Question 1

What does the perfectly competitive model assume?

Accepted Answer

A)  Individual sellers can influence the market price. 
B)  Firms compete by varying a product's quality rather than a product's price. 
C)  Firms can enter and exit the industry with relative ease. 
D)  Sellers can increase their total revenue by raising prices. 
A)  Individual sellers can influence the market price. 
B)  Firms compete by varying a product's quality rather than a product's price. 
C)  Firms can enter and exit the industry with relative ease. 
D)  Sellers can increase their total revenue by raising prices.

Question 2

"I'm losing money, but since my fixed costs are so high, I simply cannot afford to shut down." If the firm were attempting to maximize profit, what can we conclude about this decision?

Accepted Answer

A)  It may be incorrect since a firm should shut down whenever price falls below average total cost in the short run. 
B)  It may be incorrect because a firm experiencing economic losses should never continue to operate. 
C)  It may be correct if the firm is covering all of its variable costs and expects the price of its product to rise in the near future. 
D)  It may be correct if price is less than average variable cost. 
A)  It may be incorrect since a firm should shut down whenever price falls below average total cost in the short run. 
B)  It may be incorrect because a firm experiencing economic losses should never continue to operate. 
C)  It may be correct if the firm is covering all of its variable costs and expects the price of its product to rise in the near future. 
D)  It may be correct if price is less than average variable cost.

Question 3

Which of the following is a characteristic of a perfectly competitive market?

Accepted Answer

A)  There is free entry into and exit from the market. 
B)  Individual firms can exert a perceptible influence on the market price. 
C)  Each firm faces a downward-sloping demand curve. 
D)  Firms in the market produce a differentiated product. 
A)  There is free entry into and exit from the market. 
B)  Individual firms can exert a perceptible influence on the market price. 
C)  Each firm faces a downward-sloping demand curve. 
D)  Firms in the market produce a differentiated product.

Question 4

FIGURE 8-1
  
-Refer to Figure 8-1. In Graph B, what is the result of the market demand decreasing from D₀ to D₁?

Accepted Answer

A)  Both the market price and the price of the price-taking firm have increased to $5. 
B)  At the new equilibrium price, the firm will be unable to sell any of its output. 
C)  Both the market price and the price of the price-taking firm have fallen to $4. 
D)  The quantity of goods transacted in the market has fallen from Q1 to Q0. 
A)  Both the market price and the price of the price-taking firm have increased to $5. 
B)  At the new equilibrium price, the firm will be unable to sell any of its output. 
C)  Both the market price and the price of the price-taking firm have fallen to $4. 
D)  The quantity of goods transacted in the market has fallen from Q1 to Q0.

Question 5

Why will a perfectly competitive firm continue to produce in the long run even though there are no economic profits?

Accepted Answer

A)  Firms care about accounting profits, not economic profits. 
B)  All employed resources are earning their opportunity cost. 
C)  It has no fixed costs in the long run. 
D)  There are barriers to exit in perfect competition. 
A)  Firms care about accounting profits, not economic profits. 
B)  All employed resources are earning their opportunity cost. 
C)  It has no fixed costs in the long run. 
D)  There are barriers to exit in perfect competition.

Question 6

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

Accepted Answer

A)  $0 
B)  $50 
C)  $62 
D)  $64 
A)  $0 
B)  $50 
C)  $62 
D)  $64

Question 7

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 a firm that expands from producing 1000 to 2000 kilograms of blueberries in the long run experiencing?

Accepted Answer

A)  an increasing average fixed cost 
B)  economies of scale 
C)  diseconomies of scale 
D)  constant returns to scale 
A)  an increasing average fixed cost 
B)  economies of scale 
C)  diseconomies of scale 
D)  constant returns to scale

Question 8

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

Accepted Answer

A)  a price-taking firm making a profit of $400 
B)  a price-taking firm making a profit of $80 
C)  a price-taking firm experiencing a loss of $400 
D)  a price-taking firm experiencing a loss of $80 
A)  a price-taking firm making a profit of $400 
B)  a price-taking firm making a profit of $80 
C)  a price-taking firm experiencing a loss of $400 
D)  a price-taking firm experiencing a loss of $80

Question 9

The figure below shows the price, marginal cost, and average cost curves of a perfectly competitive firm.
FIGURE 8-5
  
-Refer to Figure 8-5. What is the profit earned each day by a profit-maximizing (loss-minimizing) firm?

Accepted Answer

A)  -$200 
B)  -$150 
C)  -$50 
D)  $0 
A)  -$200 
B)  -$150 
C)  -$50 
D)  $0

Question 10

Which of the following best describes firms in perfectly competitive markets?

Accepted Answer

A)  They influence price by varying the quality of output. 
B)  They are price makers. 
C)  They are price takers. 
D)  They sell heterogeneous products. 
A)  They influence price by varying the quality of output. 
B)  They are price makers. 
C)  They are price takers. 
D)  They sell heterogeneous products.

Question 11

Why can't a firm in a perfectly competitive industry charge a price above the market-clearing price?

Accepted Answer

A)  Government-imposed price ceilings prevent prices from being raised. 
B)  Perfectly competitive firms are price searchers. 
C)  Numerous competitors produce the same product and charge the market price. 
D)  Firms in a perfectly competitive industry face significant barriers to entry. 
A)  Government-imposed price ceilings prevent prices from being raised. 
B)  Perfectly competitive firms are price searchers. 
C)  Numerous competitors produce the same product and charge the market price. 
D)  Firms in a perfectly competitive industry face significant barriers to entry.

Question 12

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

Accepted Answer

A)  -$40 
B)  -$38 
C)  -$35 
D)  $0 
A)  -$40 
B)  -$38 
C)  -$35 
D)  $0

Question 13

What are the characteristics of a perfectly competitive industry?

Accepted Answer

In a perfectly competitive industry ther

Question 14

"Extractive" industries, such as agriculture, fishing, and mining, are typically constant cost industries.

Accepted Answer

A) True 
 B)False

Question 15

FIGURE 8-6
  
-Refer to Figure 8-6. What area represents total revenue for the firm when price equals P?

Accepted Answer

A)  0qAP 
B)  0P1B 
C)  0P1Bq 
D)  PABP1 
A)  0qAP 
B)  0P1B 
C)  0P1Bq 
D)  PABP1

Question 16

If the long-run industry supply curve in a perfectly competitive market slopes upward, 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 remain constant. 
C)  Input prices will increase. 
D)  Input prices will decrease. 
A)  Input prices will first increase and then decrease. 
B)  Input prices will remain constant. 
C)  Input prices will increase. 
D)  Input prices will decrease.

Question 17

FIGURE 8-9
  
-Refer to Figure 8-9. When the market price for lawn care services decreases from P₁ to P₀, what will the firm most likely do?

Accepted Answer

A)  Increase its production of services. 
B)  Decrease its production of services. 
C)  Continue providing q1 units of services. 
D)  Leave the industry. 
A)  Increase its production of services. 
B)  Decrease its production of services. 
C)  Continue providing q1 units of services. 
D)  Leave the industry.

Question 18

What is the short-run supply curve of a perfectly competitive firm?

Accepted Answer

A)  the marginal cost above average variable cost 
B)  the average total cost curve 
C)  the average variable cost above the average fixed cost 
D)  the same as the demand curve 
A)  the marginal cost above average variable cost 
B)  the average total cost curve 
C)  the average variable cost above the average fixed cost 
D)  the same as the demand curve

Question 19

When should a profit-maximizing, price-taking firm cease production?

Accepted Answer

A)  whenever the firm is making a loss 
B)  whenever the firm is earning zero economic profit 
C)  whenever the price is less than minimum average variable cost 
D)  whenever the price is less than minimum average fixed cost 
A)  whenever the firm is making a loss 
B)  whenever the firm is earning zero economic profit 
C)  whenever the price is less than minimum average variable cost 
D)  whenever the price is less than minimum average fixed cost

Question 20

What is the short-run supply curve of a perfectly competitive firm?

Accepted Answer

A)  the marginal cost curve above minimum average total cost 
B)  the average variable cost curve 
C)  the marginal cost curve above minimum average variable cost 
D)  the average cost curve 
A)  the marginal cost curve above minimum average total cost 
B)  the average variable cost curve 
C)  the marginal cost curve above minimum average variable cost 
D)  the average cost curve

What does the perfectly competitive model assume?

"I'm losing money, but since my fixed costs are so high, I simply cannot afford to shut down." If the firm were attempting to maximize profit, what can we conclude about this decision?

Which of the following is a characteristic of a perfectly competitive market?

FIGURE 8-1 -Refer to Figure 8-1. In Graph B, what is the result of the market demand decreasing from D₀ to D₁?

Why will a perfectly competitive firm continue to produce in the long run even though there are no economic profits?

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

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 a firm that expands from producing 1000 to 2000 kilograms of blueberries in the long run experiencing?

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

The figure below shows the price, marginal cost, and average cost curves of a perfectly competitive firm. FIGURE 8-5 -Refer to Figure 8-5. What is the profit earned each day by a profit-maximizing (loss-minimizing) firm?

Which of the following best describes firms in perfectly competitive markets?

Why can't a firm in a perfectly competitive industry charge a price above the market-clearing price?

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

What are the characteristics of a perfectly competitive industry?

"Extractive" industries, such as agriculture, fishing, and mining, are typically constant cost industries.

FIGURE 8-6 -Refer to Figure 8-6. What area represents total revenue for the firm when price equals P?

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

FIGURE 8-9 -Refer to Figure 8-9. When the market price for lawn care services decreases from P₁ to P₀, what will the firm most likely do?

What is the short-run supply curve of a perfectly competitive firm?

When should a profit-maximizing, price-taking firm cease production?

What is the short-run supply curve of a perfectly competitive firm?

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

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Exam 8: Perfect Competition

What does the perfectly competitive model assume?

"I'm losing money, but since my fixed costs are so high, I simply cannot afford to shut down." If the firm were attempting to maximize profit, what can we conclude about this decision?

Which of the following is a characteristic of a perfectly competitive market?

FIGURE 8-1 -Refer to Figure 8-1. In Graph B, what is the result of the market demand decreasing from D₀ to D₁?

Why will a perfectly competitive firm continue to produce in the long run even though there are no economic profits?

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

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 a firm that expands from producing 1000 to 2000 kilograms of blueberries in the long run experiencing?

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

The figure below shows the price, marginal cost, and average cost curves of a perfectly competitive firm. FIGURE 8-5 -Refer to Figure 8-5. What is the profit earned each day by a profit-maximizing (loss-minimizing) firm?

Which of the following best describes firms in perfectly competitive markets?

Why can't a firm in a perfectly competitive industry charge a price above the market-clearing price?

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

What are the characteristics of a perfectly competitive industry?

"Extractive" industries, such as agriculture, fishing, and mining, are typically constant cost industries.

FIGURE 8-6 -Refer to Figure 8-6. What area represents total revenue for the firm when price equals P?

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

FIGURE 8-9 -Refer to Figure 8-9. When the market price for lawn care services decreases from P₁ to P₀, what will the firm most likely do?

What is the short-run supply curve of a perfectly competitive firm?

When should a profit-maximizing, price-taking firm cease production?

What is the short-run supply curve of a perfectly competitive firm?

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