Question 1

Monopolistic competition is characterized by barriers to entry.

Accepted Answer

A) True 
 B)False

Question 2

The marginal cost curve of a firm below AVC is also its short-run supply curve.

Accepted Answer

A) True 
 B)False

Question 3

Assume soybeans are produced in a perfectly competitive industry.A soybean farmer is currently maximizing his profits.If the market price of soybeans falls,after the farmer adjusts to the new price,he will be producing ________ bushels of soybeans and his profit will be ________.

Accepted Answer

A) fewer;the same 
B) fewer;lower 
C) more units of output;the same 
D) the same number of;the same 
A) fewer;the same 
B) fewer;lower 
C) more units of output;the same 
D) the same number of;the same

Question 4

Johan's Shoe Sole Inc.is producing at the level at which marginal revenue is equal to marginal cost.Johan's Shoe Sole Inc.must be:

Accepted Answer

A) earning a zero economic profit. 
B) incurring a loss. 
C) maximizing profits. 
D) maximizing revenue but not maximizing profits. 
A) earning a zero economic profit. 
B) incurring a loss. 
C) maximizing profits. 
D) maximizing revenue but not maximizing profits.

Question 5

Which of the following is NOT a characteristic of perfectly competitive market?

Accepted Answer

A) there are many sellers. 
B) the product is homogeneous 
C) there are barriers to entry 
D) all of the above 
A) there are many sellers. 
B) the product is homogeneous 
C) there are barriers to entry 
D) all of the above

Question 6

-Refer to Figure 9.5.If this farmer is maximizing profits,his total costs will be:

Accepted Answer

A) $11. 
B) $66. 
C) $90. 
D) $132. 
A) $11. 
B) $66. 
C) $90. 
D) $132.

Question 7

What are the assumptions of perfect competition?

Accepted Answer

Perfect competition is an indu

Question 8

Scenario 9.1: 21st Century Pen Inc.produces 2000 pens per day,and hires 20 workers at a cost of $200 per day per worker.The price of each pen is $5 each.21st Century Pen Inc.pays a daily rental rate of $60 on its factory and a daily insurance rate of $20.21st Century Pen Inc.has a ten year lease on the factory and insurance contract for a year,the company has no other expenses.
-Refer to Scenario 9.1.21st Century Pen Inc.'s average total cost at an output of 2000 pens per day is approximately:

Accepted Answer

A) $2.03 per unit. 
B) $2 per unit. 
C) $2.04 per unit. 
D) $2.01 per unit. 
A) $2.03 per unit. 
B) $2 per unit. 
C) $2.04 per unit. 
D) $2.01 per unit.

Question 9

If each firm in a perfectly competitive industry is earning zero economic profit,firms will have an incentive to leave the industry.

Accepted Answer

A) True 
 B)False

Question 10

When price is sufficient to cover average variable cost,firms suffering short-run losses should shut down.

Accepted Answer

A) True 
 B)False

Question 11

A constant cost industry in the long run faces a:

Accepted Answer

A) rising average cost curve. 
B) U-shaped average cost curve. 
C) falling average cost curve. 
D) flat average cost curve. 
A) rising average cost curve. 
B) U-shaped average cost curve. 
C) falling average cost curve. 
D) flat average cost curve.

Question 12

Explain when a firm will shut down to minimize losses.Draw a graph to illustrate this situation.

Accepted Answer

The firm will shut d

Question 13

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.
-Which one of the following characteristics is NOT true of the milk industry?

Accepted Answer

A) many sellers 
B) a homogeneous product 
C) sellers are price takers 
D) large barriers to entry 
A) many sellers 
B) a homogeneous product 
C) sellers are price takers 
D) large barriers to entry

Question 14

In a decreasing cost industry,the market price will tend to fall when there is an increase in demand.

Accepted Answer

A) True 
 B)False

Question 15

If each firm in a perfectly competitive industry is in market equilibrium,the market price is equal to the break-even price.

Accepted Answer

A) True 
 B)False

Question 16

Suppose that Carol is the owner of a candle factory.Carol wants to know what will happen if the price of the candles being sold drops below the shut-down price.

Accepted Answer

A) Carol's total revenue will be equal to total fixed costs. 
B) Carol's total revenue will exceed total variable costs. 
C) Carol's total revenue will be less than total variable costs. 
D) Carol's total revenue will be maximized. 
A) Carol's total revenue will be equal to total fixed costs. 
B) Carol's total revenue will exceed total variable costs. 
C) Carol's total revenue will be less than total variable costs. 
D) Carol's total revenue will be maximized.

Question 17

Accounting profit is equal to:

Accepted Answer

A) total revenue minus economic cost. 
B) total revenue minus accounting cost. 
C) total revenue minus explicit costs. 
D) total revenue minus implicit costs. 
A) total revenue minus economic cost. 
B) total revenue minus accounting cost. 
C) total revenue minus explicit costs. 
D) total revenue minus implicit costs.

Question 18

In an increasing-cost industry firms can enter and leave in the long run.

Accepted Answer

A) True 
 B)False

Question 19

Explain why,for all firms,profits are maximized where marginal revenue equals marginal cost.

Accepted Answer

At the point where MR = MC,the differenc

Question 20

Entry of new firms in an increasing-cost industry leads to an downward shift of the LRAC curve.

Accepted Answer

A) True 
 B)False

Monopolistic competition is characterized by barriers to entry.

The marginal cost curve of a firm below AVC is also its short-run supply curve.

Assume soybeans are produced in a perfectly competitive industry.A soybean farmer is currently maximizing his profits.If the market price of soybeans falls,after the farmer adjusts to the new price,he will be producing bushels of soybeans and his profit will be .

Johan's Shoe Sole Inc.is producing at the level at which marginal revenue is equal to marginal cost.Johan's Shoe Sole Inc.must be:

Which of the following is NOT a characteristic of perfectly competitive market?

-Refer to Figure 9.5.If this farmer is maximizing profits,his total costs will be:

What are the assumptions of perfect competition?

If each firm in a perfectly competitive industry is earning zero economic profit,firms will have an incentive to leave the industry.

When price is sufficient to cover average variable cost,firms suffering short-run losses should shut down.

A constant cost industry in the long run faces a:

Explain when a firm will shut down to minimize losses.Draw a graph to illustrate this situation.

In a decreasing cost industry,the market price will tend to fall when there is an increase in demand.

If each firm in a perfectly competitive industry is in market equilibrium,the market price is equal to the break-even price.

Suppose that Carol is the owner of a candle factory.Carol wants to know what will happen if the price of the candles being sold drops below the shut-down price.

Accounting profit is equal to:

In an increasing-cost industry firms can enter and leave in the long run.

Explain why,for all firms,profits are maximized where marginal revenue equals marginal cost.

Entry of new firms in an increasing-cost industry leads to an downward shift of the LRAC curve.

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

Monopolistic competition is characterized by barriers to entry.

The marginal cost curve of a firm below AVC is also its short-run supply curve.

Assume soybeans are produced in a perfectly competitive industry.A soybean farmer is currently maximizing his profits.If the market price of soybeans falls,after the farmer adjusts to the new price,he will be producing ________ bushels of soybeans and his profit will be ________.

Johan's Shoe Sole Inc.is producing at the level at which marginal revenue is equal to marginal cost.Johan's Shoe Sole Inc.must be:

Which of the following is NOT a characteristic of perfectly competitive market?

-Refer to Figure 9.5.If this farmer is maximizing profits,his total costs will be:

What are the assumptions of perfect competition?

If each firm in a perfectly competitive industry is earning zero economic profit,firms will have an incentive to leave the industry.

When price is sufficient to cover average variable cost,firms suffering short-run losses should shut down.

A constant cost industry in the long run faces a:

Explain when a firm will shut down to minimize losses.Draw a graph to illustrate this situation.

In a decreasing cost industry,the market price will tend to fall when there is an increase in demand.

If each firm in a perfectly competitive industry is in market equilibrium,the market price is equal to the break-even price.

Suppose that Carol is the owner of a candle factory.Carol wants to know what will happen if the price of the candles being sold drops below the shut-down price.

Accounting profit is equal to:

In an increasing-cost industry firms can enter and leave in the long run.

Explain why,for all firms,profits are maximized where marginal revenue equals marginal cost.

Entry of new firms in an increasing-cost industry leads to an downward shift of the LRAC curve.

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

Assume soybeans are produced in a perfectly competitive industry.A soybean farmer is currently maximizing his profits.If the market price of soybeans falls,after the farmer adjusts to the new price,he will be producing bushels of soybeans and his profit will be .