Chapter 23 Perfect Competition 495
58) If the costs of production do not increase as output increases in the long run in a perfectly
competitive industry, then this is a
A) constant return to scale industry. B) constant competitive industry.
C) constant cost industry. D) constant price industry.
59) The long run supply curve in a constant cost, perfectly competitive industry is
A) perfectly inelastic. B) upward sloping.
C) downward sloping. D) perfectly elastic.
60) The long run industry supply curve in a decreasing cost, perfectly competitive industry is
A) negatively sloped. B) perfectly elastic.
C) positively sloped. D) perfectly inelastic.
61) Because a firm s supply curve slopes upward, the long run supply curve of an industry must
also slope upward. Do you agree or disagree? Explain.
62) What are signals? How do profits function as signals?
63) What determines whether the industry long run supply curve is upward sloping or horizontal?
64) Explain what happens to the long run supply curve of an industry when firm entry raises the
price of inputs used in the industry.
23.10 Long Run Equilibrium
1) If a perfectly competitive firm has economic profits greater than zero, then we know that
A) the firm s industry is not in long run equilibrium.
B) the firm s industry is in long run equilibrium.
C) the firm is producing at the bottom of the average total cost curve.
D) the firm will reduce output.
2) In the above figure, the long run equilibrium price and output are
A) $10 and 10. B) $10 and 12. C) $7 and 8. D) $8 and 10.
3) In the long run, a perfect competitor
A) earns positive profits but will not make losses.
B) earns positive economic profits.
C) earns zero economic profits.
D) produces at its shutdown point.
4) In the long run, the price for a perfectly competitive firm
A) will be determined by the firm s supply and demand curves.
B) will allow for positive economic profits.
C) will equal marginal cost where marginal cost is at a minimum.
D) will equal the minimum average total cost.
5) Which of the following is NOT correct for a perfectly competitive firm in long run equilibrium?
A) SAC LAC B) MR P AR
C) MC MR LAC D) LAC P
6) Which of the following is true in perfect competition at long run equilibrium?
A) P ATC MC MR B) ATC is minimized
C) economic profit is $0 D) all of the above
7) In the long run in a perfectly competitive industry,
A) opportunity costs are negligible.
B) economic profits will be zero.
C) some firms will be experiencing economic losses.
D) only entrepreneurs will earn more than their opportunity costs.
8) Which of the following is NOT true for a perfectly competitive firm in the long run?
A) MR MC B) MC LAC C) Price MC D) SAC LAC
9) Which of the following is NOT correct concerning perfectly competitive firms in the long run?
A) Long run economic profits are zero.
B) Price equals minimum long run average cost.
C) Entrepreneurs earn the opportunity cost of their investment.
D) The opportunity cost of capital is zero.
10) In the long run, the perfectly competitive firm
A) does not have a shut down price. B) earns only a normal profit.
C) may produce even if it suffers a loss. D) earns an economic profit.
11) For a firm in a perfectly competitive industry,
A) short run economic profits must be zero.
B) short run and long run economic profits must be zero.
C) short run economic profits may be positive, but long run economic profits must be zero.
D)
b
oth short run and long run economic profits may be negative.
12) Firms in a perfectly competitive industry are producing goods efficiently in the long run if each
is producing at the minimum point of the
A) AVC curve. B) MC curve. C) LAC curve. D) AFC curve.
13) In long run equilibrium, the perfectly competitive firm will
A) go out of business.
B) produce to the point at which marginal cost is at its minimum.
C) produce to the point at which marginal cost equals average total cost.
D) produce on the upward sloping portion of its ATC curve.
14) Price equals the minimum of long run average cost
A) in a long run equilibrium.
B) in a short run equilibrium as well as in a long run equilibrium.
C) whenever average revenue equals marginal cost.
D) along a horizontal long run supply curve, but not along an upward sloping long run
supply curve.
15) Which of the following is NOT a characteristic of a perfectly competitive long run equilibrium?
A) Firms are earning zero profits.
B) Price equals marginal cost.
C) Price equals long run minimum average cost.
D) Firms are producing on the downward sloping portions of their short run average cost
curves.
16) For a perfectly competitive firm at its long run equilibrium,
A) P MR MC AC.
B) P MR MC.
C) accounting profit must be zero.
D) there are no opportunity costs to be concerned with.
17) If a perfectly competitive industry is in long run equilibrium, then
A) price equals average cost.
B) price is greater than average cost and equal to marginal cost.
C) all firms earn the same accounting profits.
D) marginal cost is less than average cost.
18) When a perfectly competitive firm is in long run equilibrium, economic profits
A) are positive.
B) are zero.
C) are negative.
D) may be positive, zero or negative depending upon costs.
19) In a perfectly competitive market, a firm in long run equilibrium will be operating
A) to the right of the minimum of the long run average cost curve.
B) to the left of the minimum of the long run average cost curve.
C) at the minimum of the long run average cost curve.
D) at the minimum of the marginal cost curve.
20) Refer to the above figure. A perfectly competitive firm that is in long run equilibrium will be
operating
A) with positive economic profits. B) at a quantity greater than point E.
C) at a quantity less than point E. D) at point E.
21) In reference to the long run firm competitive equilibrium diagram, which of the following
statements is INCORRECT?
A) In the long run, the firm has no incentive to alter its scale of operations.
B) Because profits must be zero in the long run, the firm s short run average costs (SAC)
must equal P at Qe, which occurs at minimum SAC.
C) In the long run, the firm operates where price, marginal revenue, marginal cost, short run
minimum average cost, and long run minimum average cost all are equal.
D) In the long run, this firm must be part of a constant cost industry, because its marginal
revenue curve is perfectly elastic.
22) In a long run equilibrium, a perfectly competitive firm s average total cost is
A) minimized. B) maximized.
C) zero. D) equal to average fixed cost.
23) In the long run, all firms in a perfectly competitive industry
A) earn economic profits.
B)
b
reak even.
C) suffer economic losses.
D) sell differentiated products to earn economic profits.
24) For a perfectly competitive firm at its long run competitive equilibrium point,
A) P AR MR LATC SATC MC. B) P AR MR LATC SATC MC.
C) P AR MR MC LATC AVC. D) P MR AR MC LATC SATC.
25) In a long run perfectly competitive equilibrium,
A) P MR MC ATC. B) P MR MC ATC.
C) P MR MC ATC. D) P MR MC ATC.
26) If firms in a perfectly competitive industry are earning positive economic profits, then what will
happen in the long run?
27) In the long run, a perfectly competitive firm s average total cost is always below the market
clearing price. Agree or disagree? Why?
504 Miller Economics Today, 16th Edition
23.11 Competitive Pricing: Marginal Cost Pricing
1) Economic efficiency means
A) the same as technical efficiency.
B) that all firms within a single competitive industry are producing at the same level of
output.
C) that it is impossible to increase the output of any good without lowering the total value of
the output of the economy.
D) that high tech methods of production are the most efficient.
2) With marginal cost pricing,
A) marginal benefits are usually less than marginal cost.
B) all opportunity costs will be covered in the short run.
C) the price charged is equal to the opportunity cost to society of producing one more unit of
the good.
D) there cannot be any short run economic profit.
3) When marginal cost pricing occurs,
A) price equals the additional cost society incurs in producing the next unit of an item.
B) the firm can only break even if it does not set price to marginal cost.
C) price equals average variable cost but exceeds average total cost.
D) the firm is at the shutdown point.
4) Competitive pricing is efficient because
A) the price that consumers pay reflects the opportunity cost to society of producing the
good.
B) firms make positive economic profits in long run equilibrium.
C) average revenue equals average cost.
D) firms produce above the minimum efficient scale.
5) A market failure is a situation in which
A) resources are being efficiently allocated, but some companies are forced to shut down.
B) the market equilibrium leads to either too many or too few resources going towards
producing the good or service.
C) the government must take actions to correct the failures of the market in a particular
industry.
D) there is no free entry or exit into an industry.
6) The opportunity cost to society of producing one more unit of the good is
A) average cost. B) marginal cost.
C) efficiency costing. D) the optimal cost.
7) When price equals marginal cost
A) firms make zero profits.
B) firms make positive profits.
C) the industry is in long run equilibrium.
D) the marginal benefits of consuming an extra unit of the good exactly equals the marginal
cost to society of producing the good.
8) The value of total output decreases when labor leaves one industry and goes to another and
capital leaves the second industry and goes to the first. This indicates that
A) the first situation was not efficient.
B) the second situation is efficient.
C) price is greater than marginal cost.
D) it would be efficient to return to the first situation.
9) If markets are perfectly competitive, then the production of goods
A) will use the least costly combination of resources.
B) will occur at an average total cost value that is above the minimum.
C) will require government intervention.
D) will always lead to business failures.
10) Perfectly competitive markets are efficient because
A) they always reach equilibrium.
B) firms in the market are price takers.
C) the cost to society for producing the goods is exactly equal to the value that society places
on the good.
D) the long run equilibrium assures that the prices of resources will not increase.
11) Suppose the perfectly competitive equilibrium occurs such that too many units of the good are
produced. This is an example of
A) marginal cost pricing.
B) market failure.
C) firms have not yet exited the industry.
D) greedy business people behaving in an inappropriate manner.
12) Economic efficiency is indicated by
A) P AVC. B) MR MC. C) P MR. D) P MC.
13) A situation in which the price charged is equal to society s opportunity cost is known as
A) market failure. B) marginal monopoly pricing.
C) marginal profits. D) marginal cost pricing.
14) A situation in which the price charged is greater than society s opportunity cost would lead to
A) market failure. B) marginal monopoly pricing.
C) marginal profits. D) marginal cost pricing.
15) A situation in which the price charged is greater than society s opportunity cost would lead to
A) too little being produced. B) too much being produced.
C) an efficient amount being produced. D) marginal cost pricing.
16) A situation in which the price charged is less than society s opportunity cost would lead to
A) too little being produced. B) too much being produced.
C) an efficient amount being produced. D) marginal cost pricing.
17) Which of the following best describes a situation of economic efficiency?
A) A firm produces to the point at which P AVC, with MR MC.
B) A firm produces to the point at which P ATC, with MC MR.
C) A firm produces to the point at which MR AFC, with P AVC.
D) A firm produces to the point at which MR MC, with P MC.
18) A firm s long run position under perfect competition is often said to be efficient because
A) P AR MC AVC. B) P AR MR MC.
C) P MR AVC AFC. D) P MR MC ATC.
19) In a perfectly competitive market, if P MC, then
A) too little output is being produced.
B) too much output is being produced.
C) production is efficient, as the firm is earning profits.
D) the firm is paying a price for resources that is too high.
20) In a perfectly competitive market, if P MC, then
A) too little output is being produced.
B) too much output is being produced.
C) production is efficient, as the firm is earning profits.
D) the firm is paying a price for resources that is too high.
21) What is marginal cost pricing? Why is marginal cost pricing important?
22) Why would it be economically inefficient for a firm to charge the price of a good greater than its
marginal cost?
23) Why is the pricing outcome of a perfectly competitive firm efficient in economic sense?