Question 1

Figure 12-1  
-Refer to Figure 12-1. If the firm is producing 500 units, what is the amount of its profit or loss?

Accepted Answer

A)  profit of $280 
B)  loss equivalent to the area A 
C)  profit equivalent to the area A 
D)  There is insufficient information to answer the question. 
A)  profit of $280 
B)  loss equivalent to the area A 
C)  profit equivalent to the area A 
D)  There is insufficient information to answer the question.

Question 2

The market demand curve in a perfectly competitive market is downward sloping.

Accepted Answer

A) True 
 B)False

Question 3

Perfect competition is characterized by all of the following except

Accepted Answer

A)  heavy advertising by individual sellers. 
B)  homogeneous products. 
C)  sellers are price takers. 
D)  a horizontal demand curve for individual sellers. 
A)  heavy advertising by individual sellers. 
B)  homogeneous products. 
C)  sellers are price takers. 
D)  a horizontal demand curve for individual sellers.

Question 4

If the market price is $40 in a perfectly competitive market, the marginal revenue from selling the fifth unit is

Accepted Answer

A)  $8. 
B)  $20. 
C)  $40. 
D)  $200. 
A)  $8. 
B)  $20. 
C)  $40. 
D)  $200.

Question 5

Figure 12-3  
-Refer to Figure 12-3. Suppose the prevailing price is P1 and the firm is currently producing its loss-minimizing quantity. Identify the area that represents the loss.

Accepted Answer

A)  P2 deP1 
B)  P3cbP1 
C)  P3caP0 
D)  0P1 bQ1 
A)  P2 deP1 
B)  P3cbP1 
C)  P3caP0 
D)  0P1 bQ1

Question 6

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 make a profit when

Accepted Answer

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

Question 7

Figure 12-7   Figure 12-7 illustrates the cost curves of a perfectly competitive firm.
-Refer to Figure 12-7. If the market price is P2 the firm

Accepted Answer

A)  will break even and produce a quantity of Q2. 
B)  will make a profit and produce a quantity of Q2. 
C)  will make a profit and produce a quantity of Q1. 
D)  will make a profit and produce a quantity of Q3. 
A)  will break even and produce a quantity of Q2. 
B)  will make a profit and produce a quantity of Q2. 
C)  will make a profit and produce a quantity of Q1. 
D)  will make a profit and produce a quantity of Q3.

Question 8

For a firm in a perfectly competitive market, price is

Accepted Answer

A)  equal to both average revenue and marginal revenue. 
B)  equal to average revenue but greater than marginal revenue. 
C)  greater than marginal revenue but less than average revenue. 
D)  less than both average revenue and marginal revenue. 
A)  equal to both average revenue and marginal revenue. 
B)  equal to average revenue but greater than marginal revenue. 
C)  greater than marginal revenue but less than average revenue. 
D)  less than both average revenue and marginal revenue.

Question 9

The supply curve of a perfectly competitive firm in the short run is

Accepted Answer

A)  the firm's average variable cost curve. 
B)  the portion of the firm's marginal cost curve below the minimum point of the average variable cost curve. 
C)  the portion of the firm's marginal cost curve above the minimum point of the average variable cost curve. 
D)  the portion of the firm's marginal cost curve above the minimum point of the average total cost curve. 
A)  the firm's average variable cost curve. 
B)  the portion of the firm's marginal cost curve below the minimum point of the average variable cost curve. 
C)  the portion of the firm's marginal cost curve above the minimum point of the average variable cost curve. 
D)  the portion of the firm's marginal cost curve above the minimum point of the average total cost curve.

Question 10

If, for the last bushel of apples produced and sold by an apple farm, marginal revenue exceeds marginal cost, then in producing that bushel the farm

Accepted Answer

A)  added more to total cost than it added to total revenue. 
B)  added an equal amount to both total revenue and total cost. 
C)  added more to total revenue than it added to total cost. 
D)  maximized its profits or minimized its losses. 
A)  added more to total cost than it added to total revenue. 
B)  added an equal amount to both total revenue and total cost. 
C)  added more to total revenue than it added to total cost. 
D)  maximized its profits or minimized its losses.

Question 11

Assume that the medical screening industry is perfectly competitive. Consider a typical firm that is making short-run losses. Suppose the medical screening industry runs an effective advertising campaign which convinces a large number of people that yearly CT scans are critical for good health. How will this affect a typical firm that remains in the industry?

Accepted Answer

A)  The firm's supply curve shifts right and its marginal revenue curve shifts upwards as the market price rises and ultimately the firm starts making profits. 
B)  The firm's marginal revenue curve and average cost curve shift upwards in response to the increase in market price and advertising expenditure. The firm increases output until it starts breaking even. 
C)  The marginal revenue curve shifts upwards, the firm's output increases along its marginal cost curve, it expands production and eventually starts making profits. 
D)  The marginal revenue curve shifts upwards, the firm's output increases along its marginal cost curve, it expands production until it breaks even. 
A)  The firm's supply curve shifts right and its marginal revenue curve shifts upwards as the market price rises and ultimately the firm starts making profits. 
B)  The firm's marginal revenue curve and average cost curve shift upwards in response to the increase in market price and advertising expenditure. The firm increases output until it starts breaking even. 
C)  The marginal revenue curve shifts upwards, the firm's output increases along its marginal cost curve, it expands production and eventually starts making profits. 
D)  The marginal revenue curve shifts upwards, the firm's output increases along its marginal cost curve, it expands production until it breaks even.

Question 12

In the long run, a firm in a perfectly competitive industry will supply output only if its total revenue covers its

Accepted Answer

A)  explicit costs plus its implicit costs. 
B)  fixed costs. 
C)  implicit costs. 
D)  explicit costs. 
A)  explicit costs plus its implicit costs. 
B)  fixed costs. 
C)  implicit costs. 
D)  explicit costs.

Question 13

Figure 12-1  
-Refer to Figure 12-1. If the firm is producing 200 units

Accepted Answer

A)  it breaks even. 
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 breaks even. 
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 14

In analyzing the decision to shut down in the short run we assume that the firm's fixed costs are

Accepted Answer

A)  implicit costs. 
B)  capital costs. 
C)  nonmonetary opportunity costs. 
D)  sunk costs. 
A)  implicit costs. 
B)  capital costs. 
C)  nonmonetary opportunity costs. 
D)  sunk costs.

Question 15

The short-run supply curve for a perfectly competitive firm is that part of the firm's marginal cost curve that lies above the minimum point of its average variable cost curve.

Accepted Answer

A) True 
 B)False

Question 16

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 short-run shut down point for the firm.

Accepted Answer

A)  a 
B)  b 
C)  c 
D)  d 
A)  a 
B)  b 
C)  c 
D)  d

Question 17

If productive efficiency characterizes a market

Accepted Answer

A)  the marginal cost of production is minimized. 
B)  firms produce the goods that consumers desire most. 
C)  the output is being produced at the lowest possible cost. 
D)  firms use the best technology available to produce the good. 
A)  the marginal cost of production is minimized. 
B)  firms produce the goods that consumers desire most. 
C)  the output is being produced at the lowest possible cost. 
D)  firms use the best technology available to produce the good.

Question 18

A very large number of small sellers who sell identical products imply

Accepted Answer

A)  a multitude of vastly different selling prices. 
B)  a downward sloping demand curve for each seller's product. 
C)  the inability of one seller to influence the price. 
D)  chaos in the market. 
A)  a multitude of vastly different selling prices. 
B)  a downward sloping demand curve for each seller's product. 
C)  the inability of one seller to influence the price. 
D)  chaos in the market.

Question 19

Assuming a market price of $4, fill in the columns in the following table. What is the profit-maximizing level of production? What are the two ways to determine the profit-maximizing level of production?

Accepted Answer

@#IMG-DLM& The profit-maximizing level of producti

Question 20

A wheat farmer and a firm in a perfectly competitive market are similar in that

Accepted Answer

A)  both face vertical demand curves. 
B)  both have to lower their prices if a rival firm lowers its price. 
C)  both face horizontal demand curves. 
D)  both will earn an economic profit if their total revenue equals their total cost. 
A)  both face vertical demand curves. 
B)  both have to lower their prices if a rival firm lowers its price. 
C)  both face horizontal demand curves. 
D)  both will earn an economic profit if their total revenue equals their total cost.

Exam 12: Firms in Perfectly Competitive Markets

Figure 12-1 -Refer to Figure 12-1. If the firm is producing 500 units, what is the amount of its profit or loss?

The market demand curve in a perfectly competitive market is downward sloping.

Perfect competition is characterized by all of the following except

If the market price is $40 in a perfectly competitive market, the marginal revenue from selling the fifth unit is

Figure 12-3 -Refer to Figure 12-3. Suppose the prevailing price is P1 and the firm is currently producing its loss-minimizing quantity. Identify the area that represents the loss.

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 make a profit when

Figure 12-7 Figure 12-7 illustrates the cost curves of a perfectly competitive firm. -Refer to Figure 12-7. If the market price is P2 the firm

For a firm in a perfectly competitive market, price is

The supply curve of a perfectly competitive firm in the short run is

If, for the last bushel of apples produced and sold by an apple farm, marginal revenue exceeds marginal cost, then in producing that bushel the farm

In the long run, a firm in a perfectly competitive industry will supply output only if its total revenue covers its

Figure 12-1 -Refer to Figure 12-1. If the firm is producing 200 units

In analyzing the decision to shut down in the short run we assume that the firm's fixed costs are

The short-run supply curve for a perfectly competitive firm is that part of the firm's marginal cost curve that lies above the minimum point of its average variable cost curve.

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 short-run shut down point for the firm.

If productive efficiency characterizes a market

A very large number of small sellers who sell identical products imply

Assuming a market price of $4, fill in the columns in the following table. What is the profit-maximizing level of production? What are the two ways to determine the profit-maximizing level of production?

A wheat farmer and a firm in a perfectly competitive market are similar in that

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 12-3 -Refer to Figure 12-3. Suppose the prevailing price is P₁ and the firm is currently producing its loss-minimizing quantity. Identify the area that represents the loss.

Figure 12-7 Figure 12-7 illustrates the cost curves of a perfectly competitive firm. -Refer to Figure 12-7. If the market price is P₂the firm