Question 1

Figure 12-2  
-Refer to Figure 12-2. Suppose the firm is currently producing Q2 units. What happens if it expands output to Q3 units?

Accepted Answer

A)  Its profit increases by the size of the vertical distance df. 
B)  It makes less profit. 
C)  It incurs a loss. 
D)  It will be moving toward its profit maximizing output. 
A)  Its profit increases by the size of the vertical distance df. 
B)  It makes less profit. 
C)  It incurs a loss. 
D)  It will be moving toward its profit maximizing output.

Question 2

An industry's long-run supply curve shows

Accepted Answer

A)  the relationship in the long run between market price and quantity supplied. 
B)  how the government determines the price of the product. 
C)  how average productivity is changing. 
D)  greater than normal profit. 
A)  the relationship in the long run between market price and quantity supplied. 
B)  how the government determines the price of the product. 
C)  how average productivity is changing. 
D)  greater than normal profit.

Question 3

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, the firm's profit-maximizing output level is

Accepted Answer

A)  0. 
B)  130. 
C)  180. 
D)  240. 
A)  0. 
B)  130. 
C)  180. 
D)  240.

Question 4

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 P4, the firm would produce

Accepted Answer

A)  Q3 units. 
B)  Q4 units. 
C)  Q5 units. 
D)  Q6 units. 
A)  Q3 units. 
B)  Q4 units. 
C)  Q5 units. 
D)  Q6 units.

Question 5

In long-run competitive equilibrium, the perfectly competitive firm produces where price equals minimum average total cost.
a. What is this efficiency criterion called?
b. How does it benefit consumers?

Accepted Answer

a. Productive efficiency
b. Productive e

Question 6

If, for a perfectly competitive firm, price exceeds the marginal cost of production, the firm should

Accepted Answer

A)  increase its output. 
B)  reduce its output. 
C)  keep output constant and enjoy the above normal profit. 
D)  lower the price. 
A)  increase its output. 
B)  reduce its output. 
C)  keep output constant and enjoy the above normal profit. 
D)  lower the price.

Question 7

Which of the following is not an option for a perfectly competitive firm that suffers short-run losses?

Accepted Answer

A)  shutting down 
B)  reducing production 
C)  reducing the use of variable factors 
D)  raising the price 
A)  shutting down 
B)  reducing production 
C)  reducing the use of variable factors 
D)  raising the price

Question 8

The minimum point on the average variable cost curve is called

Accepted Answer

A)  the shutdown point. 
B)  the break-even point. 
C)  the loss-minimizing point. 
D)  the point of diminishing returns. 
A)  the shutdown point. 
B)  the break-even point. 
C)  the loss-minimizing point. 
D)  the point of diminishing returns.

Question 9

A firm would decide to shut down if its production resulted in

Accepted Answer

A) MR AVC. C) AFC > AVC. D) MR < AVC. A) MR AVC. C) AFC > AVC. D) MR < AVC.

Question 10

After an increase in demand in a constant-cost industry, firms will find themselves with higher average cost curves.

Accepted Answer

A) True 
 B)False

Question 11

Perfectly competitive firms produce up to the point where the price of the good equals the marginal cost of producing the last unit. This condition is referred to as

Accepted Answer

A)  productive efficiency. 
B)  constant returns to scale. 
C)  allocative efficiency. 
D)  perfectly competitive efficiency. 
A)  productive efficiency. 
B)  constant returns to scale. 
C)  allocative efficiency. 
D)  perfectly competitive efficiency.

Question 12

The long-run supply curve for a perfectly competitive, constant-cost industry

Accepted Answer

A)  is upward-sloping. 
B)  is horizontal. 
C)  is downward-sloping. 
D)  is found by adding up the marginal cost curves for all firms in the industry. 
A)  is upward-sloping. 
B)  is horizontal. 
C)  is downward-sloping. 
D)  is found by adding up the marginal cost curves for all firms in the industry.

Question 13

If in a perfectly competitive market, firms are facing a price below their average total cost but above average variable cost at the profit maximizing output, then

Accepted Answer

A)  the industry supply will not change. 
B)  new firms are attracted to the industry. 
C)  some existing firms will exit the industry. 
D)  firms are breaking even. 
A)  the industry supply will not change. 
B)  new firms are attracted to the industry. 
C)  some existing firms will exit the industry. 
D)  firms are breaking even.

Question 14

Which of the following describes a difference between allocative efficiency and productive efficiency in a perfectly competitive market?

Accepted Answer

A)  Allocative efficiency is achieved only in the long run. Productive efficiency is achieved only in the short run. 
B)  Allocative efficiency is achieved only in the long run. Productive efficiency is achieved in the short run and the long run. 
C)  Allocative efficiency is achieved only in the short run. Productive efficiency is achieved only in the long run. 
D)  Allocative efficiency is achieved in the short run and the long run. Productive efficiency is achieved only in the long run. 
A)  Allocative efficiency is achieved only in the long run. Productive efficiency is achieved only in the short run. 
B)  Allocative efficiency is achieved only in the long run. Productive efficiency is achieved in the short run and the long run. 
C)  Allocative efficiency is achieved only in the short run. Productive efficiency is achieved only in the long run. 
D)  Allocative efficiency is achieved in the short run and the long run. Productive efficiency is achieved only in the long run.

Question 15

If a firm in a perfectly competitive industry experiences persistent losses, in the long run it should

Accepted Answer

A)  shut down temporarily and wait for market conditions to change. 
B)  exit the industry. 
C)  raise its price to cover average total cost. 
D)  continue to operate if it can raise the demand for its product through advertising and quality improvements. 
A)  shut down temporarily and wait for market conditions to change. 
B)  exit the industry. 
C)  raise its price to cover average total cost. 
D)  continue to operate if it can raise the demand for its product through advertising and quality improvements.

Question 16

If, for the last unit of a good produced by a perfectly competitive firm, MR > MC, then in producing it, the firm

Accepted Answer

A)  added more to total costs than it added to total revenue. 
B)  added more to total revenue than it added to total cost. 
C)  is maximizing marginal profit. 
D)  has minimized its losses. 
A)  added more to total costs than it added to total revenue. 
B)  added more to total revenue than it added to total cost. 
C)  is maximizing marginal profit. 
D)  has minimized its losses.

Question 17

If firms do not earn economic profits in a competitive equilibrium, then why would the firms choose to stay in business?

Accepted Answer

When firms earn no economic profit but e

Question 18

Figure 12-13  
-Refer to Figure 12-13. Suppose the prevailing price is P1 and the firm is currently producing its loss-minimizing quantity. In the long-run equilibrium

Accepted Answer

A)  there will be fewer firms in the industry and total industry output decreases. 
B)  there will be more firms in the industry and total industry output increases. 
C)  there will be fewer firms in the industry but total industry output increases. 
D)  there will be more firms in the industry and total industry output remains constant. 
A)  there will be fewer firms in the industry and total industry output decreases. 
B)  there will be more firms in the industry and total industry output increases. 
C)  there will be fewer firms in the industry but total industry output increases. 
D)  there will be more firms in the industry and total industry output remains constant.

Question 19

A perfectly competitive firm in a constant-cost industry produces 1,000 units of a good at a total cost of $50,000. If the prevailing market price is $48, the number of firms and the industry's output will decrease in the long run.

Accepted Answer

A) True 
 B)False

Question 20

Figure 12-2  
-Refer to Figure 12-2. The firm breaks even at an output level of

Accepted Answer

A)  Q1 units. 
B)  Q2 units. 
C)  Q3 units. 
D)  Q4 units. 
A)  Q1 units. 
B)  Q2 units. 
C)  Q3 units. 
D)  Q4 units.

Exam 12: Firms in Perfectly Competitive Markets

Figure 12-2 -Refer to Figure 12-2. Suppose the firm is currently producing Q2 units. What happens if it expands output to Q3 units?

An industry's long-run supply curve shows

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, the firm's profit-maximizing output level is

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 P4, the firm would produce

In long-run competitive equilibrium, the perfectly competitive firm produces where price equals minimum average total cost. a. What is this efficiency criterion called? b. How does it benefit consumers?

If, for a perfectly competitive firm, price exceeds the marginal cost of production, the firm should

Which of the following is not an option for a perfectly competitive firm that suffers short-run losses?

The minimum point on the average variable cost curve is called

A firm would decide to shut down if its production resulted in

After an increase in demand in a constant-cost industry, firms will find themselves with higher average cost curves.

Perfectly competitive firms produce up to the point where the price of the good equals the marginal cost of producing the last unit. This condition is referred to as

The long-run supply curve for a perfectly competitive, constant-cost industry

If in a perfectly competitive market, firms are facing a price below their average total cost but above average variable cost at the profit maximizing output, then

Which of the following describes a difference between allocative efficiency and productive efficiency in a perfectly competitive market?

If a firm in a perfectly competitive industry experiences persistent losses, in the long run it should

If, for the last unit of a good produced by a perfectly competitive firm, MR > MC, then in producing it, the firm

If firms do not earn economic profits in a competitive equilibrium, then why would the firms choose to stay in business?

Figure 12-13 -Refer to Figure 12-13. Suppose the prevailing price is P1 and the firm is currently producing its loss-minimizing quantity. In the long-run equilibrium

A perfectly competitive firm in a constant-cost industry produces 1,000 units of a good at a total cost of $50,000. If the prevailing market price is $48, the number of firms and the industry's output will decrease in the long run.

Figure 12-2 -Refer to Figure 12-2. The firm breaks even at an output level of

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. Suppose the firm is currently producing Q₂units. What happens if it expands output to Q₃units?

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 P₄, the firm would produce

Figure 12-13 -Refer to Figure 12-13. Suppose the prevailing price is P₁ and the firm is currently producing its loss-minimizing quantity. In the long-run equilibrium