ECO401 Competitive Firms and Markets
1) Economists define a market to be competitive when the firms
A) spend large amounts of money on advertising to lure customers away from the competition.
B) watch each other's behavior closely.
C) are price takers.
D) All of the above.
2) If consumers view the output of any firm in a market to be identical to the output of any other firm in the market, the demand curve for the output of any given firm
A) will be identical to the market demand curve.
B) will be horizontal.
C) will be vertical.
D) cannot be determined from the information given.
3) In the absence of any government regulation on price, if a firm has no power to set price on its own, one can safely conclude
A) the demand curve for the firm's product is horizontal.
B) there are many firms in the industry.
C) the market is in long-run equilibrium.
D) the firms in this industry are not profitable.
4) In a perfectly competitive market,
A) firms can freely enter and exit.
B) firms sell a differentiated product.
C) transaction costs are high.
D) All of the above.
5) In a competitive market, if buyers did not know all the prices charged by the many firms,
A) all firms still face horizontal demand curves.
B) firms sell a differentiated product.
C) demand curves can be downward sloping for some or all firms.
D) the number of firms will most likely decrease.
6) Many car owners and car dealers describe their different cars for sale in the local newspapers and list their asking price. Many people shopping for a used car consider the different choices listed in the paper. The market for used cars could be described as
A) competitive.
B) perfectly competitive.
C) non-competitive.
D) having high transaction costs.
7) Many car owners and car dealers describe their different cars for sale in the local newspapers and list their asking price. Many people shopping for a used car consider the different choices listed in the paper. The absence of which condition prohibits this market from being described as perfectly competitive?
A) Buyers and sellers know the prices.
B) Firms freely enter and exit.
C) Transaction costs are low.
D) Consumer believes all firms sell identical products.
8) If a firm operates in a perfectly competitive market, then it will most likely
A) advertise its product on television.
B) settle for whatever price is offered.
C) have a difficult time obtaining information about the market price.
D) have an easy time keeping other firms out of the market.
9) If a firm happened to be the only seller of a particular product, it might behave as a price taker as long as
A) buyers have full information about the firm's price.
B) the transaction costs of doing business with this firm are low.
C) there are many buyers.
D) there is free entry and exit.
10) The demand curve an individual competitive firm faces is known as its
A) excess demand curve.
B) market demand curve.
C) residual demand curve.
D) leftover demand curve.
11) If a firm makes zero economic profit, then the firm
A) has total revenues greater than its costs.
B) must shut down.
C) can be earning positive business profit.
D) must have no fixed costs.
12) If marginal revenue equals marginal cost, the firm is maximizing profits as long as
A) the resulting profits are positive.
B) marginal cost exceeds marginal revenue for greater levels of output.
C) the average cost curve lies above the demand curve.
D) All of the above are required.
13) Pic 1 shows the cost curves for a competitive firm. If the firm is to earn economic profit, price must exceed
A) $0.
B) $5.
C) $10.
D) $11.
14) Pic 1 shows the cost curves for a competitive firm. If the firm is to operate in the short run, price must exceed
A) $0.
B) $5.
C) $10.
D) $11.
15) Pic 1 shows the cost curves for a competitive firm. If the market price is $15 per unit, the firm will earn profits of
A) $0.
B) $4.
C) $40.
D) $160.
16) A firm will shut down in the short run if
A) total fixed costs are too high.
B) total revenue from operating would not cover all costs.
C) total revenue from operating would not cover variable costs.
D) total revenue from operating would not cover fixed costs.
17) If a competitive firm maximizes short-run profits by producing some quantity of output, which of the following must be true at that level of output?
A) p = MC.
B) MR = MC.
C) p > AVC.
D) All of the above.
18) If a competitive firm maximizes short-run profits by producing some quantity of output, which of the following must be true at that level of output?
A) p > MC.
B) MR > MC.
C) p > AVC.
D) All of the above.
19) If a firm finds that it maximizes short-run profits by shutting down, which of the following must be true?
A) p < AVC for all levels of output.
B) p < AVC only for the level of output at which p = MC.
C) p < AVC only if the firm has no fixed costs.
D) The firm will earn zero profit.
20) If a profit-maximizing firm finds that, at its current level of production, MR > MC, it will
A) earn greater profits than if MR = MC.
B) increase output.
C) decrease output.
D) shut down. If indifference curves cross, then:
a. the assumption of a diminishing marginal rate of substitution is violated.
b. consumers minimize their satisfaction.
c. the assumption of completeness is violated.
d. the assumption of transitivity is violated.
e. all of the above.
Reference
1. The benefit forgone by not choosing the next best alternative is
a. Opportunity Cost
b. Sunk Cost
c. Explicit Cost
a. None of above
2.______ questions have to do with explanation and prediction, _____ questions have to do with what
ought to be.
a. Positive; negative.
b. Negative; normative.
c. Affirmative; positive.
d. Positive; normative.
e. Econometric; theoretical.
1. The benefit forgone by not choosing the next best alternative is
a. Opportunity Cost
b. Sunk Cost
c. Explicit Cost
a. None of above
2.______ questions have to do with explanation and prediction, _____ questions have to do with what
ought to be.
a. Positive; negative.
b. Negative; normative.
c. Affirmative; positive.
d. Positive; normative.
e. Econometric; theoretical.
