Question 1

The market demand curve in a perfectly competitive industry is horizontal, while the demand curve faced by an individual perfectly competitive firm is downward sloping.

Accepted Answer

A) True 
 B)False  False

Question 2

What is marginal revenue for a perfectly competitive firm equal to?

Accepted Answer

A)  the addition to total cost from producing one more unit of output 
B)  marginal cost at all levels of output 
C)  average total cost at all levels of output 
D)  average revenue at all levels of output 
A)  the addition to total cost from producing one more unit of output 
B)  marginal cost at all levels of output 
C)  average total cost at all levels of output 
D)  average revenue at all levels of output D

Question 3

If a profit-maximizing firm finds that price exceeds average variable cost and marginal cost is greater than marginal revenue, what action should it take?

Accepted Answer

A)  reduce output, but continue producing in the short run 
B)  shut down 
C)  increase output 
D)  not alter its production level, since it is earning a profit 
A)  reduce output, but continue producing in the short run 
B)  shut down 
C)  increase output 
D)  not alter its production level, since it is earning a profit A

Question 4

In long-run equilibrium, at what output level does a perfectly competitive firm produce?

Accepted Answer

A)  where short-run variable cost is minimized 
B)  where total revenue is maximized 
C)  where long-run marginal cost is minimized 
D)  where average total cost is minimized 
A)  where short-run variable cost is minimized 
B)  where total revenue is maximized 
C)  where long-run marginal cost is minimized 
D)  where average total cost is minimized

Question 5

FIGURE 8-8
  
-Refer to Figure 8-8. When should the firm shut down?

Accepted Answer

A)  if the market price falls below $10 
B)  if the market price falls below $30 
C)  if the market price falls below $45 
D)  if the market price falls below $60 
A)  if the market price falls below $10 
B)  if the market price falls below $30 
C)  if the market price falls below $45 
D)  if the market price falls below $60

Question 6

FIGURE 8-8
  
-Refer to Figure 8-8. If the market price falls to $40 per unit, what action should the firm take?

Accepted Answer

A)  Continue to operate temporarily, because it is minimizing losses by doing so. 
B)  Shut down permanently. 
C)  Shut down temporarily. 
D)  Continue to operate, because it is earning an economic profit. 
A)  Continue to operate temporarily, because it is minimizing losses by doing so. 
B)  Shut down permanently. 
C)  Shut down temporarily. 
D)  Continue to operate, because it is earning an economic profit.

Question 7

FIGURE 8-4
  
-Refer to Figure 8-4. What are total costs for the firm in Graph B at a market price of $4.90?

Accepted Answer

A)  $4.90 
B)  $470 
C)  $500 
D)  $490 
A)  $4.90 
B)  $470 
C)  $500 
D)  $490

Question 8

FIGURE 8-8
  
-Refer to Figure 8-8. What is the lowest price at which the firm can earn at least-zero economic profit?

Accepted Answer

A)  $10 
B)  $30 
C)  $45 
D)  $60 
A)  $10 
B)  $30 
C)  $45 
D)  $60

Question 9

Figure 8-10
  
-The graph above represents a price-taking firm producing q₁ units of output. Is the firm making a profit, experiencing a loss, or earning a normal profit? Should the firm increase output, decrease output, or shut down? Explain.

Accepted Answer

This price-taking firm is operating at a

Question 10

TABLE 8-1
  
-Refer to Table 8-1. What is the value of the variable V?

Accepted Answer

A)  $0 
B)  $50 
C)  $20 
D)  $70 
A)  $0 
B)  $50 
C)  $20 
D)  $70

Question 11

The market demand curve in a perfectly competitive industry is downward sloping, while the demand curve faced by an individual perfectly competitive firm is horizontal.

Accepted Answer

A) True 
 B)False

Question 12

As an industry's output increases, the industry's demand for the inputs that it uses will also increase.

Accepted Answer

A) True 
 B)False

Question 13

FIGURE 8-8
  
-Refer to Figure 8-8. If the market price equals $45, what is the maximum profit that the firm can earn?

Accepted Answer

A)  $0 
B)  approximately $9750 
C)  approximately $19 500 
D)  approximately $29 250 
A)  $0 
B)  approximately $9750 
C)  approximately $19 500 
D)  approximately $29 250

Question 14

FIGURE 8-8
  
-Refer to Figure 8-8. At a market price of $30, what is total revenue sufficient to pay?

Accepted Answer

A)  all variable costs 
B)  only a portion of the variable costs 
C)  all variable costs and a portion of fixed costs 
D)  all costs, fixed and variable 
A)  all variable costs 
B)  only a portion of the variable costs 
C)  all variable costs and a portion of fixed costs 
D)  all costs, fixed and variable

Question 15

A perfectly competitive market is characterized by a large number of buyers and sellers.

Accepted Answer

A) True 
 B)False

Question 16

FIGURE 8-2
  
-Refer to Figure 8-2. The firm is now able to sell more of its lawn care services at a higher price. As a result of this, in what timeframe will the firm be able to earn economic profits?

Accepted Answer

A)  in the short run only 
B)  at no time, since perfectly competitive firms always earn zero economic profits 
C)  in the long run 
D)  as long as it keeps its costs constant 
A)  in the short run only 
B)  at no time, since perfectly competitive firms always earn zero economic profits 
C)  in the long run 
D)  as long as it keeps its costs constant

Question 17

Under what circumstances will a profit-maximizing firm that is operating in the short run sell an additional unit of output?

Accepted Answer

A)  as long as doing so reduces the firm's per-unit costs 
B)  as long as doing so adds more to revenue than it adds to cost 
C)  as long as there is additional plant capacity with which to produce 
D)  as long as doing so reduces the firm's marginal costs 
A)  as long as doing so reduces the firm's per-unit costs 
B)  as long as doing so adds more to revenue than it adds to cost 
C)  as long as there is additional plant capacity with which to produce 
D)  as long as doing so reduces the firm's marginal costs

Question 18

If a perfectly competitive firm is operating in the short run and seeks to maximize profit, what action should the firm take?

Accepted Answer

A)  Choose the output where per-unit profit is greatest. 
B)  Increase output whenever price exceeds marginal cost. 
C)  Increase output whenever marginal revenue is less than marginal cost. 
D)  Increase output whenever marginal cost is less than average total cost. 
A)  Choose the output where per-unit profit is greatest. 
B)  Increase output whenever price exceeds marginal cost. 
C)  Increase output whenever marginal revenue is less than marginal cost. 
D)  Increase output whenever marginal cost is less than average total cost.

Question 19

FIGURE 8-4
  
-Refer to Figure 8-4. What is total revenue for the firm in Graph A?

Accepted Answer

A)  $40 
B)  $80 
C)  $320 
D)  $400 
A)  $40 
B)  $80 
C)  $320 
D)  $400

Question 20

A perfectly competitive firm faces a perfectly elastic demand curve.

Accepted Answer

A) True 
 B)False

The market demand curve in a perfectly competitive industry is horizontal, while the demand curve faced by an individual perfectly competitive firm is downward sloping.

What is marginal revenue for a perfectly competitive firm equal to?

If a profit-maximizing firm finds that price exceeds average variable cost and marginal cost is greater than marginal revenue, what action should it take?

In long-run equilibrium, at what output level does a perfectly competitive firm produce?

FIGURE 8-8 -Refer to Figure 8-8. When should the firm shut down?

FIGURE 8-8 -Refer to Figure 8-8. If the market price falls to $40 per unit, what action should the firm take?

FIGURE 8-4 -Refer to Figure 8-4. What are total costs for the firm in Graph B at a market price of $4.90?

FIGURE 8-8 -Refer to Figure 8-8. What is the lowest price at which the firm can earn at least-zero economic profit?

Figure 8-10 -The graph above represents a price-taking firm producing q₁ units of output. Is the firm making a profit, experiencing a loss, or earning a normal profit? Should the firm increase output, decrease output, or shut down? Explain.

TABLE 8-1 -Refer to Table 8-1. What is the value of the variable V?

The market demand curve in a perfectly competitive industry is downward sloping, while the demand curve faced by an individual perfectly competitive firm is horizontal.

As an industry's output increases, the industry's demand for the inputs that it uses will also increase.

FIGURE 8-8 -Refer to Figure 8-8. If the market price equals $45, what is the maximum profit that the firm can earn?

FIGURE 8-8 -Refer to Figure 8-8. At a market price of $30, what is total revenue sufficient to pay?

A perfectly competitive market is characterized by a large number of buyers and sellers.

FIGURE 8-2 -Refer to Figure 8-2. The firm is now able to sell more of its lawn care services at a higher price. As a result of this, in what timeframe will the firm be able to earn economic profits?

Under what circumstances will a profit-maximizing firm that is operating in the short run sell an additional unit of output?

If a perfectly competitive firm is operating in the short run and seeks to maximize profit, what action should the firm take?

FIGURE 8-4 -Refer to Figure 8-4. What is total revenue for the firm in Graph A?

A perfectly competitive firm faces a perfectly elastic demand curve.

The Role and Method of Economics

Scarcity, Trade-Offs, and Production Possibilities

Supply and Demand

Bringing Supply and Demand Together

Elasticity

Market Efficiency and Market Failure

Production and Costs

Monopoly

Monopolistic Competition and Oligopoly

Labour Markets and the Distribution of Income

The Environment

Filters

Exam 8: Perfect Competition

The market demand curve in a perfectly competitive industry is horizontal, while the demand curve faced by an individual perfectly competitive firm is downward sloping.

What is marginal revenue for a perfectly competitive firm equal to?

If a profit-maximizing firm finds that price exceeds average variable cost and marginal cost is greater than marginal revenue, what action should it take?

In long-run equilibrium, at what output level does a perfectly competitive firm produce?

FIGURE 8-8 -Refer to Figure 8-8. When should the firm shut down?

FIGURE 8-8 -Refer to Figure 8-8. If the market price falls to $40 per unit, what action should the firm take?

FIGURE 8-4 -Refer to Figure 8-4. What are total costs for the firm in Graph B at a market price of $4.90?

FIGURE 8-8 -Refer to Figure 8-8. What is the lowest price at which the firm can earn at least-zero economic profit?

Figure 8-10 -The graph above represents a price-taking firm producing q₁ units of output. Is the firm making a profit, experiencing a loss, or earning a normal profit? Should the firm increase output, decrease output, or shut down? Explain.

TABLE 8-1 -Refer to Table 8-1. What is the value of the variable V?

The market demand curve in a perfectly competitive industry is downward sloping, while the demand curve faced by an individual perfectly competitive firm is horizontal.

As an industry's output increases, the industry's demand for the inputs that it uses will also increase.

FIGURE 8-8 -Refer to Figure 8-8. If the market price equals $45, what is the maximum profit that the firm can earn?

FIGURE 8-8 -Refer to Figure 8-8. At a market price of $30, what is total revenue sufficient to pay?

A perfectly competitive market is characterized by a large number of buyers and sellers.

FIGURE 8-2 -Refer to Figure 8-2. The firm is now able to sell more of its lawn care services at a higher price. As a result of this, in what timeframe will the firm be able to earn economic profits?

Under what circumstances will a profit-maximizing firm that is operating in the short run sell an additional unit of output?

If a perfectly competitive firm is operating in the short run and seeks to maximize profit, what action should the firm take?

FIGURE 8-4 -Refer to Figure 8-4. What is total revenue for the firm in Graph A?

A perfectly competitive firm faces a perfectly elastic demand curve.

The Role and Method of Economics

Scarcity, Trade-Offs, and Production Possibilities

Supply and Demand

Bringing Supply and Demand Together

Elasticity

Market Efficiency and Market Failure

Production and Costs

Monopoly

Monopolistic Competition and Oligopoly

Labour Markets and the Distribution of Income

The Environment

Filters