1. A perfectly competitive firm:

A) must earn a normal profit in the short run.

B) cannot earn economic profit in the long run.

C) may realize either economic profit or losses in the long run.

D) cannot earn economic profit in the short run.

2. The MR = MC rule can be restated for a perfectly competitive seller as P = MC because:

A) each additional unit of output adds exactly its price to total revenue.

B) the firm's average revenue curve is downsloping.

C) the market demand curve is downsloping.

D) the firm's marginal revenue and total revenue curves will coincide.

3. In the short run a perfectly competitive firm will always make an economic profit if:

A) P = ATC.

B) P > AVC.

C) P = MC.

D) P > ATC.

4. In the short run the individual competitive firm's supply curve is that segment of the:

A) average variable cost curve lying below the marginal cost curve.

B) marginal cost curve lying above the average variable cost curve.

C) marginal revenue curve lying below the demand curve.

D) marginal cost curve lying between the average total cost and average variable cost curves.

5. Assume the XYZ Corporation is producing 20 units of output. It is selling this output in a

perfectly competitive market at $10 per unit. Its total fixed costs are $100 and its average

variable cost is $3 at 20 units of output. This corporation:

A) should close down in the short run.

B) is maximizing its profits.

C) is realizing a loss of $60.

D) is realizing an economic profit of $40.

6. Suppose you find that the price of your product is less than minimum AVC. You should:

A) minimize your losses by producing where P = MC.

B) maximize your profits by producing where P = MC.

C) close down because, by producing, your losses will exceed your total fixed costs.

D) close down because total revenue exceeds total variable cost.

7. Suppose that at 500 units of output marginal revenue is equal to marginal cost. The firm is

selling its output at $5 per unit and average total cost at 500 units of output is $6. On the basis

of this information we:

A) can say that the firm should close down in the short run.

B) can say that the firm can produce and realize an economic profit in the short run.

C) cannot determine whether the firm should produce or shut down in the short run.

D) can assume the firm is not using the most efficient technology.

8. A firm finds that at its MR = MC output, its TC = $1000, TVC = $800, TFC = $200, and total revenue is $900. This firm should:

A) shut down in the short run.

B) produce because the resulting loss is less than its TFC.

C) produce because it will realize an economic profit.

D) liquidate its assets and go out of business.

13. Suppose a firm in a perfectly competitive market discovers that the price of its product is

above its minimum AVC point but everywhere below ATC. Given this, the firm:

A) minimizes losses by producing at the minimum point of its AVC curve.

B) maximizes profits by producing where MR = ATC.

C) should close down immediately.

D) should continue producing in the short run, but leave the industry in the long run.

14. Which of the following will not hold true for a competitive firm in long-run equilibrium?

A) P equals AFC

B) P equals minimum ATC

C) MC equals minimum ATC

D) P equals MC

15. Assume a perfectly competitive increasing-cost industry is initially in long-run equilibrium

and that an increase in consumer demand occurs. After all economic adjustments have been

completed product price will be:

A) lower, but total output will be larger than originally.

B) higher and total output will be larger than originally.

C) lower and total output will be smaller than originally.

D) higher, but total output will be smaller than originally.

16. A constant-cost industry is one in which:

A) resource prices fall as output is increased.

B) resource prices rise as output is increased.

C) resource prices remain unchanged as output is increased.

D) small and large levels of output entail the same total costs.

17. If a perfectly competitive constant-cost industry is realizing economic profits, we can expect

industry supply to:

A) increase, output to increase, price to decrease, and profits to decrease.

B) increase, output to increase, price to increase, and profits to decrease.

C) decrease, output to decrease, price to increase, and profits to increase.

D) increase, output to decrease, price to decrease, and profits to decrease.

18. A decreasing-cost industry is one in which:

A) contraction of the industry will decrease unit costs.

B) input prices fall or technology improves as the industry expands.

C) the long-run supply curve is perfectly elastic.

D) the long-run supply curve is upsloping.

19. Allocative efficiency is achieved when the production of a good occurs where:

A) P = minimum ATC.

B) P = MC.

C) P = minimum AVC.

D) total revenue is equal to TFC.

20. Resources are efficiently allocated when production occurs where:

A) marginal cost equals average variable cost.

B) price is equal to average revenue.

C) price is equal to marginal cost.

D) price is equal to average variable cost.

21. The term productive efficiency refers to:

A) any short-run equilibrium position of a competitive firm.

B) the production of the product-mix most desired by consumers.

C) the production of a good at the lowest average total cost.

D) fulfilling the condition P = MC.

22. If for a firm P = minimum ATC = MC, then:

A) neither allocative efficiency nor productive efficiency is being achieved.

B) productive efficiency is being achieved, but allocative efficiency is not.

C) both allocative efficiency and productive efficiency are being achieved.

D) allocative efficiency is being achieved, but productive efficiency is not.

25. Which of the following outcomes is consistent with a perfectly competitive market in long

run equilibrium?

A) consumer and producer surplus will be maximized.

B) P = MC = lowest AVC.

C) the minimum willingness to pay equals the maximum acceptable price.

D) We would expect all of the above to occur in the long run in a perfectly competitive market.