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1 | |
A self-employed shoe repairman''s business is analyzed by the perfect competition model. His revenue is exactly equal to his average total costs as measured by the economists so he has not made any economic profit, yet he seems to be living on adequate income. How do we account for this set of circumstances? |
| | A) | We assume he is living off past savings or transfer income. |
| | B) | We include the opportunity cost of his work as part of the AFC of doing business. |
| | C) | We include the opportunity cost of his work as part of the AVC of doing business. |
| | D) | We include the opportunity cost of his work as part of the MC of doing business, but we do not count it in the ATC. |
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2 | |
Which two of the four conditions for perfect competition are best illustrated by Saskatchewan wheat farmers? |
| | A) | standardized product : price taker |
| | B) | standardized product: perfect information |
| | C) | mobile factors of production: price taker |
| | D) | perfect information: mobile factors of production |
| | E) | price taker: perfect information |
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3 | |
The market demand for duct tape is P = 100 - 9Q. Ten perfectly competitive firms supply the tape and each has a marginal cost function MC = 10Q. What is the going price for duct tape that each producer must take as given and what is the total market quantity produced? |
| | A) | Q = 5.26 and P = 52.63 |
| | B) | Q = 10 and P = 10.00 |
| | C) | Q = 1 and P = 91.00 |
| | D) | None of the above is the correct answer. |
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4 | |
In problem 11-3 above, all firms together will have ____ producer surplus if the market demand shifts making equilibrium output equal to 8. Nothing changes on the cost side of the market. |
| | A) | 80 |
| | B) | 64 |
| | C) | 32 |
| | D) | 28 |
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5 | |
If the price in a perfectly competitive market is 10, a firm''s ATC is 11, and there are no fixed costs, then the |
| | A) | firm should shut down in the short run. |
| | B) | firm should stay open in the short run but look to change or close in the long run. |
| | C) | firm should raise its price to at least 11. |
| | D) | firm must seek more information before it can answer the question. |
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6 | |
Which is false if, in a perfect competition model, a firm is making economic profit? |
| | A) | More resources will flow into the industry in the long run. |
| | B) | The firm''s marginal cost is higher than its ATC. |
| | C) | The firm''s ATC will rise until ATC = P. |
| | D) | The firm''s price will fall in the long run. |
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7 | |
In a perfectly competitive industry at long-run equilibrium: |
| | A) | all consumer surplus is bid away. |
| | B) | All producer surplus is bid away. |
| | C) | All economic profit is bid away. |
| | D) | All of the above are bid away as efficiency is reached. |
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8 | |
If economic profit becomes significantly positive for a competitive firm because that firm has a uniquely gifted labourer, then |
| | A) | that economic profit can last indefinitely. |
| | B) | government regulation rather than competition is needed to curb the excessive profit. |
| | C) | the profit will disappear as other firms bid up the price of the gifted labourer. |
| | D) | the labourer will feel exploited and will leave the industry, after which the economic profit disappears. |
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9 | |
The industry supply curve is P = 0.5Q. What is the price elasticity of supply in this industry if the quantity of output is 10? (Use absolute values.) |
| | A) | elastic |
| | B) | inelastic |
| | C) | unitary elasticity |
| | D) | The elasticity cannot be calculated without more information on price. |
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10 | |
In a constant cost industry that is initially at a long run equilibrium point, where the long-run supply curve is horizontal and the LAC curve is U-shaped, an increase in demand will, in the long run, |
| | A) | increase the size of each firm and decrease the number of firms in the industry. |
| | B) | increase the number of firms in the industry but not the size of existing firms. |
| | C) | lead to a lower price, larger firms, and more of them. |
| | D) | lead to any one of the above because the outcome is indeterminate. |
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2002 McGraw-Hill Higher Education