Question 1
 
In a perfectly competitive market, positive economic profits act to
Answer

a.
attract new entrants into the industry.
 

b.
drive potential competitors away from the industry.
 

c.
prevent reinvestment on the part of firms within the industry.
 

d.
signal resource owners elsewhere not to invest their capital in this industry.
 
5 points
Question 2
 
Which is always true at a firm’s profit-maximizing rate of production?
Answer

a.
Marginal Revenue > Marginal Cost
 

b.
The total revenue curve lies below the total cost curve.
 

c.
Marginal Revenue = Marginal Cost
 

d.
Total Revenue = Total Costs
 
5 points
Question 3
 
For a firm in a perfectly competitive industry,
Answer

a.
short-run economic profits may be positive, but long-run economic profits must be zero.
 

b.
short-run economic profits must be zero.
 

c.
short-run and long-run economic profits must be zero.
 

d.
both short-run and long-run economic profits may be negative.
 
5 points
Question 4
 
All firms in a perfect competition industry
Answer

a.
are price makers.
 

b.
produce differentiated products.
 

c.
produce identical products.
 

d.
lose money.
 
5 points
Question 5
 
In the above figure, at which output level is this firm earning negative economic profits?
Answer

a.
2
 

b.
5
 

c.
10
 

d.
12
 
5 points
Question 6
 
If a firm is perfectly competitive, then
Answer

a.
its demand curve is perfectly elastic.
 

b.
it can independently set the price of the product it sells without regard to what other firms in the market are doing.
 

c.
it is impossible for the firm to earn short-run economic profits.
 

d.
its marginal cost will exceed marginal revenue at the optimal level of output.
 
5 points
Question 7
 
Which of the following is a characteristic of perfect competition?
Answer

a.
Easy entry and exit
 
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