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Assignment 7

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Question 1 (1 point)
Which of the following statements about a perfectly competitive market is not true?
  1. The products sold by the firms are identical
  2. Anyone can enter or exit the industry without difficulty
  3. A firm in such a market is called a price maker
  4. There are many sellers in the market
  5. Buyers and sellers have perfect information about the market
Question 2 (1 point)
If an individual firm is a price taker, then
  1. it faces a horizontal demand curve
  2. it is operating in a perfectly competitive market
  3. its price is determined by the market-supply and market-demand curves
  4. 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
  5. All of these
Question 3 (1 point)
If a firm in a perfectly competitive market raises its price,
  1. whether it sells less or more depends on elasticity
  2. it will sell less but have more revenue
  3. it will sell exactly the same amount
  4. it will sell less but have the same revenue
  5. it will sell nothing
Question 4 (1 point)
In the short run, a perfectly competitive firm maximizes profit where
  1. marginal revenue equals marginal cost
  2. price equals marginal cost
  3. the short-run average-total-cost curve reaches a minimum
  4. price equals marginal revenue
  5. Both a. and b
Question 5 (1 point)
The marginal-revenue curve of a perfectly competitive firm is
  1. the firm's demand curve
  2. a rectangular hyperbola
  3. a positively sloped straight line through the origin
  4. equivalent to the market-demand curve in the case of perfect competition
  5. the firm's demand curve except in the case of perfect competition
Question 6 (1 point)
Maximize Profit
In the figure above, the perfectly competitive firm maximizes its profit at
  1. output R
  2. output S
  3. output T
  4. output U
  5. Cannot be determined from the information given
Question 7 (1 point)
Maximize Profit
In the figure above, the perfectly competitive firm's short-run supply curve is
  1. the MC curve
  2. ATC above point H
  3. the entire MR curve
  4. MC above AVC
  5. AVC above point G
Question 8 (1 point)
Shutdown Price
In the figure above, the firm's shutdown price is
  1. less than $15
  2. $50
  3. above $60
  4. between $50 and $60
  5. $60
Question 9 (1 point)
If a perfectly competitive firm is earning negative economic profits in the short run, it will
  1. shut down
  2. continue to operate in order to reduce losses
  3. shut down with the intention of getting out of the business
  4. continue to operate only for a short time period
  5. 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
  1. the marginal-revenue curve
  2. the maximum point on the AVC curve
  3. the minimum point on the AVC curve
  4. the minimum point on the ATC curve
  5. the maximum point on the ATC curve
Question 11 (1 point)
In perfect competition, the firm's long-run supply curve is
  1. the AVC curve above the MC curve
  2. the ATC curve above the MC curve
  3. the MC curve above the ATC curve
  4. the MC curve above the AFC curve
  5. the MC curve above the AVC curve
Question 12 (1 point)
In the long run in a perfectly competitive market,
  1. firms will shut down permanently if TR < TC
  2. the number of firms can vary
  3. all firms can vary all of their resources
  4. entry and exit of firms can occur
  5. All of these
Question 13 (1 point)
When firms leave a perfectly competitive market, then, other things equal,
  1. market supply will decrease and market price will fall
  2. market demand and market supply will both decrease
  3. market supply will decrease and market price will rise
  4. market demand will increase and market price will rise
  5. market demand will decrease and market price will fall
Question 14 (1 point)
In the long run, a perfectly competitive market will
  1. have exit of firms if economic profits are negative
  2. have normal economic profits in long-run equilibrium
  3. have entry of firms if economic profits are positive
  4. have entry and exit of firms until economic profits are zero
  5. All of these
Question 15 (1 point)
Maximize Profits
The firm will maximize profits in the figure above if the market price is
  1. $20 and the firm produces 7 units
  2. $10 and the firm produces 8 units
  3. $30 and the firm produces 9 units
  4. $10 and the firm produces 9 units
  5. $20 and the firm produces 9 units
Question 16 (1 point)
Perfect Competition
According to the figure above, in the long run, a perfectly competitive firm
  1. will produce at quantity 10 and price $1.50
  2. will produce at quantity 9 and price $1
  3. will produce at quantity 9 and price $1.50
  4. will produce at quantity 10 and price $1.25
  5. will shut down
Question 17 (1 point)
Perfect Competition
According to the figure above, the graph on the left side represents __________ and the graph on the right side represents __________.
  1. the individual firm in perfect competition; the market
  2. the market; the individual firm in perfect competition
  3. the market; the individual firm in monopolistic competition
  4. the individual firm in monopolistic competition; the market
  5. 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?
  1. Firms will leave the market whenever economic losses are being incurred
  2. If the market price is above the minimum point on the ATC curve, firms will enter the market
  3. If the market price is below the minimum point on the ATC curve, firms will leave the market
  4. Firms will leave the market when they are only earning enough to cover their opportunity costs
  5. Entry into the market will occur whenever economic profits are being earned
Question 19 (1 point)
Surpluses
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,
  1. consumer surplus and producer surplus would be reduced
  2. the producer surplus would be increased
  3. consumer surplus would be increased
  4. only consumer surplus would be affected
  5. neither consumer nor producer surplus would be affected
Question 20 (1 point)
From a social viewpoint, when P = MC
  1. firms would be better off by producing less
  2. 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
  3. the economy as a whole would be better off if more was produced
  4. the economy as a whole would be better off if less was produced
  5. 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 January 07, 2011, 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 Creative Commons License