Question 1

If, as a perfectly competitive industry expands, it can supply larger quantities only at a higher long-run equilibrium 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.

Question 2

Under what conditions should a competitive firm shut down in the short run?

Accepted Answer

When market price is below ave

Question 3

Figure 12-11  
-Refer to Figure 12-11. If this is a constant-cost industry, what is the market price in the long-run equilibrium?

Accepted Answer

A)  $5 
B)  $14 
C)  $15 
D)  $20 
A)  $5 
B)  $14 
C)  $15 
D)  $20

Question 4

Figure 12-1  
-Refer to Figure 12-1. If the firm is producing 700 units, what is the amount of its profit or loss?

Accepted Answer

A)  loss of $280 
B)  loss equivalent to the area A 
C)  profit equivalent to the area A 
D)  There is insufficient information to answer the question. 
A)  loss of $280 
B)  loss equivalent to the area A 
C)  profit equivalent to the area A 
D)  There is insufficient information to answer the question.

Question 5

Molly Sharp is producing a documentary about the plight of the six-toed ferrets of Sri Lanka. Molly has spent $125,000 of her own money on this project and the documentary is now complete. Molly just found out that no studio is willing to release her documentary and she must now shop it to cable television networks, where she knows she will not be able to recoup her investment. Which of the following statements regarding Molly Sharp's documentary is true?

Accepted Answer

A)  She should not try to have her documentary aired on television because she cannot recoup her $125,000 investment. 
B)  Since the $125,000 is a sunk cost, she should still try to have her documentary aired on television even though she will not see a profit. 
C)  The $125,000 is a variable cost, so will not be incurred if she chooses not to have her documentary aired. 
D)  The $125,000 investment is an economic cost, and she will still make an accounting profit even if the television network willing to air her documentary pays her less than $125,000. 
A)  She should not try to have her documentary aired on television because she cannot recoup her $125,000 investment. 
B)  Since the $125,000 is a sunk cost, she should still try to have her documentary aired on television even though she will not see a profit. 
C)  The $125,000 is a variable cost, so will not be incurred if she chooses not to have her documentary aired. 
D)  The $125,000 investment is an economic cost, and she will still make an accounting profit even if the television network willing to air her documentary pays her less than $125,000.

Question 6

Which of the following is the best example of a perfectly competitive industry?

Accepted Answer

A)  the wheat market 
B)  the steel market 
C)  the electricity market 
D)  the airplane market 
A)  the wheat market 
B)  the steel market 
C)  the electricity market 
D)  the airplane market

Question 7

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. What is the fixed cost of production?

Accepted Answer

A)  $0 
B)  $500 
C)  $1,000 
D)  It cannot be determined. 
A)  $0 
B)  $500 
C)  $1,000 
D)  It cannot be determined.

Question 8

Figure 12-7   Figure 12-7 illustrates the cost curves of a perfectly competitive firm.
-Refer to Figure 12-7. If the market price is P3 the firm

Accepted Answer

A)  will break even. 
B)  will make a profit. 
C)  will earn enough revenue to cover its variable costs but not its fixed costs. 
D)  will produce a quantity of Q1. 
A)  will break even. 
B)  will make a profit. 
C)  will earn enough revenue to cover its variable costs but not its fixed costs. 
D)  will produce a quantity of Q1.

Question 9

Which of the following is the best example of a perfectly competitive firm?

Accepted Answer

A)  a corn farmer in Illinois 
B)  a Taco Bell restaurant 
C)  the Ford Motor Company 
D)  United Parcel Service (UPS) 
A)  a corn farmer in Illinois 
B)  a Taco Bell restaurant 
C)  the Ford Motor Company 
D)  United Parcel Service (UPS)

Question 10

Figure 12-5   Figure 12-5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry.
-Refer to Figure 12-5. The firm's manager suggests that the firm's goal should be to maximize average profit. In that case, what is the output level and what is the average profit that will achieve the manager's goal?

Accepted Answer

A)  Q = 1,350 units, average profit = $5 
B)  Q = 1,100 units, average profit = $6 
C)  Q = 1,350 units, average profit = $9 
D)  Q = 1,800 units, average profit = $20 
A)  Q = 1,350 units, average profit = $5 
B)  Q = 1,100 units, average profit = $6 
C)  Q = 1,350 units, average profit = $9 
D)  Q = 1,800 units, average profit = $20

Question 11

Table 12-3
   Arnie sells basketballs in a perfectly competitive market. Table 12-3 summarizes Arnie's output per day (Q), total cost (TC), average total cost (ATC) and marginal cost (MC).
-Refer to Table 12-3. What will Arnie's output be and how much profit will he earn if the market price of basketballs is $5.00?

Accepted Answer

A)  Q = 1; profit = -$10. 
B)  Q = 3; profit = -$7.50 
C)  Q = 0; profit = -$10.00 
D)  Price and profit cannot be determined from the information given. 
A)  Q = 1; profit = -$10. 
B)  Q = 3; profit = -$7.50 
C)  Q = 0; profit = -$10.00 
D)  Price and profit cannot be determined from the information given.

Question 12

Figure 12-11  
-Refer to Figure 12-11. Suppose the prevailing price is $20 and the firm is currently producing 1,350 units. In the long-run equilibrium, the firm represented in the diagram

Accepted Answer

A)  will continue to produce the same quantity. 
B)  will reduce its output to 1,100 units. 
C)  will reduce its output to 750 units. 
D)  will cease to exist. 
A)  will continue to produce the same quantity. 
B)  will reduce its output to 1,100 units. 
C)  will reduce its output to 750 units. 
D)  will cease to exist.

Question 13

In the short run, a firm that is operating at a loss has two options. These options are

Accepted Answer

A)  to reduce output or reduce its variable costs. 
B)  to go out of business or declare bankruptcy. 
C)  to shut down temporarily or continue to produce. 
D)  to adopt new technology or change the size of its physical plant. 
A)  to reduce output or reduce its variable costs. 
B)  to go out of business or declare bankruptcy. 
C)  to shut down temporarily or continue to produce. 
D)  to adopt new technology or change the size of its physical plant.

Question 14

A perfectly competitive firm's horizontal demand curve implies that the firm does not have to lower its price to sell more output.

Accepted Answer

A) True 
 B)False

Question 15

For a perfectly competitive firm, which of the following is not true at profit maximization?

Accepted Answer

A)  Market price is greater than marginal cost. 
B)  Marginal revenue equals marginal cost. 
C)  Total revenue minus total cost is maximized. 
D)  Price equals marginal cost. 
A)  Market price is greater than marginal cost. 
B)  Marginal revenue equals marginal cost. 
C)  Total revenue minus total cost is maximized. 
D)  Price equals marginal cost.

Question 16

Fill in the columns in the following table and use the values in the table to determine the profit-maximizing level of output.

Accepted Answer

@#IMG-DLM& The profit-maximizi

Question 17

The market demand curve for a perfectly competitive industry is the horizontal summation of each individual firm's demand curve.

Accepted Answer

A) True 
 B)False

Question 18

A perfectly competitive firm produces 3,000 units of a good at a total cost of $36,000. The fixed cost of production is $20,000. The price of each good is $10. Should the firm continue to produce in the short run?

Accepted Answer

A)  No, it should shut down because it is making a loss. 
B)  Yes, it should continue to produce because its price exceeds its average fixed cost. 
C)  Yes, it should continue to produce because the firm's revenues cover the total variable cost of $16,000. 
D)  There is insufficient information to answer the question. 
A)  No, it should shut down because it is making a loss. 
B)  Yes, it should continue to produce because its price exceeds its average fixed cost. 
C)  Yes, it should continue to produce because the firm's revenues cover the total variable cost of $16,000. 
D)  There is insufficient information to answer the question.

Question 19

Max Shreck, an accountant, quit his $80,000-a-year job and bought an existing tattoo parlor from its previous owner, Sylvia Sidney. The lease has five years remaining and requires a monthly payment of $4,000. Max's explicit cost amounts to $3,000 per month more than his revenue. Should Max continue operating his business?

Accepted Answer

A)  Max's explicit cost exceeds his total revenue. He should shut down his tattoo parlor. 
B)  Max should continue to run the tattoo parlor until his lease runs out. 
C)  If Max's marginal revenue is greater than or equal to his marginal cost, then he should stay in business. 
D)  This cannot be determined without information on his revenue. 
A)  Max's explicit cost exceeds his total revenue. He should shut down his tattoo parlor. 
B)  Max should continue to run the tattoo parlor until his lease runs out. 
C)  If Max's marginal revenue is greater than or equal to his marginal cost, then he should stay in business. 
D)  This cannot be determined without information on his revenue.

Question 20

If the long-run average cost curve is U-shaped, the optimal scale of production from society's viewpoint is

Accepted Answer

A)  the minimum efficient scale. 
B)  where maximum economic profit is earned by producers. 
C)  where firm profit is large enough to finance research and development. 
D)  one which guarantees economic profit. 
A)  the minimum efficient scale. 
B)  where maximum economic profit is earned by producers. 
C)  where firm profit is large enough to finance research and development. 
D)  one which guarantees economic profit.

Exam 12: Firms in Perfectly Competitive Markets

If, as a perfectly competitive industry expands, it can supply larger quantities only at a higher long-run equilibrium price, it is

Under what conditions should a competitive firm shut down in the short run?

Figure 12-11 -Refer to Figure 12-11. If this is a constant-cost industry, what is the market price in the long-run equilibrium?

Figure 12-1 -Refer to Figure 12-1. If the firm is producing 700 units, what is the amount of its profit or loss?

Which of the following is the best example of a perfectly competitive industry?

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. What is the fixed cost of production?

Figure 12-7 Figure 12-7 illustrates the cost curves of a perfectly competitive firm. -Refer to Figure 12-7. If the market price is P3 the firm

Which of the following is the best example of a perfectly competitive firm?

Figure 12-11 -Refer to Figure 12-11. Suppose the prevailing price is $20 and the firm is currently producing 1,350 units. In the long-run equilibrium, the firm represented in the diagram

In the short run, a firm that is operating at a loss has two options. These options are

A perfectly competitive firm's horizontal demand curve implies that the firm does not have to lower its price to sell more output.

For a perfectly competitive firm, which of the following is not true at profit maximization?

Fill in the columns in the following table and use the values in the table to determine the profit-maximizing level of output.

The market demand curve for a perfectly competitive industry is the horizontal summation of each individual firm's demand curve.

A perfectly competitive firm produces 3,000 units of a good at a total cost of $36,000. The fixed cost of production is $20,000. The price of each good is $10. Should the firm continue to produce in the short run?

If the long-run average cost curve is U-shaped, the optimal scale of production from society's viewpoint is

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 12-7 Figure 12-7 illustrates the cost curves of a perfectly competitive firm. -Refer to Figure 12-7. If the market price is P₃ the firm