Chapter 9 Refer Figure 235 For Perfectly Competitive

103.

Refer to Figure 23.5 for a perfectly competitive firm. Given the current market price of $200, we expect to see

104.

Refer to Figure 23.5 for a perfectly competitive firm. Which of the following is not true for this firm at a price of

$200?

105.

Refer to Figure 23.5 for a perfectly competitive firm. If more efficient production techniques were developed in

this market, which of the following changes would we expect to occur, ceteris paribus?

106.

Refer to Figure 23.6 for a perfectly competitive firm. Assuming that points A, B, C and D are all above AVC, this

firm will maximize profits by producing the level of output that corresponds to point

107.

Refer to Figure 23.6 for a perfectly competitive firm. If this firm produces the level of output corresponding to

point B in the short run, it will earn

108.

Refer to Figure 23.6 for a perfectly competitive firm. Given the current market price, we expect to see

109.

Refer to Figure 23.6 for a perfectly competitive firm. Given the current market price, we expect to see

110. One In the News article “IBM Forced to Halt PCjr Output Next Month” indicates all of the following except:

111. One World View article is titled “Flat Panels, Thin Margins.” New firms continue to enter the industry

even though prices are falling because

A. Normal profits are being earned.

112. One World View article is titled “Competition Shrinks India’s Phone Bills.” Competitive forces typically

force companies to

A. Cut prices and reduce product quality.

113. One World View article titled “Economy Threatens Catfish Industry” describes the increased competition in the

catfish market. Which of the following is not true for a perfectly competitive industry in the long run?

115. Because a perfectly competitive firm has no market power, its marginal cost curve is flat (i.e., horizontal).

116. Market supply is the horizontal sum of the individual MC curves above the AVC in a perfectly competitive

market.

117. The decision by firms to enter a market shifts the market supply curve to the right.

118. Entry and exit are long-run investment decisions.

119. The profit motive drives entry and exit decisions.

120. When entrepreneurs decide to build a plant, they are making a production decision.

121. A necessary condition for the operation of a perfectly competitive market is free entry and exit from the

market.

TRUE

122. In perfectly competitive markets, economic losses are the signal for firms to exit from the industry.

123. In a perfectly competitive market, firms will earn zero economic profits in the long run.

124. Perfectly competitive firms always earn economic profits in the short run.

125. As long as an economic profit is available, a perfectly competitive market will continue to attract new

entrants.

126. Barriers to entry are obstacles that make it difficult or impossible for would-be producers to enter a particular

market.

TRUE

127. Economic losses mean that firms will exit from a market in the short run.

128. Patents are a barrier to entry.

129. Perfectly competitive firms are heavy advertisers because they produce differentiated products.

130. Perfect information is a necessary condition of perfect competition.

131. Sellers in a perfectly competitive market are powerless to affect the market price of their product.

132. Most product markets are perfectly competitive.

133. In the short run, a perfectly competitive firm’s production decision aims to maximize profits at the production

rate where P = MR = MC.

TRUE

134. Minimizing average total cost always leads to the maximization of total profit.

135. Maximizing profits per unit always leads to the maximization of total profit.

136. When P < ATC in the long run, a perfectly competitive firm experiences economic profit and new firms will

137. Technological improvements shift the average total cost curve and the marginal cost curve downward.

138. Exit and shutdown mean the same thing.

139. Competitive market pressures were a driving force in the spectacular growth of the computer industry.

140. High profits in a particular industry indicate that consumers want more of that industry’s goods.

141. Perfectly competitive markets are responsive to the demand of consumers.

142. The marginal cost pricing characteristic of competitive markets permits society to efficiently answer the

WHAT to produce question.

TRUE

143. The price consumers pay for a product in a perfectly competitive market is an inaccurate reflection of

opportunity cost.

144. In order to attain the optimal mix of output, we must know the opportunity cost of producing different goods.

145. When resources are earning zero economic profits for a firm, the resources could earn more in their next best

alternative use.

146. As in other industries, the market structure of the computer industry has evolved over time. It began as

a monopoly and then became perfectly competitive.

147. Explain how the market supply curve is derived in a perfectly competitive market. Identify five factors that would

cause the market supply curve to shift.

148. Explain why economic profits in all perfectly competitive markets will tend toward zero in the long run.

149. Diagram a model of a perfectly competitive market and a separate model of a firm experiencing economic

profits. Explain and illustrate on your models the changes that take place in the long run. Be sure to explain why

any changes take place.

150. Explain why technological progress will, at best, only temporarily allow a perfectly competitive firm to earn an

economic profit.

151. Explain how a perfectly competitive market promotes productive efficiency (minimum average costs).

Chapter 09 Test Bank Summary