Economics and Perfectly Competitive Firm

1. Luxury goods are a. price inelastic b. income inelastic c. income elastic d. goods with negative income elasticity 2. Substitutes are pairs of products with a. positive cross-price elasticity of demand b. negative cross-price elasticity of demand c. positive income elasticity of demand d. negative income elasticity of demand 3. The long run is a period of time a. during which at least one resource is fixed b. during which all resources are variable c. during which all resources are fixed d. less than one year 4. Marginal product is defined as a. he increase in revenue that occurs when an additional unit of a resource is added b. the increase in output that occurs when all resources are increased by the same proportion c. the increase in output that occurs when an additional unit of a resource is added, holding all other resources constant d. the amount of additional resources needed to increase output by one unit when all resources are increased by the same amount 5. Fixed costs are defined as a. the total costs of a firm’s production b. the additional cost of the last unit produced c. osts that increase proportionately as the quantity produced increases d. costs that do not vary as quantity produced increases 6. When a firm is experiencing diminishing marginal returns, marginal cost is a. rising b. falling c. constant d. rising at first, then falling 7. Minimum efficient scale is the level of output at which a. short-run average total cost stops decreasing b. short-run average total cost stops increasing c. long-run average cost stops decreasing d. long-run average cost stops increasing 8. The demand curve facing a perfectly competitive firm is . almost vertical at the market quantity b. perfectly inelastic c. perfectly elastic d. horizontal at the price the firm wishes to charge 9. Marginal revenue is a. total revenue minus total cost b. total revenue divided by quantity of output c. the change in total revenue divided by the change in output d. the change in total revenue divided by the change in the quantity of an input used 10. A perfectly competitive firm’s profit per unit of output equals a. price times quantity b. total revenue minus total cost c. price minus average variable cost d. rice minus average total cost 11. Long-run equilibrium for a perfectly competitive firm occurs when a. P = MC = MR = ATC b. MC = MR = AFC = ATC c. MC = MR = P > ATC d. P > MC > MR > ATC 12. A constant-cost industry is one a. that faces constant average costs in the short run b. that experiences economies of scale c. that experiences stable demand d. whose cost curves do not change as new firms enter 13. To achieve allocative efficiency, firms a. strive to minimize fixed costs b. strive to maximize profits c. produce at their minimum long-run average cost . produce the output consumers want most 14. The demand curve a monopolist faces a. is more elastic than a perfectly competitive firm’s demand curve b. is the market demand curve c. is as elastic as a perfectly competitive firm’s demand curve d. is not affected by the prices of complements 15. The demand curve facing a single-price monopolist a. is the same as its average revenue curve b. is the same as its marginal revenue curve c. is the same as the perfect competitor’s demand curve d. lies above its average revenue curve 16.

Which of the following is true at the profit-maximizing quantity for both a perfectly competitive firm and a monopoly? a. Price equals marginal cost. b. Price is greater than marginal cost. c. Marginal revenue equals marginal cost. d. Marginal revenue is less than marginal cost. 17. For a monopolist that produces in the short run and does not price discriminate, price always has to be a. equal to marginal cost at the profit-maximizing quantity b. equal to marginal revenue at the profit-maximizing quantity c. greater than marginal cost at the profit-maximizing quantity d. ess than marginal cost at the profit-maximizing quantity 18. An important difference between a perfectly competitive firm and a monopolist is that a. the perfectly competitive firm tends to be larger b. only the monopolist attempts to maximize profit c. only the perfectly competitive firm maximizes profit d. the perfectly competitive firm faces a horizontal demand curve and the monopolist faces a downward-sloping demand curve 19. Unlike firms in a perfectly competitive industry, monopolists have control over a. the price they charge for the product b. he quantity of output they produce c. the prices they pay for resources d. the quantities of various resources which are used e. improvements in technology 20. The term monopolistic competition a. denotes an industry with one seller of many differentiated products b. is an alternate expression for monopoly c. denotes an industry with many sellers of homogeneous products d. denotes an industry with many sellers of differentiated products 21. Which of the following characteristics distinguishes oligopoly from other market structures? a. production of differentiated outputs b. nterdependence among firms in the industry c. a downward-sloping demand curve d. production of homogeneous outputs 22. Interdependent decision making on price, quality, or advertising is characteristic of a. perfect competition b. monopolies c. oligopolies d. monopolistic competition 23. Under which of the following market conditions is it most difficult to maintain a cartel agreement? a. There are many firms in the industry and these firms have similar costs. b. There are many firms in the industry and these firms have different costs. c. There are few firms in the industry and these firms have similar costs. . There are few firms in the industry and these firms have different costs. 24. Game theory focuses on a. strategic behavior among interdependent firms b. professional athletic events c. competition between the players in board games d. competition between those in the political arena and those in the market place 25. The term strategy in terms of game theory refers to a. the relationship between price and marginal cost b. the relationship between individual firm demand curves and the market demand curve c. each firm’s game plan in making decisions d. the interrelationship between price and marginal revenue