Question 1

At any level of output less than the most profitable one, an increase in output adds more to a firm's total cost than to its total revenue.

Accepted Answer

This statement is false. At any level of output less than the most profitable one, an increase in output adds more to a firm's total revenue than to its total cost, because the marginal revenue is greater than the marginal cost. This is known as the increasing returns to scale.

Question 2

Economic profits in a system of perfectly competitive markets will be positive in all industries.

Accepted Answer

In a system of perfectly competitive markets, economic profits will be driven to zero in the long run due to the entry of new firms attracted by the positive economic profits earned by existing firms. Therefore, economic profits will not be positive in all industries, but only in the short run for some firms.

Question 3

A perfectly competitive firm's short-run supply curve is its short-run marginal cost curve above the average total cost curve.

Accepted Answer

The answer of A perfectly competitive firm's short-run supply curve...

Question 4

A characteristic of perfect competition is that buyers know the prices that sellers are asking but sellers do not necessarily know the prices that buyers are offering.

Accepted Answer

In perfect competition, it is assumed that both buyers and sellers have perfect information about prices, meaning both parties know the prices being asked and offered in the market.

Question 5

A perfectly competitive firm will stay in business as long as the price per unit equals or exceeds its average total cost.

Accepted Answer

In a perfectly competitive market, firms will continue to produce as long as their price per unit is greater than or equal to their average total cost. If the price falls below the average total cost, the firm will incur losses and eventually exit the market.

Question 6

A price taker is a market participant who is able to accept or reject the market price but cannot alter it.

Accepted Answer

A price taker is a market participant who has no market power to price goods and services sold. They can either accept or reject the market price, but cannot alter it.

Question 7

Economic profit exists when total revenue exceeds total cost.

Accepted Answer

Economic profit is the difference between total revenue and total cost, meaning that if total revenue is greater than total cost, there is economic profit.

Question 8

The model of perfect competition assumes that all goods produced in an industry are physically identical, even though they are viewed by the buyers as being different.

Accepted Answer

The model of perfect competition assumes that all goods produced in an industry are homogeneous, meaning they are physically identical and viewed as such by buyers, with no perceived differences.

Question 9

The profit-maximizing level of output for a perfectly competitive firm occurs at the quantity at which the slopes of the marginal cost and marginal revenue curves are equal.

Accepted Answer

The profit-maximizing level of output for a perfectly competitive firm occurs at the quantity where marginal cost (MC) equals marginal revenue (MR), not where their slopes are equal.

Question 10

A perfectly competitive firm will shut down production in the short run if the price is below average total cost.

Accepted Answer

A perfectly competitive firm will shut down in the short run if the price is below average variable cost, not average total cost.

Question 11

An increase in demand in a perfectly competitive market will cause a permanent increase in economic profit.

Accepted Answer

In a perfectly competitive market, an increase in demand may initially lead to higher prices and economic profits. However, these profits attract new firms into the market, increasing supply until prices fall back to the level of economic costs, eliminating the economic profit.

Question 12

A perfectly competitive industry's market supply curve is the sum of the supply curves of all firms in the industry.

Accepted Answer

In a perfectly competitive industry, all firms are price takers, meaning they cannot affect the market price. Therefore, each firm's supply curve is horizontal at the market price. The market supply curve is obtained by horizontally summing the individual supply curves of all the firms in the industry.

Question 13

Perfect competition is a model of the market that assumes a large number of buyers and sellers engaged in the purchase and sale of identical goods.

Accepted Answer

Perfect competition is a market structure characterized by a large number of buyers and sellers dealing in standardized products, easy market entry and exit, perfect information, and absence of price control.

Question 14

In a perfectly competitive market, which of the following statements is true?
A)In the long run, price will change to reflect whatever change we observe in production cost.
B)The existence of profits leads firms to exit the industry and losses leads firms to enter.
C)In the long-run, economic profits are positive.
D)Perfect competition generates prices greater than marginal costs.

Accepted Answer

In a perfectly competitive market, firms have no control over the price and are price takers. Therefore, in the long run, price will adjust to reflect any changes in production costs to ensure that all firms earn zero economic profit. This is known as the zero-profit condition. The existence of profits will attract new firms to enter the market, increasing supply and lowering the price, while losses will cause firms to exit, reducing supply and raising the price. In the long run, economic profit will be zero. Finally, in a perfectly competitive market, firms must produce at the lowest possible cost to remain competitive, which means that prices will be equal to marginal costs.

Question 15

When production costs change in a perfectly competitive industry, price will change by ________ than the change in production cost in the _______ .
A)more; long run
B)less; short run
C)less; long
D)more; long

Accepted Answer

The answer of When production costs change in a perfectly...

Question 16

The slope of the total revenue curve is marginal revenue.

Accepted Answer

This statement is true. The slope of the total revenue curve represents the rate of change in total revenue with respect to a change in quantity, which is defined as the marginal revenue.

Question 17

If some firms in a perfectly competitive industry earn less than a zero economic profit, the industry's market supply curve will decrease in the long run.

Accepted Answer

In a perfectly competitive market, if firms are earning less than zero economic profit (i.e., they are incurring losses), some firms will exit the industry in the long run. This reduction in the number of firms decreases the total quantity of goods supplied at any given price, leading to a leftward shift in the market supply curve.

Question 18

A perfectly competitive industry characterized by increasing costs has a downward-sloping long-run industry supply curve.

Accepted Answer

The long-run industry supply curve for a perfectly competitive industry characterized by increasing costs is horizontal, not downward-sloping. In the long run, firms can enter or exit the industry, which keeps prices at the minimum point of the average cost curve.

Question 19

If a firm in perfect competition sells 500 units of a product at $10 per unit, its marginal revenue per unit is $10.

Accepted Answer

In perfect competition, the market price is determined by the intersection of the market demand and supply curves. Therefore, the marginal revenue for a firm selling an additional unit is equal to the market price. So, if the firm sells 500 units at $10 per unit, its marginal revenue per unit will also be $10.

Question 20

Accounting costs include both explicit and implicit costs.

Accepted Answer

The answer of Accounting costs include both explicit and implicit...

Quiz 9: The Nature and Creation of Money