Question 1

If a perfectly competitive market is in long-run equilibrium and there is a permanent decrease in demand, then

Accepted Answer

A)  some firms will incur economic losses. 
B)  firms are no longer maximizing profits. 
C)  some firms must immediately exit. 
D)  each firm must produce less output in the new long run equilibrium and earn less economic profit. 
A)  some firms will incur economic losses. 
B)  firms are no longer maximizing profits. 
C)  some firms must immediately exit. 
D)  each firm must produce less output in the new long run equilibrium and earn less economic profit.

Question 2

The return that the entrepreneur can obtain in the best alternative business is called the

Accepted Answer

A)  normal profit. 
B)  economic profit. 
C)  marginal profit. 
D)  marginal revenue. 
A)  normal profit. 
B)  economic profit. 
C)  marginal profit. 
D)  marginal revenue.

Question 3

As long as it does not shut down, a profit-maximizing perfectly competitive firm will

Accepted Answer

A)  always earn an economic profit. 
B)  produce so that marginal revenue equals marginal cost. 
C)  produce so that price equals average cost. 
D)  never set its price equal to its marginal revenue. 
A)  always earn an economic profit. 
B)  produce so that marginal revenue equals marginal cost. 
C)  produce so that price equals average cost. 
D)  never set its price equal to its marginal revenue.

Question 4

-The figure above portrays a total revenue curve for a perfectly competitive firm. The price of the product in this industry

Accepted Answer

A)  equals $0.50. 
B)  equals $1.00. 
C)  equals $2.00. 
D)  cannot be determined. 
A)  equals $0.50. 
B)  equals $1.00. 
C)  equals $2.00. 
D)  cannot be determined.

Question 5

In a perfectly competitive market in the short run, as the market demand increases, the firms ________ their output and their economic profit ________.

Accepted Answer

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

Question 6

-The above figure shows the cost curves of a profit-maximizing perfectly competitive firm. If the price equals $7,
a) how much will the firm produce?
b) how much is the firm's average total, average variable, and marginal costs?
c) how much is the firm's total, total variable, and total fixed costs?
d) how much is the firm's total revenue and economic profit?
e) what will happen in this market in the long run?

Accepted Answer

a) The firm will produce 40 units of out

Question 7

In the long run, perfectly competitive firms make zero economic profit. This result is due mainly to the point that a perfectly competitive market has

Accepted Answer

A)  few buyers and sellers. 
B)  no barriers to entry and exit. 
C)  price taking by the firms. 
D)  firms with perfectly elastic market demand. 
A)  few buyers and sellers. 
B)  no barriers to entry and exit. 
C)  price taking by the firms. 
D)  firms with perfectly elastic market demand.

Question 8

A worldwide hops (a flowers used in brewing) shortage will make stouts, ales and other specialty microbrews more pricy in 2008. A triple whammy of bad weather in Europe, an increase in the price of barley and a decrease in hops production in the U.S. has led to a price increase of 20 percent for the most widely grown varieties, to 80 percent for specialty hops. What is the effect of this hops shortage on a microbrewery's cost curves?

Accepted Answer

A)  Short run fixed costs would increase. 
B)  Short run total costs would decrease. 
C)  Short run average variable costs would decrease. 
D)  Short run variable costs would increase. 
A)  Short run fixed costs would increase. 
B)  Short run total costs would decrease. 
C)  Short run average variable costs would decrease. 
D)  Short run variable costs would increase.

Question 9

In the short run, a perfectly competitive firm's economic profits

Accepted Answer

A)  must equal zero, that is, the firm earns a normal profit. 
B)  must be positive. 
C)  might be positive, negative (an economic loss), or zero (a normal profit). 
D)  must be negative, that is the firm must incur an economic loss. 
A)  must equal zero, that is, the firm earns a normal profit. 
B)  must be positive. 
C)  might be positive, negative (an economic loss), or zero (a normal profit). 
D)  must be negative, that is the firm must incur an economic loss.

Question 10

Bob's Lawn Care Services is a perfectly competitive firm that currently mows 22 lawns a week. Bob's marginal cost exceeds the price he charges. Bob can increase his profit if he

Accepted Answer

A)  charges a higher price. 
B)  charges a lower price. 
C)  mows fewer than 22 lawns a week. 
D)  mows more than 22 lawns a week. 
A)  charges a higher price. 
B)  charges a lower price. 
C)  mows fewer than 22 lawns a week. 
D)  mows more than 22 lawns a week.

Question 11

-The above diagram shows the cost curves for a perfectly competitive wheat farmer. At what price does the wheat farmer shut down?

Accepted Answer

The wheat farmer shuts down if

Question 12

A perfectly competitive market is characterized by

Accepted Answer

A)  high barriers to entry. 
B)  firms that are price setters. 
C)  firms facing a downward sloping demand curve. 
D)  no restrictions on entry into the market. 
A)  high barriers to entry. 
B)  firms that are price setters. 
C)  firms facing a downward sloping demand curve. 
D)  no restrictions on entry into the market.

Question 13

In the long run, a perfectly competitive firm will exit a market when

Accepted Answer

A)  its total revenue is less than its total cost. 
B)  its marginal revenue curve is below the minimum of its average total cost curve. 
C)  the price is greater than the minimum of its average total cost curve. 
D)  Both answers A and B are correct. 
A)  its total revenue is less than its total cost. 
B)  its marginal revenue curve is below the minimum of its average total cost curve. 
C)  the price is greater than the minimum of its average total cost curve. 
D)  Both answers A and B are correct.

Question 14

-In the above figure, if the price is $10, a profit-maximizing perfectly competitive firm will

Accepted Answer

A)  produce 40 units. 
B)  produce 25 units. 
C)  produce 10 units. 
D)  choose not to produce. 
A)  produce 40 units. 
B)  produce 25 units. 
C)  produce 10 units. 
D)  choose not to produce.

Question 15

"A perfectly competitive firm is called a price maker because all the firms together must make the market price." Is the previous statement correct or incorrect? Briefly explain your answer.

Accepted Answer

The statement is False. A perfectly comp

Question 16

-In the above figure, by increasing its output from Q1 to Q2, the firm

Accepted Answer

A)  reduces its marginal revenue. 
B)  increases its marginal revenue. 
C)  decreases its profit. 
D)  increases its profit. 
A)  reduces its marginal revenue. 
B)  increases its marginal revenue. 
C)  decreases its profit. 
D)  increases its profit.

Question 17

For a perfectly competitive firm, no matter how much the firm produces, price always equals

Accepted Answer

A)  marginal product. 
B)  average total cost. 
C)  minimum average total cost. 
D)  marginal revenue. 
A)  marginal product. 
B)  average total cost. 
C)  minimum average total cost. 
D)  marginal revenue.

Question 18

The USDA maintains ethanol has an impact on food prices. "Higher ethanol production definitely and directly raises the price of corn," said USDA economist Ephraim Leibtag. In the long run in the corn market, what is true if the production of ethanol increases?

Accepted Answer

A)  Individual corn farmers will make zero economic profit in the long run. 
B)  Individual corn farmers will make an economic profit in the long run. 
C)  Individual corn farmers will incur an economic loss in the long run, but they will still produce. 
D)  Individual corn farmers will incur an economic loss in the long run and will shut down. 
A)  Individual corn farmers will make zero economic profit in the long run. 
B)  Individual corn farmers will make an economic profit in the long run. 
C)  Individual corn farmers will incur an economic loss in the long run, but they will still produce. 
D)  Individual corn farmers will incur an economic loss in the long run and will shut down.

Question 19

Homer's Holesome Donuts has determined that its profit-maximizing quantity is 10,000 donuts per year. Homer's earns $12,000 in revenue from the sale of those donuts. Homer's has two costs. First he pays $16,000 in annual rental payments for its five-year lease on its store. Second Homer incurs an additional cost of $5,000 for ingredients. Homer's fixed cost is equal to

Accepted Answer

A)  0. 
B)  $5,000. 
C)  $16,000. 
D)  $21,000. 
A)  0. 
B)  $5,000. 
C)  $16,000. 
D)  $21,000.

Question 20

All along the beach in San Diego, California are shops which rent boogie boards for $3 per hour. Tourists perceive that all rental boogie boards are identical and there are no restrictions on entry and exit in the boogie board market. Suppose Surf's Up is a boogie board rental shop. To maximize profits, Surf's Up would produce a quantity where:

Accepted Answer

A)  Marginal revenue is greater than marginal cost. 
B)  Marginal revenue is equal to marginal cost. 
C)  Marginal revenue is less than marginal cost. 
D)  Price is maximized. 
A)  Marginal revenue is greater than marginal cost. 
B)  Marginal revenue is equal to marginal cost. 
C)  Marginal revenue is less than marginal cost. 
D)  Price is maximized.

Exam 12: Perfect Competition

If a perfectly competitive market is in long-run equilibrium and there is a permanent decrease in demand, then

The return that the entrepreneur can obtain in the best alternative business is called the

As long as it does not shut down, a profit-maximizing perfectly competitive firm will

-The figure above portrays a total revenue curve for a perfectly competitive firm. The price of the product in this industry

In a perfectly competitive market in the short run, as the market demand increases, the firms ________ their output and their economic profit ________.

In the long run, perfectly competitive firms make zero economic profit. This result is due mainly to the point that a perfectly competitive market has

In the short run, a perfectly competitive firm's economic profits

Bob's Lawn Care Services is a perfectly competitive firm that currently mows 22 lawns a week. Bob's marginal cost exceeds the price he charges. Bob can increase his profit if he

-The above diagram shows the cost curves for a perfectly competitive wheat farmer. At what price does the wheat farmer shut down?

A perfectly competitive market is characterized by

In the long run, a perfectly competitive firm will exit a market when

-In the above figure, if the price is $10, a profit-maximizing perfectly competitive firm will

"A perfectly competitive firm is called a price maker because all the firms together must make the market price." Is the previous statement correct or incorrect? Briefly explain your answer.

-In the above figure, by increasing its output from Q1 to Q2, the firm

For a perfectly competitive firm, no matter how much the firm produces, price always equals

The USDA maintains ethanol has an impact on food prices. "Higher ethanol production definitely and directly raises the price of corn," said USDA economist Ephraim Leibtag. In the long run in the corn market, what is true if the production of ethanol increases?

What Is Economics

The Economic Problem

Demand and Supply

Elasticity

Efficiency and Equity

Government Actions in Markets

Global Markets in Action

Utility and Demand

Possibilities, Preferences, and Choices

Organizing Production

Output and Costs

Monopoly

Monopolistic Competition

Oligopoly

Public Choices and Public Goods

Externalities and the Environment

Markets for Factors of Production

Economic Inequality

Uncertainty and Information

Extension A: Review

Extension B: Review

Extension C: Review

Extension D: Review

Extension E: Review

Extension F: Review

Filters

In a perfectly competitive market in the short run, as the market demand increases, the firms their output and their economic profit .

-In the above figure, by increasing its output from Q₁ to Q₂, the firm