Question 1

Market consumer surplus

Accepted Answer

A)  is the area under the demand curve and above market price, up to the quantity actually bought.
B)  is equal to total market revenue minus cost.
C)  does not depend on the quantity sold.
D)  is the area under the market price and above the marginal cost curve.E) A) and B)
F) All of the above

Question 2

In the short run

Accepted Answer

A)  firms will shut down if operating at a loss.
B)  profit maximizing firms have identical short run supply curves.
C)  firms may choose to operate at a loss.
D)  most firms have short run supply curves that are the same as their long run supply curves.E) A) and D)
F) A) and C)

Question 3

There are currently N identical firms in a market. If it is a perfectly competitive market, the short-run market supply curve at any given price is

Accepted Answer

A)  N times the supply of an individual firm.
B)  N - 1 times the supply of an individual firm.
C)  N plus the supply of an individual firm.
D)  It cannot be determined from the information provided.E) A) and B)
F) A) and C)

Question 4

If a firm is a price taker, then its marginal revenue will always equal

Accepted Answer

A)  price.
B)  total cost.
C)  zero.
D)  one.E) All of the above
F) B) and C)

Question 5

Suppose there are 1000 identical wheat farmers. For each, TC = 10 + q2. Market demand is Q = 600,000 - 100p. Derive the short-run equilibrium Q, q, and p. Does the typical firm earn a short-run profit?

Accepted Answer

The firm's supply is q = 0.5p; market su...

Question 6

Currently, when a consumer purchases a "green" automobile, the U.S. government gives the consumer a rebate. When the rebate program expires, we would expect

Accepted Answer

A)  producer surplus to increase.
B)  consumer surplus to drop.
C)  consumer surplus to remain unchanged, since they pay the price and only get the rebate later.
D)  producers to stop making "green" automobiles.E) B) and D)
F) A) and D)

Question 7

-The above figure shows the market demand curve for mobile telecommunications (time spent on a mobile phone) . The current price is $0.35 per minute. If the price were to increase by ten cents per minute, consumer surplus would

Accepted Answer

A)  fall to $820.
B)  fall by $84.
C)  fall by $58.
D)  fall to $369.E) A) and B)
F) B) and D)

Question 8

With identical firms, constant input prices, and all the other characteristics of a competitive market

Accepted Answer

A)  a shift in demand has no effect on the long-run average cost and so there is no change in equilibrium price and quantity.
B)  a shift in demand will change the equilibrium price and quantity.
C)  a shift in demand has no effect on the long-run average cost, resulting in a change in equilibrium quantity but not price.
D)  a shift in demand has no effect on the long-run average cost, resulting in a change in equilibrium price but not quantity.E) A) and B)
F) A) and C)

Question 9

The perfectly competitive model makes a lot of fairly unrealistic assumptions. Why do economics text books still talk a lot about this model?

Accepted Answer

A)  Many markets are close to being perfectly competitive.
B)  It is an important model to use as a benchmark to compare other markets structures to.
C)  Perfectly competitive markets maximize societal welfare.
D)  All of the above.E) None of the above
F) B) and C)

Question 10

The long-run supply curve in a competitive market is upward-sloping.

Accepted Answer

A) True 
 B)False

Question 11

Long-run market supply curves are upward sloping if

Accepted Answer

A)  firms are identical.
B)  the number of firms is restricted in the long run.
C)  input prices fall as the industry expands.
D)  All of the above.E) A) and B)
F) A) and C)

Question 12

Firms that exhibit price-taking behavior

Accepted Answer

A)  wait for other firms to set price, take it as given, and charge a higher price.
B)  have outputs that are too small to influence market price and thus take it as given.
C)  take pricing behavior in their own hands.
D)  are independently capable of setting price.E) A) and D)
F) All of the above

Question 13

With identical firms, constant input prices, and all the other characteristics of a competitive market

Accepted Answer

A)  the long run equilibrium price is the minimum of the average cost curve.
B)  a shift in demand will change the equilibrium price and quantity.
C)  the long run and short run equilibria are identical.
D)  Both A and B.E) C) and D)
F) A) and B)

Question 14

Long-run market supply curves are downward sloping if

Accepted Answer

A)  firms are identical.
B)  the number of firms is restricted in the long run.
C)  input prices fall as the industry expands.
D)  All of the above.E) A) and C)
F) None of the above

Question 15

If firms in a competitive market are NOT identical, then an increase in cost will

Accepted Answer

A)  shift marginal cost to the right.
B)  push the most inefficient firms out of the market.
C)  push the most efficient firms out of the market.
D)  Need more information.E) None of the above
F) A) and B)

Question 16

Mister Jones was selling his house. The asking price was $220,000, and Jones decided he would take no less than $200,000. After some negotiation, Mister Smith purchased the house for $205,000. Smith's consumer surplus is

Accepted Answer

A)  $5,000.
B)  $15,000.
C)  $20,000.
D)  not able to be calculated from the information given.E) A) and B)
F) C) and D)

Question 17

If a competitive firm finds that it maximizes short-run profits by shutting down, which of the following must be TRUE?

Accepted Answer

A)  p 
B)  p 
C)  p 
D)  The firm will earn zero profit.E) C) and D)
F) B) and D)

Question 18

A horizontal demand curve for a firm implies that

Accepted Answer

A)  the firm is a monopoly.
B)  the market the firm is operating in is not competitive.
C)  the firm is selling in a competitive market.
D)  the products of that firm are very different from other firms' products.E) All of the above
F) A) and B)

Question 19

A "stair-like" market supply curve is the result of

Accepted Answer

A)  higher cost firms charging a higher price for their products.
B)  firms having different costs.
C)  firms shutting down in the long run.
D)  average variable costs that are higher than average fixed costs.E) B) and C)
F) A) and D)

Question 20

In a perfectly competitive market with 75 non-identical firms producing at market price p1

Accepted Answer

A)  the supply curve is flatter than if there were only 35 identical firms.
B)  the supply curve is more elastic than if there were only 25 identical firms.
C)  the supply curve is more inelastic than if the firms were identical.
D)  All of the above.E) A) and C)
F) A) and B)

Exam 8: Competitive Firms and Markets

With identical firms, constant input prices, and all the other characteristics of a competitive market

Correct AnswerverifiedShow Answer

A horizontal demand curve for a firm implies that

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If a competitive firm finds that it maximizes short-run profits by shutting down, which of the following must be TRUE?

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Long-run market supply curves are upward sloping if

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The perfectly competitive model makes a lot of fairly unrealistic assumptions. Why do economics text books still talk a lot about this model?

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Suppose there are 1000 identical wheat farmers. For each, TC = 10 + q2. Market demand is Q = 600,000 - 100p. Derive the short-run equilibrium Q, q, and p. Does the typical firm earn a short-run profit?

Correct AnswerverifiedThe firm's supply is q = 0.5p; market su...View AnswerShow Answer

Long-run market supply curves are downward sloping if

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In the short run

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The long-run supply curve in a competitive market is upward-sloping.

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If a firm is a price taker, then its marginal revenue will always equal

Correct AnswerverifiedShow Answer

There are currently N identical firms in a market. If it is a perfectly competitive market, the short-run market supply curve at any given price is

Correct AnswerverifiedShow Answer

-The above figure shows the market demand curve for mobile telecommunications (time spent on a mobile phone) . The current price is $0.35 per minute. If the price were to increase by ten cents per minute, consumer surplus would

Correct AnswerverifiedShow Answer

Currently, when a consumer purchases a "green" automobile, the U.S. government gives the consumer a rebate. When the rebate program expires, we would expect

Correct AnswerverifiedShow Answer

Mister Jones was selling his house. The asking price was $220,000, and Jones decided he would take no less than $200,000. After some negotiation, Mister Smith purchased the house for $205,000. Smith's consumer surplus is

Correct AnswerverifiedShow Answer

Firms that exhibit price-taking behavior

Correct AnswerverifiedShow Answer

In a perfectly competitive market with 75 non-identical firms producing at market price p1

Correct AnswerverifiedShow Answer

Market consumer surplus

Correct AnswerverifiedShow Answer

If firms in a competitive market are NOT identical, then an increase in cost will

Correct AnswerverifiedShow Answer

A "stair-like" market supply curve is the result of

Correct AnswerverifiedShow Answer

With identical firms, constant input prices, and all the other characteristics of a competitive market

Correct AnswerverifiedShow Answer

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The firm's supply is q = 0.5p; market su...
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