rise; fall
C.   fall; rise
D.   fall; fall
Question #14
If the price is consistently below average total cost, then in the short run a perfectly competitive firm should:
A.   There is not enough information given to answer this question.
B.   shut down.
C.   raise the price.
D.   continue to produce to minimize losses.

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