20. When a perfect competitive industry is in long-run equilibrium, a. Firm have

Question

20. When a perfect competitive industry is in long-run equilibrium,
a. Firm have no incentive to enter o exit the industry.
b. Market price is equal to minimum long-run average cost.
c. Each firm earns a normal return.
d. Both a ande
e. All of the above
21. Which of the following is NOT a characteristic of an increasing cost competitive industry? As the industry expands in the long run, a. The price of product remains constant.
b. The prices of some inputs rise.
c. The cost of production increases.
d. The number of firms increase,
e. None of the above.
The next four questions refer to the following:
The table below shows a perfectly competitive firm’s short-run production function. Labor in
the firm’s only variable input and market price for the firm’s product is $2 per unit.
22. How much does the fifth unit of labor add to the firm’s total revenue?
a. $160
b. $80
c. $60
d. $40 e. $10
23. If the wage rate is $200, how many units of labor will the firm employ? a. 3
b. 4
c. 5
d. 6
e. 0, the firm shuts down

24. If the wage rate is 200, the firm should
a. Shut down because average revenue product is $200, which is less than marginal
revenue product
b. Shut down because average revenue product is $228, which is greater than the
wage rate.
c. Produce because average revenue product is $200, which is less than marginal
revenue product.
d. Produce because average revenue product is $245, which is greater than the wage
rate.
25. If market price for the firm’s product increases to $5, how many units of labor will the
firm employ at a wage rate of $200?
a. 0, the firm shuts down
b. 4
c. 5
d. 6
e. 7
The next five questions refer to the following figure:
There are the cost curves for a perfectly competitive firm.
26. If market price is $5, how much output will the firm produce?
a. 0 units
b. 200 units
c. 500 units
d. 600 units
7
27. If market price $5, how much profit will the firm earn?
a. $600
b. $900
c. $3,000
d. -$600
28.If market price is $3, how much profit will the firm earn?
a. $200
b. -$200
c. $400
d. -$400
29. If market price is $2, how much profit will the firm earn? a. $600
b. -$600
c. Zero
d. $400
The next three questions refer to the following figure, showing the marginal revenue product
(MRP) and the average revenue product (ARP) curves of a perfectly competitive firm hiring a
single variable input, labor.
30. If the wage is $20, how many workers will the firm hire?
a. 225
b. 175
c. 200
d. Zero
S
31. If the wage is $15, how much many workers will the firm hire?
a. 250
b. Zero
c. 100
d. 200
32. If the wage is above $ the firm will shut down and hire zero workers in the short
run.
a. $41
b. $30
c. $35
d. $32
33. Economic rent
a. is the payment to a more productive resource above its opportunity cost.
b. cannot be earned in long-run competitive equilibrium.
c. is competed away in the long run. d. both b ande.
e. all of the above.
34. In a perfectly competitive market
a. a firm faces a perfectly elastic demand because there is unrestricted entry and exit.
b. if a firm raises its price, it will lose some, but not all, of its customers.
c. when a firm sells another unit output, the addition to total revenue is equal to
market price.
d. all of the above
e. none of the above.
The next 3 questions refer to the following figure:
9
The figure above shows cost curves for a perfectly competitive firm.
35. Suppose that market price is $2.60. A firm producing 800 units of output
a. is earning the maximum amount of profit, $880.
b. is earning the maximum amount of profit, $2,080.
c. should produce 500 units of output instead, to earn profits of $500.
d. should produce 1100 units of output instead, to earn profits of $1,100.
e. Should shut down
36. A profit-maximizing firm will break even when market price is:
a. $0.60
b. $0.80
c. $1.50
d. $1.60.
37. If market price is $0.70, a profit-maximizing firm will produce units of output and
earn profits of .
a. 500. -$450
b. 500, -$50
c. zero, -$450
d. zero, -$400
38. Which of the following is a characteristic of a monopoly market?
a. one firm is the only supplier of a product for which there are no close
substitutes.
b. entry into the market is blocked
c. the firm can influence market price d. all of the above
39. In a monopoly market,
a. other firms have no incentive to enter the market.
b. profits will always be positive because the firm is the only supplier in the
market.
c. the demand facing the firm is downward-sloping because it is the market
demand
d. a and b
e. none of the above
40. A monopolist
a. can raise its price without losing any sales because it is the only supplier in the
market.
b. can earn a greater than normal rate of return in the long run.
c. always charges a price that is higher than marginal revenue.
d. both a and b
e. both b and c

41. A firm with market power
a. Can increase price without losing all sales.
b. Faces a downward-sloping demand curve.
c. Is the only seller in a market.
d. Both a and b
e. All of the above
42. One method of measuring the extent of a firm’s market power is
a. the Lemer index.
b. price elasticity of demand for the firm’s product
c. income elasticity of demand for the firm’s product.
d. both a and b
e. all of the above 43. In a monopolistically competitive market,
a. firms are small relative to the total market.
b. no firm has any market power.
c. there is easy entry and exit in the market.
d. aandb
e. a and c
The next two questions refer to the following figure showing demand and marginal revenue for a
monopoly.
44. At any price above $ demand is elastic.
a. $5
b. $10 c. $15
d. $20
e. zero
45. If the cost of production is zero, what price will the monopoly charge?
a. a firm has market power because it produces a differentiated product.
b. a firm earns economic profits in the long run it has market power.
c. there are a large number of firms. d. both a and b
e. both a and c
47. Monopolistic competition is a similar to perfect competition in that: a. there are a large number of firms
b. firms earn economic profits in the long run
c. firms face downward-sloping demand curves
d. both a and b
e. all of the above
Use the following figure to answer the next 3 questions.
a. $5
b. $10
c. $15
d. $20
e. zero
46. In a monopolistically competitive market,
o 20 40 60 80 100 120 140 1«
QuanHy
Í
12
48. The profit-maximizing level of output is
a. 60 units.
b. 70 units.
c. 80 units.
d. 90 units.
e. 100 units.
49. The firm will sell its output at a price of
a. $2 b. $3.
c. $3.75.
d. $5.
e. $6.
50. The firm earns profits of
a. $75.
b. $120.
c. $150. d. $180.
e. $300
The next 2 questions refer to the following table which gives the demand and cost data for a
monopolist:
Price Output Total cost
$20 7 $36
19 8 45
18 9 54
17 10 63
16 11 72
15 12 81
51. What is the profit-maximizing price?
a $19
b. $18
c. $17
d. $16 e. $15

52. What is the maximum amount of profit that this firm can earn?
a. $104
b. $105
c. $106
d. $107
e. $108
53. What is the most important characteristic of oligopoly?
a. firms have market power
b. product differentiation
c. barriers to entry
d. mutual interdependence e. none of the above
54. In an oligopoly market,
a. a firm must lower price in order to sell more output.
b. each firm faces a demand curve that depends on how the firm expects its rivals
to behave.
c. a few firms account for a large portion of industry sales.
d. both a and b
e. all of the above
55. Oligopolists recognize their mutual interdependence because
a. there are few firms in the market.
b. the product is differentiated.
c. industry sales are large.
d. both a and b
e. all of the above
56. What forms of nonprice competition might exist in an oligopoly market?
a. advertising
b. product quality differences c. tacit collusion
d. both a and b
e. all of the above
57. There is no general theory of oligopoly because
a. barriers to entry are moderate to high in an oligopoly market.
b. oligopolists must take the potential reactions of rival firms into account when
making price and output decision.
c. there are economies of scale over the relevant range of output.
d. both a and b
e. all of the above

58. An oligopolist in long-run equilibrium
a. charges a price higher than long-run marginal cost.
b. earns exactly a normal rate of return.
c. always produces the level of output at which long-run average cost is
minimum.
d. both a and b
e. both a ande
59. In which of the following markets are economic profits possible in the long run?
a. monopoly
b. monopolistic competition
c. oligopoly
d. both a and c
e. all of the above
60. Which of the following is NOT a form of cooperative oligopoly?
a. product differentiation
b. organization of a cartel
c. tacit collusion
d. price leadership
e. none of the above

Explanation / Answer

20.

E

At the long run equilibrium in perfect competition, the firms earn normal profit, and price equals ATC. So, there is no firm exiting or entering the industry.

21.

A

Price of the product increases, as the long run ATC moves in upward direction.

26.

D

At this level of output, Price = $5 = MC

27.

A

Profit = revenue – total cost = 600*5 - 600*4 = $600

28.

D

Profit = revenue – total cost = 400*3 – 400*4 = -$400

29.

B.

Profit = revenue – total cost = 200*2 – 200*5 = -$600

Pl. repost other questions with figures as figures and data are missing from the question set.

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