Lesson 2.1 Suggested Study Problems

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Lesson 2.1 Suggested Study Problems

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Section 1: Multiple Choice Questions

Chapter 7

1. In the model of perfect competition, firms produce a:

A) standardized product with considerable control over price
B) differentiated product with considerable control over price
C) standardized product with no control over price
D) differentiated product with no control over price
E) standardized or differentiated product with some control over price

2. In the model of perfect competition, there are:

A) high barriers to entry and no nonprice competition
B) low barriers to entry and some advertising and product differentiation
C) very high barriers to entry and some advertising and product differentiation
D) high barriers to entry and some advertising and product differentiation
E) low barriers to entry and no nonprice competition

3. If price is above the average variable cost but below the average total cost of a representative
firm in a competitive industry:
A) there will be entry to the industry over time
B) there will be exit from the industry over time
C) the firms in the industry are just earning a normal rate of return
D) the firms in the industry are earning a supranormal rate of return
E) the industry is in long-run equilibrium

4. If the perfectly competitive market demand for gym shoes is given by QD = 100 − P and the
market supply is given by QS = 10 + 2P, then the equilibrium price and quantity will be:
A) P = 50 and Q = 50
B) P = 40 and Q = 90
C) P = 40 and Q = 60
D) P = 30 and Q = 70
E) P = 25 and Q = 75

5. If the perfectly competitive market demand for tanning beds shifts from QD,1991 = 1,230 − 5P
to QD,1992 = 740 − 5P and the market supply is given by QS = −100 + 2P, then the change in
equilibrium quantity will be:
A) 140 units
B) 280 units
C) -98 units
D) -140 units
E) -150 units
6. If the perfectly competitive market supply of pork bellies shifts from QS,1993 = 250 + 50P to
QS,1994 = 400 + 40P, and the market demand is given by QD = 10,000 − 200P, then the change
in equilibrium price will be:
A) $2
B) $1
C) $0
D) -$1
E) -$2

7. A representative firm with short-run total cost given by TC = 50 + 2q + 2q2 operates in a

competitive industry where the short-run market demand and supply curves are given by
QD = 1,410 − 40P and QS = −390 + 20P. Its short-run profit-maximizing level of output is:
A) 0 units
B) 1 unit
C) 2 units
D) 5 units
E) 7 units

8. If a representative firm with long-run total cost given by TC = 50 + 2q + 2q2 operates in a

competitive industry where the short-run market demand and supply curves are given by
QD = 1,410 − 40P and QS = −390 + 20P, its long-run profit-maximizing level of output is:
A) 0 units
B) 1 unit
C) 2 units
D) 5 units
E) 7 units

9. A representative firm with long-run total cost given by TC = 2,000 + 20q + 5q2 operates in a
competitive industry where the market demand is given by QD = 10,000 − 40P. The long-run
equilibrium output of the industry will be:
A) 1,200 units
B) 1,800 units
C) 2,200 units
D) 2,600 units
E) 3,200 units

10. If a representative firm with long-run total cost given by TC = 2,000 + 20q + 5q2 operates in
a competitive industry where the market demand is given by QD = 10,000 − 40P, the long-run
equilibrium output of the individual firms will be:
A) 10 units
B) 20 units
C) 30 units
D) 35 units
E) 40 units
11. Total surplus in a market is a measure of:
A) social welfare created by the market
B) profits that accrue to the owners of firms in a particular market
C) the rebates that consumers receive when they purchase certain goods or services
D) excess inventory that remains at the end of a season
E) planned inventory that a firm carries from one year to the next

12. If the demand increases for the product of a constant-cost industry:

A) long-run output goes up, but long-run price may go up or down
B) short-run output goes up, but long-run output may go up or down
C) short-run price goes up, but long-run price remains constant
D) long-run output goes up, but short-run price remains constant
E) long-run price goes up, but short-run price may go up or down

13. Camel Records produces records according to Q = 4L − 0.15L2. If labour costs $5 and
records sell for $2, the optimal quantity of labour is:
A) 0
B) 2
C) 10
D) 5
E) 17

Section 2: Suggested Short Answer Questions

Chapter 7

Lesson 2.1 Suggested Study Problems

Uploaded by

Lesson 2.1 Suggested Study Problems

Uploaded by

Section 1: Multiple Choice Questions

1. In the model of perfect competition, firms produce a:

2. In the model of perfect competition, there are:

7. A representative firm with short-run total cost given by TC = 50 + 2q + 2q2 operates in a

8. If a representative firm with long-run total cost given by TC = 50 + 2q + 2q2 operates in a

12. If the demand increases for the product of a constant-cost industry:

Section 2: Suggested Short Answer Questions

From the textbook: Problems 1, 2, 3, 4 (parts b and c) and 5.

From the assignments: A#2 Fall 2012 question 3.

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