MULTIPLE CHOICE.

Choose the one alternative that best completes the statement or answers the
question.
1) Which of the following is a defining characteristic of a perfectly competitive industry?
A) persistent economic profits in the long run
B) advertisements by well known celebrities
C) higher prices being charged for certain name brands
D) no restrictions on entry into the industry
2) An example of a perfectly competitive industry is
A) the National Hockey League.
B) the market for corn in the Canada.
C) a big city police department.
D) the market for French impressionists' paintings.
3) Which of the following is true regarding perfect competition?
I.
The firms are price takers.
II.
Marginal revenue equals the price of the product.
III.
Established firms have no advantage over new firms.
A) I, II, and III B) II and III C) I and II D) I only
4) Because each perfectly competitive firm sells a product identical to that of the other firms,
A) each firm's output is a perfect substitute for the output of any other firm.
B) the demand for each firm's product is perfectly inelastic.
C) each firm can expect to earn some economic profit.
D) each firm will try to cut prices to increase its market share.
5) If a firm is in a perfectly competitive industry, then
A) it cannot earn an economic profit in the short run.
B) it will have no fixed costs in the short run.
C) it cannot survive in the long run.
D) the demand for its product is perfectly elastic.
6) If demand is perfectly elastic, then
A) marginal revenue equals zero.
B) the price equals the marginal revenue.
C) the demand curve is vertical.
D) the demand curve is positively sloped.
7) A firm maximizes its profits by producing the amount of output such that
A) MR = P. B) P = ATC. C) MR = MC. D) P = AVC.

8) The table above gives the total revenue and total cost for a perfectly competitive firm producing
chocolate chip cookies. If the firm increases its output from 2 kilograms of cookies to 3 kilograms, the
marginal revenue is ________ per kilogram of cookies.
A) $11 B) $45 C) $30 D) $15
9) The table above gives the total revenue and total cost for a perfectly competitive firm producing
chocolate chip cookies. If the firm increases its output from 2 kilograms of cookies to 3 kilograms, the
marginal cost is ________ per kilogram of cookies.
A) $24 B) $11 C) $15 D) $39
10) The table above gives the total revenue and total cost for a perfectly competitive firm producing
chocolate chip cookies. If the firm is producing 1kilogram of cookies, to maximize its profit it will
A) continue producing 1 kilogram of cookies.
B) shut down.
C) increase its output.
D) decrease its output.
Use the figure below to answer the following question(s).

Figure 11.2
11) Refer to Figure 11.2, which graphs a perfectly competitive firm's total revenue and total cost curves.
Which one of the following statements is false?
A) At an output above Q3 units a day, the firm incurs an economic loss.
B) At an output less than Q1 units a day, the firm incurs an economic loss.
C) At an output of Q1 units a day, the firm makes zero economic profit.
D) Total profit is seen as the vertical distance by which the total revenue curve exceeds the total cost curve.
E) At an output of Q2 units a day, the firm incurs an economic loss.

12) The figure above depicts the marginal revenue and costs of a perfectly competitive firm. The firm's
profit is maximized when the firm produces
A) 210 units of output. B) 170 units of output.
C) 90 units of output. D) 130 units of output.
13) The figure above depicts the marginal revenue and costs of a perfectly competitive firm. When the firm
produces 170 units,
A) total revenue equals total cost.
B) total revenue is less than total cost.
C) marginal cost is less than marginal revenue.
D) marginal revenue equals marginal cost.
14) The figure above depicts the marginal revenue and costs of a perfectly competitive firm. The marginal
cost of the last unit produced is:
A) $8 per unit.
B) $16 per unit.
C) $4 per unit.
D) None of the above answers is correct.
15) The figure above depicts the marginal revenue and costs of a perfectly competitive firm. The price the
firm charges is
A) $16 per unit.
B) $4 per unit.
C) $8 per unit.
D) None of the above answers is correct.
16) The figure above depicts the marginal revenue and costs of a perfectly competitive firm. When 170
units are produced, the
A) firm's total costs are less than $2,720.
B) firm is earning an economic profit.
C) firm has total revenue of $2,720.

D) All of the above are true.

17) The figure above depicts the marginal revenue and costs of a perfectly competitive firm. When 170
units are produced, the firm
A) would incur an economic loss. B) would definitely shut down.
C) has total costs less than $2,720. D) would increase its price.
18) In the short run, a perfectly competitive firm
A) will not incur an economic loss if it shuts down.
B) must earn a normal profit.
C) cannot shut down.
D) can earn an economic profit, incur an economic loss, or earn a normal profit.
19) A firm's shutdown point is the output and price at which the firm just covers its
A) marginal cost. B) total fixed cost.
C) total variable cost. D) total cost.
20) If a perfectly competitive firm decides to shut down in the short run, its loss will equal its
A) average total cost, ATC.
B) total fixed cost, TFC.
C) total variable cost, TVC.
D) minimum average variable cost, AVC.
21) At its shutdown point, a perfectly competitive firm earns total revenue that
A) exceeds its total cost.
B) exceeds its total variable cost.
C) just equals its total variable cost.
D) generates a normal profit.
22) The short-run market supply curve for a perfectly competitive industry is the
A) sum of the part of each firm's AVC curve that lies above its MC curve.
B) sum of the part of each firm's MC curve that lies above its AVC curve.
C) sum of each firm's MC curve that lies below the AVC curve.
D) sum of each firm's AVC curve that lies below the MC curve.

23) In the above figure, the perfectly competitive firm's shutdown point is at a price of
A) $16 per unit. B) $8 per unit.
C) $12 per unit. D) $4 per unit.
24) In the above figure, if the price is $16 per unit, how many units will a profit maximizing perfectly
competitive firm produce?
A) 30 B) 20 C) 0 D) 35
25) In the above figure, if the price is $12 per unit, how many units will a profit maximizing perfectly
competitive firm produce?
A) 35 B) 30 C) 0 D) 20
26) In the above figure, if the price is $8 per unit, how many units will a profit maximizing perfectly
competitive firm produce?
A) 30 B) 5 C) 35 D) 20
27) In the above figure, if the price is $4 per unit, how many units will a profit maximizing perfectly
competitive firm produce?
A) 5 B) 20 C) 0 D) 30
28) In the above figure, at what price does a perfectly competitive firm earn a normal profit?
A) $4 per unit B) $16 per unit
C) $12 per unit D) $8 per unit
29) In the above figure, if the price is $16 per unit, the profit maximizing perfectly competitive firm will
A) shut down.
B) earn an economic profit.
C) earn a normal profit.
D) incur an economic loss but continue to operate.
30) The above figure shows the cost curves for a perfectly competitive firm. If all firms in the industry
have the same cost curves, and the price equals $16 per unit,

A) over time, firms will leave this industry.

B) over time, the price will fall as new firms enter the industry.
C) the industry is in its long-run equilibrium.
D) the firm is earning zero economic profit.
31) Suppose firms in a perfectly competitive industry are earning economic profits. As a result,
I.
new firms enter the industry.
II.
the market price falls.
III.
the economic profits of the existing firms eventually decrease.
A) II and III B) I and II C) I and III D) I, II, and III
32) Suppose some firms in a perfectly competitive industry are incurring an economic loss. As a result,
A) some firms will leave the industry, and the remaining firms' quantity will decrease.
B) some firms will leave the industry, and the price of the good will rise.
C) all the firms will eventually incur an economic loss.
D) the total industry economic profit must equal $0.
33) In a perfectly competitive market that is in long-run equilibrium, which of the following will NOT
occur?
A) Entrepreneurs want to enter this industry.
B) Firms earn only a normal profit.
C) The price equals the minimum average total cost.
D) Firms earn zero economic profit.
34) In the long-run equilibrium in a perfectly competitive market,
A) the firms earn an economic profit.
B) the firms earn a normal profit.
C) marginal cost is at a minimum.
D) the average total cost is maximized.
35) In the long-run equilibrium, perfectly competitive firms earn zero economic profit because of
A) inefficient production processes.
B) the ability of firms to enter and exit.
C) high fixed costs.
D) government regulations.
36) For a perfectly competitive firm, in the long-run equilibrium,
A) MR = MC = AFC. B) P = MC = ATC = MR.
C) MR = P = ATC = AFC. D) P = MC > ATC.
Use the figure below to answer the following question(s).

Figure 11.8
37) Figure 11.8 illustrates the cost curves for a perfectly competitive firm. The current market price is $11,
and the firm has the plant size shown by SRAC1. The firm's short- run equilibrium output is
A) 17 units.
B) 7 units.
C) 18 units.
D) 9 units.
E) 10 units.
38) Refer to Figure 11.8. The current market price is $11 and the firm has the plant size shown by SRAC1.
In the long run, the firm will
A) maintain its current plant size, and other firms will enter the industry.
B) increase its plant size, and other firms will exit the industry.
C) increase its plant size, and other firms will enter the industry.
D) maintain its current plant size, and other firms will exit the industry.
E) exit from the industry.
39) Refer to Figure 11.8. The long-run equilibrium price and quantity combination is
A) $6 and 17 units.
B) $8 and 9 units.
C) $6 and 7 units.
D) $8 and 18 units.
E) $9 and 7 units.
40) Economic efficiency involves
A) sacrificing environmental quality.
B) producing a given output at minimum average cost.
C) using the newest available technology.
D) increasing market demand.
E) external economies.
41) Total efficiency is achieved when
A) producers cannot lower the cost of producing a given output.
B) all the gains from trade have been realized.
C) consumers cannot make themselves better off by reallocating their budgets.
D) all of the above.

E) none of the above.

42) Consumer efficiency occurs when
A) price equals marginal utility.
B) consumers cannot become better off by reallocating their budget.
C) the quantity bought is at a point below the demand curve.
D) price equals average revenue.
E) marginal revenue equals average cost.

1) D
2) B
3) A
4) A
5) D
6) B
7) C
8) D
9) C
10) C
11) E
12) B
13) D
14) B
15) A
16) D
17) C
18) D
19) C
20) B
21) C
22) B
23) B
24) D
25) B
26) D
27) C
28) C
29) B
30) B
31) D
32) B
33) A
34) B
35) B
36) B
37) E
38) C
39) A
40) B
41) D
42) B