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Perfect Competition - CHAPTER 7
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Questions in this quiz (21)
1Demand is given by P = 1,000 – 10Q and supply by P = 400 + 20Q. Equilibrium price and output under perfect competition are
- Aa. P = $600 and Q = 10 units.
- Bb. P = $700 and Q = 30 units.
- Cc. P = $800 and Q = 20 units.
- Dd. P = $1,000 and Q = 30 units.
- Ee. P = $800 and Q = 10 units.
2If for some reason the price of a good is below the equilibrium price, then
- Aa. Finding inventories building up, suppliers will cut output, and raise prices.
- Bb. Finding inventories depleted, suppliers will increase output and raise prices.
- Cc. The demand curve shifts left until equilibrium is established at the existing price.
- Dd. The supply curve shifts right until equilibrium is established at the existing price.
- Ee. Consumers will bid up the good’s price, but there will be no increase in output.
3A favorable shift in the demand curve occurs when
- Aa. Suppliers place more goods on the market.
- Bb. The price of a good rises.
- Cc. Time passes. Next year’s demand will be very different than this year’s.
- Dd. The price of the good falls.
- Ee. Consumers want to buy more than before at a given price.
4A shift in the demand for sailboats due to an increase in income will typically cause
- Aa. Higher prices of sailboats.
- Bb. Lower prices of sailboats.
- Cc. A shift in the supply curve for sailboats.
- Dd. Lower output of sailboats.
- Ee. No change in the price of sailboats.
5A shift in the supply curve of bicycles resulting from higher steel prices will lead to
- Aa. Larger output of bicycles.
- Bb. Lower prices of bicycles.
- Cc. A shift in the demand curve for bicycles.
- Dd. Lower output of bicycles.
- Ee. No change in the price of bicycles.
6We observe that the price of food rises and the quantity purchased also rises. Thus the
- Aa. Supply curve has shifted to the left.
- Bb. Demand curve has shifted to the right.
- Cc. Demand curve has shifted to the left.
- Dd. Supply curve has shifted to the right.
- Ee. Demand curve happens to be upward sloping.
7As a result of standardized products, under perfect competition
- Aa. Firms are confronted by diminishing returns.
- Bb. Firms will seek to attain quality advantages.
- Cc. Firms face perfectly elastic individual demand curves.
- Dd. Firms face perfectly inelastic demand curves.
- Ee. Firms are forced to advertise.
8A firm under perfect competition sells 100 units of output at $7 per unit. If it expands production to 120 units, its marginal revenue is
- Aa. $3.50 per extra unit sold.
- Bb. More than $7 per extra unit sold.
- Cc. $700 in total.
- Dd. Exactly $7 per extra unit sold.
- Ee. Impossible to determine without further information.
9An accurate description of a perfectly competitive industry is
- Aa. A limited number of firms producing standardized products.
- Bb. A large number of small firms producing standardized products.
- Cc. A large number of small firms producing differentiated products.
- Dd. A small number of large firms producing either standardized or differentiated products.
- Ee. Large-scale firms producing at minimum average cost per unit.
10In order to maximize profit, a firm under perfect competition should continue production until the extra cost of producing the last unit of output
- Aa. Is stabilized.
- Bb. Begins to rise.
- Cc. Begins to decline.
- Dd. Is equal to average variable cost.
- Ee. Is equal to the market price.
11A perfectly competitive industry may be able to expand along a horizontal long-run supply curve. Such an industry is known as a
- Aa. Constant-cost industry.
- Bb. Increasing-cost industry.
- Cc. Decreasing-cost industry.
- Dd. Dynamic industry.
- Ee. An industry with increasing returns to scale.
12The demand curve faced by a firm in a perfectly competitive industry is
- Aa. The same as the market demand.
- Bb. The same as the market supply.
- Cc. The same as the market price.
- Dd. Always above the marginal revenue curve.
- Ee. Downward sloping.
13In the long run, perfectly competitive firms are at equilibrium when
- Aa. P = LMC > LAC.
- Bb. P = MR.
- Cc. P = LAC > LMC.
- Dd. P = LMC = LAC.
- Ee. R = VC.
14In a constant cost industry, a permanent fall in demand will cause
- Aa. A drop in price in the long run.
- Bb. A reduction in the number of firms in the long run.
- Cc. No change in equilibrium price in the long run.
- Dd. No change in the output per firm in the long run.
- Ee. Answers b, c, and d are all correct.
15The idea behind the concept of the “invisible hand” is that
- Aa. Competitive markets maximize shareholder welfare.
- Bb. Government intervention is necessary to correct market outcomes.
- Cc. Competitive markets are efficient, i.e. maximize social welfare.
- Dd. Government regulations necessarily distort social welfare.
- Ee. Competitive markets are fair, but not necessarily efficient.
16The net “gain” a buyer of a good obtains is called
- Aa. Consumer surplus.
- Bb. Producer surplus.
- Cc. Profit.
- Dd. Social welfare.
- Ee. The terms of trade
17The efficient industry outcome under perfect competition occurs at an output where
- Aa. MR = MC.
- Bb. MB = P = MC.
- Cc. P > MC.
- Dd. Consumer Surplus = Industry Profit.
- Ee. Consumers attain a partial price subsidy from the government.
18Consumers who are priced out of the market because their MB < PC
- Aa. represent a source of inefficiency.
- Bb. are consistent with an efficient market outcome.
- Cc. should be subsidized by the government.
- Dd. should strive to increase their MB and purchase the good.
- Ee. Answers a and c are both correct.
19Competition on the internet
- Aa. achieves perfect competition.
- Bb. increases competition by reducing consumer search costs.
- Cc. allows firms to charge optimal markups for differentiated products.
- Dd. Answers b and c are both correct.
- Ee. None of the answers above is correct.
20Trade between nations usually means that
- Aa. One country is richer than the other.
- Bb. One country becomes richer while the other becomes poorer.
- Cc. Both trading nations benefit.
- Dd. One trading country is trying to “beggar its neighbor.”
- Ee. The nation with a trade surplus gains; the side with a trade deficit loses.
21When all trade is prohibited in good X, the equilibrium price in the home country is Px. After free trade is instituted, domestic producers (with upward sloping supply curves) begin to export good X to the rest of the world. Therefore,
- Aa. The domestic price of good X will fall.
- Bb. The domestic price of good X will rise.
- Cc. The domestic price of good X will exceed the price in foreign countries.
- Dd. The domestic price of good X will be less than the price in foreign countries.
- Ee. One cannot predict the impact on the price of the commodity.
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- 1 Managerial Economics Quiz on Perfect Competition - CHAPTER 7 , created by Adriatik Kryeziu on 07/06/2021.
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- Adriatik Kryeziu
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