Question 1

If a perfectly competitive firm's price is less than its average total cost but greater than its average variable cost, the firm

Accepted Answer

A) is earning a profit. 
B) should shut down. 
C) is incurring a loss. 
D) is breaking even. 
A) is earning a profit. 
B) should shut down. 
C) is incurring a loss. 
D) is breaking even.

Question 2

A perfectly competitive industry achieves allocative efficiency because

Accepted Answer

A) goods and services are produced at the lowest possible cost. 
B) goods and services are produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing it. 
C) it produces where market price equals marginal production cost. 
D) firms carry production surpluses. 
A) goods and services are produced at the lowest possible cost. 
B) goods and services are produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing it. 
C) it produces where market price equals marginal production cost. 
D) firms carry production surpluses.

Question 3

Which of the following describes a situation in which a good or service is produced at the lowest possible cost?

Accepted Answer

A) productive efficiency 
B) allocative efficiency 
C) marginal efficiency 
D) profit maximization 
A) productive efficiency 
B) allocative efficiency 
C) marginal efficiency 
D) profit maximization

Question 4

Figure 10.2
  
-Refer to Figure 10.2.The firm breaks even at an output level of

Accepted Answer

A) Q₁ units. 
B) Q₂ units. 
C) Q₃ units. 
D) Q₄ units. 
A) Q₁ units. 
B) Q₂ units. 
C) Q₃ units. 
D) Q₄ units.

Question 5

How are market price, average revenue, and marginal revenue related for a perfectly competitive firm and why?

Accepted Answer

They are all equal to each other.The mar

Question 6

Figure 10.5
   
Figure 10.5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry.
-Refer to Figure 10.5.The figure shows the cost structure of a firm in a perfectly competitive market.If the firm's fixed cost increases by $1,000 due to a new environmental regulation, what happens to its profit-maximizing output level?

Accepted Answer

A) It increases. 
B) It decreases. 
C) It remains the same. 
D) It could increase, decrease or remain constant, depending on whether the firm is able to cut costs somewhere else. 
A) It increases. 
B) It decreases. 
C) It remains the same. 
D) It could increase, decrease or remain constant, depending on whether the firm is able to cut costs somewhere else.

Question 7

What is productive efficiency?

Accepted Answer

A) a situation in which resources are allocated to their highest profit use 
B) a situation in which resources are allocated such that goods can be produced at their lowest possible average cost 
C) a situation in which resources are allocated such the last unit of output produced provides a marginal benefit to consumers equal to the marginal cost of producing it 
D) a situation in which firms produce as much as possible 
A) a situation in which resources are allocated to their highest profit use 
B) a situation in which resources are allocated such that goods can be produced at their lowest possible average cost 
C) a situation in which resources are allocated such the last unit of output produced provides a marginal benefit to consumers equal to the marginal cost of producing it 
D) a situation in which firms produce as much as possible

Question 8

A perfectly competitive firm produces 3,000 units of a good at a total cost of $36,000.The price of each good is $10.Calculate the firm's short-run profit or loss.

Accepted Answer

A) loss of $6,000 
B) profit of $6,000 
C) profit of $30,000 
D) There is insufficient information to answer the question. 
A) loss of $6,000 
B) profit of $6,000 
C) profit of $30,000 
D) There is insufficient information to answer the question.

Question 9

Jason, a high-school student, mows lawns for families in his neighbourhood.The going rate is $12 for each lawn-mowing service.Jason would like to charge $20 because he believes he has more experience mowing lawns than the many other teenagers who also offer the same service.If the market for lawn mowing services is perfectly competitive, what would happen if Jason raised his price?

Accepted Answer

A) He would lose some but not all his customers. 
B) Initially, his customers might complain but over time they will come to accept the new rate. 
C) If Jason raises his price he would lose all his customers. 
D) If Jason raises his price, then all others supplying the same service will also raise their prices. 
A) He would lose some but not all his customers. 
B) Initially, his customers might complain but over time they will come to accept the new rate. 
C) If Jason raises his price he would lose all his customers. 
D) If Jason raises his price, then all others supplying the same service will also raise their prices.

Question 10

A firm's total profit can be calculated as all of the following except

Accepted Answer

A) total revenue minus total cost. 
B) average profit per unit times quantity sold. 
C) (price minus average total cost)times quantity sold. 
D) marginal profit times quantity sold. 
A) total revenue minus total cost. 
B) average profit per unit times quantity sold. 
C) (price minus average total cost)times quantity sold. 
D) marginal profit times quantity sold.

Question 11

A perfectly competitive market is in long-run equilibrium.At present there are 100 identical firms each producing 5,000 units of output.The prevailing market price is $20.Assume that each firm faces increasing marginal cost.Now suppose there is a sudden increase in demand for the industry's product which causes the price of the good to rise to $24.Which of the following describes the effect of this increase in demand on a typical firm in the industry?

Accepted Answer

A) In the short run, the typical firm increases its output and makes an above normal profit. 
B) In the short run, the typical firm's output remains the same but because of the higher price, its profit increases. 
C) In the short run, the typical firm increases its output but its total cost also rises, resulting in no change in profit. 
D) In the short run, the typical firm increases its output but its total cost also rises. Hence, the effect on the firm's profit cannot be determined without more information. 
A) In the short run, the typical firm increases its output and makes an above normal profit. 
B) In the short run, the typical firm's output remains the same but because of the higher price, its profit increases. 
C) In the short run, the typical firm increases its output but its total cost also rises, resulting in no change in profit. 
D) In the short run, the typical firm increases its output but its total cost also rises. Hence, the effect on the firm's profit cannot be determined without more information.

Question 12

Which of the following is a characteristic of an oligopolistic market structure?

Accepted Answer

A) There are few dominant sellers. 
B) Each firm sells a unique product. 
C) It is easy for new firms to enter the industry. 
D) Each firm need not react to the actions of rivals. 
A) There are few dominant sellers. 
B) Each firm sells a unique product. 
C) It is easy for new firms to enter the industry. 
D) Each firm need not react to the actions of rivals.

Question 13

Figure 10.5
   
Figure 10.5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry.
-Refer to Figure 10.5.The firm's manager suggests that the firm's goal should be to maximize average profit.In that case, what is the output level and what is the average profit that will achieve the manager's goal?

Accepted Answer

A) Q = 1,350 units, average profit =$5 
B) Q = 1,100 units, average profit =$6 
C) Q = 1,350 units, average profit =$9 
D) Q = 1,800 units, average profit =$20 
A) Q = 1,350 units, average profit =$5 
B) Q = 1,100 units, average profit =$6 
C) Q = 1,350 units, average profit =$9 
D) Q = 1,800 units, average profit =$20

Question 14

Figure 10.1
  
-Refer to Figure 10.1.If the firm is producing 200 units,

Accepted Answer

A) it breaks even. 
B)  it is making a loss. 
C) it should cut back its output to maximize profit. 
D) it should increase its output to maximize profit. 
A) it breaks even. 
B)  it is making a loss. 
C) it should cut back its output to maximize profit. 
D) it should increase its output to maximize profit.

Question 15

Assume that the medical screening industry is perfectly competitive.Consider a typical firm that is making short-run losses.Suppose the medical screening industry runs an effective advertising campaign which convinces a large number of people that yearly CT scans are critical for good health.How will this affect a typical firm that remains in the industry?

Accepted Answer

A) The firm's supply curve shifts right and its marginal revenue curve shifts upwards as the market price rises and ultimately the firm starts making profits. 
B) The firm's marginal revenue curve and average cost curve shift upwards in response to the increase in market price and advertising expenditure. The firm increases output until it starts breaking even. 
C) The marginal revenue curve shifts upwards, the firm's output increases along its marginal cost curve, it expands production and eventually starts making profits. 
D) The marginal revenue curve shifts upwards, the firm's output increases along its marginal cost curve, it expands production until it breaks even. 
A) The firm's supply curve shifts right and its marginal revenue curve shifts upwards as the market price rises and ultimately the firm starts making profits. 
B) The firm's marginal revenue curve and average cost curve shift upwards in response to the increase in market price and advertising expenditure. The firm increases output until it starts breaking even. 
C) The marginal revenue curve shifts upwards, the firm's output increases along its marginal cost curve, it expands production and eventually starts making profits. 
D) The marginal revenue curve shifts upwards, the firm's output increases along its marginal cost curve, it expands production until it breaks even.

Question 16

Assume that the LCD and plasma television sets industry is perfectly competitive.Suppose a producer develops a successful innovation that enables it to lower its cost of production.What happens in the short run and in the long run?

Accepted Answer

A) Initially, the firm will be able to increase its profit significantly, but in the long run its profits will still be greater than zero but lower than its short run profits because other firms would also innovate. 
B) The firm will probably incur losses temporarily because of the high cost of the innovation, but in the long run it will start earning positive profits. 
C) This firm will be able to earn above normal profits indefinitely if it obtains a patent for its innovation. 
D) The firm will be able to increase its profits temporarily, but in the long run its profits will be eliminated as other firms copy the innovation. 
A) Initially, the firm will be able to increase its profit significantly, but in the long run its profits will still be greater than zero but lower than its short run profits because other firms would also innovate. 
B) The firm will probably incur losses temporarily because of the high cost of the innovation, but in the long run it will start earning positive profits. 
C) This firm will be able to earn above normal profits indefinitely if it obtains a patent for its innovation. 
D) The firm will be able to increase its profits temporarily, but in the long run its profits will be eliminated as other firms copy the innovation.

Question 17

Figure 10.12
  
-Use the figure above to answer the following questions.
a.How can you determine that the figure represents a graph of a perfectly competitive firm? Be specific; indicate which curve gives you the information and how you use this information to arrive at your conclusion.
b.What is the market price?
c.What is the profit-maximizing output?
d.What is total revenue at the profit-maximizing output?
e.What is the total cost at the profit-maximizing output?
f.What is the profit or loss at the profit-maximizing output?
g.What is the firm's total fixed cost?
h.What is the total variable cost?
i.Identify the firm's short-run supply curve.
j.Is the industry in a long-run equilibrium?
k.If it is not in long-run equilibrium, what will happen in this industry to restore long-run equilibrium?
l.In long-run equilibrium, what is the firm's profit maximizing quantity?

Accepted Answer

a.The perfectly competitive firm is a pr

Question 18

Figure 10.8
  
-Refer to Figure 10.8.Consider a typical firm in a perfectly competitive industry that makes short-run profits.Which of the diagrams in the figure shows the effect on the industry as it transitions to a long-run equilibrium?

Accepted Answer

A) Panel A 
B) Panel B 
C) Panel C 
D) Panel D 
A) Panel A 
B) Panel B 
C) Panel C 
D) Panel D

Question 19

Figure 10.6
   
Figure 10.6 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm.
-Refer to Figure 10.6.At price P₄, the firm would produce

Accepted Answer

A) Q₃ units. 
B) Q₄ units. 
C) Q₅ units. 
D) Q₆ units. 
A) Q₃ units. 
B) Q₄ units. 
C) Q₅ units. 
D) Q₆ units.

Question 20

Which of the following is a characteristic of a monopoly?

Accepted Answer

A) It is easy for new firms to enter the market. 
B) There is only one seller in the market. 
C) The product is not unique. 
D) The firm has no control over price. 
A) It is easy for new firms to enter the market. 
B) There is only one seller in the market. 
C) The product is not unique. 
D) The firm has no control over price.

If a perfectly competitive firm's price is less than its average total cost but greater than its average variable cost, the firm

A perfectly competitive industry achieves allocative efficiency because

Which of the following describes a situation in which a good or service is produced at the lowest possible cost?

Figure 10.2 -Refer to Figure 10.2.The firm breaks even at an output level of

How are market price, average revenue, and marginal revenue related for a perfectly competitive firm and why?

What is productive efficiency?

A perfectly competitive firm produces 3,000 units of a good at a total cost of $36,000.The price of each good is $10.Calculate the firm's short-run profit or loss.

A firm's total profit can be calculated as all of the following except

Which of the following is a characteristic of an oligopolistic market structure?

Figure 10.1 -Refer to Figure 10.1.If the firm is producing 200 units,

Assume that the LCD and plasma television sets industry is perfectly competitive.Suppose a producer develops a successful innovation that enables it to lower its cost of production.What happens in the short run and in the long run?

Figure 10.8 -Refer to Figure 10.8.Consider a typical firm in a perfectly competitive industry that makes short-run profits.Which of the diagrams in the figure shows the effect on the industry as it transitions to a long-run equilibrium?

Figure 10.6 Figure 10.6 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. -Refer to Figure 10.6.At price P₄, the firm would produce

Which of the following is a characteristic of a monopoly?

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, Government Price Setting, and Taxes

Externalities, Environmental Policy, and Public Goods

Elasticity: the Responsiveness of Demand and Supply

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology, Production, and Costs

Monopolistic Competition

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

The Markets for Labour and Other Factors of Production

Public Choice, Taxes, and the Distribution of Income

Pricing Strategy

Firms, the Stock Market, and Corporate Governance

Filters

Exam 10: Firms in Perfectly Competitive Markets

If a perfectly competitive firm's price is less than its average total cost but greater than its average variable cost, the firm

A perfectly competitive industry achieves allocative efficiency because

Which of the following describes a situation in which a good or service is produced at the lowest possible cost?

Figure 10.2 -Refer to Figure 10.2.The firm breaks even at an output level of

How are market price, average revenue, and marginal revenue related for a perfectly competitive firm and why?

What is productive efficiency?

A perfectly competitive firm produces 3,000 units of a good at a total cost of $36,000.The price of each good is $10.Calculate the firm's short-run profit or loss.

A firm's total profit can be calculated as all of the following except

Which of the following is a characteristic of an oligopolistic market structure?

Figure 10.1 -Refer to Figure 10.1.If the firm is producing 200 units,

Assume that the LCD and plasma television sets industry is perfectly competitive.Suppose a producer develops a successful innovation that enables it to lower its cost of production.What happens in the short run and in the long run?

Figure 10.8 -Refer to Figure 10.8.Consider a typical firm in a perfectly competitive industry that makes short-run profits.Which of the diagrams in the figure shows the effect on the industry as it transitions to a long-run equilibrium?

Figure 10.6 Figure 10.6 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. -Refer to Figure 10.6.At price P₄, the firm would produce

Which of the following is a characteristic of a monopoly?

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, Government Price Setting, and Taxes

Externalities, Environmental Policy, and Public Goods

Elasticity: the Responsiveness of Demand and Supply

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology, Production, and Costs

Monopolistic Competition

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

The Markets for Labour and Other Factors of Production

Public Choice, Taxes, and the Distribution of Income

Pricing Strategy

Firms, the Stock Market, and Corporate Governance

Filters