Download Exercise 5.2

Exercise 5.2
Multiple Choice
Identify the choice that best completes the statement or answers the question.
____
1.
____
2.
____
3.
____
4.
____
5.
____
6.
____
7.
(2 points) Which
of the following is a characteristic of perfect competition?
a. easy entry into or exit from the market
b. a small number of buyers
c. a high degree of government regulation
d. a differentiated product
e. a high degree of collusion
(2 points) For a perfectly competitive firm,
a. marginal revenue is the same as the market price
b. marginal revenue equals total revenue
c. to earn an economic profit, it must be larger than its competitors
d. price always exceeds average total cost
e. marginal cost equals average cost
(2 points) Under perfect competition, the demand curve facing a firm and the firm's marginal revenue curve are
a. vertical at the firm's chosen output level
b. both vertical, but the demand curve is further to the right than the marginal revenue curve
c. both vertical, but the marginal revenue curve is further to the right than the demand curve
d. both horizontal at the level of the market price
e. both horizontal, but the demand curve is above the marginal revenue curve
(2 points) As long as price is greater than average variable cost, a firm maximizes its profit by producing that
quantity of output for which
a. average revenue equals average total cost
b. the price is the highest
c. marginal revenue equals marginal cost
d. average total cost is minimized
e. average variable cost is minimized
(2 points) Teddy's Bear Shop operates in a perfectly competitive market where the prevailing price is $15.
Teddy's marginal cost curve crosses his average total cost curve at $20. The marginal cost curve crosses his
average variable cost curve at $17. In the short run, Teddy's Bear Shop
a. should operate at a lower output level where it can suffer less of an economic loss
b. will suffer an economic loss, but should continue to operate at the minimum of its average
variable costs
c. will just break even, with neither a profit nor a loss, and should operate
d. will suffer an economic loss and should shut down
e. should operate at a higher output level where it can suffer less of an economic loss
(2 points) In a perfectly competitive market, the equilibrium price
a. is determined by all the buyers in the market but no single buyer is able to influence it
b. is determined by all the sellers in the market but no single seller is able to influence it
c. adjusts until the quantity supplied by all sellers is equal to the quantity demanded by all
buyers
d. is not influenced by the cost structure of the firms in the market
e. is not influenced by the preferences of the consumers in the market
(2 points) In the long run, each perfectly competitive firm produces at the lowest point on
a. its short-run average total cost curve
b. its long-run average total cost curve
____
c. its marginal cost curve
d. both its short-run and long-run average total cost curves
e. both its short-run average cost curve and its marginal cost curve
8. (2 points) Assume that the producers of an input have substantial economies of scale in their production process.
This input is purchased mainly by a group of firms in a perfectly competitive market that is initially in
long-run equilibrium. After all long-run adjustments are made, which of the following would occur in the
competitive output market as a result of shift in consumer tastes toward that market's product?
a. The market price would fall; the market quantity would rise.
b. The market price would rise; the market quantity would fall.
c. The market price would remain unchanged; the market quantity would fall.
d. Both the market price and the market quantity would fall.
e. Both the market price and the market quantity would rise.
What is Perfect Competition?
____
9.
(2 points) Because
perfectly competitive markets rarely exist in the real world, the model has limited usefulness.
a. True.
b. False.
The Perfectly Competitive Firm
____ 10.
(2 points)
If the perfectly competitive firm pictured in the above graph is maximizing profits, it is currently selling
output at a price of
a. $0.
b. $5.
c. $7.
d. $10.
What Happens When Things Change?
____ 11.
(2 points) In
an increasing cost industry, the long-run supply curve is
a. positively sloped.
b. negatively sloped.
c. horizontal.
d. vertical.
Competitive Markets in the Long Run
____ 12.
(2 points) In
a.
b.
c.
d.
the long run in perfect competition, firms will operate at
minimum average total cost.
an average total cost that is just slightly above the minimum.
an average total cost that is about 10% above the minimum.
an average total cost that is below price.
Exercise 5.2
Answer Section
MULTIPLE CHOICE
1. ANS:
NAT:
TOP:
2. ANS:
NAT:
TOP:
3. ANS:
NAT:
TOP:
4. ANS:
NAT:
TOP:
5. ANS:
NAT:
TOP:
6. ANS:
NAT:
TOP:
7. ANS:
NAT:
TOP:
8. ANS:
NAT:
TOP:
9. ANS:
NAT:
TOP:
10. ANS:
NAT:
TOP:
11. ANS:
NAT:
TOP:
12. ANS:
NAT:
TOP:
A
PTS: 2
DIF: 1
financial theories, analysis, reporting, and markets
The Three Requirements of Perfect Competition
A
PTS: 2
DIF: 2
financial theories, analysis, reporting, and markets
Cost and Revenue Data for a Competitive Firm
D
PTS: 2
DIF: 2
financial theories, analysis, reporting, and markets
Cost and Revenue Data for a Competitive Firm
C
PTS: 2
DIF: 2
financial theories, analysis, reporting, and markets
Finding the Profit-Maximizing Output Level
D
PTS: 2
DIF: 3
financial theories, analysis, reporting, and markets
Measuring Total Profit
C
PTS: 2
DIF: 2
financial theories, analysis, reporting, and markets
The Short-Run Market Supply Curve
D
PTS: 2
DIF: 3
financial theories, analysis, reporting, and markets
Long-Run Equilibrium
A
PTS: 2
DIF: 3
financial theories, analysis, reporting, and markets
What Happens When Things Change
B
PTS: 2
DIF: 2
financial theories, analysis, reporting, and markets
Is Perfect Competition Realistic?
D
PTS: 2
DIF: 1
financial theories, analysis, reporting, and markets
Finding the Profit-Maximizing Output Level
A
PTS: 2
DIF: 2
financial theories, analysis, reporting, and markets
Market Signals and the Economy
A
PTS: 2
DIF: 2
financial theories, analysis, reporting, and markets
The Notion of Zero Profit in Perfect Competition
LOC: Perfect competition
LOC: Perfect competition
LOC: Perfect competition
LOC: Perfect competition
LOC: Perfect competition
LOC: Perfect competition
LOC: Perfect competition
LOC: Perfect competition
LOC: Perfect competition
LOC: Perfect competition
LOC: Perfect competition
LOC: Perfect competition