Question 1

Figure 12-2  
-Refer to Figure 12-2. What happens if the firm produces more than Q4 units?

Accepted Answer

A)  Its profit increases. 
B)  It makes a loss. 
C)  Its total revenue is increasing faster than its total cost. 
D)  It could make a profit or a loss depending on what happens to demand. 
A)  Its profit increases. 
B)  It makes a loss. 
C)  Its total revenue is increasing faster than its total cost. 
D)  It could make a profit or a loss depending on what happens to demand.

Question 2

Why are individual buyers and sellers in perfect competition called price takers?

Accepted Answer

They are called price takers b

Question 3

A perfectly competitive firm's short-run supply curve is

Accepted Answer

A)  upward sloping and is the portion of the marginal cost curve that lies above the average total cost curve. 
B)  upward sloping and is the portion of the marginal cost curve that lies above the average variable cost curve. 
C)  perfectly elastic at the market price. 
D)  horizontal at the minimum average total cost. 
A)  upward sloping and is the portion of the marginal cost curve that lies above the average total cost curve. 
B)  upward sloping and is the portion of the marginal cost curve that lies above the average variable cost curve. 
C)  perfectly elastic at the market price. 
D)  horizontal at the minimum average total cost.

Question 4

Jason, a high-school student, mows lawns for families in his neighborhood. The going rate is $12 for each lawn-mowing service. Jason would like to charge $20 because he believes he has more experience mowing lawns than the many other teenagers who also offer the same service. If the market for lawn mowing services is perfectly competitive, what would happen if Jason raised his price?

Accepted Answer

A)  He would lose some but not all his customers. 
B)  Initially, his customers might complain but over time they will come to accept the new rate. 
C)  If Jason raises his price, he would lose all his customers. 
D)  If Jason raises his price, then all others supplying the same service will also raise their prices. 
A)  He would lose some but not all his customers. 
B)  Initially, his customers might complain but over time they will come to accept the new rate. 
C)  If Jason raises his price, he would lose all his customers. 
D)  If Jason raises his price, then all others supplying the same service will also raise their prices.

Question 5

For a perfectly competitive firm, average revenue equals marginal cost at the profit-maximizing output.

Accepted Answer

A) True 
 B)False

Question 6

Ted's Pancake Kitchen suffers a short-run loss. When should Ted decide to shut down rather than continue to produce?

Accepted Answer

A)  if his Pancake Kitchen's revenue is less than its variable costs 
B)  if his Pancake Kitchen's revenue is less than its fixed costs 
C)  if his Pancake Kitchen's revenue is less than its explicit costs 
D)  if his Pancake Kitchen's revenue is less than its total costs 
A)  if his Pancake Kitchen's revenue is less than its variable costs 
B)  if his Pancake Kitchen's revenue is less than its fixed costs 
C)  if his Pancake Kitchen's revenue is less than its explicit costs 
D)  if his Pancake Kitchen's revenue is less than its total costs

Question 7

In the short run, a firm that incurs losses might choose to produce rather than shut down if the amount of its revenue is less than its fixed cost.

Accepted Answer

A) True 
 B)False

Question 8

A perfectly competitive firm in a constant-cost industry produces 3,000 units of a good at a total cost of $36,000. The prevailing market price is $15. What will happen to the number of firms in the industry and to the industry's output in the long run?

Accepted Answer

A)  The number of firms and the industry's output increase. 
B)  The number of firms and the industry's output decrease. 
C)  The number of firms remains constant and the industry's output increases. 
D)  The number of firms remains constant and the industry's output decreases. 
A)  The number of firms and the industry's output increase. 
B)  The number of firms and the industry's output decrease. 
C)  The number of firms remains constant and the industry's output increases. 
D)  The number of firms remains constant and the industry's output decreases.

Question 9

Figure 12-16  
-Refer to Figure 12-16. Which panel best represents the perfectly competitive organic produce market in which some firms are earning short-run economic profits, and the Surgeon General announces that switching from non-organic produce to organic produce will add 5 years to the average life span of consumers?

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 10

Assume that the personal computer industry is perfectly competitive. The fact that the price of personal computers over the last decade has fallen despite increases in demand signifies that the industry is a decreasing-cost industry.

Accepted Answer

A) True 
 B)False

Question 11

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. Jason is currently producing 20 thousand pounds of apples. To maximize his profit Jason should

Accepted Answer

A)  keep production at 20 thousand pounds. 
B)  increase production to the output level indicated by point d. 
C)  increase production to the output level indicated by point e. 
D)  decrease production to the output level indicated by point a. 
A)  keep production at 20 thousand pounds. 
B)  increase production to the output level indicated by point d. 
C)  increase production to the output level indicated by point e. 
D)  decrease production to the output level indicated by point a.

Question 12

In a graph that illustrates a perfectly competitive firm, the marginal revenue curve is

Accepted Answer

A)  a diagonal line that lies below the firm's demand curve. 
B)  a line that intersects the firm's demand curve from below at its lowest point. 
C)  a line that intersects the firm's average total cost curve from below at its lowest point. 
D)  the same as the firm's demand curve. 
A)  a diagonal line that lies below the firm's demand curve. 
B)  a line that intersects the firm's demand curve from below at its lowest point. 
C)  a line that intersects the firm's average total cost curve from below at its lowest point. 
D)  the same as the firm's demand curve.

Question 13

Firms in perfect competition produce the allocatively efficient output in the short run and in the long run.

Accepted Answer

A) True 
 B)False

Question 14

Figure 12-9   Figure 12-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm.
-Refer to Figure 12-9. At price P2, the firm would produce

Accepted Answer

A)  Q2 units. 
B)  Q3 units. 
C)  Q4 units. 
D)  zero units. 
A)  Q2 units. 
B)  Q3 units. 
C)  Q4 units. 
D)  zero units.

Question 15

If a perfectly competitive firm achieves productive efficiency then

Accepted Answer

A)  it will raise its price in order to earn an economic profit. 
B)  the price of the good it sells is equal to the benefit consumers receive from consuming the last unit of the good sold. 
C)  it is producing at minimum efficient scale. 
D)  it is producing the good it sells at the lowest possible cost. 
A)  it will raise its price in order to earn an economic profit. 
B)  the price of the good it sells is equal to the benefit consumers receive from consuming the last unit of the good sold. 
C)  it is producing at minimum efficient scale. 
D)  it is producing the good it sells at the lowest possible cost.

Question 16

Assume that the 4K and OLED television sets industry is perfectly competitive. Suppose a producer develops a successful innovation that enables it to lower its cost of production. What happens in the short run and in the long run?

Accepted Answer

A)  Initially, the firm will be able to increase its profit significantly, but in the long run its profits will still be greater than zero but lower than its short-run profits because other firms would also innovate. 
B)  The firm will probably incur losses temporarily because of the high cost of the innovation, but in the long run it will start earning positive profits. 
C)  This firm will be able to earn above normal profits indefinitely if it obtains a patent for its innovation. 
D)  The firm will be able to increase its economic profits temporarily, but in the long run its economic profits will be eliminated as other firms copy the innovation. 
A)  Initially, the firm will be able to increase its profit significantly, but in the long run its profits will still be greater than zero but lower than its short-run profits because other firms would also innovate. 
B)  The firm will probably incur losses temporarily because of the high cost of the innovation, but in the long run it will start earning positive profits. 
C)  This firm will be able to earn above normal profits indefinitely if it obtains a patent for its innovation. 
D)  The firm will be able to increase its economic profits temporarily, but in the long run its economic profits will be eliminated as other firms copy the innovation.

Exam 12: Firms in Perfectly Competitive Markets

Figure 12-2 -Refer to Figure 12-2. What happens if the firm produces more than Q4 units?

Why are individual buyers and sellers in perfect competition called price takers?

A perfectly competitive firm's short-run supply curve is

For a perfectly competitive firm, average revenue equals marginal cost at the profit-maximizing output.

Ted's Pancake Kitchen suffers a short-run loss. When should Ted decide to shut down rather than continue to produce?

In the short run, a firm that incurs losses might choose to produce rather than shut down if the amount of its revenue is less than its fixed cost.

A perfectly competitive firm in a constant-cost industry produces 3,000 units of a good at a total cost of $36,000. The prevailing market price is $15. What will happen to the number of firms in the industry and to the industry's output in the long run?

Assume that the personal computer industry is perfectly competitive. The fact that the price of personal computers over the last decade has fallen despite increases in demand signifies that the industry is a decreasing-cost industry.

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. Jason is currently producing 20 thousand pounds of apples. To maximize his profit Jason should

In a graph that illustrates a perfectly competitive firm, the marginal revenue curve is

Firms in perfect competition produce the allocatively efficient output in the short run and in the long run.

Figure 12-9 Figure 12-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. -Refer to Figure 12-9. At price P2, the firm would produce

If a perfectly competitive firm achieves productive efficiency then

Assume that the 4K and OLED television sets industry is perfectly competitive. Suppose a producer develops a successful innovation that enables it to lower its cost of production. What happens in the short run and in the long run?

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 happens if the firm produces more than Q₄units?

Figure 12-9 Figure 12-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. -Refer to Figure 12-9. At price P₂, the firm would produce