Question 1

In perfect competition, firms enter the market whenever the market price exceeds the minimum average variable cost.

Accepted Answer

A) True 
 B)False

Question 2

When a perfectly competitive firm is in long-run equilibrium, what is the relationship between the firm's marginal cost, average total cost, marginal revenue, and price?

Accepted Answer

Marginal cost and av

Question 3

-The figure above portrays a total revenue curve for a perfectly competitive firm. The firm's marginal revenue from selling a unit of output

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 4

Bubba's BBQ has fallen on some hard times. Bubba has analyzed his past revenue and cost information and knows that if he shuts down, he will incur an economic loss equal to $20,000 in remaining lease payments. Apparently, Bubba's current planning horizon is

Accepted Answer

A)  the short run because he still faces some fixed costs. 
B)  the long run because he faces only variable costs. 
C)  the short run because he faces only variable costs. 
D)  neither the short run nor the long run because lease payments do not figure into cost determinations. 
A)  the short run because he still faces some fixed costs. 
B)  the long run because he faces only variable costs. 
C)  the short run because he faces only variable costs. 
D)  neither the short run nor the long run because lease payments do not figure into cost determinations.

Question 5

Easy entry and exit ensure that perfectly competitive firms cannot make a long-run economic profit.

Accepted Answer

A) True 
 B)False

Question 6

-Archibald's Tattoos is a perfectly competitive firm. The firm's costs are shown in the table above. If the market price of a tattoo is $17.50 what is the firm's profit-maximizing output?

Accepted Answer

A)  2 tattoos per hour 
B)  3 tattoos per hour 
C)  4 tattoos per hour 
D)  5 tattoos per hour 
A)  2 tattoos per hour 
B)  3 tattoos per hour 
C)  4 tattoos per hour 
D)  5 tattoos per hour

Question 7

A perfectly competitive firm is making an economic profit when

Accepted Answer

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

Question 8

Suppose some firms in a perfectly competitive market are incurring an economic loss. As a result,

Accepted Answer

A)  all the firms will eventually incur an economic loss. 
B)  some firms will leave the market and the price of the good will rise. 
C)  some firms will leave the market and the remaining firms' quantity will decrease. 
D)  the total market economic profit must equal $0. 
A)  all the firms will eventually incur an economic loss. 
B)  some firms will leave the market and the price of the good will rise. 
C)  some firms will leave the market and the remaining firms' quantity will decrease. 
D)  the total market economic profit must equal $0.

Question 9

Can a perfectly competitive firm make an economic profit in the short run? Can it incur an economic loss?

Accepted Answer

In the short run, a perfectly competitiv

Question 10

In the short run, perfectly competitive firms ________ but in the long run, perfectly competitive firms ________.

Accepted Answer

A)  can incur an economic loss; incur an economic loss 
B)  can incur economic losses; make an economic profit 
C)  must make an economic profit; make an economic profit 
D)  can incur an economic loss; make zero economic profit 
A)  can incur an economic loss; incur an economic loss 
B)  can incur economic losses; make an economic profit 
C)  must make an economic profit; make an economic profit 
D)  can incur an economic loss; make zero economic profit

Question 11

If the market price is less than a perfectly competitive firm's average total cost, what sort of profit or loss is the firm making?

Accepted Answer

If the price is less

Question 12

-John keeps beehives and sells 100 quarts of honey per month. The honey market is perfectly competitive, and the price of a quart of honey is $10. John has an average variable cost of $5 and an average fixed cost of $3. At 100 quarts per month, John's marginal cost is $10.
a) Is John maximizing his profit? If not, what should John do?
b) Calculate John's total revenue, total cost, and total economic profit or economic loss when he produces 100 quarts of honey.

Accepted Answer

a) Yes, John is maximizing his profit be

Question 13

Why is the demand for a perfectly competitive firm's good perfectly elastic even though the market demand is not?

Accepted Answer

Each firm takes the market price as give

Question 14

Jane's Garage Cleaning is a perfectly competitive firm that currently cleans 40 garages a week. Jane's marginal cost is less than the price she charges. Jane can increase her profit if she

Accepted Answer

A)  charges a higher price. 
B)  charges a lower price. 
C)  cleans fewer than 40 garages a week. 
D)  cleans more than 40 garages a week. 
A)  charges a higher price. 
B)  charges a lower price. 
C)  cleans fewer than 40 garages a week. 
D)  cleans more than 40 garages a week.

Question 15

-In the above figure, the line represented by the "1" is the

Accepted Answer

A)  average fixed cost. 
B)  marginal revenue. 
C)  total cost. 
D)  average total cost. 
A)  average fixed cost. 
B)  marginal revenue. 
C)  total cost. 
D)  average total cost.

Question 16

-Tammy sells woolen hats in a perfectly competitive market. The marginal cost of producing 1 hat is $24. The marginal cost of producing a second hat is $26 and the marginal cost of producing a third hat is $28. The market price of a hat is $26. To maximize profit, Tammy produces ________ per day.

Accepted Answer

A)  1 hat 
B)  3 hats 
C)  2 hats 
D)  as many hats as possible 
A)  1 hat 
B)  3 hats 
C)  2 hats 
D)  as many hats as possible

Question 17

In a perfectly competitive market, the market supply curve is the sum of the

Accepted Answer

A)  supply curves of all the individual firms. 
B)  average variable cost curves of all the individual firms. 
C)  average total cost curves of all the individual firms. 
D)  average fixed cost curves of all the individual firms. 
A)  supply curves of all the individual firms. 
B)  average variable cost curves of all the individual firms. 
C)  average total cost curves of all the individual firms. 
D)  average fixed cost curves of all the individual firms.

Question 18

-Fast Copy is a perfectly competitive firm. The figure above shows Fast Copy's cost curves. The current market price is 2 cents per page. With no change in demand and technology, in the long run, the price will

Accepted Answer

A)  remain unchanged. 
B)  rise to 5 cents per page. 
C)  rise to 4 cents per page. 
D)  fall to 1 cent per page. 
A)  remain unchanged. 
B)  rise to 5 cents per page. 
C)  rise to 4 cents per page. 
D)  fall to 1 cent per page.

Question 19

-American restaurants receive their supply of baby back-ribs from American farms and from farms in Denmark. In the figures above, the first diagram shows the perfectly competitive market for baby back ribs in the United States. The second figure shows the situation at Premium Standard Farm in Kansas, one of the many U.S. farms supplying these ribs.
Now assume that the United States imposes a ban on European meat in response to the foot-and-mouth disease that has infected livestock in Europe. (Which the United States did several years ago.) In particular, suppose that the U.S. ban decreases the supply by 40 tons a year. Using the first figure, show the impact of this ban on the baby back rib market. Using the second figure, show the impact on Premium Standard Farm in Kansas.

Accepted Answer

@#IMG-DLM& @#IMG-DLM& The ban on European meat decreases the

Question 20

Which of the following statements regarding the long-term equilibrium is true?

Accepted Answer

A)  As new firms enter a market, each existing firm increases the quantity it produces. 
B)  Firms leave a market if they are making zero economic profit. 
C)  Entry and exit stop when firms are making an economic profit. 
D)  Entry and exit stop when firms make zero economic profit. 
A)  As new firms enter a market, each existing firm increases the quantity it produces. 
B)  Firms leave a market if they are making zero economic profit. 
C)  Entry and exit stop when firms are making an economic profit. 
D)  Entry and exit stop when firms make zero economic profit.

Exam 12: Perfect Competition

In perfect competition, firms enter the market whenever the market price exceeds the minimum average variable cost.

When a perfectly competitive firm is in long-run equilibrium, what is the relationship between the firm's marginal cost, average total cost, marginal revenue, and price?

-The figure above portrays a total revenue curve for a perfectly competitive firm. The firm's marginal revenue from selling a unit of output

Bubba's BBQ has fallen on some hard times. Bubba has analyzed his past revenue and cost information and knows that if he shuts down, he will incur an economic loss equal to $20,000 in remaining lease payments. Apparently, Bubba's current planning horizon is

Easy entry and exit ensure that perfectly competitive firms cannot make a long-run economic profit.

-Archibald's Tattoos is a perfectly competitive firm. The firm's costs are shown in the table above. If the market price of a tattoo is $17.50 what is the firm's profit-maximizing output?

A perfectly competitive firm is making an economic profit when

Suppose some firms in a perfectly competitive market are incurring an economic loss. As a result,

Can a perfectly competitive firm make an economic profit in the short run? Can it incur an economic loss?

In the short run, perfectly competitive firms ________ but in the long run, perfectly competitive firms ________.

If the market price is less than a perfectly competitive firm's average total cost, what sort of profit or loss is the firm making?

Why is the demand for a perfectly competitive firm's good perfectly elastic even though the market demand is not?

Jane's Garage Cleaning is a perfectly competitive firm that currently cleans 40 garages a week. Jane's marginal cost is less than the price she charges. Jane can increase her profit if she

-In the above figure, the line represented by the "1" is the

-Tammy sells woolen hats in a perfectly competitive market. The marginal cost of producing 1 hat is $24. The marginal cost of producing a second hat is $26 and the marginal cost of producing a third hat is $28. The market price of a hat is $26. To maximize profit, Tammy produces ________ per day.

In a perfectly competitive market, the market supply curve is the sum of the

-Fast Copy is a perfectly competitive firm. The figure above shows Fast Copy's cost curves. The current market price is 2 cents per page. With no change in demand and technology, in the long run, the price will

Which of the following statements regarding the long-term equilibrium is true?

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 the short run, perfectly competitive firms but in the long run, perfectly competitive firms .