1. Which of the following is true of the total revenue curve of a perfectly competitive firm?

Select one:

a.

It is horizontal.

b.

It is vertical.

c.

The slope of the curve decreases as output increases.

d.

The slope of the curve increases as output increases.

e.

2. The slope of the curve remains constant slope as output increases.

In the short run, producer surplus equals _____.

Select one:

a.

Total revenue (TR) Variable cost (VC)

b.

Total revenue (TR) Average variable cost (AVC)

c.

Total revenue (TR) + Variable cost (VC)

d.

Total revenue (TR) Average fixed cost (AFC)

e.

Total revenue (TR) + Total cost (TC)

3. After an increase in demand in a constant-cost industry, the long-run average cost curves of firms shift upward.

Select one:

True

False

4.The slope of the total revenue curve for a perfectly competitive firm equals:

Select one:

a.

marginal revenue.

b.

economic profit.

c.

accounting profit.

d.

average revenue.

e.

normal profit.

5.An industry consists of all firms that supply output to a particular market.

Select one:

True

False

6.Consumer surplus is the area above the supply curve and below the market-clearing price.

Select one:

True

False

7.When market exchange occurs voluntarily in a competitive market, _____.

Select one:

a.

consumer choice does not involve any opportunity cost

b.

the sum of consumer surplus and producer surplus is maximized

c.

both consumer surplus and producer surplus are eliminated

d.

buyers benefit at the expense of producers

e.

the exchange confers no net benefit to the participants

8.Suppose a perfectly competitive, increasing-cost industry is in long-run equilibrium when market demand increases. In the long run, a typical firm _____.

Select one:

a.

will stop production as total revenue no longer covers the average variable cost of production

b.

experiences a higher average total cost and equilibrium price

c.

experiences a lower average total cost and equilibrium price

d.

experiences the same equilibrium price but a greater average total cost

e.

experiences the same equilibrium price but a lower average total cost

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

Select one:

True

False

10.Firms in a perfectly competitive market achieve both allocative and productive efficiency in the short run.

Select one:

True

False

11.Suppose a perfectly competitive, increasing-cost industry is in long-run equilibrium when market demand increases. What is likely to happen to a typical firm in the long run?

Select one:

a.

It will not change either the equilibrium price charged or the equilibrium quantity supplied.

b.

The equilibrium price will be higher in the long run.

c.

The equilibrium price will be lower than the original equilibrium price in the long run.

d.

It will not change the equilibrium price but will increase output.

e.

It will experience a lower average total cost and will increase output.

12.Individual firms in a perfectly competitive market can:

Select one:

a.

sell more only by lowering their prices.

b.

sell all they produce at the market price.

c.

earn more profit if they charge a price above the market price.

d.

earn more profit if they charge a price below the market price.

e.

exit the market only if the existing firms allow it.

13.In a perfectly competitive industry, we are likely to find that _____.

Select one:

a.

firms produce a wide variety of products

b.

there exist strict barriers to entry

c.

firms do not earn positive profits in the short run

d.

firms do not advertise

e.

firms can choose the price of their products

14.Suppose the equilibrium price in a perfectly competitive industry is $100 and a firm in the industry charges $112. Which of the following is likely to happen?

Select one:

a.

The firm will not be able to sell any of its output.

b.

The firm will sell more output than its competitors.

c.

The firm's profits will increase.

d.

The firm's revenue will increase.

e.

The firm will gradually take over the entire industry.

15.If a firm shuts down in the short run, its total revenue is _____.

Select one:

a.

zero

b.

equal to its fixed cost

c.

greater than its variable cost

d.

greater than its fixed cost

e.

less than its variable cost

16.Suppose a perfectly competitive firm and industry is in long-run equilibrium. A rightward shift of the market demand curve is likely to:

Select one:

a.

shift the demand curve facing the firm downward and increase the quantity supplied in the market.

b.

shift the demand curve facing the firm upward and not cause any change in the quantity supplied in the market.

c.

shift the demand curve facing the firm downward and increase the quantity supplied in the market.

d.

shift the demand curve facing the firm upward and increase quantity supplied in the market.

e.

shift the demand curve facing the firm downward and not cause any change in the quantity supplied in the market.

17.The price that represents the shutdown point for a perfectly competitive firm corresponds to the _____.

Select one:

a.

highest point on the marginal cost curve

b.

lowest point on the marginal cost curve

c.

highest point on the average variable cost curve

d.

lowest point on the average variable cost curve

e.

lowest point on the average total cost curve

18.It is possible for a firm to enjoy a short-run producer surplus while suffering a short-run economic loss.

Select one:

True

False

19.Suppose a perfectly competitive increasing-cost industry is in long-run equilibrium when market demand increases. Which of the following statements is true in this case?

Select one:

a.

Existing firms will earn economic profits in the new long-run equilibrium.

b.

Existing firms will decrease output in the short run.

c.

New firms will enter the industry in the short run.

d.

Some resource suppliers to the industry will earn higher income.

e.

The new long-run equilibrium price will be lower than the original equilibrium price.

20.In the short run, producer surplus equals _____.

Select one:

a.

Total revenue (TR) Variable cost (VC)

b.

Total revenue (TR) Average variable cost (AVC)

c.

Total revenue (TR) + Variable cost (VC)

d.

Total revenue (TR) Average fixed cost (AFC)

e.

Total revenue (TR) + Total cost (TC)

21.An industry consists of all firms that supply output to a particular market.

Select one:

True

False

22.In the short run, if a firm shuts down, its loss is equal to:

Select one:

a.

zero.

b.

its variable cost.

c.

its fixed cost.

d.

its fixed cost minus its variable cost.

e.

its fixed cost minus total revenue.

23.After an increase in demand in a constant-cost industry, the long-run average cost curves of firms shift upward.

Select one:

True

False

24.Claude's Copper Clappers sells clappers for $40 each in a perfectly competitive market. At its present level of output, Claude's marginal cost is $39, average variable cost is $45, and average total cost is $60. To improve his profit or loss situation, Claude should:

Select one:

a.

increase output.

b.

reduce output but not to zero.

c.

continue to produce the present level of output.

d.

shut down.

e.

increase the price.

25.Claude's Copper Clappers sells clappers for $40 each in a perfectly competitive market. At its present level of output, Claude's marginal cost is $39, average variable cost is $45, and average total cost is $60. To improve his profit or loss situation, Claude should:

Select one:

a.

increase output.

b.

reduce output but not to zero.

c.

continue to produce the present level of output.

d.

shut down.

e.

increase the price.

26.Claude's Copper Clappers sells clappers for $40 each in a perfectly competitive market. At its present level of output, Claude's marginal cost is $39, average variable cost is $45, and average total cost is $60. To improve his profit or loss situation, Claude should:

Select one:

a.

increase output.

b.

reduce output but not to zero.

c.

continue to produce the present level of output.

d.

shut down.

e.

increase the price.