Question 1

Figure 10.2
  
-Refer to Figure 10.2.What happens if the firm produces more than Q₄ units?

Accepted Answer

A) Its profit increases. 
B) It makes a loss. 
C) Its total revenue is increasing faster than its total cost. 
D) It could make a profit or a loss depending on what happens to demand. 
A) Its profit increases. 
B) It makes a loss. 
C) Its total revenue is increasing faster than its total cost. 
D) It could make a profit or a loss depending on what happens to demand.

Question 2

Figure 10.4
   
Figure 10.4 shows the cost and demand curves for a profit-maximizing firm in a perfectly competitive market.
-Refer to Figure 10.4.If the market price is $30 and the firm is producing output, what is the amount of the firm's profit or loss?

Accepted Answer

A) loss of $1,080 
B) profit of $1,440 
C) loss of $2,520 
D) profit of $1,300 
A) loss of $1,080 
B) profit of $1,440 
C) loss of $2,520 
D) profit of $1,300

Question 3

The price of a seller's product in perfect competition is determined by

Accepted Answer

A) the individual seller. 
B) a few of the sellers. 
C) market demand and market supply. 
D) the individual demander. 
A) the individual seller. 
B) a few of the sellers. 
C) market demand and market supply. 
D) the individual demander.

Question 4

A perfectly competitive wheat farmer in a constant-cost industry produces 3,000 bushels of wheat at a total cost of $36,000.The prevailing market price is $15.What will happen to the market price of wheat in the long run?

Accepted Answer

A) The price remains constant at $15. 
B) The price falls to $12. 
C) The price rises above $15. 
D)  There is insufficient information to answer the question. 
A) The price remains constant at $15. 
B) The price falls to $12. 
C) The price rises above $15. 
D)  There is insufficient information to answer the question.

Question 5

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 P₁, the firm would produce

Accepted Answer

A) Q₁ units 
B) Q₃ units. 
C) Q₅ units. 
D) zero units. 
A) Q₁ units 
B) Q₃ units. 
C) Q₅ units. 
D) zero units.

Question 6

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 P₂, the firm would

Accepted Answer

A) lose an amount equal to its fixed cost. 
B) lose an amount more than fixed cost. 
C) lose an amount less than fixed cost. 
D) break even. 
A) lose an amount equal to its fixed cost. 
B) lose an amount more than fixed cost. 
C) lose an amount less than fixed cost. 
D) break even.

Question 7

If in a perfectly competitive industry, the market price facing a firm is below its average total cost but above average variable cost at the output where marginal cost equals marginal revenue

Accepted Answer

A) the industry supply will not change. 
B) new firms are attracted to the industry. 
C) some existing firms will exit the industry. 
D) firms are breaking even. 
A) the industry supply will not change. 
B) new firms are attracted to the industry. 
C) some existing firms will exit the industry. 
D) firms are breaking even.

Question 8

Table 10.1
 $\begin{array}{|c|c|c|}
\hline \text { Quantity } & \begin{array}{c}
\text { Total Cost } \
\text { (dollars) }
\end{array} & \begin{array}{c}
\text { Variable Cost } \
\text { (dollars) }
\end{array} \
\hline 0 & \$ 1,000 & \$ 0 \
\hline 100 & 1,360 & 360 \
\hline 200 & 1,560 & 560 \
\hline 300 & 1,960 & 960 \
\hline 400 & 2,760 & 1,760 \
\hline 500 & 4,000 & 3,000 \
\hline 600 & 5,800 & 4,800 \
\hline
\end{array}$ 
Table 10.1 shows the short-run cost data of a perfectly competitive firm that produces plastic camera cases. Assume that output can only be increased in batches of 100 units.
-Refer to Table 10.1.Suppose the fixed cost of production rises by $500 and the price per unit is still $8.What happens to the firm's profit-maximizing output level?

Accepted Answer

A) It must fall. 
B) It must rise to offset the increased cost. 
C) It will remain the same. 
D) The firm will shut down. 
A) It must fall. 
B) It must rise to offset the increased cost. 
C) It will remain the same. 
D) The firm will shut down.

Question 9

Figure 10.4
   
Figure 10.4 shows the cost and demand curves for a profit-maximizing firm in a perfectly competitive market.
-Refer to Figure 10.4.If the market price is $30, should the firm represented in the diagram continue to stay in business?

Accepted Answer

A) No, it should shut down because it is making a loss. 
B) No, it should shut down because it cannot cover its variable cost. 
C) Yes, because it is covering part of its fixed cost. 
D) Yes, because it is making a profit. 
A) No, it should shut down because it is making a loss. 
B) No, it should shut down because it cannot cover its variable cost. 
C) Yes, because it is covering part of its fixed cost. 
D) Yes, because it is making a profit.

Question 10

Figure 10.1
  
-Refer to Figure 10.1.If the firm is producing 700 units, what is the amount of its profit or loss?

Accepted Answer

A) loss of $280 
B) loss equivalent to the area A 
C) profit equivalent to the area A 
D) There is insufficient information to answer the question. 
A) loss of $280 
B) loss equivalent to the area A 
C) profit equivalent to the area A 
D) There is insufficient information to answer the question.

Question 11

In the short run, if a firm shuts down it avoids its variable cost but not its fixed cost.

Accepted Answer

A) True 
 B)False

Question 12

Suppose the equilibrium price in a perfectly competitive industry is $15 and a firm in the industry charges $21.Which of the following will happen?

Accepted Answer

A) The firm's profits will increase. 
B) The firm's revenue will increase. 
C) The firm will not sell any output. 
D) The firm will sell more output than its competitors. 
A) The firm's profits will increase. 
B) The firm's revenue will increase. 
C) The firm will not sell any output. 
D) The firm will sell more output than its competitors.

Question 13

A perfectly competitive firm produces 3,000 units of a good at a total cost of $36,000.The fixed cost of production is $20,000.The price of each good is $10.Should the firm continue to produce in the short run?

Accepted Answer

A) No, it should shut down because it is making a loss. 
B) Yes, it should continue to produce because its price exceeds its average fixed cost. 
C) Yes, it should continue to produce because it is minimizing its loss. 
D) There is insufficient information to answer the question. 
A) No, it should shut down because it is making a loss. 
B) Yes, it should continue to produce because its price exceeds its average fixed cost. 
C) Yes, it should continue to produce because it is minimizing its loss. 
D) There is insufficient information to answer the question.

Question 14

What is meant by the term "long-run competitive equilibrium?

Accepted Answer

Long-run competitive equilibri

Question 15

In early 2007, Pioneer and JVC, two Japanese electronics firms, each announced that their profits were going to be lower than expected because they both had to cut prices for LCD and plasma television sets.Which of the following could explain why these firms did not simply raise their prices and increase their profits?

Accepted Answer

A) The move to cut prices is probably just a temporary one to gain market share. In the long run the firms will raise prices and be able to increase their profits. 
B) Most likely, intense competition between these two major producers probably pushed prices down. Thereafter, each feared that it would lose its customers to the other if it raised its prices. 
C) In perfect competition, prices are determined by the market and firms will keep lowering prices until there are no profits to be earned. 
D) The firms are still making profits, just not as high as expected so there is room to lower prices until one can force the other out of business. 
A) The move to cut prices is probably just a temporary one to gain market share. In the long run the firms will raise prices and be able to increase their profits. 
B) Most likely, intense competition between these two major producers probably pushed prices down. Thereafter, each feared that it would lose its customers to the other if it raised its prices. 
C) In perfect competition, prices are determined by the market and firms will keep lowering prices until there are no profits to be earned. 
D) The firms are still making profits, just not as high as expected so there is room to lower prices until one can force the other out of business.

Question 16

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.If the market price is $20, what is the average profit at the profit-maximizing quantity?

Accepted Answer

A) $5 
B) $6 
C) $9 
D) $20 
A) $5 
B) $6 
C) $9 
D) $20

Question 17

Why are individual buyers and sellers in perfect competition called price takers?

Accepted Answer

They are called price takers b

Question 18

Both buyers and sellers are price takers in a perfectly competitive market because

Accepted Answer

A) the price is determined by government intervention and dictated to buyers and sellers. 
B) each buyer and seller knows it is illegal to conspire to affect price. 
C) both buyers and sellers in a perfectly competitive market are concerned for the welfare of others. 
D) each buyer and seller is too small relative to others to independently affect the market price. 
A) the price is determined by government intervention and dictated to buyers and sellers. 
B) each buyer and seller knows it is illegal to conspire to affect price. 
C) both buyers and sellers in a perfectly competitive market are concerned for the welfare of others. 
D) each buyer and seller is too small relative to others to independently affect the market price.

Question 19

Assume that price is greater than average variable cost.If a perfectly competitive firm is producing at an output where price is $114 and the marginal cost is $102, then the firm is probably producing more than its profit-maximizing quantity.

Accepted Answer

A) True 
 B)False

Question 20

The demand curve for each seller's product in perfect competition is horizontal at the market price because

Accepted Answer

A) each seller is too small to affect market price. 
B) the price is set by the government. 
C) all the sellers get together and set the price. 
D) all the demanders get together and set the price. 
A) each seller is too small to affect market price. 
B) the price is set by the government. 
C) all the sellers get together and set the price. 
D) all the demanders get together and set the price.

Figure 10.2 -Refer to Figure 10.2.What happens if the firm produces more than Q₄ units?

Figure 10.4 Figure 10.4 shows the cost and demand curves for a profit-maximizing firm in a perfectly competitive market. -Refer to Figure 10.4.If the market price is $30 and the firm is producing output, what is the amount of the firm's profit or loss?

The price of a seller's product in perfect competition is determined by

A perfectly competitive wheat farmer in a constant-cost industry produces 3,000 bushels of wheat at a total cost of $36,000.The prevailing market price is $15.What will happen to the market price of wheat in the long run?

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 P₁, the firm would produce

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 P₂, the firm would

If in a perfectly competitive industry, the market price facing a firm is below its average total cost but above average variable cost at the output where marginal cost equals marginal revenue

Figure 10.4 Figure 10.4 shows the cost and demand curves for a profit-maximizing firm in a perfectly competitive market. -Refer to Figure 10.4.If the market price is $30, should the firm represented in the diagram continue to stay in business?

Figure 10.1 -Refer to Figure 10.1.If the firm is producing 700 units, what is the amount of its profit or loss?

In the short run, if a firm shuts down it avoids its variable cost but not its fixed cost.

Suppose the equilibrium price in a perfectly competitive industry is $15 and a firm in the industry charges $21.Which of the following will happen?

A perfectly competitive firm produces 3,000 units of a good at a total cost of $36,000.The fixed cost of production is $20,000.The price of each good is $10.Should the firm continue to produce in the short run?

What is meant by the term "long-run competitive equilibrium?

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.If the market price is $20, what is the average profit at the profit-maximizing quantity?

Why are individual buyers and sellers in perfect competition called price takers?

Both buyers and sellers are price takers in a perfectly competitive market because

Assume that price is greater than average variable cost.If a perfectly competitive firm is producing at an output where price is $114 and the marginal cost is $102, then the firm is probably producing more than its profit-maximizing quantity.

The demand curve for each seller's product in perfect competition is horizontal at the market price because

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

Figure 10.2 -Refer to Figure 10.2.What happens if the firm produces more than Q₄ units?

Figure 10.4 Figure 10.4 shows the cost and demand curves for a profit-maximizing firm in a perfectly competitive market. -Refer to Figure 10.4.If the market price is $30 and the firm is producing output, what is the amount of the firm's profit or loss?

The price of a seller's product in perfect competition is determined by

A perfectly competitive wheat farmer in a constant-cost industry produces 3,000 bushels of wheat at a total cost of $36,000.The prevailing market price is $15.What will happen to the market price of wheat in the long run?

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 P₁, the firm would produce

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 P₂, the firm would

If in a perfectly competitive industry, the market price facing a firm is below its average total cost but above average variable cost at the output where marginal cost equals marginal revenue

Figure 10.4 Figure 10.4 shows the cost and demand curves for a profit-maximizing firm in a perfectly competitive market. -Refer to Figure 10.4.If the market price is $30, should the firm represented in the diagram continue to stay in business?

Figure 10.1 -Refer to Figure 10.1.If the firm is producing 700 units, what is the amount of its profit or loss?

In the short run, if a firm shuts down it avoids its variable cost but not its fixed cost.

Suppose the equilibrium price in a perfectly competitive industry is $15 and a firm in the industry charges $21.Which of the following will happen?

A perfectly competitive firm produces 3,000 units of a good at a total cost of $36,000.The fixed cost of production is $20,000.The price of each good is $10.Should the firm continue to produce in the short run?

What is meant by the term "long-run competitive equilibrium?

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.If the market price is $20, what is the average profit at the profit-maximizing quantity?

Why are individual buyers and sellers in perfect competition called price takers?

Both buyers and sellers are price takers in a perfectly competitive market because

Assume that price is greater than average variable cost.If a perfectly competitive firm is producing at an output where price is $114 and the marginal cost is $102, then the firm is probably producing more than its profit-maximizing quantity.

The demand curve for each seller's product in perfect competition is horizontal at the market price because

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