Download Eco201, Fall 2005, Quiz 5, Prof. Bill Even Your name 1) In perfect

Eco201, Fall 2005, Quiz 5, Prof. Bill Even Your name _____________________ 1) In perfect competition, a. there are few buyers. b. all firms in the market sell their product at the same price. c. there are significant restrictions on entry. d. each firm can influence the price of the good. 2) In perfect competition, the elasticity of demand for the product of a single firm is a. zero, because the firm produces a unique product. b. zero, because many other firms produce identical products. c. infinite, because many other firms produce identical products. d. infinite, because the firm produces a unique product. 6) A perfectly competitive firmʹs short-run supply curve is the same as a. its AVC curve. b. its MC curve above the minimum of the AVC curve. c. its ATC curve. d. its MR curve. 7) A firm that shuts down and produces no output incurs a loss equal to its a. total fixed costs. b. marginal revenue. c. total variable costs. d. marginal costs. 8) A perfectly competitive firm will shut down if its a. price is less than total variable cost. b. total revenue is less than fixed cost. c. price is less than average variable cost. d. total revenue is less than average fixed cost. 9) In a perfectly competitive industry, a permanent decrease in demand initially brings a lower price, economic a. loss, and exit from the industry. b. loss, and entry into the industry. c. profit, and entry into the industry. d. profit, and exit from the industry. 3) In the above figure, the firm will produce a. 20 units. b. 0 units. c. 5 units. d. 15 units 4) In the above figure, the marginal cost of the last unit produced by the profit maximizing firm is a. $5. b. $15. c. $10. d. $20. 10) In the above figure, the firmʹs initial average total cost curve is SRAC. If the price is P1, in 5) In the above figure, the firmʹs total economic profit is equal to a. $60. b. $200. c. MR - MC. the long run the firm will a. expand its plant size. c. reduce its plant size. d. $150. b. retain the same plant size. d. exit the industry. 18) To which of the following situations does the term ʺexternal diseconomiesʺ apply? a. The firmʹs ATC curve slopes upward as the firm produces more output. b. Increases in an industryʹs output raise the costs of the firms in an industry. c. Increases in an industryʹs output reduce the costs of the firms in an industry. d. The firmʹs MC curve falls as more output is produced. 11) In the above figure when the firm has reached its long-run equilibrium position, it will produce output equal to the amount a. Q3. b. Q2. c. Q1. d. Q4. 12) Assuming long-run external economies exist, when demand increases in a perfectly competitive market, in the long run, the price of the product a. falls below the initial price (before the increase in demand) and the quantity increases. b. rises above the initial price (before the increase in demand) and the quantity increases. c. equals the initial price (before the increase in demand) and the quantity decreases. d. equals the initial price (before the increase in demand) and the quantity increases. 19) The smallest quantity of output at which long-run average cost is at a minimum is a firmʹs ________. a. profit-maximizing output point b. minimum efficient scale c. maximum efficient scale d. efficient output point 13) In a perfectly competitive market, if there are no external economies or diseconomies, an increase in demand a. lowers the price in the long run. b. raises the price in the long run. c. leaves the price the same in the long d. raises average cost in the long run. run. 14) A long-run supply curve for a perfectly competitive industry can slope upward because of a. diminishing marginal returns. b. economic profit. c. external economies. d. external diseconomies. 15) Paul runs a shop that sells printers. Paul is a perfect competitor and can sell each printer for a price of $300. The marginal cost of selling one printer a day is $200; the marginal cost of selling a second printer is $250; and the marginal cost of selling a third printer is $350. To maximize his profit, Paul should sell a. more than three printers a day. b. two printers a day. c. three printers a day. d. one printer a day. 20) The apple industry is perfectly competitive and is in long-run equilibrium. Now a disease kills 50 percent of the apple orchards. In the short run, the price of a bag of apples ________ and the remaining apple growers make ________ profits. In the long run, the ________. a. increases; positive economic; orchards will be replanted and economic profit will return to zero b. increases; normal; price of apples will return to their original level c. remains the same; normal; orchards will be replanted and growers will make normal profits d. increases; normal; orchards will be replanted and economic profit will return to zero Answers 1b 2c 3a 4c 5a 6b 7a 8c 9a 10a 11a 12a 13c 14d 15b 16b 17a 18b 19b 20a 16) Because of a decrease in the wage rate it must pay, a perfectly competitive firmʹs marginal costs decrease but its demand curve stays the same. As a result, the firm a. increases the amount of output it produces and lowers it price. b. increases the amount of output it produces and does not change its price. c. decreases the amount of output it produces and raises its price. d. decreases the amount of output it produces and lowers its price. 17) As firms enter a perfectly competitive industry, a. the price falls and the existing firmsʹ economic profits decrease. b. the price falls and the existing firmsʹ economic profits do not change. c. the price falls and the existing firmsʹ economic losses do not change. d. the price rises and the existing firmsʹ economic profits decrease.