Question 1

Why does a perfectly competitive firm NOT have influence over price?

Accepted Answer

A)  Antitrust laws constrain perfectly competitive firms. 
B)  Its output is insignificant relative to the market as a whole. 
C)  Consumers establish the prices of products. 
D)  It is unaware of the demand curve it faces. 
A)  Antitrust laws constrain perfectly competitive firms. 
B)  Its output is insignificant relative to the market as a whole. 
C)  Consumers establish the prices of products. 
D)  It is unaware of the demand curve it faces.

Question 2

In a perfectly competitive market, marginal revenue is the same as the market price.

Accepted Answer

A) True 
 B)False

Question 3

FIGURE 8-7
  
-Refer to Figure 8-7. When the market price equals P₄, what output should the firm produce?

Accepted Answer

A)  Q5, operating at a loss 
B)  Q4, earning an economic profit 
C)  Q5, earning a normal profit 
D)  Q4, operating at a loss 
A)  Q5, operating at a loss 
B)  Q4, earning an economic profit 
C)  Q5, earning a normal profit 
D)  Q4, operating at a loss

Question 4

In a price taker's market, how does the elasticity of the market demand curve compare with the elasticity of a single firm's demand curve?

Accepted Answer

A)  Both demand curves have the same elasticity. 
B)  The firm's demand curve is perfectly elastic, while the elasticity of demand at the industry level varies along a downward-sloping curve. 
C)  The firm's elasticity of demand varies along a downward-sloping curve, while the industry demand curve is perfectly elastic. 
D)  Both demand curves are perfectly elastic. 
A)  Both demand curves have the same elasticity. 
B)  The firm's demand curve is perfectly elastic, while the elasticity of demand at the industry level varies along a downward-sloping curve. 
C)  The firm's elasticity of demand varies along a downward-sloping curve, while the industry demand curve is perfectly elastic. 
D)  Both demand curves are perfectly elastic.

Question 5

FIGURE 8-4
  
-Refer to Figure 8-4. What does Graph C exhibit?

Accepted Answer

A)  a price-taking firm experiencing a loss of $600 
B)  a price-taking firm experiencing a loss of $120 
C)  a price-taking firm making a profit of $120 
D)  a price-taking firm making a profit of $720 
A)  a price-taking firm experiencing a loss of $600 
B)  a price-taking firm experiencing a loss of $120 
C)  a price-taking firm making a profit of $120 
D)  a price-taking firm making a profit of $720

Question 6

FIGURE 8-6
  
-Refer to Figure 8-6. If P represents the market price for a price-taking firm, what is the best course of action in the short run for the firm?

Accepted Answer

A)  Shut down immediately. 
B)  Continue operating because average total cost exceeds price. 
C)  Continue operating because average variable cost exceeds price. 
D)  Continue operating because price exceeds average variable cost. 
A)  Shut down immediately. 
B)  Continue operating because average total cost exceeds price. 
C)  Continue operating because average variable cost exceeds price. 
D)  Continue operating because price exceeds average variable cost.

Question 7

Which of the following is a property of the demand curve facing a perfectly competitive firm?

Accepted Answer

A)  It is unit elastic. 
B)  It is downward sloping. 
C)  It is perfectly inelastic. 
D)  It is perfectly elastic. 
A)  It is unit elastic. 
B)  It is downward sloping. 
C)  It is perfectly inelastic. 
D)  It is perfectly elastic.

Question 8

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. How many units of output per day should the firm produce if it wants to maximize its profits (i.e., minimize its losses)?

Accepted Answer

A)  0 
B)  30 
C)  70 
D)  100 
A)  0 
B)  30 
C)  70 
D)  100

Question 9

Which of the following best describes the marginal revenue of a perfectly competitive firm?

Accepted Answer

A)  It is constant as output increases and is equal to price. 
B)  It increases as output increases. 
C)  It decreases as output increases. 
D)  It increases as output increases and is equal to price. 
A)  It is constant as output increases and is equal to price. 
B)  It increases as output increases. 
C)  It decreases as output increases. 
D)  It increases as output increases and is equal to price.

Question 10

FIGURE 8-4
  
-Refer to Figure 8-4. If the market price increased to $5 in Graph B, what action should this firm take?

Accepted Answer

A)  Decrease the production of output. 
B)  Immediately shut down. 
C)  Continue producing the same level of output. 
D)  Increase the production of output. 
A)  Decrease the production of output. 
B)  Immediately shut down. 
C)  Continue producing the same level of output. 
D)  Increase the production of output.

Question 11

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

Accepted Answer

A)  $120 
B)  $150 
C)  $600 
D)  $720 
A)  $120 
B)  $150 
C)  $600 
D)  $720

Question 12

FIGURE 8-8
  
-Refer to Figure 8-8. Which segment of the marginal cost curve does the firm's supply curve correspond to?

Accepted Answer

A)  CDE 
B)  BCDE 
C)  DE 
D)  ABCDE 
A)  CDE 
B)  BCDE 
C)  DE 
D)  ABCDE

Question 13

FIGURE 8-8
  
-Refer to Figure 8-8. How many units of output will a profit-maximizing firm in a perfectly competitive industry produce if the market price equals $45?

Accepted Answer

A)  200 
B)  450 
C)  650 
D)  800 
A)  200 
B)  450 
C)  650 
D)  800

Question 14

Darlene runs a fruit and vegetable stand in a medium-sized community where there are many such stands. Her weekly total revenue equals $3000. Her weekly total cost of running the stand equals $3500, consisting of $2500 of variable costs and $1000 of fixed costs. What would an economist likely advise Darlene to do?

Accepted Answer

A)  Keep the stand open for a while longer, because she is covering all of her variable costs and some of her fixed costs. 
B)  Keep the stand open for a while longer, because she is covering all of her fixed costs and some of her variable costs. 
C)  Shut down as quickly as possible in order to minimize her losses. 
D)  Keep the stand open, because it is generating an economic profit. 
A)  Keep the stand open for a while longer, because she is covering all of her variable costs and some of her fixed costs. 
B)  Keep the stand open for a while longer, because she is covering all of her fixed costs and some of her variable costs. 
C)  Shut down as quickly as possible in order to minimize her losses. 
D)  Keep the stand open, because it is generating an economic profit.

Question 15

Which of the following occurs in long-run, perfectly competitive equilibrium?

Accepted Answer

A)  All firms suffer economic losses. 
B)  Barriers prevent the entry of new firms. 
C)  All firms earn zero economic profits. 
D)  All firms earn positive economic profits. 
A)  All firms suffer economic losses. 
B)  Barriers prevent the entry of new firms. 
C)  All firms earn zero economic profits. 
D)  All firms earn positive economic profits.

Why does a perfectly competitive firm NOT have influence over price?

In a perfectly competitive market, marginal revenue is the same as the market price.

FIGURE 8-7 -Refer to Figure 8-7. When the market price equals P₄, what output should the firm produce?

In a price taker's market, how does the elasticity of the market demand curve compare with the elasticity of a single firm's demand curve?

FIGURE 8-4 -Refer to Figure 8-4. What does Graph C exhibit?

FIGURE 8-6 -Refer to Figure 8-6. If P represents the market price for a price-taking firm, what is the best course of action in the short run for the firm?

Which of the following is a property of the demand curve facing a perfectly competitive firm?

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. How many units of output per day should the firm produce if it wants to maximize its profits (i.e., minimize its losses)?

Which of the following best describes the marginal revenue of a perfectly competitive firm?

FIGURE 8-4 -Refer to Figure 8-4. If the market price increased to $5 in Graph B, what action should this firm take?

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

FIGURE 8-8 -Refer to Figure 8-8. Which segment of the marginal cost curve does the firm's supply curve correspond to?

FIGURE 8-8 -Refer to Figure 8-8. How many units of output will a profit-maximizing firm in a perfectly competitive industry produce if the market price equals $45?

Which of the following occurs in long-run, perfectly competitive equilibrium?

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

Why does a perfectly competitive firm NOT have influence over price?

In a perfectly competitive market, marginal revenue is the same as the market price.

FIGURE 8-7 -Refer to Figure 8-7. When the market price equals P₄, what output should the firm produce?

In a price taker's market, how does the elasticity of the market demand curve compare with the elasticity of a single firm's demand curve?

FIGURE 8-4 -Refer to Figure 8-4. What does Graph C exhibit?

FIGURE 8-6 -Refer to Figure 8-6. If P represents the market price for a price-taking firm, what is the best course of action in the short run for the firm?

Which of the following is a property of the demand curve facing a perfectly competitive firm?

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. How many units of output per day should the firm produce if it wants to maximize its profits (i.e., minimize its losses)?

Which of the following best describes the marginal revenue of a perfectly competitive firm?

FIGURE 8-4 -Refer to Figure 8-4. If the market price increased to $5 in Graph B, what action should this firm take?

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

FIGURE 8-8 -Refer to Figure 8-8. Which segment of the marginal cost curve does the firm's supply curve correspond to?

FIGURE 8-8 -Refer to Figure 8-8. How many units of output will a profit-maximizing firm in a perfectly competitive industry produce if the market price equals $45?

Which of the following occurs in long-run, perfectly competitive equilibrium?

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