51.

If the perfectly competitive firm is producing an output level at which price equals marginal cost, it is
a. earning profits.
b taking losses.
.
c. earning normal profit.
d There is not enough information to answer the question.
.

52. Assume a constant-cost industry that is initially in long-run competitive equilibrium. An increase in
demand will cause a(n) __________ in prices and profits, and as a result, firms will __________ the industry,
causing the market supply curve to shift __________, which, in turn, will eventually cause the equilibrium
price to be __________ before.
a. decrease; exit; leftward; lower than
b. increase; enter; rightward; higher than
c. decrease; exit; rightward; higher than
d. increase; enter; rightward; the same
as
e. increase; exit; leftward; lower than

53. Demand increases in an increasing-cost industry that is initially in long-run competitive equilibrium.
After full adjustment, price will be
a. equal to its original level.
b below its original level.
.
c. above its original level.
d There is not enough information to answer the question.
.

54. A constant-cost industry has a long-run (industry) supply curve that is

a. upward sloping.
b. downward sloping.
c. horizontal.
d. U-shaped.

55. Assume a decreasing-cost industry that is initially in long-run competitive equilibrium. A decrease in
demand will cause a(n) __________ in prices and profits, and as a result, firms will __________ the industry,
causing the market supply curve to shift __________,which, in turn, will eventually cause the equilibrium
price to be __________ before.
a. a decrease; exit; rightward; lower than
b. an increase; enter; rightward; higher than
c. a decrease; exit; leftward; higher than
d. an increase; enter; rightward; the same
as
e. an increase; exit; leftward; lower than

56. If an industry is in long-run competitive equilibrium and experiences a decrease in demand, then as a
result the equilibrium price will __________, which will cause the representative firm's __________ curve to
shift downward and some firms will __________ the industry.
a. rise; marginal cost; enter
b fall; marginal cost; enter
.
c. rise; marginal revenue; enter
d fall; demand; exit
.
 e. fall; marginal cost; exit

57. As firms exit an industry, the industry supply curve shifts __________ and the equilibrium price
__________ until long-run competitive equilibrium is established and the surviving firms are earning
__________ economic profits.
a. leftward; rises; zero
b leftward; falls; positive
.
c. leftward; rises; positive
d rightward; falls; negative
.
e. rightward; rises; positive

58. Resource allocative efficiency occurs when a firm

a. minimizes costs of production yet charges the highest possible price.
b produces the quantity of output at which price exceeds average total cost by the greatest
. amount.
c. produces the quantity of output at which price equals marginal cost.
d produces the quantity of output at which price equals average total cost.
.
e. produces the quantity of output at which price equals average variable cost.

59. Resources are allocated efficiently when

a. the exchange value of the resources to demanders equals the opportunity cost of the resources.
b. the marginal benefit to demanders of the resources in the goods they purchase is equal to the
marginal cost to suppliers of the resources they use in producing the goods.
c. firms produce the quantity of output at which price is equal to marginal cost.
d. a and b
e. a, b, and c

60. Is it possible for a perfectly competitive firm to be maximizing profits, but not achieving resource
allocative efficiency?
a. Definitely yes, because it is impossible to achieve both at the same time.
b. Yes, it is possible, but it is not possible to minimize losses without also achieving resource
allocative efficiency.
c. No, it is not possible, because the output at which MR = MC is also the output at which P = MC.
d. There is not enough information to answer this question.

61. Suppose one firm in a perfectly competitive industry experiences an increase in its costs of
production. Which of the following best describes the most likely long run adjustment to this situation?
a. Eventually, all firms in the industry will also experience this same increase in costs.
b. Eventually, the price of the product will increase, and consumers will pay for the increase in
costs.
c. The firm in question may suffer losses and exit the industry.
d. none of the above

62. In a perfectly competitive industry, there is a motive for __________ to advertise in order to induce a
rightward shift of the demand curve.
a. the typical firm
b the industry as a whole
.
c. both the typical firm and the industry as a whole
d neither the typical firm nor the industry as a whole
.
63. If an industry advertises, then it
a. is definitely not a perfectly competitive industry.
b must be a perfectly competitive industry.
.
c. may or may not be a perfectly competitive industry.
d is not using its resources wisely.
.
e. will surely be able to increase its sales.

64. Which of the following is a characteristic of perfect competition?

a. many sellers and few buyers
b. many buyers and few sellers
c. a heterogeneous product
d. buyers and sellers having all relevant
information
e. high barriers to entry and exit

65. Which of the following is not a characteristic of perfect competition?

a. buyers and sellers having no influence on price
b. no barriers to entry and exit
c. a heterogeneous product
d. buyers and sellers having all relevant
information
e. none of the above

66. Which of the following is the best example of a homogeneous good?

a. new cars
b ice cream
.
c. soft drinks
d wheat
.

67. A perfectly competitive firm faces a __________ demand curve.

a. nonlinear
b downward-sloping
.
c. perfectly elastic
d perfectly inelastic
.
e. unit-elastic

68. Which of the assumptions in the theory of perfect competition assures us that economic profit will be
zero in the long run?
a. buyers and sellers having all relevant
information
b. firms producing homogeneous goods
c. too few buyers
d. easy entry and exit
e. smallness of firms with respect to the market

69. The price charged by a perfectly competitive firm is determined by

a. the firm's demand curve alone.
 b. the firm's cost curves alone.
c. market demand and market supply, together.
d. market demand alone.
e. market supply alone.

70. At the quantity where total revenue equals total cost,

a. profit is zero.
b. cost is minimized.
c. cost is maximized.
d. quantity is
minimized.
e. profit is maximized.

71. Marginal revenue is defined as

a. the difference between costs and revenues.
b. the change in total revenue caused by selling one additional unit of
output.
c. price times quantity.
d. total revenue divided by the level of output.
e. total revenue minus the level of output.

72. In the long run, a firm earns zero economic profit, given the condition that
a. P = MR.
b. P = AVC.
c. P = ATC.
d. (P - MC) = 0.
e. none of the
above

73. In the theory of perfect competition, the assumptions of many buyers and sellers, the production of a
homogeneous product, and the possession of all relevant information by buyers and sellers imply that the
perfectly competitive firm
a. sets the price it wishes.
b. has a demand curve that is downward sloping.
c. has a demand curve that is perfectly elastic.
d. a and b
e. a and c

74. If a firm is a price taker, its demand curve is

a. downward sloping.
b. upward sloping.
c. perfectly inelastic.
d. perfectly elastic.

75. In the theory of perfect competition, the market demand curve is __________ and the firm's demand
curve is __________.
a. perfectly elastic; perfectly elastic
b. downward sloping; downward sloping
c. perfectly elastic; downward sloping
d. downward sloping; perfectly elastic
e. perfectly inelastic; downward sloping

76. In the theory of perfect competition, the assumption of easy entry into and exit from the market
implies
 a. positive economic profits in the long run.
b losses in the long-run equilibrium.
.
c. zero economic profits in the long run.
d zero economic profits in both the short run and the long run.
.
e. positive economic profits in both the short run and the long run.

77. In perfect competition, the firm's marginal revenue curve is

a. perfectly elastic.
b. the same as the firm's demand curve.
c. the same as the firm's total revenue
curve.
d. a and b
e. a and c

78. The perfectly competitive firm will shut down in the short run if price is
a. less than average variable cost.
b. greater than average variable cost but less than average total
cost.
c. greater than average total cost.
d. equal to average total cost.
e. a and b

79. In short-run equilibrium, the perfectly competitive firm may be making __________ economic
profits.
a. positive
b. zero
c. negative
d. a or b
e. any of the
above

80. In long-run equilibrium, the perfectly competitive firm earns __________ economic profits.
a. positive
b. zero
c. negative
d. any of the
above

81. A decreasing-cost industry is characterized by

a. an upward-sloping long-run supply curve.
b a downward-sloping long-run supply curve.
.
c. a perfectly elastic long-run supply curve.
d perfectly elastic short-run and long-run supply curves.
.
e. a perfectly elastic short-run supply curve and an upward-sloping long-run supply curve.

82. An increasing-cost industry is characterized by

a. an upward-sloping long-run supply curve.
b a downward-sloping long-run supply curve.
.
c. a perfectly elastic long-run supply curve.
 d perfectly elastic short-run and long-run supply curves.
.
e. a perfectly elastic short-run supply curve and an upward-sloping long-run supply curve.

83. A constant-cost industry is characterized by

a. an upward-sloping long-run supply curve.
b a downward-sloping long-run supply curve.
.
c. a perfectly elastic long-run supply curve.
d perfectly elastic short-run and long-run supply curves.
.
e. a perfectly elastic short-run supply curve and an upward-sloping long-run supply curve.

84. A perfectly competitive firm that maximizes profit exhibits resource allocative efficiency because it
produces where price
a. equals minimum average total cost.
b. equals marginal revenue.
c. equals marginal cost.
d. is greater than minimum average variable
cost.

85. Which of the following is not a condition of long-run competitive equilibrium?

a. Economic profits are zero.
b. Marginal revenue is greater than marginal cost.
c. Price is equal to marginal cost.
d. Firms do not have an incentive to change plant
size.
e. none of the above

86. Assume that a decreasing-cost industry experiences an increase in demand. In the short run, this will
a. lead to a price increase.
b lead to a price decrease.
.
c. have no influence on price.
d a or b, depending on the marginal cost curve
.

87. Assume that a decreasing-cost industry experiences an increase in demand. In the long run, this will
a. lead to a price increase.
b lead to a price decrease.
.
c. have no influence on price.
d a or b, depending on the marginal cost curve
.

88. Assume that a constant-cost industry experiences an increase in demand. In the long run, this will
a. exceed its original equilibrium level.
b. equal its original level.
c. be lower than its original level.
d. any of the above, depending on the elasticity of demand

89. A firm operating in a perfectly competitive market finds itself producing at an output level for which
marginal revenue is lower than marginal cost. In order to maximize profits (or minimize losses), the firm
should
 a. increase the level of output.
b. decrease the level of
output.
c. shut down operations.
d. lower its prices.
e. raise its prices.

90. Which of the following statements about a perfectly competitive firm is necessarily false?
a. There are few substitutes for the firm's product.
b. There are few complements to the firm's product.
c. The firm produces the quantity at which marginal revenue equals marginal cost.
d. The firm sells a product that is identical in the eyes of buyers to any other product sold in the
industry.

Exhibit 23-6

91. Refer to Exhibit 23-6. A perfectly competitive firm operating in the market depicted in graph (1) faces
the demand curve depicted in
a. graph (1)-the same as the market demand curve.
b graph (2).
.
c. graph (3).
d graph (4).
.

92. Refer to Exhibit 23-6. A perfectly competitive firm operating in the market depicted in graph (1) is
producing 311 units of output at the profit-maximizing level. What is the marginal revenue of the 312th unit?
a. $0.312
b. $1
c. $10
d. $312
 e. This cannot be determined based on the information
provided.

Exhibit 23-7

93. Refer to Exhibit 23-7. The perfectly competitive, profit-maximizing firm will produce __________
units of output.
a. 10
b 30
.
c. 50
d 60
.
e. 70

94. Refer to Exhibit 23-7. At the profit-maximizing level of output, marginal cost is
a. $60.00.
b. $4.50.
c. $5.00.
d. $6.00.
e. This cannot be determined based on the information
provided.

95. Refer to Exhibit 23-7. At the profit-maximizing output level, average fixed cost is
a. $2.00.
b. $4.00.
c. $5.00.
d. $6.00.
e. This cannot be determined based on the information
provided.

96. Refer to Exhibit 23-7. At the profit-maximizing output level, average total cost is
a. $2.00.
b. $4.50.
c. $5.00.
d. $6.00.
e. This cannot be determined based on the information
provided.
97. Refer to Exhibit 23-7. At the profit-maximizing output level, the firm's total revenue is
a. $60.00.
b. $225.00.
c. $300.00.
d. $360.00.
e. $420.00.

98. Refer to Exhibit 23-7. What is the profit at 60 units of output?

a. $360
b $90
.
c. $75
d $60
.

99. One of the economic reasons for the U.S. postal service issuing and selling collector's stamps is that
a. the fixed costs associated with these stamps are less than for other stamps.
b the variable costs associated with these stamps are less than for other
. stamps.
c. the postal service charges customers a higher price for these stamps.
d a and b
.
e. none of the above

Exhibit 23-8

100. Refer to Exhibit 23-8. Which of the following is true in the short run of A and B, two perfectly
competitive firms?
a. Both A and B will continue to produce in the short run.
b. Firm A will continue to produce and Firm B will shut down.
c. Firm A will shut down and Firm B will continue to produce.
d. Firm A will continue to produce in the short run and shut down in the long
run.
e. a and d