Question 1

Suppose a farmer suddenly realized that his marginal cost was below the market price of the output.How would he react if he were a profit maximizer? Explain.

Accepted Answer

If price exceeds marginal cost

Question 2

In the short run,individual firms want to maximize their ________.

Accepted Answer

A) marginal cost 
B) marginal revenue 
C) total revenue 
D) profit 
A) marginal cost 
B) marginal revenue 
C) total revenue 
D) profit

Question 3

Additional Application
From 1992 to 2003 the number of milk producers in Florida has fallen from 300 to 190.In those same 10 years the number of dairy farms nationwide has decreased by more than 44,000.Why? The market price in a perfectly competitive industry is not determined by the individual sellers,but rather the market supply and demand.While the Florida dairy industry might not be "perfectly" competitive due to the certain USDA policies,its behavior does approximate one.If prices are not high enough to maintain some level of normal profit,firms will leave the industry.And this is what has been happening in the dairy industry.In the months after September 11,2001 the demand for milk fell,causing the price of 100 pounds of milk to decrease from about $19 to about $14,a 25-year low.In addition to falling prices,the costs of operating dairy farms have risen.Increased property taxes and environmental compliance permits have made dairy farming less viable.The average dairy farm in Florida is small with only about 700 cows.This further prevents a single supplier from being able to influence the market price.Many farmers view this business as a family operation and one they would like to pass on to their children.But continued low milk prices and profits make the likelihood of such an inheritance unlikely.
Greg C.Bruno."Milk Industry Turns Sour," The Gainesville Sun,January 22,2004,pp.1,4.
-In the long run,what will occur in a perfectly competitive industry that is incurring losses?

Accepted Answer

A) The government will subsidize the industry so that this never occurs. 
B) Some firms will leave the industry,supply will decrease,and losses will disappear. 
C) Some buyers will leave the market,demand will decrease,and price will rise. 
D) Some firms will enter the industry,supply will increase,and losses will disappear. 
A) The government will subsidize the industry so that this never occurs. 
B) Some firms will leave the industry,supply will decrease,and losses will disappear. 
C) Some buyers will leave the market,demand will decrease,and price will rise. 
D) Some firms will enter the industry,supply will increase,and losses will disappear.

Question 4

Recall the example of increasing-cost industries such as apartments,why is the supply curve for apartments positively sloped?

Accepted Answer

A) Land prices increase with total output of the industry. 
B) Tenants pay lower rent prices. 
C) Average cost decreases. 
D) none of the above 
A) Land prices increase with total output of the industry. 
B) Tenants pay lower rent prices. 
C) Average cost decreases. 
D) none of the above

Question 5

Additional Application
From 1992 to 2003 the number of milk producers in Florida has fallen from 300 to 190.In those same 10 years the number of dairy farms nationwide has decreased by more than 44,000.Why? The market price in a perfectly competitive industry is not determined by the individual sellers,but rather the market supply and demand.While the Florida dairy industry might not be "perfectly" competitive due to the certain USDA policies,its behavior does approximate one.If prices are not high enough to maintain some level of normal profit,firms will leave the industry.And this is what has been happening in the dairy industry.In the months after September 11,2001 the demand for milk fell,causing the price of 100 pounds of milk to decrease from about $19 to about $14,a 25-year low.In addition to falling prices,the costs of operating dairy farms have risen.Increased property taxes and environmental compliance permits have made dairy farming less viable.The average dairy farm in Florida is small with only about 700 cows.This further prevents a single supplier from being able to influence the market price.Many farmers view this business as a family operation and one they would like to pass on to their children.But continued low milk prices and profits make the likelihood of such an inheritance unlikely.
Greg C.Bruno."Milk Industry Turns Sour," The Gainesville Sun,January 22,2004,pp.1,4.
-Why can't the milk farmers just increase their prices to insure higher profits?

Accepted Answer

A) Each farmer is too large to charge a higher price. 
B) Each farmer has too many cows and does not know the market price. 
C) The average farm is too small to influence the market price. 
D) The government will not allow the farmers to raise their prices. 
A) Each farmer is too large to charge a higher price. 
B) Each farmer has too many cows and does not know the market price. 
C) The average farm is too small to influence the market price. 
D) The government will not allow the farmers to raise their prices.

Question 6

In a perfectly competitive market,an individual firm faces a perfectly elastic demand curve.

Accepted Answer

A) True 
 B)False

Question 7

Wheat is produced in a perfectly competitive market.Market demand for wheat increases.This will cause the individual wheat farmer's marginal revenue to ________ and their profit maximizing level of output to ________.

Accepted Answer

A) increase;increase 
B) increase;decrease 
C) decrease;increase 
D) decrease;decrease 
A) increase;increase 
B) increase;decrease 
C) decrease;increase 
D) decrease;decrease

Question 8

Recall the application about wireless women in Pakistan,why is the market for phones services perfectly competitive?

Accepted Answer

A) Thousands of Pakistan entrepreneur women sell phone services to the neighbors that each takes the market price as given. 
B) The market of phone services has barrier to entry and many women in Pakistan have trouble getting services due to the shortage in supply. 
C) The initial investment would be millions for entering the phone business in the Pakistan,and will keep the numbers of suppliers low. 
D) none of the above 
A) Thousands of Pakistan entrepreneur women sell phone services to the neighbors that each takes the market price as given. 
B) The market of phone services has barrier to entry and many women in Pakistan have trouble getting services due to the shortage in supply. 
C) The initial investment would be millions for entering the phone business in the Pakistan,and will keep the numbers of suppliers low. 
D) none of the above

Question 9

-Refer to Table 9.1.If the market price is $40,which of the following would you recommend to this firm?

Accepted Answer

A) Continue producing four units of output,because the firm is able to make an economic profit. 
B) Increase output to five units,so that marginal cost equals marginal revenue. 
C) Reduce price to $35,so that marginal cost will be less marginal revenue. 
D) Shut down production to insure loss minimization. 
A) Continue producing four units of output,because the firm is able to make an economic profit. 
B) Increase output to five units,so that marginal cost equals marginal revenue. 
C) Reduce price to $35,so that marginal cost will be less marginal revenue. 
D) Shut down production to insure loss minimization.

Question 10

If total revenue is less than total cost,firms should shut down in the short run.

Accepted Answer

A) True 
 B)False

Question 11

The best example of a perfectly competitive industry is:

Accepted Answer

A) music stores. 
B) beer. 
C) cigarettes. 
D) corn. 
A) music stores. 
B) beer. 
C) cigarettes. 
D) corn.

Question 12

-Refer to Figure 9.3.This farmer's profit-maximizing level of output is ________ units of output.

Accepted Answer

A) 200 
B) 700 
C) 1,000 
D) 1,400. 
A) 200 
B) 700 
C) 1,000 
D) 1,400.

Question 13

A perfectly competitive market is one in which:

Accepted Answer

A) firms do not attempt to maximize profit. 
B) all firms produce the same level of output. 
C) all firms sell an homogeneous product. 
D) there are only a few firms in the industry. 
A) firms do not attempt to maximize profit. 
B) all firms produce the same level of output. 
C) all firms sell an homogeneous product. 
D) there are only a few firms in the industry.

Question 14

-Refer to Figure 9.7.This firm will choose to continue operating but incur an economic loss if the price is:

Accepted Answer

A) between $0 and $4. 
B) between $4 and $7. 
C) between $7 and $13. 
D) above $13. 
A) between $0 and $4. 
B) between $4 and $7. 
C) between $7 and $13. 
D) above $13.

Question 15

Economic profit is equal to:

Accepted Answer

A) the amount received from the sale of the product. 
B) total revenue divided by average costs. 
C) the opportunity cost of each factor of production. 
D) total revenue minus total economic cost. 
A) the amount received from the sale of the product. 
B) total revenue divided by average costs. 
C) the opportunity cost of each factor of production. 
D) total revenue minus total economic cost.

Question 16

-Refer to Figure 9.6.At a market price of $20,this perfectly competitive profit maximizing firm should produce approximately ________ units.

Accepted Answer

A) 30 
B) 35 
C) 40 
D) 45 
A) 30 
B) 35 
C) 40 
D) 45

Question 17

Recall the application about Chinese coffee growers obey the law of supply.What does the response from Chinese farmers illustrate switching from growing tea to coffee?

Accepted Answer

A) An increase in price increases the quantity supplied. 
B) a decrease in demand 
C) A decrease in price decreases the quantity supplied. 
D) an increase in demand 
A) An increase in price increases the quantity supplied. 
B) a decrease in demand 
C) A decrease in price decreases the quantity supplied. 
D) an increase in demand

Question 18

-Refer to Figure 9.4.This farmer's profit-maximizing level of output is ________ units of output.

Accepted Answer

A) 100 
B) 350 
C) 500 
D) 700 
A) 100 
B) 350 
C) 500 
D) 700

Question 19

If a firm is indifferent between operating and shutting down in the short run,then it must be true that:

Accepted Answer

A) total revenue equals total cost. 
B) total revenue equals total variable cost. 
C) total revenue equals fixed cost. 
D) fixed cost is zero. 
A) total revenue equals total cost. 
B) total revenue equals total variable cost. 
C) total revenue equals fixed cost. 
D) fixed cost is zero.

Question 20

-Refer to Table 9.1.If the market price is $80,then this firm's profit would be:

Accepted Answer

A) $50. 
B) $44. 
C) $60. 
D) $70. 
A) $50. 
B) $44. 
C) $60. 
D) $70.

Suppose a farmer suddenly realized that his marginal cost was below the market price of the output.How would he react if he were a profit maximizer? Explain.

In the short run,individual firms want to maximize their ________.

Recall the example of increasing-cost industries such as apartments,why is the supply curve for apartments positively sloped?

In a perfectly competitive market,an individual firm faces a perfectly elastic demand curve.

Wheat is produced in a perfectly competitive market.Market demand for wheat increases.This will cause the individual wheat farmer's marginal revenue to and their profit maximizing level of output to .

Recall the application about wireless women in Pakistan,why is the market for phones services perfectly competitive?

-Refer to Table 9.1.If the market price is $40,which of the following would you recommend to this firm?

If total revenue is less than total cost,firms should shut down in the short run.

The best example of a perfectly competitive industry is:

-Refer to Figure 9.3.This farmer's profit-maximizing level of output is ________ units of output.

A perfectly competitive market is one in which:

-Refer to Figure 9.7.This firm will choose to continue operating but incur an economic loss if the price is:

Economic profit is equal to:

-Refer to Figure 9.6.At a market price of $20,this perfectly competitive profit maximizing firm should produce approximately ________ units.

Recall the application about Chinese coffee growers obey the law of supply.What does the response from Chinese farmers illustrate switching from growing tea to coffee?

-Refer to Figure 9.4.This farmer's profit-maximizing level of output is ________ units of output.

If a firm is indifferent between operating and shutting down in the short run,then it must be true that:

-Refer to Table 9.1.If the market price is $80,then this firm's profit would be:

Introduction: What Is Economics

The Key Principles of Economics

Exchange and Markets

Demand, supply, and Market Equilibrium

Elasticity: a Measure of Responsiveness

Market Efficiency and Government Intervention

Consumer Choice: Utility Theory and Insights From Neuroscience

Production Technology and Cost

Monopoly and Price Discrimination

Market Entry and Monopolistic Competition

Oligopoly and Strategic Behavior

Controlling Market Power: Antitrust and Regulation

Imperfect Information: Adverse Selection and Moral Hazard

Public Goods and Public Choice

External Costs and Environmental Policy

The Labor Market and the Distribution of Income

International Trade and Public Policy

Filters

Exam 9: Perfect Competition

Suppose a farmer suddenly realized that his marginal cost was below the market price of the output.How would he react if he were a profit maximizer? Explain.

In the short run,individual firms want to maximize their ________.

Recall the example of increasing-cost industries such as apartments,why is the supply curve for apartments positively sloped?

In a perfectly competitive market,an individual firm faces a perfectly elastic demand curve.

Wheat is produced in a perfectly competitive market.Market demand for wheat increases.This will cause the individual wheat farmer's marginal revenue to ________ and their profit maximizing level of output to ________.

Recall the application about wireless women in Pakistan,why is the market for phones services perfectly competitive?

-Refer to Table 9.1.If the market price is $40,which of the following would you recommend to this firm?

If total revenue is less than total cost,firms should shut down in the short run.

The best example of a perfectly competitive industry is:

-Refer to Figure 9.3.This farmer's profit-maximizing level of output is ________ units of output.

A perfectly competitive market is one in which:

-Refer to Figure 9.7.This firm will choose to continue operating but incur an economic loss if the price is:

Economic profit is equal to:

-Refer to Figure 9.6.At a market price of $20,this perfectly competitive profit maximizing firm should produce approximately ________ units.

Recall the application about Chinese coffee growers obey the law of supply.What does the response from Chinese farmers illustrate switching from growing tea to coffee?

-Refer to Figure 9.4.This farmer's profit-maximizing level of output is ________ units of output.

If a firm is indifferent between operating and shutting down in the short run,then it must be true that:

-Refer to Table 9.1.If the market price is $80,then this firm's profit would be:

Introduction: What Is Economics

The Key Principles of Economics

Exchange and Markets

Demand, supply, and Market Equilibrium

Elasticity: a Measure of Responsiveness

Market Efficiency and Government Intervention

Consumer Choice: Utility Theory and Insights From Neuroscience

Production Technology and Cost

Monopoly and Price Discrimination

Market Entry and Monopolistic Competition

Oligopoly and Strategic Behavior

Controlling Market Power: Antitrust and Regulation

Imperfect Information: Adverse Selection and Moral Hazard

Public Goods and Public Choice

External Costs and Environmental Policy

The Labor Market and the Distribution of Income

International Trade and Public Policy

Filters

Wheat is produced in a perfectly competitive market.Market demand for wheat increases.This will cause the individual wheat farmer's marginal revenue to and their profit maximizing level of output to .