Question 1

What is a long-run supply curve? What does a long-run supply curve look like on a perfectly competitive market graph?

Accepted Answer

A long-run supply curve shows the relati

Question 2

At the profit-maximizing level of output for a perfectly competitive firm,

Accepted Answer

A)  price equals marginal cost. 
B)  average revenue equals average variable cost and price equals marginal cost. 
C)  marginal revenue equals marginal cost and average total cost equals average fixed cost. 
D)  price equals average revenue and marginal cost equals average variable cost. 
A)  price equals marginal cost. 
B)  average revenue equals average variable cost and price equals marginal cost. 
C)  marginal revenue equals marginal cost and average total cost equals average fixed cost. 
D)  price equals average revenue and marginal cost equals average variable cost.

Question 3

If a firm shuts down in the short run, it avoids its variable cost but not its fixed cost.

Accepted Answer

A) True 
 B)False

Question 4

Assume that the tuna fishing industry is perfectly competitive. Which of the following best characterizes the industry if, as demand for tuna increases, fishing boats have to go farther into the ocean to harvest tuna?

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 5

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 firm's profit-maximizing output?

Accepted Answer

A)  750 units 
B)  1,100 units 
C)  1,350 units 
D)  1,800 units 
A)  750 units 
B)  1,100 units 
C)  1,350 units 
D)  1,800 units

Question 6

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. The lease

Accepted Answer

A)  is a fixed cost of operating the tattoo parlor. 
B)  is a variable cost of operating the tattoo parlor. 
C)  is an implicit cost of operating the tattoo parlor. 
D)  is part of the marginal cost of operating the tattoo parlor. 
A)  is a fixed cost of operating the tattoo parlor. 
B)  is a variable cost of operating the tattoo parlor. 
C)  is an implicit cost of operating the tattoo parlor. 
D)  is part of the marginal cost of operating the tattoo parlor.

Question 7

Market supply is found by

Accepted Answer

A)  vertically summing the relevant part of each individual producer's marginal cost curve. 
B)  horizontally summing the relevant part of each individual producer's marginal cost curve. 
C)  vertically summing each individual producer's average total cost curve. 
D)  horizontally summing each individual producer's average total cost curve. 
A)  vertically summing the relevant part of each individual producer's marginal cost curve. 
B)  horizontally summing the relevant part of each individual producer's marginal cost curve. 
C)  vertically summing each individual producer's average total cost curve. 
D)  horizontally summing each individual producer's average total cost curve.

Question 8

Assume that the market for cage-free eggs is perfectly competitive. All else equal, as farmers find it less profitable to produce and sell cage-free eggs in this market

Accepted Answer

A)  the demand curve will shift to the left and the equilibrium price will decrease. 
B)  the supply curve will shift to the left and the equilibrium price will increase. 
C)  the supply curve will shift to the right, the demand curve will shift to the left, and the equilibrium price will decrease. 
D)  the supply curve will shift to the left, the demand curve will shift to the left, and the equilibrium price will increase. 
A)  the demand curve will shift to the left and the equilibrium price will decrease. 
B)  the supply curve will shift to the left and the equilibrium price will increase. 
C)  the supply curve will shift to the right, the demand curve will shift to the left, and the equilibrium price will decrease. 
D)  the supply curve will shift to the left, the demand curve will shift to the left, and the equilibrium price will increase.

Question 9

Why would a company continue to operate for many years while never once turning a profit rather than shut down immediately? Using revenue and cost analysis, explain when the company would shut down.

Accepted Answer

A company would continue to op

Question 10

A perfectly competitive firm has to charge the same price as every other firm in the market. Therefore, the firm

Accepted Answer

A)  faces a perfectly inelastic demand curve. 
B)  is not able to make a profit in the short run. 
C)  is a price taker. 
D)  faces a perfectly elastic supply curve. 
A)  faces a perfectly inelastic demand curve. 
B)  is not able to make a profit in the short run. 
C)  is a price taker. 
D)  faces a perfectly elastic supply curve.

Question 11

Figure 12-2  
-Refer to Figure 12-2. What is the amount of profit if the firm produces Q2 units?

Accepted Answer

A)  It is equal to the vertical distance c to g. 
B)  It is equal to the vertical distance c to Q2. 
C)  It is equal to the vertical distance g to Q2. 
D)  It is equal to the vertical distance c to g multiplied by Q2 units. 
A)  It is equal to the vertical distance c to g. 
B)  It is equal to the vertical distance c to Q2. 
C)  It is equal to the vertical distance g to Q2. 
D)  It is equal to the vertical distance c to g multiplied by Q2 units.

Question 12

If the market price is $25 in a perfectly competitive market, the marginal revenue from selling the fifth unit is

Accepted Answer

A)  $5. 
B)  $12.50. 
C)  $25. 
D)  $125. 
A)  $5. 
B)  $12.50. 
C)  $25. 
D)  $125.

Question 13

Figure 12-13  
-Refer to Figure 12-13. Suppose the prevailing price is P1 and the firm is currently producing its loss-minimizing quantity. If the firm represented in the diagram continues to stay in business, in the long-run equilibrium

Accepted Answer

A)  it will reduce its output to Q0 and face a price of P0. 
B)  it will continue to produce Q1 but faces the higher price of P2. 
C)  it will expand its output to Q2 and face a price of P2. 
D)  it will expand its output to Q3 and face a price of P1. 
A)  it will reduce its output to Q0 and face a price of P0. 
B)  it will continue to produce Q1 but faces the higher price of P2. 
C)  it will expand its output to Q2 and face a price of P2. 
D)  it will expand its output to Q3 and face a price of P1.

Question 14

Figure 12-1  
-Refer to Figure 12-1. If the firm is producing 700 units

Accepted Answer

A)  it is making a profit. 
B)  it is making a loss. 
C)  it should cut back its output to maximize profit. 
D)  it should increase its output to maximize profit. 
A)  it is making a profit. 
B)  it is making a loss. 
C)  it should cut back its output to maximize profit. 
D)  it should increase its output to maximize profit.

Question 15

A perfectly competitive industry achieves allocative efficiency in the long run. What does allocative efficiency mean?

Accepted Answer

A)  Each firm produces up to the point where the price of the good equals the marginal cost of producing the last unit. 
B)  Each firm produces up to the point where all scale economies are exhausted. 
C)  Production occurs at the lowest average total cost. 
D)  Firms use an input combination that minimizes cost and maximizes output. 
A)  Each firm produces up to the point where the price of the good equals the marginal cost of producing the last unit. 
B)  Each firm produces up to the point where all scale economies are exhausted. 
C)  Production occurs at the lowest average total cost. 
D)  Firms use an input combination that minimizes cost and maximizes output.

Question 16

Figure 12-8  
-Refer to Figure 12-8. Suppose the firm produces 4,000 units. What does the shaded area labeled A represent?

Accepted Answer

A)  total variable cost 
B)  profit 
C)  total fixed cost 
D)  total revenue 
A)  total variable cost 
B)  profit 
C)  total fixed cost 
D)  total revenue

Question 17

In an increasing-cost industry the long-run supply curve is upward sloping.

Accepted Answer

A) True 
 B)False

Question 18

Marginal revenue is

Accepted Answer

A)  total revenue divided by the total quantity of output. 
B)  the change in profit divided by the change in the quantity of output. 
C)  the change in total revenue divided by the change in total cost. 
D)  the change in total revenue divided by the change in the quantity of output. 
A)  total revenue divided by the total quantity of output. 
B)  the change in profit divided by the change in the quantity of output. 
C)  the change in total revenue divided by the change in total cost. 
D)  the change in total revenue divided by the change in the quantity of output.

Question 19

Both individual buyers and sellers in perfect competition

Accepted Answer

A)  can influence the market price by their own individual actions. 
B)  can influence the market price by joining with a few of their competitors. 
C)  have to take the market price as a given. 
D)  have the market price dictated to them by government. 
A)  can influence the market price by their own individual actions. 
B)  can influence the market price by joining with a few of their competitors. 
C)  have to take the market price as a given. 
D)  have the market price dictated to them by government.

Question 20

When a perfectly competitive firm finds that its market price is below its minimum average variable cost, it will sell

Accepted Answer

A)  the output where marginal revenue equals marginal cost. 
B)  any positive output the entrepreneur decides upon because all of it can be sold. 
C)  nothing at all; the firm shuts down. 
D)  the output where average total cost equals price. 
A)  the output where marginal revenue equals marginal cost. 
B)  any positive output the entrepreneur decides upon because all of it can be sold. 
C)  nothing at all; the firm shuts down. 
D)  the output where average total cost equals price.

Exam 12: Firms in Perfectly Competitive Markets

What is a long-run supply curve? What does a long-run supply curve look like on a perfectly competitive market graph?

At the profit-maximizing level of output for a perfectly competitive firm,

If a firm shuts down in the short run, it avoids its variable cost but not its fixed cost.

Assume that the tuna fishing industry is perfectly competitive. Which of the following best characterizes the industry if, as demand for tuna increases, fishing boats have to go farther into the ocean to harvest tuna?

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 firm's profit-maximizing output?

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. The lease

Market supply is found by

Assume that the market for cage-free eggs is perfectly competitive. All else equal, as farmers find it less profitable to produce and sell cage-free eggs in this market

Why would a company continue to operate for many years while never once turning a profit rather than shut down immediately? Using revenue and cost analysis, explain when the company would shut down.

A perfectly competitive firm has to charge the same price as every other firm in the market. Therefore, the firm

Figure 12-2 -Refer to Figure 12-2. What is the amount of profit if the firm produces Q2 units?

If the market price is $25 in a perfectly competitive market, the marginal revenue from selling the fifth unit is

Figure 12-13 -Refer to Figure 12-13. Suppose the prevailing price is P1 and the firm is currently producing its loss-minimizing quantity. If the firm represented in the diagram continues to stay in business, in the long-run equilibrium

Figure 12-1 -Refer to Figure 12-1. If the firm is producing 700 units

A perfectly competitive industry achieves allocative efficiency in the long run. What does allocative efficiency mean?

Figure 12-8 -Refer to Figure 12-8. Suppose the firm produces 4,000 units. What does the shaded area labeled A represent?

In an increasing-cost industry the long-run supply curve is upward sloping.

Marginal revenue is

Both individual buyers and sellers in perfect competition

When a perfectly competitive firm finds that its market price is below its minimum average variable cost, it will sell

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 12-2 -Refer to Figure 12-2. What is the amount of profit if the firm produces Q₂units?

Figure 12-13 -Refer to Figure 12-13. Suppose the prevailing price is P₁ and the firm is currently producing its loss-minimizing quantity. If the firm represented in the diagram continues to stay in business, in the long-run equilibrium