Purdue University North Central

Economics 251

Review Questions, Chapter 23 (8) - Competitive Markets

(1) The market supply curve is:

(a) the sum of the marginal cost curves of all the firms in the market.

(b) upward sloping to the right.

(c) determined by the number of firms in the market.

(d) All of the above.

(2) Which of the following is an investment decision in a competitive market?

(a) The shutdown decision.

(b) Entry or exit.

(c) The rate of output to produce.

(d) The price to charge.

(3) If economic profits are earned in a competitive market:

(a) more firms will enter the market.

(b) the market supply curve will shift to the left.

(c) equilibrium price will rise.

(d) All of the above.

(4) The exit of firms from a market, ceteris paribus:

(a) Shifts the market supply curve to the right.

(b) Reduces the economic losses of remaining firms in the market.

(c) Increases the equilibrium output in the market.

(d) All of the abovc.

(5) Which of the following is a characteristic of a perfectly competitive market?

(a) Long run economic profit.

(b) Identical products.

(c) High barriers to entry.

(d) A small number of firms.

(6) In which of the following cases would a firm enter a market?

(a) Price > Average Total Cost.

(b) Price < Average Total Cost.

(c) Price = Average Total Cost.

(d) Price > Average Variable Cost but < Average Total Cost.

Consider Figure 1 in answering Question (7).

Figure 1

D(3)

(7) In Figure 1, at a price of P(3):

(a) Firms will enter the market.

(b) Firms will exit the market.

(c) Economic profits equal zero.

(d) Price = Average Total Cost.

Consider Figure 2 in answering Question (8).

Figure 2

(8) Figure 2 refers to a perfectly competitive firm. In the long run, the firm would stay in the market only if the market price was equal to or higher than:

(a) $10

(b) $15

(c) $18

(d) $20

Consider Figure 3 in answering Question (9).

Figure 3

(9) Refer to Figure 3 for a perfectly competitive firm and market. Which of the following is likely to occur in the market in the long run?

(a) An increase in demand.

(b) An increase in supply.

(c) A decrease in demand.

(d) A decrease in supply.

Consider Figure 4 in answering Question (10).

Figure 4

Q(1)

(10) Refer to Figure 4 for a perfectly competitive firm. If more efficient production techniques were developed, which of the following changes would we expect to occur?

(a) The average total cost, marginal cost, and market price would all decrease.

(b) The average total cost alone would decrease.

(c) The average total cost, marginal cost, and market price would all increase.

(d) The average total cost alone would increase.