Question 1

A firm's total profit can be calculated as all of the following except

Accepted Answer

A)  total revenue minus total cost. 
B)  average profit per unit times quantity sold. 
C)  (price minus average total cost) times quantity sold. 
D)  marginal profit times quantity sold. 
A)  total revenue minus total cost. 
B)  average profit per unit times quantity sold. 
C)  (price minus average total cost) times quantity sold. 
D)  marginal profit times quantity sold.

Question 2

In the short run, a profit-maximizing firm will shut down if its total revenue is greater than its variable costs.

Accepted Answer

A) True 
 B)False

Question 3

In a decreasing-cost industry, the entry of new firms lowers average cost at each level of output.

Accepted Answer

A) True 
 B)False

Question 4

A perfectly competitive firm will maximize its profit at the level of output where the vertical distance between its total revenue curve and total cost curve is the largest. This is the same level of output where

Accepted Answer

A)  average total cost equals marginal revenue. 
B)  marginal revenue equals marginal profit. 
C)  marginal revenue equals marginal cost. 
D)  marginal revenue equals average revenue. 
A)  average total cost equals marginal revenue. 
B)  marginal revenue equals marginal profit. 
C)  marginal revenue equals marginal cost. 
D)  marginal revenue equals average revenue.

Question 5

In the mid-1990s, cattle ranchers in the United States kept raising cattle even though prices were at a ten-year low and below average total cost. What is the likely explanation for this?

Accepted Answer

A)  Continuing to operate resulted in smaller losses than would have been incurred by shutting down. 
B)  The ranchers were hoping to receive government subsidies. 
C)  The exit costs were too high. 
D)  Cattle is an important source of protein and its production is essential for the United States. 
A)  Continuing to operate resulted in smaller losses than would have been incurred by shutting down. 
B)  The ranchers were hoping to receive government subsidies. 
C)  The exit costs were too high. 
D)  Cattle is an important source of protein and its production is essential for the United States.

Question 6

Assume that firms in a perfectly competitive market are earning economic profits. Which of the following statements describes the change in market price and output as a result of the entry of new firms into this market?

Accepted Answer

A)  The market demand curve shifts to the right, causing price to rise and market output to increase. 
B)  The market demand curve shifts to the left, causing price to fall and market output to decrease. 
C)  The short-run market supply curve shifts to the right, causing price to fall and total market output to increase. 
D)  The short-run market supply curve shifts to the left, causing price to rise and total market output to decrease. 
A)  The market demand curve shifts to the right, causing price to rise and market output to increase. 
B)  The market demand curve shifts to the left, causing price to fall and market output to decrease. 
C)  The short-run market supply curve shifts to the right, causing price to fall and total market output to increase. 
D)  The short-run market supply curve shifts to the left, causing price to rise and total market output to decrease.

Question 7

Figure 12-15  
-Refer to Figure 12-15. Assume that the medical screening industry is perfectly competitive and that some firms are 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. Which of the diagrams in the figure best describes what happens in the industry?

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 8

In a graph with output on the horizontal axis and total revenue on the vertical axis, what is the shape of the total revenue curve for a perfectly competitive seller?

Accepted Answer

A)  U-shaped 
B)  inverted U-shaped 
C)  a horizontal line 
D)  a ray from the origin 
A)  U-shaped 
B)  inverted U-shaped 
C)  a horizontal line 
D)  a ray from the origin

Question 9

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. Which of the following statements is true?

Accepted Answer

A)  Jason should produce where MC equals $3 (point d) where he will minimize his losses. 
B)  Jason should produce where the distance between MC and his demand curve is greatest (point b). 
C)  Jason cannot earn a profit from selling any number of apples. 
D)  Jason should produce where MC equals $3 (point d) where he will maximize his profit. 
A)  Jason should produce where MC equals $3 (point d) where he will minimize his losses. 
B)  Jason should produce where the distance between MC and his demand curve is greatest (point b). 
C)  Jason cannot earn a profit from selling any number of apples. 
D)  Jason should produce where MC equals $3 (point d) where he will maximize his profit.

Question 10

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 the firm is producing output, what is the amount of the firm's profit or loss?

Accepted Answer

A)  loss of $1,080 
B)  profit of $1,440 
C)  loss of $2,520 
D)  profit of $1,300 
A)  loss of $1,080 
B)  profit of $1,440 
C)  loss of $2,520 
D)  profit of $1,300

Question 11

Assume that price is greater than average variable cost. If a perfectly competitive seller is producing at an output where price is $11 and the marginal cost is $14.54, then to maximize profits the firm should

Accepted Answer

A)  continue producing at the current output. 
B)  produce a larger level of output. 
C)  produce a smaller level of output. 
D)  There is not enough information given to answer the question. 
A)  continue producing at the current output. 
B)  produce a larger level of output. 
C)  produce a smaller level of output. 
D)  There is not enough information given to answer the question.

Question 12

Figure 12-16  
-Refer to Figure 12-16. Which panel best represents the perfectly competitive organic produce market in which firms are breaking even, economically, organic produce is considered a normal good, and the average income level of consumers is rising?

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 13

A perfectly competitive wheat farmer in a constant-cost industry produces 3,000 bushels of wheat at a total cost of $36,000. The prevailing market price is $15. What will happen to the market price of wheat in the long run?

Accepted Answer

A)  The price remains constant at $15. 
B)  The price falls to $12. 
C)  The price rises above $15. 
D)  There is insufficient information to answer the question. 
A)  The price remains constant at $15. 
B)  The price falls to $12. 
C)  The price rises above $15. 
D)  There is insufficient information to answer the question.

Question 14

Which of the following offers the best reason why restaurants are not considered to be perfectly competitive firms?

Accepted Answer

A)  Restaurants do not sell identical products. 
B)  Restaurants compete in small market areas-neighborhoods and cities-rather than in regional or national markets. Therefore, restaurants are not small relative to their market size. 
C)  Restaurants usually have entry barriers in the form of zoning restrictions and health regulations. 
D)  Restaurants have significant liability costs that perfectly competitive firms do not have; for example, customers may sue if they suffer from food poisoning. 
A)  Restaurants do not sell identical products. 
B)  Restaurants compete in small market areas-neighborhoods and cities-rather than in regional or national markets. Therefore, restaurants are not small relative to their market size. 
C)  Restaurants usually have entry barriers in the form of zoning restrictions and health regulations. 
D)  Restaurants have significant liability costs that perfectly competitive firms do not have; for example, customers may sue if they suffer from food poisoning.

Question 15

In a perfectly competitive market the term "price taker" applies to

Accepted Answer

A)  sellers and buyers. 
B)  sellers but not buyers. 
C)  buyers but not sellers. 
D)  only the smallest sellers and buyers. 
A)  sellers and buyers. 
B)  sellers but not buyers. 
C)  buyers but not sellers. 
D)  only the smallest sellers and buyers.

Question 16

Hogrocket, which developed the Tiny Invaders game for the iPhone, found that to maintain sales in a profitable competitive market, the price of a product

Accepted Answer

A)  will usually rise. 
B)  will usually fall. 
C)  will usually remain stable. 
D)  will eventually fall to zero. 
A)  will usually rise. 
B)  will usually fall. 
C)  will usually remain stable. 
D)  will eventually fall to zero.

Question 17

Which of the following statements is true?

Accepted Answer

A)  A long-run competitive equilibrium can only be achieved in constant-cost industries. 
B)  When an industry achieves a long-run competitive equilibrium, industry output will not change in the future. 
C)  A long-run competitive equilibrium outcome is not economically efficient. 
D)  When an industry reaches a long-run competitive equilibrium, the typical firm in the industry breaks even. 
A)  A long-run competitive equilibrium can only be achieved in constant-cost industries. 
B)  When an industry achieves a long-run competitive equilibrium, industry output will not change in the future. 
C)  A long-run competitive equilibrium outcome is not economically efficient. 
D)  When an industry reaches a long-run competitive equilibrium, the typical firm in the industry breaks even.

Question 18

In the long run, perfectly competitive firms earn zero economic profit. Why do firms enter an industry when they know that in the long-run they will not earn any profit?

Accepted Answer

Even though in the long run firms earn z

Question 19

Article Summary
According to the Department of Agriculture, net farm income in 2017 will rise from $61.5 billion in 2016 to $63.4 billion in 2017, a modest 3.1 percent increase but also the first increase since 2013. Much of the increase came from the sales of grain inventory, along with increased revenue from milk and livestock. The net income for 2017 is still only about half of its peak level, and according to agricultural economist David Widmar, income closer to $72 billion would be a sign of an improving farm economy.

-Refer to the Article Summary. Assume that the increase in net farm income in 2017 was a result of average total cost falling from being equal to the market price to slightly below the market price at the output level where marginal cost equals marginal revenue. This indicates that the market went from

Accepted Answer

A)  breaking even to earning a profit. 
B)  suffering a loss to breaking even. 
C)  suffering a loss to earning a profit. 
D)  earning a profit to suffering a loss. 
A)  breaking even to earning a profit. 
B)  suffering a loss to breaking even. 
C)  suffering a loss to earning a profit. 
D)  earning a profit to suffering a loss.

Question 20

If in the long run a firm makes zero economic profit, it should exit the industry.

Accepted Answer

A) True 
 B)False

Exam 12: Firms in Perfectly Competitive Markets

A firm's total profit can be calculated as all of the following except

In the short run, a profit-maximizing firm will shut down if its total revenue is greater than its variable costs.

In a decreasing-cost industry, the entry of new firms lowers average cost at each level of output.

A perfectly competitive firm will maximize its profit at the level of output where the vertical distance between its total revenue curve and total cost curve is the largest. This is the same level of output where

In the mid-1990s, cattle ranchers in the United States kept raising cattle even though prices were at a ten-year low and below average total cost. What is the likely explanation for this?

Assume that firms in a perfectly competitive market are earning economic profits. Which of the following statements describes the change in market price and output as a result of the entry of new firms into this market?

In a graph with output on the horizontal axis and total revenue on the vertical axis, what is the shape of the total revenue curve for a perfectly competitive seller?

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. Which of the following statements is true?

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 the firm is producing output, what is the amount of the firm's profit or loss?

Assume that price is greater than average variable cost. If a perfectly competitive seller is producing at an output where price is $11 and the marginal cost is $14.54, then to maximize profits the firm should

Figure 12-16 -Refer to Figure 12-16. Which panel best represents the perfectly competitive organic produce market in which firms are breaking even, economically, organic produce is considered a normal good, and the average income level of consumers is rising?

A perfectly competitive wheat farmer in a constant-cost industry produces 3,000 bushels of wheat at a total cost of $36,000. The prevailing market price is $15. What will happen to the market price of wheat in the long run?

Which of the following offers the best reason why restaurants are not considered to be perfectly competitive firms?

In a perfectly competitive market the term "price taker" applies to

Hogrocket, which developed the Tiny Invaders game for the iPhone, found that to maintain sales in a profitable competitive market, the price of a product

Which of the following statements is true?

In the long run, perfectly competitive firms earn zero economic profit. Why do firms enter an industry when they know that in the long-run they will not earn any profit?

If in the long run a firm makes zero economic profit, it should exit the industry.

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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