Question 1

Both buyers and sellers are price takers in a perfectly competitive market because

Accepted Answer

A)  the price is determined by government intervention and dictated to buyers and sellers. 
B)  each buyer and seller knows it is illegal to conspire to affect price. 
C)  both buyers and sellers in a perfectly competitive market are concerned for the welfare of others. 
D)  each buyer and seller is too small relative to others to independently affect the market price. 
A)  the price is determined by government intervention and dictated to buyers and sellers. 
B)  each buyer and seller knows it is illegal to conspire to affect price. 
C)  both buyers and sellers in a perfectly competitive market are concerned for the welfare of others. 
D)  each buyer and seller is too small relative to others to independently affect the market price.

Question 2

Firms in perfect competition produce the productively efficient output level in the short run and in the long run.

Accepted Answer

A) True 
 B)False

Question 3

The price of a seller's product in perfect competition is determined by

Accepted Answer

A)  the individual seller. 
B)  a few of the sellers. 
C)  market demand and market supply. 
D)  the individual demander. 
A)  the individual seller. 
B)  a few of the sellers. 
C)  market demand and market supply. 
D)  the individual demander.

Question 4

What is meant by productive efficiency? How does a perfectly competitive firm achieve productive efficiency?

Accepted Answer

Productive efficiency refers to the situ

Question 5

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. Suppose the fixed cost of production rises by $500 and the price per unit is still $8. What happens to the firm's profit-maximizing output level?

Accepted Answer

A)  It must fall. 
B)  It must rise to offset the increased cost. 
C)  It will remain the same. 
D)  The firm will shut down. 
A)  It must fall. 
B)  It must rise to offset the increased cost. 
C)  It will remain the same. 
D)  The firm will shut down.

Question 6

Figure 12-15  
-Refer to Figure 12-15. Suppose a typical firm in a perfectly competitive market is earning economic profits in the short run. Which of the diagrams in the figure depicts what happens in the industry as it transitions to a long-run equilibrium?

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 7

What is meant by the term "long-run competitive equilibrium?

Accepted Answer

Long-run competitive equilibri

Question 8

If a firm in a perfectly competitive industry introduces a lower-cost way of producing an existing product, the firm will be able to earn economic profits in the long run.

Accepted Answer

A) True 
 B)False

Question 9

For a perfectly competitive firm, average revenue is equal to

Accepted Answer

A)  marginal cost. 
B)  the market price. 
C)  total revenue. 
D)  average fixed cost. 
A)  marginal cost. 
B)  the market price. 
C)  total revenue. 
D)  average fixed cost.

Question 10

Figure 12-2  
-Refer to Figure 12-2. Why is the total revenue curve a ray from the origin?

Accepted Answer

A)  because revenue increases at an increasing rate 
B)  because revenue increases at a decreasing rate 
C)  because the firm can sell its product at a constant price 
D)  because the firm must lower its price to sell more 
A)  because revenue increases at an increasing rate 
B)  because revenue increases at a decreasing rate 
C)  because the firm can sell its product at a constant price 
D)  because the firm must lower its price to sell more

Question 11

In early 2007, Pioneer and JVC, two Japanese electronics firms, each announced that their profits were going to be lower than expected because they both had to cut prices for LCD and plasma television sets. Which of the following could explain why these firms did not simply raise their prices and increase their profits?

Accepted Answer

A)  The move to cut prices is probably just a temporary one to gain market share. In the long run the firms will raise prices and be able to increase their profits. 
B)  Most likely, intense competition between these two major producers probably pushed prices down. Thereafter, each feared that it would lose its customers to the other if it raised its prices. 
C)  In perfect competition, prices are determined by the market and firms will keep lowering prices until there are no profits to be earned. 
D)  The firms are still making profits, just not as high as expected so there is room to lower prices until one can force the other out of business. 
A)  The move to cut prices is probably just a temporary one to gain market share. In the long run the firms will raise prices and be able to increase their profits. 
B)  Most likely, intense competition between these two major producers probably pushed prices down. Thereafter, each feared that it would lose its customers to the other if it raised its prices. 
C)  In perfect competition, prices are determined by the market and firms will keep lowering prices until there are no profits to be earned. 
D)  The firms are still making profits, just not as high as expected so there is room to lower prices until one can force the other out of business.

Question 12

Suppose the equilibrium price in a perfectly competitive industry is $15 and a firm in the industry charges $21. Which of the following will happen?

Accepted Answer

A)  The firm's profits will increase. 
B)  The firm's revenue will increase. 
C)  The firm will not sell any output. 
D)  The firm will sell more output than its competitors. 
A)  The firm's profits will increase. 
B)  The firm's revenue will increase. 
C)  The firm will not sell any output. 
D)  The firm will sell more output than its competitors.

Question 13

If a perfectly competitive apple farm's marginal revenue exceeds the marginal cost of the last bushel of apples sold, what should the farm do to maximize its profit?

Accepted Answer

A)  determine what the total revenue and total cost of production are 
B)  increase output 
C)  decrease output 
D)  lower its price to sell more 
A)  determine what the total revenue and total cost of production are 
B)  increase output 
C)  decrease output 
D)  lower its price to sell more

Question 14

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 P3, the firm would produce

Accepted Answer

A)  Q2 units 
B)  Q3 units. 
C)  Q4 units. 
D)  Q5 units. 
A)  Q2 units 
B)  Q3 units. 
C)  Q4 units. 
D)  Q5 units.

Question 15

Which of the following is a characteristic of a monopoly?

Accepted Answer

A)  It is easy for new firms to enter the market. 
B)  There is only one seller in the market. 
C)  The product is not unique. 
D)  The firm has no control over price. 
A)  It is easy for new firms to enter the market. 
B)  There is only one seller in the market. 
C)  The product is not unique. 
D)  The firm has no control over price.

Question 16

How are sunk costs and fixed costs related?

Accepted Answer

A)  They are not related in any way. 
B)  Sunk costs cannot be recovered and fixed costs can be avoided by shutting down. 
C)  In the short run they are equal to each other. 
D)  In the long run they are equal to each other. 
A)  They are not related in any way. 
B)  Sunk costs cannot be recovered and fixed costs can be avoided by shutting down. 
C)  In the short run they are equal to each other. 
D)  In the long run they are equal to each other.

Question 17

In the long run, the entry of new firms in an industry

Accepted Answer

A)  harms consumers by forcing prices up above the level of average cost 
B)  benefits consumers by forcing prices down to the level of total cost. 
C)  harms consumers by forcing prices up above the level of total cost 
D)  benefits consumers by forcing prices down to the level of average cost. 
A)  harms consumers by forcing prices up above the level of average cost 
B)  benefits consumers by forcing prices down to the level of total cost. 
C)  harms consumers by forcing prices up above the level of total cost 
D)  benefits consumers by forcing prices down to the level of average cost.

Question 18

The demand curve for each seller's product in perfect competition is horizontal at the market price because

Accepted Answer

A)  each seller is too small to affect the market price. 
B)  the price is set by the government. 
C)  all the sellers get together and set the price. 
D)  all the demanders get together and set the price. 
A)  each seller is too small to affect the market price. 
B)  the price is set by the government. 
C)  all the sellers get together and set the price. 
D)  all the demanders get together and set the price.

Question 19

If a perfectly competitive firm's price is less than its average total cost but greater than its average variable cost, the firm

Accepted Answer

A)  is earning a profit. 
B)  should shut down. 
C)  is incurring a loss. 
D)  is breaking even. 
A)  is earning a profit. 
B)  should shut down. 
C)  is incurring a loss. 
D)  is breaking even.

Question 20

Which of the following is a characteristic of an oligopolistic market structure?

Accepted Answer

A)  There are few dominant sellers. 
B)  Each firm sells a unique product. 
C)  It is easy for new firms to enter the industry. 
D)  Each firm need not react to the actions of rivals. 
A)  There are few dominant sellers. 
B)  Each firm sells a unique product. 
C)  It is easy for new firms to enter the industry. 
D)  Each firm need not react to the actions of rivals.

Exam 12: Firms in Perfectly Competitive Markets

Both buyers and sellers are price takers in a perfectly competitive market because

Firms in perfect competition produce the productively efficient output level in the short run and in the long run.

The price of a seller's product in perfect competition is determined by

What is meant by productive efficiency? How does a perfectly competitive firm achieve productive efficiency?

Figure 12-15 -Refer to Figure 12-15. Suppose a typical firm in a perfectly competitive market is earning economic profits in the short run. Which of the diagrams in the figure depicts what happens in the industry as it transitions to a long-run equilibrium?

What is meant by the term "long-run competitive equilibrium?

If a firm in a perfectly competitive industry introduces a lower-cost way of producing an existing product, the firm will be able to earn economic profits in the long run.

For a perfectly competitive firm, average revenue is equal to

Figure 12-2 -Refer to Figure 12-2. Why is the total revenue curve a ray from the origin?

Suppose the equilibrium price in a perfectly competitive industry is $15 and a firm in the industry charges $21. Which of the following will happen?

If a perfectly competitive apple farm's marginal revenue exceeds the marginal cost of the last bushel of apples sold, what should the farm do to maximize its profit?

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 P3, the firm would produce

Which of the following is a characteristic of a monopoly?

How are sunk costs and fixed costs related?

In the long run, the entry of new firms in an industry

The demand curve for each seller's product in perfect competition is horizontal at the market price because

If a perfectly competitive firm's price is less than its average total cost but greater than its average variable cost, the firm

Which of the following is a characteristic of an oligopolistic market structure?

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 P₃, the firm would produce