Assignment 7

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Question 1 (1 point)

Which of the following statements about a perfectly competitive market is not true?

The products sold by the firms are identical
Anyone can enter or exit the industry without difficulty
A firm in such a market is called a price maker
There are many sellers in the market
Buyers and sellers have perfect information about the market

Question 2 (1 point)

If an individual firm is a price taker, then

it faces a horizontal demand curve
it is operating in a perfectly competitive market
its price is determined by the market-supply and market-demand curves
it has no real control over the price that it charges; if it raises its price, it will lose all of its customers, and if it lowers its price, it loses revenue
All of these

Question 3 (1 point)

If a firm in a perfectly competitive market raises its price,

whether it sells less or more depends on elasticity
it will sell less but have more revenue
it will sell exactly the same amount
it will sell less but have the same revenue
it will sell nothing

Question 4 (1 point)

In the short run, a perfectly competitive firm maximizes profit where

marginal revenue equals marginal cost
price equals marginal cost
the short-run average-total-cost curve reaches a minimum
price equals marginal revenue
Both a. and b

Question 5 (1 point)

The marginal-revenue curve of a perfectly competitive firm is

the firm's demand curve
a rectangular hyperbola
a positively sloped straight line through the origin
equivalent to the market-demand curve in the case of perfect competition
the firm's demand curve except in the case of perfect competition

Question 6 (1 point)

In the figure above, the perfectly competitive firm maximizes its profit at

output R
output S
output T
output U
Cannot be determined from the information given

Question 7 (1 point)

In the figure above, the perfectly competitive firm's short-run supply curve is

the MC curve
ATC above point H
the entire MR curve
MC above AVC
AVC above point G

Question 8 (1 point)

In the figure above, the firm's shutdown price is

less than $15
$50
above $60
between $50 and $60
$60

Question 9 (1 point)

If a perfectly competitive firm is earning negative economic profits in the short run, it will

shut down
continue to operate in order to reduce losses
shut down with the intention of getting out of the business
continue to operate only for a short time period
shut down if it can't earn sufficient revenue to cover variable costs

Question 10 (1 point)

A firm will shut down if its price falls below

the marginal-revenue curve
the maximum point on the AVC curve
the minimum point on the AVC curve
the minimum point on the ATC curve
the maximum point on the ATC curve

Question 11 (1 point)

In perfect competition, the firm's long-run supply curve is

the AVC curve above the MC curve
the ATC curve above the MC curve
the MC curve above the ATC curve
the MC curve above the AFC curve
the MC curve above the AVC curve

Question 12 (1 point)

In the long run in a perfectly competitive market,

firms will shut down permanently if TR < TC
the number of firms can vary
all firms can vary all of their resources
entry and exit of firms can occur
All of these

Question 13 (1 point)

When firms leave a perfectly competitive market, then, other things equal,

market supply will decrease and market price will fall
market demand and market supply will both decrease
market supply will decrease and market price will rise
market demand will increase and market price will rise
market demand will decrease and market price will fall

Question 14 (1 point)

In the long run, a perfectly competitive market will

have exit of firms if economic profits are negative
have normal economic profits in long-run equilibrium
have entry of firms if economic profits are positive
have entry and exit of firms until economic profits are zero
All of these

Question 15 (1 point)

The firm will maximize profits in the figure above if the market price is

$20 and the firm produces 7 units
$10 and the firm produces 8 units
$30 and the firm produces 9 units
$10 and the firm produces 9 units
$20 and the firm produces 9 units

Question 16 (1 point)

According to the figure above, in the long run, a perfectly competitive firm

will produce at quantity 10 and price $1.50
will produce at quantity 9 and price $1
will produce at quantity 9 and price $1.50
will produce at quantity 10 and price $1.25
will shut down

Question 17 (1 point)

According to the figure above, the graph on the left side represents __________ and the graph on the right side represents __________.

the individual firm in perfect competition; the market
the market; the individual firm in perfect competition
the market; the individual firm in monopolistic competition
the individual firm in monopolistic competition; the market
the market; the individual firm in oligopoly

Question 18 (1 point)

Which of the following statements concerning predictions of the perfect competition model is not true?

Firms will leave the market whenever economic losses are being incurred
If the market price is above the minimum point on the ATC curve, firms will enter the market
If the market price is below the minimum point on the ATC curve, firms will leave the market
Firms will leave the market when they are only earning enough to cover their opportunity costs
Entry into the market will occur whenever economic profits are being earned

Question 19 (1 point)

Assume the figure above represents the market for apartments. If the government imposed a rent control that would force all rents to be less than the market price,

consumer surplus and producer surplus would be reduced
the producer surplus would be increased
consumer surplus would be increased
only consumer surplus would be affected
neither consumer nor producer surplus would be affected

Question 20 (1 point)

From a social viewpoint, when P = MC

firms would be better off by producing less
all units of output have been produced where consumers are willing to pay a price that is greater than or equal to the costs to firms of producing that next unit of output
the economy as a whole would be better off if more was produced
the economy as a whole would be better off if less was produced
None of these

Question 1 (5.00 points)

What will happen in a perfectly competitive market if firms are making positive economic profit? A negative economic profit?

Question 2 (5.00 points)

Assume that the market for illegal drugs is an example of a perfectly competitive market structure. Describe what the perfectly competitive market model predicts for illegal drugs in the long run. What is likely to be the impact of the U.S. government�s war on drugs in the short run? In the long run?

Copyright 2008, by the Contributing Authors. Cite/attribute Resource. admin. (2009, January 27). Assignment 7. Retrieved November 24, 2009, from Free Online Course Materials — USU OpenCourseWare Web site: http://ocw.usu.edu/economics/introduction-to-microeconomics-1/assignment7.htm. This work is licensed under a Creative Commons License.

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