Question 1

What will occur if a price-taking firm selling in a competitive market raises the price of its product above the market-clearing price?

Accepted Answer

A)  It will maintain its profit base since the demand for the product is inelastic. 
B)  It will be able to increase its sales. 
C)  It will increase its profits. 
D)  It will not be able to sell any output. 
A)  It will maintain its profit base since the demand for the product is inelastic. 
B)  It will be able to increase its sales. 
C)  It will increase its profits. 
D)  It will not be able to sell any output.

Question 2

What quantity of output will a profit-maximizing firm in a perfectly competitive market always produce at?

Accepted Answer

A)  at a quantity that maximizes the amount by which total revenue exceeds total cost 
B)  at a quantity that brings average total cost and price into equality 
C)  at a quantity that minimizes the per-unit cost of production 
D)  at a quantity that is expected to maximize total revenue 
A)  at a quantity that maximizes the amount by which total revenue exceeds total cost 
B)  at a quantity that brings average total cost and price into equality 
C)  at a quantity that minimizes the per-unit cost of production 
D)  at a quantity that is expected to maximize total revenue

Question 3

If price is less than the average variable cost, firms that seek to maximize profit should shut down.

Accepted Answer

A) True 
 B)False

Question 4

Complete the chart below for a firm that is operating under conditions of perfect competition where the market price is $22. What level of output maximizes the firm's profits?

Accepted Answer

The answer of Complete the chart below for a firm...

Question 5

At what output does a perfectly competitive firm maximize its profit?

Accepted Answer

A)  when marginal cost equals average total cost 
B)  when average cost equals average revenue 
C)  when total revenue equals total cost 
D)  when marginal cost equals marginal revenue 
A)  when marginal cost equals average total cost 
B)  when average cost equals average revenue 
C)  when total revenue equals total cost 
D)  when marginal cost equals marginal revenue

Question 6

FIGURE 8-9
  
-Refer to Figure 8-9. This pair of graphs demonstrates the chain of events for a lawn care firm, beginning with an increase in the market demand for lawn care services. Which of the following statements is NOT correct?

Accepted Answer

A)  The overall quantity of lawn care services increases in the industry. 
B)  This particular firm increases its production of lawn care services in response to an increase in the price of lawn care services. 
C)  The diagrams depict an increasing cost industry. 
D)  The equilibrium price of lawn care services is initially P0, then increases to P1 because of the increase in demand, and eventually decreases to P0 once again when the market supply of output increases as a result of new firms entering the industry. 
A)  The overall quantity of lawn care services increases in the industry. 
B)  This particular firm increases its production of lawn care services in response to an increase in the price of lawn care services. 
C)  The diagrams depict an increasing cost industry. 
D)  The equilibrium price of lawn care services is initially P0, then increases to P1 because of the increase in demand, and eventually decreases to P0 once again when the market supply of output increases as a result of new firms entering the industry.

Question 7

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

Accepted Answer

A)  $0 
B)  $4.90 
C)  $490 
D)  $500 
A)  $0 
B)  $4.90 
C)  $490 
D)  $500

Question 8

Which of the following statements best describes what occurs in long-run equilibrium under perfect competition?

Accepted Answer

A)  Firms will earn economic profits due to the existence of barriers to entry. 
B)  The demand curve facing individual firms will fall to the level tangent to the minimum average total cost curve. 
C)  Firms will produce at the level of output where marginal revenue exceeds marginal cost by the greatest dollar amount. 
D)  Price will equal minimum average fixed cost. 
A)  Firms will earn economic profits due to the existence of barriers to entry. 
B)  The demand curve facing individual firms will fall to the level tangent to the minimum average total cost curve. 
C)  Firms will produce at the level of output where marginal revenue exceeds marginal cost by the greatest dollar amount. 
D)  Price will equal minimum average fixed cost.

Question 9

FIGURE 8-4
  
-Refer to Figure 8-4. What does Graph B illustrate?

Accepted Answer

A)  a price-taking firm that will lose money when the market price equals $4.90 
B)  a price-taking firm that will break even when the market price equals $4.90 
C)  a price-taking firm that will shut down when the market price equals $4.90 
D)  a price-taking firm that will make an economic profit when the market price equals $4.90 
A)  a price-taking firm that will lose money when the market price equals $4.90 
B)  a price-taking firm that will break even when the market price equals $4.90 
C)  a price-taking firm that will shut down when the market price equals $4.90 
D)  a price-taking firm that will make an economic profit when the market price equals $4.90

Question 10

FIGURE 8-7
  
-Refer to Figure 8-7. When the market price equals P₁, what output should the firm produce?

Accepted Answer

A)  Q1 
B)  Q2 
C)  Q3 
D)  0 
A)  Q1 
B)  Q2 
C)  Q3 
D)  0

Question 11

If a perfectly competitive industry uses a large proportion of the available inputs in a resource market, what shape is the long-run market supply curve for the industry most likely to be?

Accepted Answer

A)  horizontal 
B)  upward sloping 
C)  downward sloping 
D)  vertical 
A)  horizontal 
B)  upward sloping 
C)  downward sloping 
D)  vertical

Question 12

The long-run total cost schedule of a perfectly competitive firm that produces blueberries is as follows:
TABLE 8-2
  
-Refer to Table 8-2. What is the average total cost of producing 6000 kilograms of blueberries in the long run?

Accepted Answer

A)  $2 
B)  $2.20 
C)  $2.50 
D)  $2.75 
A)  $2 
B)  $2.20 
C)  $2.50 
D)  $2.75

Question 13

Which of the following best describes a firm that is a price taker?

Accepted Answer

A)  It will lose all sales if it prices its product in excess of the market equilibrium price. 
B)  It competes with other producers who produce differentiated products. 
C)  It can exert a major influence on the overall market. 
D)  It must be a relatively large producer compared to other firms in the market. 
A)  It will lose all sales if it prices its product in excess of the market equilibrium price. 
B)  It competes with other producers who produce differentiated products. 
C)  It can exert a major influence on the overall market. 
D)  It must be a relatively large producer compared to other firms in the market.

Question 14

FIGURE 8-6
  
-Refer to Figure 8-6. How is the short-run loss for this firm represented?

Accepted Answer

A)  PABP1 
B)  0P1Aq 
C)  0P1Bq 
D)  0PAq 
A)  PABP1 
B)  0P1Aq 
C)  0P1Bq 
D)  0PAq

Question 15

The following table shows how the total cost of producing canisters of peanuts varies with output and capital in the long run in a perfectly competitive industry.
Table 8-3
  
-If firms can freely enter or exit the industry and face the cost structures specified above, what is the likely long-run price of a canister of peanuts?

Accepted Answer

Price would be 70 cents per ca

Question 16

TABLE 8-1
  
-Refer to Table 8-1. What is the AFC of producing two units of output?

Accepted Answer

A)  $0 
B)  $25 
C)  $50 
D)  $100 
A)  $0 
B)  $25 
C)  $50 
D)  $100

Question 17

When a firm is operating in a perfectly competitive market, which of the following best describes marginal revenue?

Accepted Answer

A)  It is equal to zero when the market is in long-run equilibrium. 
B)  It is equal to price. 
C)  It is equal to the change in output divided by the change in total revenue. 
D)  It is always less than price. 
A)  It is equal to zero when the market is in long-run equilibrium. 
B)  It is equal to price. 
C)  It is equal to the change in output divided by the change in total revenue. 
D)  It is always less than price.

Question 18

What is the most socially efficient market structure in the long run?

Accepted Answer

A)  monopolistic competition 
B)  oligopoly 
C)  perfect competition 
D)  monopoly 
A)  monopolistic competition 
B)  oligopoly 
C)  perfect competition 
D)  monopoly

Question 19

A firm that is earning zero economic profits has a strong incentive to exit the industry.

Accepted Answer

A) True 
 B)False

Question 20

If the long-run industry supply curve in a perfectly competitive market is horizontal, what will likely happen to input prices as industry output expands?

Accepted Answer

A)  Input prices will first increase and then decrease. 
B)  Input prices will increase. 
C)  Input prices will remain constant. 
D)  Input prices will decrease. 
A)  Input prices will first increase and then decrease. 
B)  Input prices will increase. 
C)  Input prices will remain constant. 
D)  Input prices will decrease.

What will occur if a price-taking firm selling in a competitive market raises the price of its product above the market-clearing price?

What quantity of output will a profit-maximizing firm in a perfectly competitive market always produce at?

If price is less than the average variable cost, firms that seek to maximize profit should shut down.

Complete the chart below for a firm that is operating under conditions of perfect competition where the market price is $22. What level of output maximizes the firm's profits?

At what output does a perfectly competitive firm maximize its profit?

FIGURE 8-9 -Refer to Figure 8-9. This pair of graphs demonstrates the chain of events for a lawn care firm, beginning with an increase in the market demand for lawn care services. Which of the following statements is NOT correct?

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

Which of the following statements best describes what occurs in long-run equilibrium under perfect competition?

FIGURE 8-4 -Refer to Figure 8-4. What does Graph B illustrate?

FIGURE 8-7 -Refer to Figure 8-7. When the market price equals P₁, what output should the firm produce?

If a perfectly competitive industry uses a large proportion of the available inputs in a resource market, what shape is the long-run market supply curve for the industry most likely to be?

The long-run total cost schedule of a perfectly competitive firm that produces blueberries is as follows: TABLE 8-2 -Refer to Table 8-2. What is the average total cost of producing 6000 kilograms of blueberries in the long run?

Which of the following best describes a firm that is a price taker?

FIGURE 8-6 -Refer to Figure 8-6. How is the short-run loss for this firm represented?

TABLE 8-1 -Refer to Table 8-1. What is the AFC of producing two units of output?

When a firm is operating in a perfectly competitive market, which of the following best describes marginal revenue?

What is the most socially efficient market structure in the long run?

A firm that is earning zero economic profits has a strong incentive to exit the industry.

If the long-run industry supply curve in a perfectly competitive market is horizontal, what will likely happen to input prices as industry output expands?

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

What will occur if a price-taking firm selling in a competitive market raises the price of its product above the market-clearing price?

What quantity of output will a profit-maximizing firm in a perfectly competitive market always produce at?

If price is less than the average variable cost, firms that seek to maximize profit should shut down.

Complete the chart below for a firm that is operating under conditions of perfect competition where the market price is $22. What level of output maximizes the firm's profits?

At what output does a perfectly competitive firm maximize its profit?

FIGURE 8-9 -Refer to Figure 8-9. This pair of graphs demonstrates the chain of events for a lawn care firm, beginning with an increase in the market demand for lawn care services. Which of the following statements is NOT correct?

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

Which of the following statements best describes what occurs in long-run equilibrium under perfect competition?

FIGURE 8-4 -Refer to Figure 8-4. What does Graph B illustrate?

FIGURE 8-7 -Refer to Figure 8-7. When the market price equals P₁, what output should the firm produce?

If a perfectly competitive industry uses a large proportion of the available inputs in a resource market, what shape is the long-run market supply curve for the industry most likely to be?

The long-run total cost schedule of a perfectly competitive firm that produces blueberries is as follows: TABLE 8-2 -Refer to Table 8-2. What is the average total cost of producing 6000 kilograms of blueberries in the long run?

Which of the following best describes a firm that is a price taker?

FIGURE 8-6 -Refer to Figure 8-6. How is the short-run loss for this firm represented?

TABLE 8-1 -Refer to Table 8-1. What is the AFC of producing two units of output?

When a firm is operating in a perfectly competitive market, which of the following best describes marginal revenue?

What is the most socially efficient market structure in the long run?

A firm that is earning zero economic profits has a strong incentive to exit the industry.

If the long-run industry supply curve in a perfectly competitive market is horizontal, what will likely happen to input prices as industry output expands?

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