Question 1

Figure 12-10  
-Refer to Figure 12-10. The total cost at the profit-maximizing output level equals

Accepted Answer

A)  $4,800. 
B)  $3,300. 
C)  $2,500. 
D)  $1,800. 
A)  $4,800. 
B)  $3,300. 
C)  $2,500. 
D)  $1,800.

Question 2

The perfectly competitive market structure benefits consumers because

Accepted Answer

A)  firms do not produce goods at the lowest possible price in the long run. 
B)  firms are forced by competitive pressure to be as efficient as possible. 
C)  firms add a much smaller markup over average cost than firms in any other type of market structure. 
D)  firms produce high-quality goods at low prices. 
A)  firms do not produce goods at the lowest possible price in the long run. 
B)  firms are forced by competitive pressure to be as efficient as possible. 
C)  firms add a much smaller markup over average cost than firms in any other type of market structure. 
D)  firms produce high-quality goods at low prices.

Question 3

What is always true at the quantity where a firm's average total cost equals average revenue?

Accepted Answer

A)  The firm's revenue is maximized. 
B)  The firm's profit is maximized. 
C)  The firm breaks even. 
D)  Marginal cost equals marginal revenue. 
A)  The firm's revenue is maximized. 
B)  The firm's profit is maximized. 
C)  The firm breaks even. 
D)  Marginal cost equals marginal revenue.

Question 4

Figure 12-1  
-Refer to Figure 12-1. If the firm is producing 500 units

Accepted Answer

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

Question 5

To maximize profit, a perfectly competitive firm

Accepted Answer

A)  should sell the quantity of output determined by the interaction between industry demand and supply. 
B)  should sell the quantity of output that results in a value for total revenue that is equal to total cost. 
C)  should produce the quantity of output that results in the greatest difference between total revenue and total cost. 
D)  should produce the quantity of output that results in the greatest difference between marginal revenue and marginal cost. 
A)  should sell the quantity of output determined by the interaction between industry demand and supply. 
B)  should sell the quantity of output that results in a value for total revenue that is equal to total cost. 
C)  should produce the quantity of output that results in the greatest difference between total revenue and total cost. 
D)  should produce the quantity of output that results in the greatest difference between marginal revenue and marginal cost.

Question 6

A perfectly competitive firm in long-run equilibrium produces output at the lowest possible average total cost.

Accepted Answer

A) True 
 B)False

Question 7

Writing in the New York Times on the technology boom of the late 1990s, Michael Lewis argues, "The sad truth, for investors, seems to be that most of the benefits of new technologies are passed right through to consumers free of charge." What does Lewis means by the benefits of new technology being "passed right through to consumers free of charge"?

Accepted Answer

A)  Firms in perfect competition are price takers. Since they cannot influence price, they cannot dictate who benefits from new technologies, even if the benefits of new technology are being "passed right through to consumers free of charge." 
B)  In perfect competition, price equals marginal cost of production. In this sense, consumers receive the new technology "free of charge." 
C)  In the long run, price equals the lowest possible average cost of production. In this sense, consumers receive the new technology "free of charge." 
D)  In perfect competition, consumers place a value on the good equal to its marginal cost of production and since they are willing to pay the marginal valuation of the good, they are essentially receiving the new technology "free of charge." 
A)  Firms in perfect competition are price takers. Since they cannot influence price, they cannot dictate who benefits from new technologies, even if the benefits of new technology are being "passed right through to consumers free of charge." 
B)  In perfect competition, price equals marginal cost of production. In this sense, consumers receive the new technology "free of charge." 
C)  In the long run, price equals the lowest possible average cost of production. In this sense, consumers receive the new technology "free of charge." 
D)  In perfect competition, consumers place a value on the good equal to its marginal cost of production and since they are willing to pay the marginal valuation of the good, they are essentially receiving the new technology "free of charge."

Question 8

Use a graph to show the demand, AVC, ATC, MC, and MR curves of a firm that should temporarily shut down in the short run. Identify the shutdown point on the graph.

Accepted Answer

The answer of Use a graph to show the demand,...

Question 9

If a firm shuts down in the short run

Accepted Answer

A)  its loss equals zero. 
B)  its loss equals its fixed cost. 
C)  is makes zero economic profit. 
D)  its total revenue is not large enough to cover its fixed cost. 
A)  its loss equals zero. 
B)  its loss equals its fixed cost. 
C)  is makes zero economic profit. 
D)  its total revenue is not large enough to cover its fixed cost.

Question 10

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. To maximize his profit, Jason should produce the level of output indicated by point

Accepted Answer

A)  a. 
B)  b. 
C)  e. 
D)  d. 
A)  a. 
B)  b. 
C)  e. 
D)  d.

Question 11

A perfectly competitive firm's supply curve is its

Accepted Answer

A)  marginal cost curve. 
B)  marginal cost curve above its minimum average total cost. 
C)  marginal cost curve above its minimum average variable cost. 
D)  marginal cost curve above its minimum average fixed cost. 
A)  marginal cost curve. 
B)  marginal cost curve above its minimum average total cost. 
C)  marginal cost curve above its minimum average variable cost. 
D)  marginal cost curve above its minimum average fixed cost.

Question 12

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

Accepted Answer

A)  lose an amount equal to its fixed cost. 
B)  make a profit. 
C)  lose an amount less than fixed cost. 
D)  shut down. 
A)  lose an amount equal to its fixed cost. 
B)  make a profit. 
C)  lose an amount less than fixed cost. 
D)  shut down.

Question 13

If a typical firm in a perfectly competitive industry is earning profits, then

Accepted Answer

A)  all firms will continue to earn profits. 
B)  new firms will enter in the long run causing market supply to decrease, market price to rise, and profits to increase. 
C)  new firms will enter in the long run causing market supply to increase, market price to fall, and profits to decrease. 
D)  the number of firms in the industry will remain constant in the long run. 
A)  all firms will continue to earn profits. 
B)  new firms will enter in the long run causing market supply to decrease, market price to rise, and profits to increase. 
C)  new firms will enter in the long run causing market supply to increase, market price to fall, and profits to decrease. 
D)  the number of firms in the industry will remain constant in the long run.

Question 14

In the short run, a firm might choose to produce rather than shut down even if its market price is less than its average total cost of production.

Accepted Answer

A) True 
 B)False

Question 15

Explain two different ways to determine the profit-maximizing level of output for a firm in a perfectly competitive market.

Accepted Answer

One way is using total revenue and total

Question 16

If a typical firm in a perfectly competitive industry is incurring losses, then

Accepted Answer

A)  all firms will continue to lose money. 
B)  some firms will exit in the long run, causing market supply to decrease and market price to rise, increasing profits for the remaining firms. 
C)  some firms will exit in the long run, causing market supply to decrease and market price to fall, increasing losses for the remaining firms. 
D)  some firms will enter in the long run, causing market supply to increase and market price to rise, increasing profit for all firms. 
A)  all firms will continue to lose money. 
B)  some firms will exit in the long run, causing market supply to decrease and market price to rise, increasing profits for the remaining firms. 
C)  some firms will exit in the long run, causing market supply to decrease and market price to fall, increasing losses for the remaining firms. 
D)  some firms will enter in the long run, causing market supply to increase and market price to rise, increasing profit for all firms.

Question 17

Figure 12-9   Figure 12-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm.
-Refer to Figure 12-9. Identify the firm's short-run supply curve.

Accepted Answer

A)  the marginal cost curve 
B)  the marginal cost curve from a and above 
C)  the marginal cost curve from b and above 
D)  the marginal cost curve from d and above 
A)  the marginal cost curve 
B)  the marginal cost curve from a and above 
C)  the marginal cost curve from b and above 
D)  the marginal cost curve from d and above

Question 18

Allocative efficiency is achieved in an industry when firms supply those goods and services that provide consumers with a marginal benefit equal to the marginal cost of producing those goods and services.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following describes a situation in which a good or service is produced at the lowest possible cost?

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 20

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).
-A firm will break even when

Accepted Answer

A) P = ATC. B) P > ATC. C) P < AVC. D) P = AVC. A) P = ATC. B) P > ATC. C) P < AVC. D) P = AVC.

Exam 12: Firms in Perfectly Competitive Markets

Figure 12-10 -Refer to Figure 12-10. The total cost at the profit-maximizing output level equals

The perfectly competitive market structure benefits consumers because

What is always true at the quantity where a firm's average total cost equals average revenue?

Figure 12-1 -Refer to Figure 12-1. If the firm is producing 500 units

To maximize profit, a perfectly competitive firm

A perfectly competitive firm in long-run equilibrium produces output at the lowest possible average total cost.

Use a graph to show the demand, AVC, ATC, MC, and MR curves of a firm that should temporarily shut down in the short run. Identify the shutdown point on the graph.

If a firm shuts down in the short run

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. To maximize his profit, Jason should produce the level of output indicated by point

A perfectly competitive firm's supply curve is its

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

If a typical firm in a perfectly competitive industry is earning profits, then

In the short run, a firm might choose to produce rather than shut down even if its market price is less than its average total cost of production.

Explain two different ways to determine the profit-maximizing level of output for a firm in a perfectly competitive market.

If a typical firm in a perfectly competitive industry is incurring losses, then

Figure 12-9 Figure 12-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. -Refer to Figure 12-9. Identify the firm's short-run supply curve.

Allocative efficiency is achieved in an industry when firms supply those goods and services that provide consumers with a marginal benefit equal to the marginal cost of producing those goods and services.

Which of the following describes a situation in which a good or service is produced at the lowest possible cost?

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). -A firm will break even when

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 12-9 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