Question 1

If a firm in perfect competition sells 10 units of output at $5 per unit, its marginal revenue is:

Accepted Answer

A)  $5. 
B)  more than $5 but less than $50. 
C)  $50. 
D)  $250. 
A)  $5. 
B)  more than $5 but less than $50. 
C)  $50. 
D)  $250.

Question 2

Suppose that the market for haircuts in a community is perfectly competitive and that the market is initially in long-run equilibrium. Subsequently, an increase in population increases the demand for haircuts. In the short run, the typical firm is likely to:

Accepted Answer

A)  earn an economic profit. 
B)  incur an economic loss. 
C)  have no change in its economic profit. 
D)  have neither an economic profit nor an economic loss. 
A)  earn an economic profit. 
B)  incur an economic loss. 
C)  have no change in its economic profit. 
D)  have neither an economic profit nor an economic loss.

Question 3

Use the following to answer questions:
Figure: The Profit-Maximizing Firm in the Short Run  
-(Figure: The Profit-Maximizing Firm in the Short Run) Look at the figure The Profit-Maximizing Firm in the Short Run. If the market price is less than P2, the firm will _____ in the short run.

Accepted Answer

A)  produce q1 and break even 
B)  produce q1 and incur a loss 
C)  shut down 
D)  produce q3 and make a profit 
A)  produce q1 and break even 
B)  produce q1 and incur a loss 
C)  shut down 
D)  produce q3 and make a profit

Question 4

The assumptions of perfect competition imply that:

Accepted Answer

A)  individuals in the market accept the market price as given. 
B)  individuals can influence the market price. 
C)  the price will be fair. 
D)  the price will be high. 
A)  individuals in the market accept the market price as given. 
B)  individuals can influence the market price. 
C)  the price will be fair. 
D)  the price will be high.

Question 5

The assumptions of perfect competition imply that:

Accepted Answer

A)  individuals in the market determine the market price. 
B)  firms in the market accept the market price as given. 
C)  there will be no new competition due to natural monopolies. 
D)  the price will be decreasing yearly. 
A)  individuals in the market determine the market price. 
B)  firms in the market accept the market price as given. 
C)  there will be no new competition due to natural monopolies. 
D)  the price will be decreasing yearly.

Question 6

Perfect competition is characterized by:

Accepted Answer

A)  rivalry in advertising. 
B)  fierce quality competition. 
C)  the inability of any one firm to influence price. 
D)  widely recognized brands. 
A)  rivalry in advertising. 
B)  fierce quality competition. 
C)  the inability of any one firm to influence price. 
D)  widely recognized brands.

Question 7

A perfectly competitive tomato industry is in long-run equilibrium. Now suppose that some consumers are getting sick by eating tomatoes that contain salmonella. Describe how this change will affect short-run economic profits. What will happen to the number of tomato growers in the long run? How will price and output in this industry adjust in the long run?

Accepted Answer

In long-run equilibrium, price equals av

Question 8

If a perfectly competitive firm is producing a quantity where P > MC, then the firm can increase profit by:

Accepted Answer

A)  making no change in output or price because it is already maximizing profit. 
B)  increasing the price. 
C)  decreasing the price. 
D)  increasing production. 
A)  making no change in output or price because it is already maximizing profit. 
B)  increasing the price. 
C)  decreasing the price. 
D)  increasing production.

Question 9

Use the following to answer questions:  
-(Table: Variable Costs for Lots) Look at the table Variable Costs for Lots. During the winter, Alexa runs a snow-clearing service in a perfectly competitive industry. Assume that costs are constant in each interval; that is, the variable cost of clearing anywhere from 1 through 10 lots is $200. Her only fixed cost is $1,000 for a snowplow. Her variable costs include fuel, her time, and hot coffee. At what price does Alexa' s short-run supply curve start?

Accepted Answer

A)  $200 
B)  $15 
C)  $50 
D)  $42 
A)  $200 
B)  $15 
C)  $50 
D)  $42

Question 10

Suppose that the market for haircuts in a community is a perfectly competitive constant-cost industry and that the market is initially in long-run equilibrium. Subsequently, an increase in population increases the demand for haircuts. In the long run, firms will _____ the market, driving the price of haircuts _____ and the profits of individual firms _____.

Accepted Answer

A)  enter; up; back to zero 
B)  enter; down; back to zero 
C)  leave; up; up 
D)  leave; up; back to zero 
A)  enter; up; back to zero 
B)  enter; down; back to zero 
C)  leave; up; up 
D)  leave; up; back to zero

Question 11

Maximizing profits also means that a firm is attempting to:

Accepted Answer

A)  make as much output as possible. 
B)  change the market price. 
C)  produce at the output level where the difference between total revenue and total cost is the greatest. 
D)  produce below its break-even price. 
A)  make as much output as possible. 
B)  change the market price. 
C)  produce at the output level where the difference between total revenue and total cost is the greatest. 
D)  produce below its break-even price.

Question 12

Use the following to answer questions:
Figure: A Perfectly Competitive Firm in the Short Run  
-(Figure: A Perfectly Competitive Firm in the Short Run) Look at the figure A Perfectly Competitive Firm in the Short Run. If the market price is G, the firm's total cost of producing its most profitable level of output is:

Accepted Answer

A)  BS. 
B)  DK. 
C)  0FKD. 
D)  0ESB. 
A)  BS. 
B)  DK. 
C)  0FKD. 
D)  0ESB.

Question 13

Use the following to answer questions:
Figure: The Profit-Maximizing Firm in the Short Run  
-(Figure: The Profit-Maximizing Firm in the Short Run) Look at the figure The Profit-Maximizing Firm in the Short Run. If the market price is P4, marginal revenue:

Accepted Answer

A)  and price are the same. 
B)  is less than P4. 
C)  is greater than P4. 
D)  and price are unrelated. 
A)  and price are the same. 
B)  is less than P4. 
C)  is greater than P4. 
D)  and price are unrelated.

Question 14

Use the following to answer questions:  
-(Table: Variable Costs for Lawns) Look at the table Variable Costs for Lawns. During the summer, Alex runs a lawn-mowing service, and lawn-mowing is a perfectly competitive industry. Assume that costs are constant in each interval; that is, the variable cost of mowing 1 through 10 lawns is $100. His only fixed cost is $1,000 for the mower. His variable costs include fuel, his time, and mower parts. If the price for mowing a lawn is $60, how much is Alex's profit at the profit-maximizing output?

Accepted Answer

A)  $10 
B)  $2,400 
C)  $300 
D)  $2,100 
A)  $10 
B)  $2,400 
C)  $300 
D)  $2,100

Question 15

Suppose that the market for candy canes operates under conditions of perfect competition, that it is initially in long-run equilibrium, that the price of each candy cane is $0.10, and that the market demand curve is downward-sloping. The price of sugar rises, increasing the marginal and average total costs of producing candy canes by $0.05. In the short run a typical producer of candy canes will be making:

Accepted Answer

A)  an economic profit. 
B)  zero economic profit. 
C)  negative economic profit. 
D)  The answer is impossible to determine from the information given. 
A)  an economic profit. 
B)  zero economic profit. 
C)  negative economic profit. 
D)  The answer is impossible to determine from the information given.

Question 16

If the price is less than the average variable cost at the quantity of output where MR = MC, in the short run a perfectly competitive firm will:

Accepted Answer

A)  produce at a loss. 
B)  produce at a profit. 
C)  shut down production. 
D)  produce more than the profit-maximizing quantity. 
A)  produce at a loss. 
B)  produce at a profit. 
C)  shut down production. 
D)  produce more than the profit-maximizing quantity.

Question 17

Use the following to answer questions:
Figure: Revenues, Costs, and Profits for Tomato Producers III  
-(Figure: Revenues, Costs, and Profits for Tomato Producers III) Look at the figure Revenues, Costs, and Profits for Tomato Producers III. The market for tomatoes is perfectly competitive. If the market price of a bushel of tomatoes is $12, in the short run this farm will:

Accepted Answer

A)  minimize its losses by shutting down. 
B)  minimize its losses by continuing to produce. 
C)  break even. 
D)  earn an economic profit. 
A)  minimize its losses by shutting down. 
B)  minimize its losses by continuing to produce. 
C)  break even. 
D)  earn an economic profit.

Question 18

In perfectly competitive long-run equilibrium:

Accepted Answer

A)  all firms make positive economic profits. 
B)  all firms produce at the minimum point of their average total cost curves. 
C)  the industry supply curve must be upward-sloping. 
D)  all firms face the same price, but the value of marginal cost will vary directly with firm size. 
A)  all firms make positive economic profits. 
B)  all firms produce at the minimum point of their average total cost curves. 
C)  the industry supply curve must be upward-sloping. 
D)  all firms face the same price, but the value of marginal cost will vary directly with firm size.

Question 19

Many furniture stores run "going out of business" sales but never go out of business. For the shut-down decision to be the appropriate one, the price of furniture must be _____ than the _____ average variable cost.

Accepted Answer

A)  higher; maximum 
B)  lower; minimum 
C)  higher; minimum 
D)  lower; maximum 
A)  higher; maximum 
B)  lower; minimum 
C)  higher; minimum 
D)  lower; maximum

Question 20

Consider a perfectly competitive firm in the short run. Assume the firm produces the profit-maximizing output and earns economic profits. Which statement is FALSE?

Accepted Answer

A)  Price is equal to marginal cost. 
B)  Price is equal to marginal revenue. 
C)  Price is equal to average total cost. 
D)  Marginal cost is greater than average total cost. 
A)  Price is equal to marginal cost. 
B)  Price is equal to marginal revenue. 
C)  Price is equal to average total cost. 
D)  Marginal cost is greater than average total cost.

If a firm in perfect competition sells 10 units of output at $5 per unit, its marginal revenue is:

Suppose that the market for haircuts in a community is perfectly competitive and that the market is initially in long-run equilibrium. Subsequently, an increase in population increases the demand for haircuts. In the short run, the typical firm is likely to:

Use the following to answer questions: Figure: The Profit-Maximizing Firm in the Short Run -(Figure: The Profit-Maximizing Firm in the Short Run) Look at the figure The Profit-Maximizing Firm in the Short Run. If the market price is less than P₂, the firm will _____ in the short run.

The assumptions of perfect competition imply that:

The assumptions of perfect competition imply that:

Perfect competition is characterized by:

If a perfectly competitive firm is producing a quantity where P > MC, then the firm can increase profit by:

Maximizing profits also means that a firm is attempting to:

Use the following to answer questions: Figure: The Profit-Maximizing Firm in the Short Run -(Figure: The Profit-Maximizing Firm in the Short Run) Look at the figure The Profit-Maximizing Firm in the Short Run. If the market price is P₄, marginal revenue:

If the price is less than the average variable cost at the quantity of output where MR = MC, in the short run a perfectly competitive firm will:

In perfectly competitive long-run equilibrium:

Many furniture stores run "going out of business" sales but never go out of business. For the shut-down decision to be the appropriate one, the price of furniture must be _ than the _ average variable cost.

Consider a perfectly competitive firm in the short run. Assume the firm produces the profit-maximizing output and earns economic profits. Which statement is FALSE?

First Principles

Economic Models: Trade-Offs and Trade 25

Supply and Demand

Consumer and Producer Surplus

Price Controls and Quotas: Meddling With Markets

Elasticity

Taxes

International Trade

Decision Making by Individuals Firms

The Rational Consumer

Behind the Supply Curve: Inputs and Costs

Monopoly

Oligopoly

Monopolistic Competition and Product Differentiation

Externalities

Public Goods Common Resources

The Economics of the Welfare

Factor Markets and the Distribution of Income

Uncertainty, Risk, and Private Information

Filters

Exam 12: Perfect Competition and the Supply Curve

If a firm in perfect competition sells 10 units of output at $5 per unit, its marginal revenue is:

Suppose that the market for haircuts in a community is perfectly competitive and that the market is initially in long-run equilibrium. Subsequently, an increase in population increases the demand for haircuts. In the short run, the typical firm is likely to:

Use the following to answer questions: Figure: The Profit-Maximizing Firm in the Short Run -(Figure: The Profit-Maximizing Firm in the Short Run) Look at the figure The Profit-Maximizing Firm in the Short Run. If the market price is less than P2, the firm will _____ in the short run.

The assumptions of perfect competition imply that:

The assumptions of perfect competition imply that:

Perfect competition is characterized by:

If a perfectly competitive firm is producing a quantity where P > MC, then the firm can increase profit by:

Maximizing profits also means that a firm is attempting to:

Use the following to answer questions: Figure: The Profit-Maximizing Firm in the Short Run -(Figure: The Profit-Maximizing Firm in the Short Run) Look at the figure The Profit-Maximizing Firm in the Short Run. If the market price is P4, marginal revenue:

If the price is less than the average variable cost at the quantity of output where MR = MC, in the short run a perfectly competitive firm will:

In perfectly competitive long-run equilibrium:

Many furniture stores run "going out of business" sales but never go out of business. For the shut-down decision to be the appropriate one, the price of furniture must be _____ than the _____ average variable cost.

Consider a perfectly competitive firm in the short run. Assume the firm produces the profit-maximizing output and earns economic profits. Which statement is FALSE?

First Principles

Economic Models: Trade-Offs and Trade 25

Supply and Demand

Consumer and Producer Surplus

Price Controls and Quotas: Meddling With Markets

Elasticity

Taxes

International Trade

Decision Making by Individuals Firms

The Rational Consumer

Behind the Supply Curve: Inputs and Costs

Monopoly

Oligopoly

Monopolistic Competition and Product Differentiation

Externalities

Public Goods Common Resources

The Economics of the Welfare

Factor Markets and the Distribution of Income

Uncertainty, Risk, and Private Information

Filters

Use the following to answer questions: Figure: The Profit-Maximizing Firm in the Short Run -(Figure: The Profit-Maximizing Firm in the Short Run) Look at the figure The Profit-Maximizing Firm in the Short Run. If the market price is less than P₂, the firm will _____ in the short run.

Use the following to answer questions: Figure: The Profit-Maximizing Firm in the Short Run -(Figure: The Profit-Maximizing Firm in the Short Run) Look at the figure The Profit-Maximizing Firm in the Short Run. If the market price is P₄, marginal revenue:

Many furniture stores run "going out of business" sales but never go out of business. For the shut-down decision to be the appropriate one, the price of furniture must be _ than the _ average variable cost.