Exam 3
Each question is equally worth 2 points. The exam is worth 100 points.
Question 1
(Figure: A Perfectly Competitive Market in the Short Run IV) Use the figure A Perfectly Competitive Market in the Short Run IV. If the price in this market persists, what will happen in the long run?
Figure: A Perfectly Competitive Market in the Short Run IV
A. Nothing, firms have no incentive to enter or exit this market.
B. Firms will exit the market, and the market supply curve shifts to the left, raising the price.
C. Firms will enter the market, and the market supply curve shifts to the right, lowering the price.
D. Firms will exit the market, and the average total cost curve shifts down, returning the firm to profit.
Answer
C. Firms will enter the market, and the market supply curve shifts to the right, lowering the price.Question 2
Suppose that Pumice Motor Company has total revenue of \$800,000, fixed costs of \$200,000, and variable costs of \$600,000. If Pumice Motor company is known to be in a perfectly competitive market, which of the following is true?
A. Magma’s average total cost is as low as it can be.
B. Firms will enter this market.
C. This market is in long-run equilibrium.
D. Firms will exit this market.
Answer
C. This market is in long-run equilibrium.Question 3
The demand curve for a perfectly competitive firm’s product is the same as the:
A. demand curve for the market.
B. supply curve for a perfectly competitive firm.
C. supply curve for the market.
D. marginal revenue curve for the firm.
Answer
D. marginal revenue curve for the firm.Question 4
If a firm is earning revenues that cover all of its variable costs and some, but not all, of its total cost, then it:
A. should produce in the short run, and it will make a profit.
B. is in an industry in long-run equilibrium.
C. should shut down immediately.
D. should produce in the short run even though it makes a loss.
Answer
D. should produce in the short run even though it makes a loss.Question 5
In a perfectly competitive market, the market price is \$3.50, and firms are producing 100 units. At a quantity of 100 units, average total cost is \$4, and average variable cost is \$3. In the long run, price will:
A. fall to \$4 as firms enter the market.
B. fall to \$3 as firms enter the market.
C. rise to \$4 as firms exit the market.
D. remain at \$3.50.
Answer
C. rise to \$4 as firms exit the market.Question 6
Which of the following is NOT true in the long-run equilibrium in a perfectly competitive market?
A. No entrepreneur in the market can earn any more money doing something else.
B. Accounting profits may still be positive.
C. Firms have an incentive to exit the market.
D. Price is equal to the minimum average total cost of a firm.
Answer
C. Firms have an incentive to exit the market.Question 7
(Figure: A Perfectly Competitive Market) Use the figure A Perfectly Competitive Market. What is the marginal revenue that a firm in this market would earn from its 1,000th unit?
Figure: A Perfectly Competitive Market
A. \$8
B. \$70,000
C. \$7
D. \$80,000
Answer
A. \$8Question 8
The decision to shut down a firm depends on whether the market price allows the firm to cover its:
A. average total cost.
B. average variable cost.
C. marginal revenue.
D. marginal cost.
Answer
B. average variable cost.Question 9
(Figure: A Perfectly Competitive Market in the Short Run II) Use the figure A Perfectly Competitive Market in the Short Run II. If every firm in this market has the same costs, what will be the market price in the long run?
Figure: A Perfectly Competitive Market in the Short Run II
A. \$20
B. \$29
C. \$15
D. \$22