Question 1

A perfectly competitive firm faces a demand curve that is

Accepted Answer

A)  horizontal. 
B)  vertical. 
C)  perpendicular to the quantity axis. 
D)  perfectly inelastic. 
A)  horizontal. 
B)  vertical. 
C)  perpendicular to the quantity axis. 
D)  perfectly inelastic. A

Question 2

If, as a perfectly competitive industry expands, it can supply larger quantities at the same long-run market price, it is

Accepted Answer

A)  a constant-cost industry. 
B)  an increasing-cost industry. 
C)  a decreasing-cost industry. 
D)  a fixed-cost industry. 
A)  a constant-cost industry. 
B)  an increasing-cost industry. 
C)  a decreasing-cost industry. 
D)  a fixed-cost industry. A

Question 3

Which of the following arguments could be made as evidence that the market for cage-free eggs is perfectly competitive?

Accepted Answer

A)  The U.S. Department of Agriculture has established standards for the labeling of cage-free eggs. 
B)  Sales of cage-free eggs have increased at a rate of 20 percent per year. 
C)  As more farmers began selling cage-free eggs, the increase in supply has driven down prices to the point where they just cover the cost of production. 
D)  The profits earned by farmers who sell cage-free eggs have continued to grow, despite the increasing number of farmers entering this market. 
A)  The U.S. Department of Agriculture has established standards for the labeling of cage-free eggs. 
B)  Sales of cage-free eggs have increased at a rate of 20 percent per year. 
C)  As more farmers began selling cage-free eggs, the increase in supply has driven down prices to the point where they just cover the cost of production. 
D)  The profits earned by farmers who sell cage-free eggs have continued to grow, despite the increasing number of farmers entering this market. C

Question 4

Table 12-1
   Table 12-1 shows the short-run cost data of a perfectly competitive firm that produces plastic camera cases. Assume that output can only be increased in batches of 100 units.
-Refer to Table 12-1. If the market price of each camera case is $8, what is the profit-maximizing quantity according to the MR = MC rule?

Accepted Answer

A)  300 units 
B)  400 units 
C)  500 units 
D)  600 units 
A)  300 units 
B)  400 units 
C)  500 units 
D)  600 units

Question 5

Which of the following is not a characteristic of a monopolistically competitive market structure?

Accepted Answer

A)  There is a large number of independently acting small sellers. 
B)  All sellers sell products that are differentiated. 
C)  There are low barriers to entry of new firms. 
D)  Each firm must react to actions of other firms. 
A)  There is a large number of independently acting small sellers. 
B)  All sellers sell products that are differentiated. 
C)  There are low barriers to entry of new firms. 
D)  Each firm must react to actions of other firms.

Question 6

Table 12-2
   Table 12-2 lists the various pounds (lbs.) of apples that Margie Stattler can sell. Assume that Margie operates in a perfectly competitive market.
-Refer to Table 12-2. What is Margie's total revenue if she sells 250 pounds of apples?

Accepted Answer

A)  $250 
B)  $500 
C)  $750 
D)  There is not enough information in the table to determine Margie's total revenue. 
A)  $250 
B)  $500 
C)  $750 
D)  There is not enough information in the table to determine Margie's total revenue.

Question 7

Figure 12-10  
-Refer to Figure 12-10. Total revenue at the profit-maximizing level of output is

Accepted Answer

A)  $1,200. 
B)  $2,500. 
C)  $4,800. 
D)  $6,000. 
A)  $1,200. 
B)  $2,500. 
C)  $4,800. 
D)  $6,000.

Question 8

Marty's Bird House suffers a short-run loss. Marty can reduce his loss below the amount of his total fixed costs by continuing to produce if his revenue

Accepted Answer

A)  exceeds his implicit costs. 
B)  exceeds his nonmonetary opportunity costs. 
C)  exceeds his variable costs. 
D)  exceeds his marginal costs. 
A)  exceeds his implicit costs. 
B)  exceeds his nonmonetary opportunity costs. 
C)  exceeds his variable costs. 
D)  exceeds his marginal costs.

Question 9

If a firm shuts down in the short run, its maximum loss equals the amount of its fixed cost.

Accepted Answer

A) True 
 B)False

Question 10

What is the difference between "shutting down temporarily" and "exiting the industry"?

Accepted Answer

The difference between the two has to do

Question 11

A perfectly competitive market is in long-run equilibrium. At present there are 100 identical firms each producing 5,000 units of output. The prevailing market price is $20. Assume that each firm faces increasing marginal cost. Now suppose there is a sudden increase in demand for the industry's product which causes the price of the good to rise to $24. Which of the following describes the effect of this increase in demand on a typical firm in the industry?

Accepted Answer

A)  In the short run, the typical firm increases its output and makes an above normal profit. 
B)  In the short run, the typical firm's output remains the same but because of the higher price, its profit increases. 
C)  In the short run, the typical firm increases its output but its total cost also rises, resulting in no change in profit. 
D)  In the short run, the typical firm increases its output but its total cost also rises. Hence, the effect on the firm's profit cannot be determined without more information. 
A)  In the short run, the typical firm increases its output and makes an above normal profit. 
B)  In the short run, the typical firm's output remains the same but because of the higher price, its profit increases. 
C)  In the short run, the typical firm increases its output but its total cost also rises, resulting in no change in profit. 
D)  In the short run, the typical firm increases its output but its total cost also rises. Hence, the effect on the firm's profit cannot be determined without more information.

Question 12

Figure 12-17   The graphs in Figure 12-17 represent the perfectly competitive market demand and supply curves for the apple industry and demand and cost curves for a typical firm in the industry.
-Refer to Figure 12-17. Which of the following statements is true?

Accepted Answer

A)  The firm will produce 30 thousand pounds of apples in the short run and earn an economic profit. New firms will enter the market and shift the market supply curve to the left. 
B)  The firm will produce 30 thousand pounds of apples in the short run and earn an economic profit, but it would earn a greater profit if it produced at the lowest point on the ATC curve. 
C)  The firm will produce 30 thousand pounds of apples in the short run and earn an economic profit. New firms will enter the industry; as a result, the firm will be forced to exit the industry in the long run. 
D)  The firm will produce 30 thousands pounds of apples in the short run and earn an economic profit. In the long run the firm will break even. 
A)  The firm will produce 30 thousand pounds of apples in the short run and earn an economic profit. New firms will enter the market and shift the market supply curve to the left. 
B)  The firm will produce 30 thousand pounds of apples in the short run and earn an economic profit, but it would earn a greater profit if it produced at the lowest point on the ATC curve. 
C)  The firm will produce 30 thousand pounds of apples in the short run and earn an economic profit. New firms will enter the industry; as a result, the firm will be forced to exit the industry in the long run. 
D)  The firm will produce 30 thousands pounds of apples in the short run and earn an economic profit. In the long run the firm will break even.

Question 13

What is productive efficiency?

Accepted Answer

A)  a situation in which resources are allocated to their highest profit use 
B)  a situation in which resources are allocated such that goods can be produced at their lowest possible average cost 
C)  a situation in which resources are allocated such the last unit of output produced provides a marginal benefit to consumers equal to the marginal cost of producing it 
D)  a situation in which firms produce as much as possible 
A)  a situation in which resources are allocated to their highest profit use 
B)  a situation in which resources are allocated such that goods can be produced at their lowest possible average cost 
C)  a situation in which resources are allocated such the last unit of output produced provides a marginal benefit to consumers equal to the marginal cost of producing it 
D)  a situation in which firms produce as much as possible

Question 14

An individual seller in perfect competition will not sell at a price lower than the market price because

Accepted Answer

A)  demand for the product will exceed supply. 
B)  the seller would start a price war. 
C)  the seller can sell any quantity she wants at the prevailing market price. 
D)  demand is perfectly inelastic. 
A)  demand for the product will exceed supply. 
B)  the seller would start a price war. 
C)  the seller can sell any quantity she wants at the prevailing market price. 
D)  demand is perfectly inelastic.

Question 15

Figure 12-4   Figure 12-4 shows the cost and demand curves for a profit-maximizing firm in a perfectly competitive market.
-Refer to Figure 12-4. If the market price is $30, should the firm represented in the diagram continue to stay open?

Accepted Answer

A)  No, it should shut down because it is making a loss. 
B)  No, it should shut down because it cannot cover its variable cost. 
C)  Yes, because it is covering part of its fixed cost. 
D)  Yes, because it is making a profit. 
A)  No, it should shut down because it is making a loss. 
B)  No, it should shut down because it cannot cover its variable cost. 
C)  Yes, because it is covering part of its fixed cost. 
D)  Yes, because it is making a profit.

Question 16

Consider the market for wheat which is a perfectly competitive market. Is the market demand curve the same as the demand curve facing an individual producer? If not, explain how and why they are different? Illustrate your answer graphically.

Accepted Answer

The market demand is downward sloping wh

Question 17

For a given quantity, the total profit of a perfectly competitive firm is equal to the vertical distance between the firm's total revenue curve and its total cost curve.

Accepted Answer

A) True 
 B)False

Question 18

Figure 12-6   Figure 12-6 shows the demand, marginal cost (MC) and average total cost (ATC) curves for Jason's House of Apples.
-Refer to Figure 12-6. If Jason maximizes his profit he will produce the output level indicated by point ________ and his average profit will equal ________.

Accepted Answer

A)  d; $3 minus ATC at point d 
B)  b; $3 minus ATC at point b 
C)  e; $3 minus ATC at point e 
D)  a; $3 
A)  d; $3 minus ATC at point d 
B)  b; $3 minus ATC at point b 
C)  e; $3 minus ATC at point e 
D)  a; $3

Question 19

Assume that the market for cage-free eggs is perfectly competitive. All else equal, as more farmers choose to produce and sell cage-free eggs, what is likely to happen to the equilibrium price of the eggs and profits of these farmers in the long run?

Accepted Answer

A)  The equilibrium price is likely to increase and profits are likely to remain unchanged. 
B)  The equilibrium price is likely to remain unchanged and profits are likely to increase. 
C)  The equilibrium price is likely to decrease and profits are likely to decrease. 
D)  The equilibrium price is likely to increase and profits are likely to increase. 
A)  The equilibrium price is likely to increase and profits are likely to remain unchanged. 
B)  The equilibrium price is likely to remain unchanged and profits are likely to increase. 
C)  The equilibrium price is likely to decrease and profits are likely to decrease. 
D)  The equilibrium price is likely to increase and profits are likely to increase.

Question 20

A perfectly competitive firm produces 3,000 units of a good at a total cost of $36,000. The price of each good is $10. Calculate the firm's short-run profit or loss.

Accepted Answer

A)  loss of $6,000 
B)  profit of $6,000 
C)  profit of $30,000 
D)  There is insufficient information to answer the question. 
A)  loss of $6,000 
B)  profit of $6,000 
C)  profit of $30,000 
D)  There is insufficient information to answer the question.

Exam 12: Firms in Perfectly Competitive Markets

A perfectly competitive firm faces a demand curve that is

If, as a perfectly competitive industry expands, it can supply larger quantities at the same long-run market price, it is

Which of the following arguments could be made as evidence that the market for cage-free eggs is perfectly competitive?

Which of the following is not a characteristic of a monopolistically competitive market structure?

Table 12-2 Table 12-2 lists the various pounds (lbs.) of apples that Margie Stattler can sell. Assume that Margie operates in a perfectly competitive market. -Refer to Table 12-2. What is Margie's total revenue if she sells 250 pounds of apples?

Figure 12-10 -Refer to Figure 12-10. Total revenue at the profit-maximizing level of output is

Marty's Bird House suffers a short-run loss. Marty can reduce his loss below the amount of his total fixed costs by continuing to produce if his revenue

If a firm shuts down in the short run, its maximum loss equals the amount of its fixed cost.

What is the difference between "shutting down temporarily" and "exiting the industry"?

Figure 12-17 The graphs in Figure 12-17 represent the perfectly competitive market demand and supply curves for the apple industry and demand and cost curves for a typical firm in the industry. -Refer to Figure 12-17. Which of the following statements is true?

What is productive efficiency?

An individual seller in perfect competition will not sell at a price lower than the market price because

Figure 12-4 Figure 12-4 shows the cost and demand curves for a profit-maximizing firm in a perfectly competitive market. -Refer to Figure 12-4. If the market price is $30, should the firm represented in the diagram continue to stay open?

Consider the market for wheat which is a perfectly competitive market. Is the market demand curve the same as the demand curve facing an individual producer? If not, explain how and why they are different? Illustrate your answer graphically.

For a given quantity, the total profit of a perfectly competitive firm is equal to the vertical distance between the firm's total revenue curve and its total cost curve.

Figure 12-6 Figure 12-6 shows the demand, marginal cost (MC) and average total cost (ATC) curves for Jason's House of Apples. -Refer to Figure 12-6. If Jason maximizes his profit he will produce the output level indicated by point ________ and his average profit will equal ________.

Assume that the market for cage-free eggs is perfectly competitive. All else equal, as more farmers choose to produce and sell cage-free eggs, what is likely to happen to the equilibrium price of the eggs and profits of these farmers in the long run?

A perfectly competitive firm produces 3,000 units of a good at a total cost of $36,000. The price of each good is $10. Calculate the firm's short-run profit or loss.

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, Government Price Setting, and Taxes

Externalities, Environmental Policy, and Public Goods

Elasticity: the Responsiveness of Demand and Supply

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology, Production, and Costs

Monopolistic Competition: the Competitive Model in a More Realistic Setting

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

Pricing Strategy

The Markets for Labor and Other Factors of Production

Public Choice, Taxes, and the Distribution of Income

Gdp: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money, Banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Inflation, Unemployment, and Federal Reserve Policy

Macroeconomics in an Open Economy

The International Financial System

Filters

Figure 12-6 Figure 12-6 shows the demand, marginal cost (MC) and average total cost (ATC) curves for Jason's House of Apples. -Refer to Figure 12-6. If Jason maximizes his profit he will produce the output level indicated by point and his average profit will equal .