Deck 8: B: Perfect Competition

Question 1

The relationship between price and quantity supplied after firms fully adjust to any short-term economic profit or loss resulting from a change in demand is illustrated by the

A) long-run industry supply curve
B) Dutch auction model
C) short-run firm supply curve
D) constant-cost industry supply curve
E) short-run industry supply curve

Answer 1

A

Question 2

Production efficiency exists when the least cost combination of inputs is used to produce output.

Answer 2

True

Question 3

Allocative efficienty exist when firms produce the output most preferred by consumers.

Answer 3

True

Question 4

Allocative efficiency occurs when

A) output is produced at minimum average cost
B) the marginal benefit, that consumers attach to the final unit purchased, just equals the opportunity cost of the resources employed to produce that unit.
C) new firms enter a perfectly competitive market
D) the marginal benefit consumers attach to products purchased is maximized
E) goods and services are sold in an English style auction market

Question 5

When an industry supply curve increases enough to erase economic profits,

A) weaker firms exit the industry
B) quantity demanded decreases, but only slightly
C) all firms in the industry incur economic losses
D) entry of new firms and expansion of existing firms stop
E) marginal revenue increases

Question 6

Compared to the short run, the long-run market supply curve is

A) less elastic
B) equally elastic
C) more elastic
D) always negatively sloped
E) None of the answers is correct.

Question 7

Economic profits in a competitive industry are signals that

A) attract new firms into the industry
B) prevent firms from adopting newer technologies
C) encourage existing firms to continue to operate inefficiently
D) indicate that business conditions are improving
E) cause the industry's resources to be used in lower valued uses

Question 8

A firm that minimizes average cost will not survive in the long run.

Question 9

In the short run, producer surplus equals

A) TR - VC
B) TR - AVC
C) TR + VC
D) TR - AFC
E) TR + TC

Question 10

An increasing cost industry is one in which per unit cost increases as output expands in the long run

Question 11

In the short run, producers derive surplus from market exchange because

A) total revenue is greater than the minimum amount they would require to sell the good
B) total revenue is equal to the minimum amount they would require to sell the good
C) total revenue is less than the minimum amount they would require to sell the good
D) marginal revenue equals average total cost
E) they can rob consumers of most of their consumer surplus

Question 12

Whether the firm produces or shuts down in the short run, fixed cost is equal to

A) average variable cost
B) total cost
C) sunk cost
D) price
E) marginal cost

Question 13

With the total cost and total revenue curves, we measure economic profit by the __________ between the two curves. With the per-unit curves, we measure economic profit by a(n) __________.

A) vertical distance, horizontal distance
B) vertical distance, area
C) area, area
D) area, vertical distance
E) horizontal distance, area

Question 14

A constant-cost industry is one that can expand and contract without effecting per unit production costs.

Question 15

Long-run expansion in an increasing-cost industry increases each firm's marginal and average costs by

A) saving money on per-unit production costs
B) bidding up the price of resources
C) holding the price of resources constant
D) forcing down the price of resources
E) bidding up each firm's marginal revenue

Question 16

The term allocative efficiency refers to

A) the level of output where MC = AVC
B) the equality between MR and MC
C) the production of those goods and services most valued by consumers
D) the point where marginal revenue equals average total cost
E) the production of a good up to the point where AFC = 0

Question 17

In the short run, producers derive surplus from market exchange because

A) total revenue is greater than the minimum they would require to sell the good
B) total revenue is equal to the minimum amount they would require to sell the good
C) total revenue is less than the minimum amount they would require to sell the good
D) marginal revenue equals average revenue
E) they can rob consumers of most of their consumer surplus

Question 18

If you were to put the following effects of a decrease in demand into the sequence in which they occur, which would be last?

A) The demand curve facing each individual firm drops.
B) Each firm reduces quantity supplied to the point where marginal cost equals its now-lower marginal revenue.
C) In the short run, the market price drops.
D) Market output falls.
E) A short-run loss forces some firms out of business in the long run.

Question 19

The term productive efficiency refers to

A) any short-run equilibrium position of the competitive firm
B) the production of all goods and services that consumers need
C) the production of a good at the lowest long-run average cost
D) the equality between average total and average variable cost
E) satisfying the condition that MR = MC

Question 20

Resources are efficiently allocated when production occurs at that point at which

A) marginal cost intersects average variable cost
B) price is equal to average revenue
C) price is equal to marginal cost
D) marginal revenue equals marginal cost
E) price is equal to average variable cost

Question 21

Social welfare is

A) a government program through which society takes care of low-income people
B) the overall well-being of people in the economy
C) measured by spending on party supplies, restaurant meals, and movie tickets
D) applies to sociology, not economics
E) All the answers are correct.

Question 22

Market exchange usually benefits

A) both consumers and buyers, but not sellers
B) both consumers and producers
C) only consumers
D) only employees
E) only producers