Question 1

The delivery of first-class mail by the U.S. Postal Service is an example of

Accepted Answer

A)  a monopoly. 
B)  perfect competition because consumers have access to other methods of written communication; for example, email and text messaging. 
C)  monopolistic competition, because mail delivery is a differentiated product provided by many firms. 
D)  an oligopoly because a few other firms provide delivery of letters and packages. 
A)  a monopoly. 
B)  perfect competition because consumers have access to other methods of written communication; for example, email and text messaging. 
C)  monopolistic competition, because mail delivery is a differentiated product provided by many firms. 
D)  an oligopoly because a few other firms provide delivery of letters and packages.

Question 2

In long-run perfectly competitive equilibrium, which of the following is false?

Accepted Answer

A)  There is efficient, low-cost production at the minimum efficient scale. 
B)  Economic surplus is maximized. 
C)  Firms earn economic profit. 
D)  Economies of scale are exhausted. 
A)  There is efficient, low-cost production at the minimum efficient scale. 
B)  Economic surplus is maximized. 
C)  Firms earn economic profit. 
D)  Economies of scale are exhausted.

Question 3

What is meant by allocative efficiency? How does a perfectly competitive firm achieve allocative efficiency?

Accepted Answer

Allocative efficiency refers to a state

Question 4

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 price (P) will Arnie charge and how much profit will he earn if the market price of basketballs is $12.50?

Accepted Answer

A)  Price and profit cannot be determined from the information given. 
B)  P = $12.50; profit = $52.50 
C)  P = $12.50; profit = $22.50 
D)  P = $20; profit = $75.00. 
A)  Price and profit cannot be determined from the information given. 
B)  P = $12.50; profit = $52.50 
C)  P = $12.50; profit = $22.50 
D)  P = $20; profit = $75.00.

Question 5

Figure 12-18  
-Refer to Figure 12-18. Use the figure above to answer the following questions.
a. How can you determine that the figure represents a graph of a perfectly competitive firm? Be specific; indicate which curve gives you the information and how you use this information to arrive at your conclusion.
b. What is the market price?
c. What is the profit-maximizing output?
d. What is total revenue at the profit-maximizing output?
e. What is the total cost at the profit-maximizing output?
f. What is the profit or loss at the profit-maximizing output?
g. What is the firm's total fixed cost?
h. What is the total variable cost?
i. Identify the firm's short-run supply curve.
j. Is the industry in a long-run equilibrium?
k. If it is not in long-run equilibrium, what will happen in this industry to restore long-run equilibrium?
l. In long-run equilibrium, what is the firm's profit maximizing quantity?

Accepted Answer

a. The perfectly competitive firm is a p

Question 6

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 and the firm maximizes profit, what is the amount of the firm's profit or loss?

Accepted Answer

A)  $0 (it breaks even) 
B)  loss of $1,000 
C)  profit of $440 
D)  loss of $440 
A)  $0 (it breaks even) 
B)  loss of $1,000 
C)  profit of $440 
D)  loss of $440

Question 7

Perfectly competitive industries tend to produce low-priced, low-technology products.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following describes a situation in which every good or service is produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing it?

Accepted Answer

A)  productive efficiency 
B)  allocative efficiency 
C)  marginal efficiency 
D)  profit maximization 
A)  productive efficiency 
B)  allocative efficiency 
C)  marginal efficiency 
D)  profit maximization

Question 9

A perfectly competitive apple farm produces 1,000 bushels of apples at a total cost of $36,000. The price of each bushel is $50. Calculate the firm's short-run profit or loss.

Accepted Answer

A)  loss of $14,000 
B)  profit of $14,000 
C)  profit of $50,000 
D)  There is insufficient information to answer the question. 
A)  loss of $14,000 
B)  profit of $14,000 
C)  profit of $50,000 
D)  There is insufficient information to answer the question.

Question 10

Firms in perfect competition are price takers because

Accepted Answer

A)  one firm determines the price that all other firms in the industry will charge. 
B)  consumers have enough market power to set prices. 
C)  firms accept the price determined by the government. 
D)  each firm is too small relative to the market to be able to influence the price. 
A)  one firm determines the price that all other firms in the industry will charge. 
B)  consumers have enough market power to set prices. 
C)  firms accept the price determined by the government. 
D)  each firm is too small relative to the market to be able to influence the price.

Question 11

Figure 12-16  
-Refer to Figure 12-16. Which panel best represents the perfectly competitive organic produce market's transition to the long run when some firms in the market are earning economic profits?

Accepted Answer

A)  Panel A 
B)  Panel B 
C)  Panel C 
D)  Panel D 
A)  Panel A 
B)  Panel B 
C)  Panel C 
D)  Panel D

Question 12

If, for a given output level, a perfectly competitive firm's price is less than its average variable cost, then the firm

Accepted Answer

A)  is earning a profit. 
B)  should shut down. 
C)  should increase output. 
D)  should increase price. 
A)  is earning a profit. 
B)  should shut down. 
C)  should increase output. 
D)  should increase price.

Question 13

Some markets have many buyers and sellers but fall into the category of monopolistic competition rather than perfect competition. The most common reason for this is

Accepted Answer

A)  there are high barriers to entering these markets. 
B)  firms in these markets sell identical products. 
C)  firms in these markets make high profits. 
D)  firms in these markets do not sell identical products. 
A)  there are high barriers to entering these markets. 
B)  firms in these markets sell identical products. 
C)  firms in these markets make high profits. 
D)  firms in these markets do not sell identical products.

Question 14

For a perfectly competitive firm, at profit maximization

Accepted Answer

A)  market price exceeds marginal cost. 
B)  total revenue is maximized. 
C)  marginal revenue equals marginal cost. 
D)  production must occur where average cost is minimized. 
A)  market price exceeds marginal cost. 
B)  total revenue is maximized. 
C)  marginal revenue equals marginal cost. 
D)  production must occur where average cost is minimized.

Question 15

Maximizing average profit is equivalent to maximizing total profit.

Accepted Answer

A) True 
 B)False

Question 16

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. What is the minimum price the firm requires to produce output?

Accepted Answer

A)  $20 
B)  $14 
C)  $5 
D)  It cannot be determined 
A)  $20 
B)  $14 
C)  $5 
D)  It cannot be determined

Question 17

In the short run, if price falls below a firm's minimum average total cost, then the firm should shut down.

Accepted Answer

A) True 
 B)False

Question 18

If a perfectly competitive firm's total revenue is less than its total variable cost, the firm

Accepted Answer

A)  should raise its price above its average variable cost. 
B)  should continue to produce and increase its demand. 
C)  should stop production by shutting down temporarily. 
D)  should adopt new technology in order to lower its costs of production. 
A)  should raise its price above its average variable cost. 
B)  should continue to produce and increase its demand. 
C)  should stop production by shutting down temporarily. 
D)  should adopt new technology in order to lower its costs of production.

Question 19

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. If the market price is $20, what is the average profit at the profit-maximizing quantity?

Accepted Answer

A)  $5 
B)  $6 
C)  $9 
D)  $20 
A)  $5 
B)  $6 
C)  $9 
D)  $20

Question 20

A constant-cost industry is an industry in which

Accepted Answer

A)  average costs fall as the industry expands output. 
B)  average costs rise as the industry expands output. 
C)  average costs remain constant as the industry expands output. 
D)  input prices rise at a constant rate as firms in the industry use more inputs. 
A)  average costs fall as the industry expands output. 
B)  average costs rise as the industry expands output. 
C)  average costs remain constant as the industry expands output. 
D)  input prices rise at a constant rate as firms in the industry use more inputs.

Exam 12: Firms in Perfectly Competitive Markets

The delivery of first-class mail by the U.S. Postal Service is an example of

In long-run perfectly competitive equilibrium, which of the following is false?

What is meant by allocative efficiency? How does a perfectly competitive firm achieve allocative efficiency?

Perfectly competitive industries tend to produce low-priced, low-technology products.

Which of the following describes a situation in which every good or service is produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing it?

A perfectly competitive apple farm produces 1,000 bushels of apples at a total cost of $36,000. The price of each bushel is $50. Calculate the firm's short-run profit or loss.

Firms in perfect competition are price takers because

Figure 12-16 -Refer to Figure 12-16. Which panel best represents the perfectly competitive organic produce market's transition to the long run when some firms in the market are earning economic profits?

If, for a given output level, a perfectly competitive firm's price is less than its average variable cost, then the firm

Some markets have many buyers and sellers but fall into the category of monopolistic competition rather than perfect competition. The most common reason for this is

For a perfectly competitive firm, at profit maximization

Maximizing average profit is equivalent to maximizing total profit.

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. What is the minimum price the firm requires to produce output?

In the short run, if price falls below a firm's minimum average total cost, then the firm should shut down.

If a perfectly competitive firm's total revenue is less than its total variable cost, the firm

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. If the market price is $20, what is the average profit at the profit-maximizing quantity?

A constant-cost industry is an industry in which

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

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