Question 1

According to the standard model of perfect competition, a firm in long-run competitive equilibrium will product at the output level where:&#10;A) P = MC = ATC&#10;B) P = MC > ATC&#10;C) P = AVC&#10;D) P = AFC&#10;E) All of the above.

Accepted Answer

In a long-run competitive equilibrium, a firm will produce at the output level where price (P) equals marginal cost (MC) and average total cost (ATC), ensuring no economic profit or loss.

Question 2

According to the standard model of perfect competition, a firm will always shut down if:&#10;A) P < ATC&#10;B) P < MC&#10;C) P < AVC&#10;D) P < AFC&#10;E) None of the above.

Accepted Answer

In the short run, a firm will shut down if the price (P) falls below the average variable cost (AVC) because it cannot cover its variable costs, leading to a situation where it would lose more by continuing to operate than by shutting down.

Question 3

According to the standard model of perfect competition, a firm should shut down if:&#10;A) It incurs an economic loss.&#10;B) It incurs an accounting loss.&#10;C) Its economic loss is greater than its total fixed cost.&#10;D) Its average fixed cost is greater than its average variable cost.&#10;E) None of the above.

Accepted Answer

In the standard model of perfect competition, a firm should consider shutting down in the short run if its economic loss is greater than its total fixed costs. This is because, in such a scenario, the firm cannot cover its variable costs, and continuing operations would add to its losses.

Question 4

According to the standard model of perfect competition, a profit-maximizing firm will produce where:&#10;A) TR > TC.&#10;B) P = MC.&#10;C) P = MR.&#10;D) P = ATC.&#10;E) A perfectly competitive firm cannot maximize its profits because it is a price taker.

Accepted Answer

P = MC is the profit-maximizing condition for a firm in perfect competition.

Question 5

&#10;&#10;-Consider Figure 9.1. The short-run profit-maximizing output level is:&#10;A) 0A&#10;B) 0B&#10;C) 0C&#10;D) 0D&#10;E) None of the above.

Accepted Answer

The short-run profit-maximizing output level is where marginal cost (MC) equals marginal revenue (MR). In Figure 9.1, this occurs at output level 0B.

Question 6

A perfectly-competitive, profit-maximizing firm's total cost equation is TC = 1,500 + 5Q + 0.0025Q². The market-clearing price is $25. The firm's profit-maximizing level of output is: A) 500 units. B) 633 units. C) 1,500 units. D) 3,500 units. E) 4,000 units.

Accepted Answer

The answer of A perfectly-competitive, profit-maximizing firm's total cost equation...

Question 7

A perfectly-competitive, profit-maximizing firm's total cost equation is TC = 1,500 + 5Q + 0.0025Q². The market-clearing price is $25. The firm's profit is: A) $27, 370. B) $33,333. C) $38,500. D) $42, 875. E) None of the above.

Accepted Answer

The answer of A perfectly-competitive, profit-maximizing firm's total cost equation...

Question 8

Game theory is of limited usefulness in explaining:&#10;A) Pure competition and monopoly.&#10;B) Oligopoly.&#10;C) Monopolistic competition.&#10;D) All of the above.&#10;E) None of the above.

Accepted Answer

Game theory is most applicable to situations where the actions of a few players can significantly impact each other, which is characteristic of oligopolistic markets. In pure competition, there are too many players for any one to have a significant impact, and in monopoly, there is only one player, so there's no interaction that game theory would analyze. Monopolistic competition, while involving many firms, also does not typically involve the strategic interdependence that game theory is best at explaining.

Question 9

Game theory cannot be used to enhance our understanding of:&#10;A) Monopolistic competition because there are a large number of firms producing a differentiated product.&#10;B) Perfectly competition because the actions of an individual buyers and sellers have no effect on market price and output.&#10;C) Contestable monopolies.&#10;D) Oligopolists producing an identical product.&#10;E) None of the above.

Accepted Answer

The answer of Game theory cannot be used to enhance...

Question 10

At a Cournot-Nash equilibrium, industry profits are:&#10;A) Less than a monopoly.&#10;B) More than a monopoly.&#10;C) Less than perfect competition.&#10;D) More than perfect competition.&#10;E) Answers a and d.&#10;

Accepted Answer

At a Cournot-Nash equilibrium, firms choose quantities to maximize their profits given the quantities chosen by other firms. This results in industry profits that are less than a monopoly, where a single firm maximizes profits over the entire market, but more than in perfect competition, where firms are price takers and earn normal profits in the long run.

Question 11

According to the Cournot model:&#10;A) As the number of equally-sized firms producing a homogeneous product increases, the output of each individual firm declines.&#10;B) As the number of equally-sized firms producing a homogeneous product increases, industry output declines.&#10;C) As the number of equally-sized firms producing a homogeneous product increases, the market price of the product approaches the marginal cost of&#10; production.&#10;D) All of the above are correct.&#10;E) None of the above are correct.

Accepted Answer

The answer of According to the Cournot model:&#10;A) As the...

Question 12

Which of the following expression gives an estimate of allocative inefficiency in an industry consisting of T Cournot competitors as a percentage of allocative inefficiency under monopoly? A) 4(T + 1)/T B) 4/(T + 1) C) T/4(T + 1)² D) 4T/(T + 1) E) 4/(T + 1)²

Accepted Answer

The answer of Which of the following expression gives an...

Question 13

Suppose that there are 4 firms in an industry producing an identical product are Cournot competitors. If the industry is in Cournot-Nash equilibrium, allocative inefficiency as a percentage of allocative inefficiency under monopoly is:

A) 8 percent.
B) 16 percent.
C) 24 percent.
D) 32 percent.
E) 40 percent.

Accepted Answer

The answer of Suppose that there are 4 firms in...

Question 14

Suppose that there are 9 firms in an industry producing an identical product are Cournot competitors. If the industry is in Cournot-Nash equilibrium, allocative inefficiency as a percentage of allocative inefficiency under monopoly is:

A) 2 percent.
B) 3 percent.
C) 4 percent.
D) 8 percent.
E) 12 percent.

Accepted Answer

The answer of Suppose that there are 9 firms in...

Question 15

The demand for the output of a multi-firm industry is Q_T = 50 !2.5P. The total cost of production of an individual profit-maximizing firm in this industry is TC₁= 4Q₁. The reaction function of firm 1 is:

A) Q₁ = 50 !2.5Q_T_!₁.
B) Q₁ = 50 !0.5Q_T_!₁
C) Q₁ = 16 !0.4Q_T_!₁
D) Q₁ = 20 !0.5Q_T_!₁
E) None of the above.

Accepted Answer