Question 1

What is allocative efficiency?

Accepted Answer

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

Question 2

In perfect competition

Accepted Answer

A)  the market demand curve and the individual's demand curve are identical. 
B)  the market demand curve is perfectly inelastic while demand for an individual seller's product is perfectly elastic. 
C)  the market demand curve is perfectly elastic while demand for an individual seller's product is perfectly inelastic. 
D)  the market demand curve is downward sloping while demand for an individual seller's product is perfectly elastic. 
A)  the market demand curve and the individual's demand curve are identical. 
B)  the market demand curve is perfectly inelastic while demand for an individual seller's product is perfectly elastic. 
C)  the market demand curve is perfectly elastic while demand for an individual seller's product is perfectly inelastic. 
D)  the market demand curve is downward sloping while demand for an individual seller's product is perfectly elastic.

Question 3

If, in a perfectly competitive industry, the market price facing a firm is above its average total cost at the output where marginal revenue equals marginal cost, then

Accepted Answer

A)  firms are breaking even. 
B)  new firms are attracted to the industry. 
C)  existing firms will exit the industry. 
D)  market supply will remain constant. 
A)  firms are breaking even. 
B)  new firms are attracted to the industry. 
C)  existing firms will exit the industry. 
D)  market supply will remain constant.

Question 4

Figure 12-16  
-Refer to Figure 12-16. Which panel best represents the perfectly competitive organic produce market in which some firms are experiencing short-run losses, and consumers are displaying an increased preference for organic produce?

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 5

If a firm shuts down, it

Accepted Answer

A)  will suffer a loss equal to its fixed costs. 
B)  will produce nothing but must pay its variable costs. 
C)  will produce nothing but must pay its fixed and variable costs. 
D)  will earn enough revenue to cover its variable costs but not all of its fixed costs. 
A)  will suffer a loss equal to its fixed costs. 
B)  will produce nothing but must pay its variable costs. 
C)  will produce nothing but must pay its fixed and variable costs. 
D)  will earn enough revenue to cover its variable costs but not all of its fixed costs.

Question 6

Figure 12-8  
-Refer to Figure 12-8. Suppose the market price is $120. Which of the following is true?

Accepted Answer

A)  The firm earns a profit equal to the area A. 
B)  The firm earns a profit equal to the area A + B. 
C)  The firm suffers a loss equal to the area A. 
D)  The firm will break even. 
A)  The firm earns a profit equal to the area A. 
B)  The firm earns a profit equal to the area A + B. 
C)  The firm suffers a loss equal to the area A. 
D)  The firm will break even.

Question 7

The demand curve for an individual seller's product in perfect competition is

Accepted Answer

A)  the same as market demand. 
B)  downward sloping. 
C)  vertical. 
D)  horizontal. 
A)  the same as market demand. 
B)  downward sloping. 
C)  vertical. 
D)  horizontal.

Question 8

A constant-cost, perfectly competitive market is in long-run equilibrium. At present, there are 1,000 firms each producing 400 units of output. The price of the good is $60. Now suppose there is a sudden increase in demand for the industry's product which causes the price of the good to rise to $64. In the new long-run equilibrium, how will the average total cost of producing the good compare to what it was before the price of the good rose?

Accepted Answer

A)  The average total cost will be higher than it was before the price increase since the increase in demand will drive up input prices. 
B)  The average total cost will be lower than it was before the price increase because of economies of scale. 
C)  The average total cost will be higher than it was before the price increase because of diseconomies of scale arising from the increased demand. 
D)  The average total cost will be the lower than it was before the price increase as output increases. 
A)  The average total cost will be higher than it was before the price increase since the increase in demand will drive up input prices. 
B)  The average total cost will be lower than it was before the price increase because of economies of scale. 
C)  The average total cost will be higher than it was before the price increase because of diseconomies of scale arising from the increased demand. 
D)  The average total cost will be the lower than it was before the price increase as output increases.

Question 9

Figure 12-1  
-Refer to Figure 12-1. If the firm is charging a price of $12 per unit

Accepted Answer

A)  it breaks even. 
B)  it is making a profit. 
C)  it is selling 700 units. 
D)  it is not selling any output. 
A)  it breaks even. 
B)  it is making a profit. 
C)  it is selling 700 units. 
D)  it is not selling any output.

Question 10

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

Accepted Answer

A)  There are a very large number of firms that are small compared to the market. 
B)  All firms sell identical products. 
C)  There are no restrictions to entry by new firms. 
D)  There are restrictions on exit of firms. 
A)  There are a very large number of firms that are small compared to the market. 
B)  All firms sell identical products. 
C)  There are no restrictions to entry by new firms. 
D)  There are restrictions on exit of firms.

Question 11

Firms in perfectly competitive industries are unable to control the prices of the products they sell and earn a profit in the long run. Which of the following is one reason for this?

Accepted Answer

A)  Owners of perfectly competitive firms realize that their short-run profits are temporary. Therefore, they either sell their businesses or develop other products that will earn short-run profits. 
B)  Firms in perfectly competitive industries can use advertising in the short run to persuade consumers that their products are better than those of other firms. But eventually consumers realize that all of the firms sell virtually identical products. 
C)  Firms from other countries are able to produce similar products at lower costs. 
D)  Firms in these industries sell identical products. 
A)  Owners of perfectly competitive firms realize that their short-run profits are temporary. Therefore, they either sell their businesses or develop other products that will earn short-run profits. 
B)  Firms in perfectly competitive industries can use advertising in the short run to persuade consumers that their products are better than those of other firms. But eventually consumers realize that all of the firms sell virtually identical products. 
C)  Firms from other countries are able to produce similar products at lower costs. 
D)  Firms in these industries sell identical products.

Question 12

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 and if the firm is producing output, what is the amount of its total variable cost?

Accepted Answer

A)  $7,200 
B)  $6,480 
C)  $5,400 
D)  $3,960 
A)  $7,200 
B)  $6,480 
C)  $5,400 
D)  $3,960

Question 13

If a perfectly competitive firm raises the price it charges to consumers, which of the following is the most likely outcome?

Accepted Answer

A)  The firm's revenue will not change because some consumers will refuse to pay the higher price. 
B)  The firm will not sell any output. 
C)  The firm's total revenue will increase only if the demand for its product is inelastic. 
D)  The firm's total revenue will increase only if the demand for its product is elastic. 
A)  The firm's revenue will not change because some consumers will refuse to pay the higher price. 
B)  The firm will not sell any output. 
C)  The firm's total revenue will increase only if the demand for its product is inelastic. 
D)  The firm's total revenue will increase only if the demand for its product is elastic.

Question 14

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. The firm will not produce in the short run if the output price falls below

Accepted Answer

A)  $8. 
B)  $4. 
C)  $3.20. 
D)  $2.80. 
A)  $8. 
B)  $4. 
C)  $3.20. 
D)  $2.80.

Question 15

A teenaged babysitter is similar to a firm in a perfectly competitive industry in that, for both

Accepted Answer

A)  fixed costs are lower than variable costs. 
B)  there are many other suppliers of similar goods or services. 
C)  the implicit costs of production exceed the explicit costs of production. 
D)  average costs of production do not change when their industry expands. 
A)  fixed costs are lower than variable costs. 
B)  there are many other suppliers of similar goods or services. 
C)  the implicit costs of production exceed the explicit costs of production. 
D)  average costs of production do not change when their industry expands.

Question 16

Which of the following does not hold true for a perfectly competitive firm in long-run equilibrium?

Accepted Answer

A)  Its economic profit will be zero. 
B)  It will minimize average total cost. 
C)  It will charge a price equal to marginal cost. 
D)  Marginal cost will be minimized. 
A)  Its economic profit will be zero. 
B)  It will minimize average total cost. 
C)  It will charge a price equal to marginal cost. 
D)  Marginal cost will be minimized.

Question 17

Being a price taker, a perfectly competitive firm cannot receive a producer surplus in the short run.

Accepted Answer

A) True 
 B)False

Question 18

Mark Frost grows apples in a perfectly competitive market. If we drew a line in a graph that illustrates Mark's total revenue from selling apples, it would be

Accepted Answer

A)  a straight, upward-sloping line. 
B)  a horizontal line. 
C)  a straight, downward-sloping line. 
D)  a curve that is negatively sloped at low levels of output and positively sloped at higher levels of output. 
A)  a straight, upward-sloping line. 
B)  a horizontal line. 
C)  a straight, downward-sloping line. 
D)  a curve that is negatively sloped at low levels of output and positively sloped at higher levels of output.

Question 19

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. How many pounds of apples should Margie sell to maximize her profit?

Accepted Answer

A)  300 pounds 
B)  400 pounds 
C)  This cannot be determined without knowing Margie's total or marginal production costs. 
D)  This can be determined only when all of the values for market price, total revenue, average revenue and marginal revenue are given. 
A)  300 pounds 
B)  400 pounds 
C)  This cannot be determined without knowing Margie's total or marginal production costs. 
D)  This can be determined only when all of the values for market price, total revenue, average revenue and marginal revenue are given.

Question 20

If total variable cost exceeds total revenue at all output levels, a perfectly competitive firm

Accepted Answer

A)  should produce in the short run. 
B)  is making short-run profits. 
C)  should shut down in the short run. 
D)  has covered its fixed cost. 
A)  should produce in the short run. 
B)  is making short-run profits. 
C)  should shut down in the short run. 
D)  has covered its fixed cost.

Exam 12: Firms in Perfectly Competitive Markets

What is allocative efficiency?

In perfect competition

If, in a perfectly competitive industry, the market price facing a firm is above its average total cost at the output where marginal revenue equals marginal cost, then

Figure 12-16 -Refer to Figure 12-16. Which panel best represents the perfectly competitive organic produce market in which some firms are experiencing short-run losses, and consumers are displaying an increased preference for organic produce?

If a firm shuts down, it

Figure 12-8 -Refer to Figure 12-8. Suppose the market price is $120. Which of the following is true?

The demand curve for an individual seller's product in perfect competition is

Figure 12-1 -Refer to Figure 12-1. If the firm is charging a price of $12 per unit

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

Firms in perfectly competitive industries are unable to control the prices of the products they sell and earn a profit in the long run. Which of the following is one reason for this?

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 and if the firm is producing output, what is the amount of its total variable cost?

If a perfectly competitive firm raises the price it charges to consumers, which of the following is the most likely outcome?

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. The firm will not produce in the short run if the output price falls below

A teenaged babysitter is similar to a firm in a perfectly competitive industry in that, for both

Which of the following does not hold true for a perfectly competitive firm in long-run equilibrium?

Being a price taker, a perfectly competitive firm cannot receive a producer surplus in the short run.

Mark Frost grows apples in a perfectly competitive market. If we drew a line in a graph that illustrates Mark's total revenue from selling apples, it would be

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. How many pounds of apples should Margie sell to maximize her profit?

If total variable cost exceeds total revenue at all output levels, a perfectly competitive firm

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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